Regulators have made the global financial system more resilient by major regulatory reforms. Banks now have much bigger capital and liquidity buffers. Resolution frameworks have been strengthened. Derivatives markets are being made safer, while toxic forms of shadow banking have been detoxified.

But all this should not be the end of the story. It is now time to shift the focus from regulation to supervision — for two reasons.

First, if we are to rely solely on regulation and require banks to hold buffers against every possible eventuality or risk, this would stifle their activities and would not be optimal for the long-term growth of the economy. It could also foster arbitrage and undue accumulation of risks in shadow banks, making the financial system more vulnerable.