Comments on Masahiro Kawai and Michael Pomerleano of ADBI “International financial stability architecture for the 21st century”, 4/05/2010, http://www.eastasiaforum.org/2010/05/04/international-financial-stability-architecture-for-the-21st-century/
While there are both merits and difficulties to have an international body to play a supervision role in international financial stability, an extremely important issue has often been neglected, that is the governance of individual countries and a mechanism that will deter poor governance by individual authorities.
This has clearly some resemblance to the moral hazard issue where individual authorities do not have enough incentive to work hard and prevent financial instability.
Instead of only having an international body of supervision like general policing, there should be a “law” that can be used to prosecute authorities for their negligence, and a “court” where prosecutions can be conducted.
Imagine that there is a whole international system of financial/economic governance that includes policing, prosecution and sentencing of financial culprits represented by individual authorities, would not it be much easier to minimise the occurrence or at least the severity and frequency of financial crises of “international” nature?
There is WTO for trade matters, though not very effective. There is international criminal court prosecute international or war criminals.
The question is: why is there no such a system for financial and economic matters beyond trade, given that financial crises can cause much greater damages to other nations?
It seems now it is high time for the creation of such a system. Otherwise the international community will not have the most effective tools to deter financial crises from occurring.