Sunday, December 20, 2009
Four Challenges to Financial Regulatory Reform, by Eric J. Pan, Yeshiva University - Benjamin N. Cardozo School of Law, was recently posted on SSRN. Here is the abstract:
The recent global financial crisis represented a failure of regulation to the extent that regulatory responses and strategies existed, but were not deployed, to prevent or mitigate the factors that contributed to the crisis. Recognizing the failure of regulation in preventing the recent financial crisis and the need to pursue more effective regulatory strategies, policymakers in the United Kingdom, United States and European Union set forth concurrent proposals for substantial reform of their respective regulatory systems. The reforms emphasized the reorganization of regulatory agencies and expansion of powers of surviving agencies. The proposals, however, differed significantly from each other.
Successful financial regulatory reform must address four challenges. First, how should regulatory systems be structured? Second, should there be a separation of prudential supervision and consumer protection regulation? Third, which entity should be responsible for monitoring and managing systemic risk and what should be its powers? Fourth, how should cross-border financial services and transactions be supervised and regulated?
The paper considers the four challenges to financial regulatory reform and evaluates whether the UK, US and EU reform proposals succeeded in addressing the challenges. Given their weaknesses, the paper concludes that the reform proposals do not go far enough to prevent future regulatory failures.