International Law in Financial Regulation and Monetary Affairs

I THE CRISIS OF 2007-2009: NATURE, CAUSES, AND REACTIONS The Crisis of 2007-09: Nature, Causes, and Reactions I. Introduction A. A liquidity crisis B. A capital crisis II. 2007-2009: Liquidity or Capital?III. A Brief Historical Account IV. Why the Recent Crisis?A. Macroeconomic imbalances notably between the USA and China B. Lax monetary policy in the USA and other countries C. Failures of regulation and failures of supervision D. The TBTF doctrine and distorted incentives E. Excesses of securitization F. The part played by derivatives markets, unregulated firms, lightly regulated firms, and the shadow banking system G. Corporate governance failures H. Risk-management failures, bad lending, excessive leverage, and excessive complexity I. ‘The usual suspects’—greed, euphoria, etc.J. Faulty economic theories V. A Longer Perspective VI. The Regulatory Responses VII. Concluding Observations II ARCHITECTURE AND CONCEPTUAL ISSUES Systemic Regulation of Global Trade and Finance: A Tale of Two Systems I. Trade and Finance: The Twin Pillars of Systemic Regulation of the Global Economy A. Nature or nurture?B. Systemic performance—finance and trade—crisis to crisis II. Characteristics of the Trade and Financial Systems: Bretton Woods Revisited A. From a common origin to different paths B. Contrasting regulatory philosophies C. Characteristics of the robust regulatory system governing trade Rule-oriented system Alignment of incentives with the public good Dispute settlement and self-enforcement Regulatory capture and the political economy underlying effective global regulation Comprehensive coverage—the domain of the regulatory system is coextensive with the domain of the problem Transparency Governance III. Conclusion—The Quest for Coherence The International Monetary System: A Look Back Over Seven Decades I. Introduction II. Creating an international Monetary System A. Before Bretton Woods B. The IMF C. The code of conduct D. Transactions with the Fund III. The Fund in Operation: 1946-71 A. Drawing rights B. Standby arrangements C. The demise of the par value system D. The par value system on life support (1971—73)IV. Toward a New Fund Agreement A. The amended Articles of Agreement B. Surveillance V. A Different IMF VI. The International Monetary System and Regional Crises A. Mexico 1982—83 VII. Recent Adventures A. South-East Asia 1997—98 B. Russia 1996—99 C. Argentina 2000-07 VIII. Conclusions Towards a New Architecture for Financial Stability: Seven Principles I. The Financial Crisis and the Organization of Supervision II. Regulatory Environment and Background A. USA B. UK C. EU III. Seven Regulatory Principles A. Principle 1: The supervision of banking, securities and insurance should be further integrated B. Principle 2: Systemic supervision must be under the purview of the central bank C. Principle 3: Management by Exception should govern the relation between micro- and macro-supervision D. Principle 4: The supervisor must build a strong culture and rely on subjective performance, rather than quantitative incentives, to motivate its agents E. Principle 5: The macro-supervisor should be less independent than central banks are now in their monetary policy responsibilities F. Principle 6: The macro-supervisor must limit its reliance on self-regulation G. Principle 7: International supervision must move from a loose network to a hierarchical structure IV. Conclusions: A New EU Architecture Why Soft Law Dominates International Finance—and not Trade Introduction I. Hard Law and International Economic Affairs II. The ‘Soft’ Sources of International Financial Law III. Key Species of (Soft) International Financial Law A. Best practices B. Regulatory reports and observations C. Information-sharing and enforcement cooperation IV. Dominant Explanations of Soft Law’s Popularity V. Filling the Gaps in Existing Theory A. Stable versus unstable issue—area equilibria B. Reputational disciplines C. Market disciplines D. Institutional sanctions VI. Why Predominance is not Perfection The ‘Santiago Principles’ for Sovereign Wealth Funds: A Case Study on International Financial Standard-Setting Processes I. Introduction II. The Beginnings of the SWF Multi-Governance, Rule-Oriented Processes A. The domestic starting point: the US treasury B. The international level: commandeering the IFIs C. The covert trilateral track D. The IFIs at work III. The Santiago Principles as ‘International Best Practices’IV. The IWG-ISWF Forum as ‘Soft Regulatory Process’V. Concluding Observations III FINANCIAL MARKET REGULATION The Role and Prospects of International Law in Financial Regulation and Supervision I. Introduction II. Areas, Systems and Methods of Domestic Regulation of Financial Markets A. Classical areas of financial law B. Systems and mechanisms of regulation and supervision C. Conceptual transnational challenges III. The Extension of Areas of Supervision and Regulation and New Methods after the Crisis A. New areas B. New methods C. Conceptual transnational challenges IV. What Level of Harmonization is Optimal for Financial Markets?V. Conclusion Multilayered Governance in International Financial Regulation and Supervision I. Introduction II. The Starting Point: Existing Milestones in Financial Markets A. International financial regulation B. Limits of traditional international law C. Fragmentation of law III. The Ongoing Process: Development of New Theoretical Concepts A. Concept of networkism B. Concept of multilayered governance C. Concept of polycentric regulation IV. The Future Prospects: Global Coherence Based on Multilayered Governance?A. Characteristics and elements of global governance B. Importance of common core values C. Development of standards applicable at different levels Historical developments Financial regulation at different levels Standards as a means of establishing an architecture of multilayered governance D. Allocation of supervisory powers in a multilevel approach Supervision as a national concept in an international context International standard-setting Supervisory colleges as an additional level of governance V. Conclusion Border Problems I. Introduction II. The First Boundary Problem III. The Second Boundary Problem IV. Concluding Observations The International Law of Financial Crisis: Spillovers, Subsidiarity, Fragmentation and Cooperation I. The International Dimension of Domestic Regulatory Reform: Opportunity and Constraint A. Externalities B. Public goods C. Economies of scale and scope, and network externalities D. Regulatory competition E. Fragmentation and Cooperation Macroeconomic management Trade Development II. Future Change and its Impact on Regulatory Reform A. Globalization B. Technological advance C. Financial innovation D. Economic growth III. Applying the Subsidiarity Methodology to International Financial Regulation Cooperation A. Corporate governance and compensation B. Capital C. Powers D. Safety nets, bailouts, and resolution E. Securities disclosure regulation F. Rating agencies IV. Selecting Structural Features in International Law and Organization A. Hard law, soft law and networks B. Specificity C. Surveillance E. Adaptation to change F. Economies of scale and scope G. Organizations V. Conclusions Addressing Government Failure through International Financial Law I. Introduction II. Causes of the Crisis III. Enhancing Economic Recovery and Resiliency A. Boost competitiveness B. Revive trade liberalization C. Eradicate domestic content subsidies D. Avoid demagoguery IV. Improving International Institutions in Financial Regulation A. The role of the WTO B. The G8 and G20 C. The ILO model V. Conclusions Reducing Systemic Risk through the Reform of Capital Regulation I. Introduction II. Defining the Central Problem: Systemic Risk Reduction III. Current Capital Requirements: Basel and Leverage Ratios IV. Basel II Revisions V. Basel III Proposals on Capital and Liquidity A. Capital B. Liquidity VI. The Need for Additional Approaches to Capital Adequacy A. The determination of the proper amount of capital B. Regulatory and accounting measures of capital VII. Conclusion The Role of Transparency in Financial Regulation I. Introduction II. Notion of Transparency III. The Three Dimensions of Transparency in Financial Regulation A. Transparency and confidence B. The first dimension of transparency: anchoring financial regulation Legal certainty, moral hazard and too big to fail Who is doing what exactly under what circumstances? Responsibilities and procedures C. The second dimension: defining substantial values and objectives Defining values: what is the goal offinancial regulation?Keep it simple: transparency calls for robust, not more, financial regulation D. The third dimension: accountability as an element of transparency Governance, trust and accountability Challenges in holding actors in the financial sector accountable IV. Conclusions Global Securities Regulation After the Financial Crisis I. Introduction II. Deconstructing Securities Regulation III. The ‘Europeanization’ of US Securities Regulation IV. The Failure of Securities Regulation in the Institutional Marketplace V. International Institutional Solutions VI. Rules, Principles and Enforcement VII. Limitations and Conclusion IV TRADE, COMPETITION, AND TAX- RELATED ASPECTS What Role for Non-Discrimination and Prudential Standards in International Financial Law?I. Introduction II. Non-Discrimination in International Economic Law A. A cornerstone of the trade and investment system B____and a neglected element of international financial law?III. Non-Discrimination in the WTO Regime for Financial Services IV. Potentials and Limits of the Principle of Non-Discrimination in Financial Regulation A. From Basel to Geneva: Enabling the Adoption of Binding Prudential Standards in the WTO Framework B. Mutual recognition, preferential trade agreements, or requiring establishment: How to ensure effective financial market supervision?C. Graduation in financial regulation V. Conclusion Financial Services Trade After the Crisis: Policy and Legal Conjectures I. Introduction II. Policy Conjectures A. Tracing the origins of the financial crisis B. Direct and indirect contextual considerations C. The trade policy fallout from the financial crisis: possible transmission channels D. Needed for trade-facilitating and dispute prevention purposes: an internationally coordinated regulatory response E. Addressing competitive distortions F. The financial crisis and the unfinished agenda in services rule-making III. Legal Conjectures A. Assessing the relevance and effectiveness of existing trade disciplines B. The need for clarity on the scope of agreed disciplines C. Determining the scope and limits of the prudential carve-out in GATS D. Towards a necessity test for services? Addressing the trade-inhibiting effects of non-discriminatory domestic regulatory conduct E. Disciplining the distortive effects of subsidies in services trade IV. Conclusion WTO Subsidies Discipline During and After the Crisis I. Introduction II. Existing SCM Agreement A. Export subsidies B. Import-substitution subsidies C. Domestic subsidies III. What is to be Done?A. Export subsidies B. Import subsidies C. Domestic subsidies D. Subsidies to services IV. Conclusion The Role of Competition and State Aid Policy in Financial and Monetary Law I. Introduction II. Failing Firm Defence Amid Crises A. EU B. UK C. USA D. Discussion III. EU State Aid Enforcement Amid Crises A. The Legal Framework B. Weathering the storm IV. Concluding Remarks International Regulatory Reform and Financial Taxes I. Introduction II. Bank Balance Sheet Taxes A. Domestic efforts B. International initiatives III. FTTs A. The economic rationale B. Global public goods IV. CTT A. How high should the CTT rate be?B. Technical feasibility and incidence V. FTT VI. The FTT/CTT and WTO Obligations VII. Conclusion V MONETARY REGULATION The Role of International Law in Monetary Affairs I. Introduction II. Economic Foundations: the Provision of Money and Monetary Services A. The central bank monopoly B. Monopoly abuse and the argument for currency competition III. From National to International Regulation of Money: The Need for Coordination A. Alternative structures of international coordination Competition between independent central banks: the flexible exchange rate system Harmonization of goals and procedures through loose international arrangements Harmonization through international agreements B. On the difficulty of reaching and maintaining international agreements on monetary policy goals and procedures C. Disciplining national monopolies through international currency competition IV. Framing Currency Competition in International Law A. The contribution of international trade regulation and investment protection B. What role for law in international monetary affairs?Recourse to the doctrine of multilayered governance What can we learn from competition law?What can we learn from trade regulation?V. The Role of Non-Discrimination in Monetary Affairs A. Unconditional non-discrimination B. The principle of equality and conditional MFN VI. Procedural Rights and Obligations VII. Summary and Conclusions Financial Stability and Monetary Policy: Need for International Surveillance I. Introduction II. Booming Wealth and Private Risk-Taking III. The Mainstream Monetary Regime IV. The Political Economy of Financial Crisis V. Rethinking the Monetary Policy Framework VI. Cross-Country Comparisons VII. Alternative Monetary Targets VIII. International Surveillance IX. Conclusions Enhancing the IMF’s Regulatory Authority I. Introduction II. The Fund’s Existing Mandate: An Overview A. Regulatory powers Bilateral surveillance Multilateral surveillance Jurisdiction over current international payments and transfers Provision of information B. Financial powers C. Advisory powers III. Enhancing Financial Sector Surveillance A. Upgrading the FSAP B. The provision of information IV. Multilateral Surveillance V. The Regulation of Capital Movements Conclusions I. Introduction II. Towards Multilevel Governance III. Financial Stability and the Rationale of International Financial Regulation IV. Global Finance and National Law V. Soft Law Versus Hard Law VI. Linking Trade, Financial and Monetary Affairs VII. Institutional Linkages Bibliography