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I. Systemic Risk and Regulatory Reform in the United States, European Union, and Japan
Abstract
The ongoing financial crisis—widely viewed as the worst since the Great Depression1—has inflicted tremendous damage on financial markets and economies around the world.2 The crisis has revealed fundamental weaknesses in the financial regulatory systems of the United States (“U.S.”), the United Kingdom (“U.K.”), and other European nations, making regulatory reforms an urgent priority. Publicly-funded bailouts of “too big to fail” (“TBTF”) financial institutions have provided indisputable proof that (i) TBTF institutions benefit from large explicit and implicit public subsidies, and (ii) those subsidies undermine market discipline and distort economic incentives for large, complex financial institutions (“LCFIs”).3 Accordingly, a primary objective of regulatory reforms must be to eliminate (or at least greatly reduce) TBTF subsidies, thereby forcing LCFIs to internalize the risks and costs of their activities.
Restoring Financial Stability--The Legal Response
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Figure 2 .International comparison of institutional frameworks for financial regulation
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