Archive for international financial law

Financial Crisis: And so the economists agree…

Posted in Discussion Papers and Commentary with tags , , , on December 5, 2008 by jeremyleong

A group of economics Nobel Laureates met in Trieste yesterday at the Nobel Colloquia. Their finding on the financial crisis:-

 

(A) new regulatory framework, setting out the principles for future governance of the banking system, would require broad global agreement. It may also need to include restrictions on the activities of commercial banks to discourage them from excessive indulgence in financial innovation.”

 

So the view from the economics academy is pretty resounding. It is interesting to note that their reason for why global agreement is necessary rests on a very familiar concept to international lawyers: Regulatory competition. Robert Solow opined, “international co-operation on future regulation was essential to prevent regulatory arbitrage, whereby banks can exploit differing approaches to regulation in different jurisdictions.”

 

That still does not resolve the question of how to achieve this cooperation. Dennis Snower suggested starting with building international consensus within the G-20 and the G-7’s FSF. This is not new. See Dani Rodrik’s and Daniel Drezner’s views linked on a previous post. (See https://fletcherfila.wordpress.com/2008/11/18/financial-crisis-views-on-the-g-20-communique-and-international-cooperation/)

 

However, the economist’s work is not in vain. At least, we have a pretty credible and cogent view from one sector of the academy. Can it mobilize political will? Maybe it does at the margins. But how about beyond the margins? What’s missing?

 

The FT’s report from the Nobel Colloquia can be found at http://www.ft.com/cms/s/0/3915c2e4-c155-11dd-831e-000077b07658.html.   

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Financial Crisis: Views on the G-20 Communique and International Cooperation

Posted in General Thoughts and Comments with tags , , , , , on November 18, 2008 by jeremyleong

 

Dani Rodrik and Daniel Drezer both offered their views on the results of the recent G-20 meeting and communiqué. (See http://rodrik.typepad.com/dani_rodriks_weblog/2008/11/and-now-the-real-g-20-communiqu.html and http://danieldrezner.com/blog/?p=4059 respectively.)

 

In short, despite his low initial expectations, Rodrik could not hide his disappointment. His complaint, “(t)here is no coordination in the fiscal arena, the promises made to emerging markets are vague, and even though there is a clear statement on protection and export subsidization, there is no monitoring or enforcement mechanism.” Drezner is more sanguine. He actually found some laying of groundwork for actual reform of global governance structures through the IMF and an expanded Financial Stability Forum.

 

My question: Is this all the cooperation we can get? No, I am not retracting previous posts on the possibility of international cooperation in the wake of the financial crisis. (See https://fletcherfila.wordpress.com/2008/11/13/update-financial-crisis-and-international-cooperation-a-diplomatic-angle/, https://fletcherfila.wordpress.com/2008/10/12/financial-crisis-cooperation-and-a-global-new-deal/ and https://fletcherfila.wordpress.com/2008/10/06/financial-crisis-an-opportunity-for-international-law/.)

 

I think more exciting times will be upon us. When the crisis bottoms out, I sense the opportunity for greater strategic behavior from stakeholders in the international financial system. For example, the investors with liquidity at that time will start to attack and regulators can either choose to defend or play along. Perhaps, it is only then that we see some real incentives for cooperation and coalition building between domestic and international regulators and even investors. Right now, all that everyone can do is agree (weakly) that something must be done for governance. Hardly exciting news to me.