Reframing International Financial Regulation after the Global Financial Crisis: Rational States and Interdependence, Not Regulatory Networks and Soft Law

71 Pages Posted: 21 Jan 2015

See all articles by Matthew C. Turk

Matthew C. Turk

Indiana University - Kelley School of Business

Date Written: January 20, 2015

Abstract

This Article uses a rational choice analysis to simplify the increasingly complex area of international financial regulation. It proceeds by identifying four “interdependence problems” relating to harmonization of financial standards, capital requirements, bank resolution procedures, and an international lender of last resort — in which the globalization of finance creates potential benefits from regulatory cooperation between countries. It finds that interdependence problems that relate to the efficiency gains made available by cross-border financial integration are more amenable to international regulation than are efforts to reduce losses from financial instability, which will likely continue to be ineffective despite active reforms in response to the global financial crisis.

A policy implication is that ambitious proposals for a legal body to centrally administer international financial regulation are unlikely to succeed, because they misstate the underlying dynamics of the interdependence problems that are specific to international finance. Instead, this Article argues that certain incremental reforms, such as international harmonization of bank resolution plans and provision of a regional lenders of last resort, provide a more promising avenue for reform.

This Article constitutes a reframing of the literature on international financial regulation, because it seeks to show that a state-centered rational choice approach can provide greater clarity and explanatory power than competing scholarship that commonly incorporates more complicated variables. In particular, the Article argues that the influential literatures on “transgovernmental networks” of regulators and the international “soft law” that they create overstate both the extent and efficacy of these mechanisms for international cooperation on finance and international law generally.

Keywords: financial regulation, international law, law and economics

JEL Classification: G28, G15, K20, K00, K33, F02, F30, F36, F42

Suggested Citation

Turk, Matthew C., Reframing International Financial Regulation after the Global Financial Crisis: Rational States and Interdependence, Not Regulatory Networks and Soft Law (January 20, 2015). Michigan Journal of International Law, Vol. 36, No. 1, 2015, Available at SSRN: https://ssrn.com/abstract=2552661

Matthew C. Turk (Contact Author)

Indiana University - Kelley School of Business ( email )

1309 E. 10th Street
Rm. HH4080
Bloomington, IA 47405
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
212
Abstract Views
846
rank
160,210
PlumX Metrics