In light of the recent turmoil in global financial markets and criticisms of the performance of the regulatory system, Sir Howard Davies-who prior to his current appointment as Director of the London School of Economics was Chairman of the Financial Services Authority, the UK’s single financial regulator-gives a preliminary assessment of where there is a case for change in the rather complex global regulatory system. He identifies seven interesting and difficult questions for central banks and regulators concerning the financial markets upheaval: Did the Fed cause the problem? Is this a broader crisis of Anglo-Saxon capital markets? Is there a fundamental problem in the subprime mortgage market in the United States? Is there a fundamental problem with the credit ratings agencies? Do we need a new approach to liquidity? Is the UK’s regulatory system fundamentally flawed? Does the crisis reveal flaws in the international regulatory system? His answer to the latter question is a qualified yes. Improvements can be made, but the recent events have provided a vivid demonstration of the importance of a robust regulatory framework surrounding capital markets.

In this article Sir Howard Davies, Director of the London School of Economics and Political Science, offers some thoughts, first, on the political framework within which trade policy is determined, then about the way in which the globalization debate has developed, and finally some suggestions on the way in which the growing significance of China as a global trader will affect us in the future.