Abstract

http://ssrn.com/abstract=1501402
 


 



Changing the Rules of the Game: Offshore Financial Centers, Regulatory Competition & Financial Crises


Andrew P. Morriss


Texas A&M School of Law; PERC - Property and Environment Research Center; George Mason University - Mercatus Center

November 1, 2009

U Illinois Law & Economics Research Paper No. LE09-031

Abstract:     
Politicians from New York District Attorney Robert Morgenthau to British Prime Minister Gordon Brown are blaming offshore financial centers (OFCs) for contributing to the current global financial crisis by failing to adequately regulate their financial industries. These criticisms are mistaken for three reasons. First, OFCs offer different rather than less regulation. Since most OFC financial products are aimed at sophisticated and institutional investors, OFC regulators are less concerned with protections for retail investors than are regulators in jurisdictions like the United States. This enables them to adopt less costly regulations that are still effective at preventing fraud and other financial crimes. Second, OFCs play a particularly important role in providing regulatory competition. OFCs have innovated in areas of law from captive insurance to trusts, pushing onshore jurisdictions like the United States to respond. For example, Vermont has innovated in captive insurance in response to competition from Bermuda and the Cayman Islands. Third, OFCs provide an important means for onshore jurisdictions to price discriminate in their taxation. Without OFCs, companies based in high tax jurisdictions like Canada, France, and the United States would find it more difficult to compete internationally with companies from lower tax jurisdictions. Preserving OFC-competition thus benefits onshore jurisdictions.

Number of Pages in PDF File: 15

Keywords: Offshore Financial Centers, Cayman Islands, Bermuda, Financial Crisis

JEL Classification: E65, E59, F23, F36, G28, H26, K33, 054

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Date posted: November 10, 2009  

Suggested Citation

Morriss, Andrew P., Changing the Rules of the Game: Offshore Financial Centers, Regulatory Competition & Financial Crises (November 1, 2009). U Illinois Law & Economics Research Paper No. LE09-031. Available at SSRN: http://ssrn.com/abstract=1501402 or http://dx.doi.org/10.2139/ssrn.1501402

Contact Information

Andrew P. Morriss (Contact Author)
Texas A&M School of Law ( email )
1515 Commerce Street
Fort Worth, TX 76133
United States
PERC - Property and Environment Research Center ( email )
2048 Analysis Drive
Suite A
Bozeman, MT 59718
United States
George Mason University - Mercatus Center ( email )
3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States
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