S. The Framework of Global Financial Regulation

The devastating economic impact of the global pandemic has reminded us of the importance of a stable and well-regulated financial system in managing the impact of severe shocks to the real economy. At the same time, innovations in financial technology (Fintech), including cryptocurrencies, have given rise to new vulnerabilities in financial systems. At both the national and global level, regulatory authorities are struggling to adapt to these changes.
This course provides an overview of global standards for financial regulation and supervision as promulgated by the Financial Stability Board and endorsed by the G-20 and the International Monetary Fund. The current global framework of financial regulation, developed over a decade ago in response to the GFC, has proven effective in managing and monitoring emerging challenges to financial stability. Over the last decade, the United States, the UK, the EU, and many other G20 jurisdictions have adopted significant reforms integrating the new global regulatory norms into their domestic regimes. The severe economic fall-out from the COVID pandemic has provided a real-life test of the effectiveness of post-GFC financial reforms. A consensus has emerged that these regulatory reforms have indeed strengthened the financial system, allowing the financial sector to better respond to economic volatility. Moreover, the FSB and other international standard setting bodies have provided an effective global institutional framework for a coordinated response the challenges of Fintech and other emerging vulnerabilities (including those related to market-based finance).
Against this background, we will study the origin, structure, function, and governance of the international bodies responsible for financial regulatory coordination. We will study the regulatory principles (standards) promulgated by these bodies and critically examine the policy choices embedded in them. Specifically, we will study the Basel Core Principles for Effective Banking Supervision, and the Basel III Capital Accord; the IOSCO (International Organization of Securities Commissions) Principles of Securities Regulation; Policy Framework for Strengthening Oversight and Regulation of Shadow Banking Entities; the Principles of Macro-prudential Supervision; and early guidance on regulatory responses to Fintech. We will examine the legal impediments to the implementation of global standards in national regimes and the consider the unintended consequences of implementation of global standards. Using the IMF Financial Sector Assessment Program reports, we will examine how international standards are used in assessing the adequacy of systemic risk management regimes in G20 jurisdictions.
The course should provide students with a sound foundation in the principles of global financial regulation and an understanding of the policy choices needed to accommodate the diversity of financial intermediation (including Fintech), the needs of efficient cross border markets and the quest for financial stability and growth. The course provides a principles-based overview of financial regulation; it does not delve into laws of a specific jurisdiction. It can serve as an introduction to further study of securities or banking law, or it can serve as an opportunity for those who have studied banking or securities law to better understand the institutional and policy framework for global regulatory coordination. Each weekly session of the course will begin with a presentation in lecture format (40 minutes), with the remaining time devoted to class discussion.
Students may elect to write a paper or a take-home exam, to be determined by the end of the Add/Drop period.