The performance and behaviour of leading participants in our financial system must be improved if we are to avoid future calamities. What is urgently needed, as I have proposed for decades, is a new kind of institution we can provisionally call the Federal Financial Oversight Authority. This regulatory body would oversee only the largest US-based financial institutions – the giant conglomerates engaged in a broad range of on and off-balance sheet activities. It would monitor and supervise these conglomerates – assessing the adequacy of their capital, the soundness of their trading practices and their vulnerability to conflicts of interest as well as other measures of their stability and competitiveness.

I am not proposing comprehensive supervision of most or all financial institutions, but rather of the upper-tier players. In the US, the 15 largest institutions have combined assets of $13,000bn. They dominate many areas of trading, underwriting and investment management. Several command leading positions in derivatives and in the esoteric financial instruments that have grown so rapidly. The current regulatory and supervisory authorities should remain in place for smaller financial institutions. But assuring the soundness of the dominant companies would go a long way towards preventing systemic risks, even if smaller institutions occasionally failed.