Title: Looking for the Silver Lining: Regulatory Reform after the "Credit Crunch"
Abstract: Abstract This Article examines the prospect for regulatory reform in the wake of the current crisis in the financial markets. This Article analyzes the supervisory framework for regulating financial services in the United States and the United Kingdom to highlight the different approaches in place before and during the crisis. The Article suggests that both sets of regulators evidenced a general failure in oversight, one that would likely have occurred irrespective of the particular framework in place. In light of the actions that have since been taken by government authorities to manage the market crisis (e.g. the various bailouts, the Troubled Asset Relief Program, and Federal Reserve open market operations to increase liquidity in the market), the Article puts forward a proposal for a new regulatory framework to oversee financial services in the United States, placing at its core the main economic and policy rationales for regulation and taking into account the shape of the regulatory landscape emerging from the current crisis. Introduction The current turmoil in the financial markets may fairly be described as historic. Widely likened to the Great Depression in its catastrophic potential,1 the crisis offers a unique opportunity for a critical evaluation of the financial regulatory framework under which the present situation has come to pass, and, more particularly, for furthering a deeper and more far-reaching reform agenda than may otherwise have been possible.2 While the trigger for this crisis can be attributed to the downturn affecting the housing market in the United States (U.S.), its spread to other world economies through the operation of globalized financial institutions and investment products has provided insight into the comparative workings of national regulatory systems and the lapses that may have occurred in the lead-up to and course of the crisis. This Article examines the regulatory models of the U.S. and the United Kingdom (U.K.), with a view to comparing their designs and the relative performance of the two systems in weathering the current market storm. The U.S. and the U.K. provide a useful contrast. While sharing the common law tradition and espousing a laissez-faire market ideology shaped by this legal culture, the U.S. and the U.K. have diverged sharply in the construction of their respective financial regulatory frameworks.3 As the U.K. has moved towards deeper consolidation in financial services oversight under a single regulator- the Financial Services Authority (FSA) - the U.S. has continued in its vehement adherence to a fragmented network of functional regulators at both the state and federal level. Notwithstanding this divergence, many of the regulatory challenges faced by both countries are common, in view of the globalized nature of market players' products, clients and investment strategies, and each country's desire to be seen as occupying a leadership position at the forefront of global financial centers.4 This Article analyses the structure of the U.K. and the U.S. regulatory frameworks in the context of some of the key rationales for regulating the financial markets. Looking into the crisis, the Article focuses on whether one or the other model may have been structurally better equipped to foresee and forestall the crisis. In the context of future reform, the Article seeks to examine the response of regulatory authorities to the crisis and the remedial actions that have been taken to revive financial institutions from their various instances of failure, with a view to suggesting the possible course that reform may take in light of these actions. In this regard, this Article argues that the current crisis has demonstrated a general failure of regulatory oversight, one that would have occurred irrespective of the regulatory model in place. While the U.K. worked under a consolidated regulatory structure, criticisms regarding its conduct at several stages of the crisis (most notably with respect to the failure of Northern Rock) point towards a failure to make the most of the advantages that full-picture supervision offered. …
Publication Year: 2010
Publication Date: 2010-04-01
Language: en
Type: article
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Cited By Count: 1
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