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A new financial architecture: the Issing Committee corralled some of the best minds in banking and financial supervision. Here's what they concluded.

Article Excerpt
In an environment of inadequate regulation and gaps in supervisory oversight, inappropriate incentive structures have encouraged the production of complex financial instruments supported by high degrees of leverage. The situation in booming financial markets became more and more unsustainable, needing only a trigger to collapse. This trigger was delivered when house prices in the United States started to fall with the expectation that this would continue for an extended period of time.

INTELLIGENT TRANSPARENCY: THE RISK MAP

In the current crisis, central banks, supervisors, and deposit insurers were not fully aware of the extent, the interconnectedness, and the systemic risks emanating from the shadow banking system that had evolved over the past several years, comprising off-balance sheet entities as well as risk transfer instruments like collateralized debt obligations and credit default swaps. A coordinated effort to set up a suitable database of the global financial interconnectedness and its major risk factors is needed. We call this "intelligent transparency," and propose creation of a Risk Map.

Participating agencies with regional expertise, chaired by the International Monetary Fund, should develop a proposal defining the conceptual back-bone of the Risk Map project. Since data analysis alone does not suffice to spur appropriate market discipline and trigger interventions by regulators, a pre-arranged link is needed between the results of the data analysis and a...