This should be the big opportunity to transform financial regulation. With markets in turmoil and financial institutions in the doghouse, leaders have the opportunity of a lifetime to transform the principles and practice of financial regulation. The Group of Twenty, or G-20, meeting in Washington, DC, was certainly long on initiatives. However, it was short on long-term thinking.

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The menu of measures set out in the official communiqué barely covered the joins between the political compromises. The Europeans get references to rating agencies, hedge funds, private equity and complex opaque products. The emerging economies get a broader international role. And US concerns that regulation should not go too far and stifle enterprise were duly noted.

They agreed to draw up measures by 31 March 2009 on, among others, increased disclosure of complex products, unifying voluntary codes of best practice for hedge funds and private equity and setting up cross-border colleges of supervisors for banks.

That’s all part of the international game, and many of the suggested measures are eminently sensible. Anyone who has survived the crisis so far would endorse better disclosure about complex products, cross-border colleges of bank supervisors, and improved bankruptcy procedures for awkwardly huge financial institutions.

The declaration of support for better international coordination and regulation is also welcome, as it’s light years away from previous assertions that such steps were unnecessary or unworkable. The crisis has caused a timely Damascene conversion, or a sudden and complete change in one’s beliefs.

But it will take more than fine words to unify a collection of often parochial national regulators. The leaders will have to be bolder. Schemes such as unified voluntary codes of best practices for hedge funds and private equity won’t address the challenge of how to regulate the conduct of all kinds of leveraged asset management which have systemic implications.

Indeed, the conversion needs to be followed by some hard life changes. The process may start, as the G-20 suggests, with expanding the role of existing institutions such as the Financial Stability Forum, which brings together finance ministries, central banks and supervisors. But regulators won’t be able to prevent another crisis until they have summoned up the courage, intelligence and analysis to stop financial parties before they get out of hand.