Summary and response ---August

ARTICLE TITLE: Principles versus Rules in Financial Supervision--Is There One Superior Apprach?

Summary:
1 The challenging nature of financial supervision:
Firstly,some occupations have changed in some respects.
Secondly,domains of public policy has become complex and no end in this process.
2 Financial Liberalization and Supervision:
Financial liberalization was developing between the second world war and the 1970s.The development of financial libralization was improving so rapidly until the system fall down because of too many wrong assessed risk and leverage.So financial sector operates need big adjustment from its supervisor and create a supervisory frameworks which has more powerful.
Financial supervision and control be produced at that time.
3Principles--based versus rules--based supervision:
Financial corporation get too much greater responsibility after Financial liberalization.So, supervision need to be " governance" supervisor and intervene under the agreed framework.At that background,"principle" is more important than "rule" Some significant changes in the Europear financial and led to a legal formalization of the uk financial system,but the foundation of the financial supervision have never been disappeared and resurfaced to guide the financial system by "principle" rather than rules- based system.And other countrys also more critical and doubt ,towards this british favorite for principles.
Advantages of principle :
1 interference from supervisirs is small 2 a lot of freedom to be creative and innovative strict rules to kill initiative ,creativity and innovation 3 a productive dialogue between supervisor and supervised,better communication between them. 4 financial system are complex ,principle works better than rules.
Advantages of Rule:
1 provide clarity and centanil for financial institation managers 2 provide transparency for bank managers and ensure more fairness.3 more operational than principle 4 the financial system is complex ,that rule can support and explain the broad principle.

Response:
According to this article. I think we should not only build up the principle financial supervision,but also to fusion some rules which is basically and centainly,as author said,the most effective and the best practice financial supervision is a system which have some principle that be supported by a set of prudential rules. However,the financial supervision need more caution to regulate the influence from both of them,as we know, too much rules will lead the market lose its creativity and innovative and it will undercontrol when the environment of financial supervision is too loose as well.How to balance between principle and rule.In my opinion the principle effect the macroeconomy and rules effect the microeconomy .If the financial supervision have correct principles ,the rules of that principle won't drift off the course as well. But i also realized success depend on details .The reason why economic growth year by year in that country probably because of some correct rules which have carried out.so ,my view is should balance the influence of finance between principle and rule.

reference:
Marc Quintyn,principles versus rules in financial supervision - is there one superior apprach, 2009, http://www.qfinance.com/financial-regulation-best-practice