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This chapter explores the adverse consequences of conflating the overlap/distinct and coordination/independence dimensions of regulatory authority by focusing on Congress's restructuring of federal banking regulation after the crash of 2008 in the Dodd-Frank Act in 2010. Legislators and financial experts concluded that excessive overlap before 2010 in prudential regulatory authority created three problems: (1) wasteful duplication of effort, (2) inconsistent and conflicting regulatory treatment of financial institutions, and (3) regulatory arbitrage that prompted a race to the bottom among prudential regulators, which increased the risk of systemic failures. Congress addressed the first two problems by requiring greater regulatory coordination, but the chapter contends that the creation of more distinct authority, either substantively or functionally, may have been preferable in light of the weak form of coordination mandated by Dodd-Frank. Dodd-Frank's response to the third problem was misguided for a different reason. Banking regulation experts and policymakers attributed arbitrage to excessive overlap, when in fact it arises from distinct authority among banking regulators. As a result, Congress failed to consider an option that might have been superior to enhanced but non-hierarchical coordination-the creation of more overlap to prevent financial institutions from choosing exclusive regulation by the weakest prudential regulator.

Chapter 7 looks at organization and management of financial supervisors. The Gramm-Leach-Bliley Act of 1999 reflected deregulatory sentiment and left serious gaps in the regulatory system. The apparently benevolent period of the early 2000s, when it did not seem easily possible for financial institutions to make serious mistakes, lulled not only financial firms and rating agencies, but also policy makers and supervisors into complacency. Supervisors were reluctant to bring enforcement actions against firms that appeared to be so profitable. Supervisors often were unable or unwilling to set limits when firms engaged in regulatory arbitrage, especially to avoid capital requirements. Informal prodding was the approach of choice for supervisors who feared that a supervised firm might move to another supervisor that seemed more congenial. If a supervised firm left to another regulator, the agency losing jurisdiction over the firm would lose budget resources. Interagency cooperation to set limits on risky practices was difficult and meant that interagency guidance often was weak and late.

Financial regulation is not independent of the process by which it is made. This process is often characterized by self-interested regulators whose decisions are influenced by politicians and other constituencies who may have little regard for regulatory objectives or broader social welfare. Politicians worrying about re-election may have a preference for promoting credit expansion and short-term growth at the expense of financial stability. They may also be captured by special interests and sensitive to regulatory arbitrage concerns. The result is regulatory failure. Examining these regulatory failures has provided us with potentially useful insights into how we might contain them. While there are no costless and faultless accountability mechanisms, it seems reasonable to suggest that better regulation is likely to emerge from institutions that are designed with a sensitivity to these issues.

This chapter addresses the manner in which European legislators have responded to increased corporate mobility, which set in train the transformation of the close corporation form into a more flexible, all purpose vehicle. Section 2 analyses and assesses the opportunities for increased mobility and corporate law reform imported by the EU-level initiatives such as the merger directive and the European Company. Section 3 surveys the evolution of recent ECJ judgments that may disrupt the corporate law equilibrium and also accentuate pressure on national corporate law systems. Its sets out a detailed map of the current and potential paths of corporate law reform. Section 4 considers the residual barriers to corporate mobility. The possibility of free choice of corporate situs and tax residence and the question as to which additional routes could improve and stimulate cross-border mobility in the EU are considered. Section 5 gives an example of how increased competitive pressures could induce lawmakers to adopt company law rules that are value-enhancing.

This chapter calls for significantly enhanced international tax cooperation, not only to enhance economic justice, but also to enhance fiscal space, especially in developing countries. The current financial crisis has highlighted the need for a historic and fundamental restructuring of the international financial architecture. The Financial Stability Board (FSB) and the G20 governments have been planning and are implementing this restructuring. The call for negotiations for the proposed restructuring of the international financial architecture is known as a “Bretton Woods II”, which designed the international financial architecture after World War II. The chapter first reviews developments contributing to cross-border tax evasion before discussing the reasons why the current international financial crisis is relevant to international taxation issues, cross-border tax evasion, and the process of change. It then stresses the need for more effective supervisory and regulatory regimes, along with the systemic risks posed by regulatory arbitrage. It also argues that international cooperation is necessary in crafting a new Bretton Woods-type agreement to address such issues and concludes by proposing an automatic exchange of tax information.

This chapter shows how private international law can foster international financial stability. An important feature of global financial markets is the dissymmetry between the scope of the markets—global in nature—and of their governance arrangements—as a rule stemming from states and thus fragmentized. This results in regulatory arbitrage by market participants and, as a consequence, in regulatory competition between individual states. It also results in legislative externalities: with their regulation states affect more and more communities outside their borders. These phenomena do not only affect the imperative character and nature of state law, but also the policy room of legislators and the integrity of democratic processes within states. Through its ability to anchor global markets to the local polities they affect and to configure their governance model, private international law may enhance financial stability, becoming also in this field a powerful instrument of global governance.

chapter explores a range of limitations on what we might realistically expect financial regulation to achieve. The financial system is very complex, and changes rapidly. Regulators must distinguish between valuable innovations and those that merely reflect regulatory arbitrage by firms. Unfortunately, large financial firms have far greater resources to understand the financial system than do regulators. The political economy of regulation is also problematic. Politicians pursuing policies popular with voters are at best disinterested and sometimes even opposed to regulation where it would slow short-term economic growth. When things go wrong, voters care about financial regulation, and politicians become energized, but the resulting legislation may be wide of the target. Nevertheless, these limitations do not preclude beneficial changes in financial regulation. The chapter concludes by considering two examples in the post-crisis milieu, namely the shift to macroprudential oversight, and the inauguration, at the international level, of the FSB.

While much of the public debate surrounding high frequency trading (HFT) and algorithmic trading has centred on speed, less has been said about the circumvention of regulation via special order types—complex and often non-transparent ways for high frequency traders to interact with exchange markets and other trading venues, allowing them to achieve a favourable execution position at the expense of other market participants. This chapter documents the special order types used by high frequency traders, the absence of adequate disclosure by exchanges, and the problematic interaction between order types designed to accommodate HFT strategies and the order types typically employed by public investors and agency brokers.

This chapter considers the management and regulation of risk for financial institutions within market settings, and the manner in which the regulatory authorities have responded to economic development and financial innovation. It examines the links between economic circumstances and regulation and the impact of the Great Depression and the aftermath of the Second World War. The relationship between financial innovation and regulatory changes is explored involving the concepts of the regulatory dialectic and the functional view of regulation embodied by the successive Basel Accords. The discussion also considers risk metrics such as value-at-risk and the regulatory response to the recent financial crisis of 2007–2008.

This chapter explores how the gig economy works. It looks at some of the most important platforms and illustrates their central role in shaping transactions between consumers and workers. Digital work intermediation, in particular, is key to understanding the gig economy: here, platforms’ sophisticated algorithms connect workers and customers, and exercise ongoing control over the ensuing relationships. The chapter then charts the astonishing variety and global growth of the gig economy, with a particular emphasis on how platforms make money, from improved matchmaking to regulatory arbitrage. Finally, this chapter turns to the broader impacts of digital work intermediation, considering how platforms go beyond mere matchmaking to shape the experiences of workers and consumers.

This chapter returns to the institutional blueprint that was described in the Introduction, which represents a particular form of the more generic PPP system from chapter 8. Much of the chapter is concerned with the regulatory challenge of confining money-creation to the licensed banking system. In practice, this would mean establishing and enforcing a generalized prohibition on the issuance of cash equivalents (private money) by nonbanks, subject to de minimis exceptions. This is less radical than it sounds: we already prohibit “deposit” funding in the absence of a special charter. Many financial firms that currently rely heavily on short-term “wholesale” funding, such as the major Wall Street firms, would be precluded from doing so under the proposed design. The problem of “regulatory arbitrage” is discussed in some detail. The chapter then discusses the international dimensions of the institutional design. Ideally, the reformed system would be accompanied by a modification to the Basel Accord (the central international accord on financial regulation). Essentially, the modification would recognize the issuance of monetary instruments as a sovereign prerogative.

During the 2000s, universal banks originated and securitized trillions of dollars of toxic subprime loans and sold the resulting debt securities to investors around the world. Governments on both sides of the Atlantic encouraged universal banks to engage in high-risk lending and securitization. Universal banks enjoyed unrivaled influence, and government officials ignored warnings about the dangers of subprime lending from consumer advocates and academics who did not hold “mainstream” views. Policymakers in the U.S. and Europe recognized that many households were becoming more deeply indebted and were relying more heavily on home mortgages and other types of consumer credit to cover their living expenses. Officials tolerated those developments because they viewed housing construction and household consumption as the primary drivers of economic growth in an otherwise challenging environment. The decision by policymakers to rely on housing credit as the main stimulus for economic growth in a period of stagnant incomes had catastrophic results.

This chapter returns to the institutional blueprint that was described in the Introduction, which represents a particular form of the more generic PPP system from chapter 8. Much of the chapter is concerned with the regulatory challenge of confining money-creation to the licensed banking system. In practice, this would mean establishing and enforcing a generalized prohibition on the issuance of cash equivalents (private money) by nonbanks, subject to de minimis exceptions. This is less radical than it sounds: we already prohibit “deposit” funding in the absence of a special charter. Many financial firms that currently rely heavily on short-term “wholesale” funding, such as the major Wall Street firms, would be precluded from doing so under the proposed design. The problem of “regulatory arbitrage” is discussed in some detail. The chapter then discusses the international dimensions of the institutional design. Ideally, the reformed system would be accompanied by a modification to the Basel Accord (the central international accord on financial regulation). Essentially, the modification would recognize the issuance of monetary instruments as a sovereign prerogative.

Chapter 1 describes the rise of universal banks in the U.S. during the late nineteenth and early twentieth centuries. Large commercial banks in New York and Chicago entered the securities business in the late nineteenth century by forming alliances with leading investment banks. In 1902, the federal regulator of national banks (the Comptroller of the Currency) told national banks that they could not underwrite or trade in securities except for government bonds. Large national banks evaded that prohibition by establishing securities affiliates. Securities affiliates of national banks survived challenges from the Justice Department, Congress, and the Comptroller of the Currency between 1911 and 1920. Universal banks and their securities affiliates prospered during the 1920s with the enthusiastic support of the Harding and Coolidge administrations. The survival and growth of universal banks during the early twentieth century demonstrated their ability to overcome political and regulatory obstacles.