International Finance Regulation: The Quest for Financial Stability

CHAPTER 1 The Multiple Objectives of Financial Regulation¹

“Globalization requires us to act in consistent ways. If we don't do that, we have fragmentation, we have regulatory arbitrage and in the worst cases a race to the bottom. We have just agreed . . . to look much more deeply at how we can coordinate our regulatory efforts on a global level.”

—IOSCO Director General David Wright

The scope of this book is those regulatory issues that threaten the mere existence of financial institutions, and even more crucial, the areas where finance threatens the stability of the world economy. It does not look at all the aspects of regulation of financial institutions.

The number of legal disciplines and regulations that affect financial institutions creates a unique level of complexity. One can understand that, being at the center of the circulation, and even the creation, of money, their impact needs to be tempered and their activities have to be legitimate.

Laws and regulations that apply to financial institutions are structured to achieve many purposes, and that explains why they are sometimes perceived to be overreaching. The recent evolution has focused on the consequences of the financial crisis that developed in several parts of the world since 2008. In Europe, it additionally included the complex regulation issues raised by the sovereign crisis, making it even more complex.

However, in order to understand the dynamics of those regulations, it is important to look at some of ...