Recent upheavals and downdraughts in financial markets have sent a loud and clear  message: revamp our system of financial regulation. But before we begin drafting new rules or eliminating old ones, we need to reconsider fundamental principles. At least eight precepts of sound financial regulation should be considered.

First, we should recognise the deregulation illusion. When faced with the choice between regulated and deregulated financial markets, most nations try to sidestep. Market participants laud the virtues of unhindered competition over regulation for disciplining market behaviour. That works, by and large, for small and medium-sized companies, but not for the integrated financial giants that dominate many aspects of financial markets. These behemoths are “too big to fail”. Whenever one of these favoured institutions gets into serious trouble, some kind of formal or informal safety net is deployed.