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The Three or Four Approaches to Financial Regulation: A Cautionary Analysis Against Exuberance in Crisis Response

56 Pages Posted: 8 May 2009  

Lawrence A. Cunningham

George Washington University

David T. Zaring

University of Pennsylvania - Legal Studies Department


Unprecedented interest in financial regulation reform accompanies the nearly-unprecedented scale of financial calamity facing the world. Dozens of elaborate reform proposals are in circulation, most determined to revolutionize financial regulation. No doubt, the crisis makes reevaluation essential, but we contribute a cautionary analysis amid the exuberant atmosphere. Reforms should not discount the value of traditional financial regulation, overlook the functional regulatory reform that has already occurred, or overstate ultimate differences between contending reform proposals.

Despite proliferation of dozens of reform proposals, our analysis leads us to conclude that there are ultimately only three or four principal alternatives: (1) the traditional fragmented model that divides power and presided over the generation of substantial wealth, yet signally failed to prevent the crisis of 2008; (2) the on-the-fly reforms effected by Treasury and Fed’s massive and unorthodox intervention into and extensive renovation of all financial services industries; and (3) seemingly radical proposals, one by Republicans at the onset of crisis (Treasury Secretary Paulson’s Blueprint), the other by Democrats after financial markets imploded (former Fed Chair Volcker’s Group of Thirty reports).

These three or four alternative approaches pose tests of our relative commitments to markets, organization, globalization and political control. Although each was developed in different circumstances by architects with different purposes, they cannot co-exist. One of them will provide the approach we take into the next crisis - and perhaps to pull us out of the current one. We provide a framework to consider each alternative and evaluate their respective advantages and disadvantages. Our analysis leads us to conclude that limited reform is best, recognizing the quasi-centralization that has occurred and the need to add protective regulation to particular areas that manifestly contributed to the global economic crisis that began in 2008.

Keywords: financial regulation, regulatory reform, financial crisis, regulatory competition, regulatory conentration, Treasury blueprint, Volcker reports

Suggested Citation

Cunningham, Lawrence A. and Zaring, David T., The Three or Four Approaches to Financial Regulation: A Cautionary Analysis Against Exuberance in Crisis Response. George Washington Law Review, Vol. 78, October 2009; GWU Legal Studies Research Paper No. 469; GWU Law School Public Law Research Paper No. 469. Available at SSRN:

Lawrence Cunningham

George Washington University ( email )

2000 H Street, N.W.
Washington, DC 20052
United States
202-994-0732 (Phone)

David Zaring (Contact Author)

University of Pennsylvania - Legal Studies Department ( email )

3730 Walnut Street
Suite 600
Philadelphia, PA 19104-6365
United States

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