Global Systemic Risk and International Regulatory Coordination: Squaring Sovereignty and Financial Stability

59 Pages Posted: 23 Jan 2017 Last revised: 13 Jul 2018

See all articles by Federico Lupo-Pasini

Federico Lupo-Pasini

Durham Law School

Ross P. Buckley

University of New South Wales (UNSW) - Faculty of Law

Date Written: February 20, 2015

Abstract

In recent years much attention has been given to systemic risk and maintaining financial stability. Much of the focus, rightly, has been on market failures and the role of regulation in addressing them. This article looks at the role of domestic policies and government actions as sources of global instability. The global financial system is built upon global markets controlled by national financial and macroeconomic policies. In this context, regulatory asymmetries, diverging policy preferences, and government failures add a further dimension to global systemic risk not present at the national level.

Systemic risk is a result of the interplay between two independent variables: an underlying trigger event, in this analysis a domestic policy measure, and a transmission channel. The solution to systemic risk requires tackling one of these variables. In a domestic setting, the centralization of regulatory power into one single authority makes it easier to balance the delicate equilibrium between enhancing efficiency and reducing instability. However, in a global financial system in which national financial policies serve to maximize economic welfare, regulators will be confronted with difficult policy and legal tradeoffs.

We investigate the role that financial regulation plays in addressing domestic policy failures and in controlling the danger of global financial interdependence. To do so we analyse global financial interconnectedness, and explain its role in transmitting instability; we investigate the political economy dynamics at the origin of regulatory asymmetries and government failures; and we discuss the limits of regulation.

Keywords: systemic risk, global systemic risk, banking crises, financial regulation, financial interdependence, financial globalization, regulatory failures, financial stability, global financial stability, international law, regulatory asymmetries

Suggested Citation

Lupo-Pasini, Federico and Buckley, Ross P., Global Systemic Risk and International Regulatory Coordination: Squaring Sovereignty and Financial Stability (February 20, 2015). American University International Law Review, Vol. 30, No. 4, 2015; UNSW Law Research Paper No. 17-13. Available at SSRN: https://ssrn.com/abstract=2903035

Federico Lupo-Pasini (Contact Author)

Durham Law School ( email )

50 North Bailey
Palatine Centre
Durham, County Durham DH1 3ET
United Kingdom

Ross P. Buckley

University of New South Wales (UNSW) - Faculty of Law ( email )

Sydney, New South Wales 2052
Australia

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