S. International Standards for Financial Regulation

Financial systems across the world have had to manage significant shocks arising from the unwinding of extraordinary measures taken to support the economy during the COVID pandemic; supply constraints and price volatility related to geopolitical conflict; and the bursting of the cryptocurrency bubble. Managing the financial impact of these shocks has been complicated by the retreat from globalization attributable in part to the need for financial institutions to “de-risk” and in part to a political shift towards domestic priorities in major economies including the US and China. Several G-20 economies have suffered the failure of significant financial institutions, often triggering extraordinary governmental actions to restore public trust. Yet, despite these challenges, we have been able to avoid another Global Financial Crisis, and global financial stability has been maintained. To what extent is the ability to successfully manage financial stability in the face of these extraordinary and persistent economic challenges attributable to the financial regulatory standards that were formally endorsed by the G-20 economies in the wake of the GFC, over a decade ago? This course provides an overview of standards for financial regulation promulgated by the Financial Stability Board (a G-20 body) and endorsed by the International Monetary Fund in the wake of the GFC. Over the last 14 years, the United States, the UK, the EU, and many other G20 jurisdictions have integrated these global regulatory norms into their domestic regimes. The effectiveness of these regulatory standards and institutions has been tested by the severe economic fall-out from the COVID pandemic and more recent economic shocks, as well as by the challenges introduced by innovations such as cryptocurrencies. Have the post-GFC reforms allowed the financial sector to better respond to shifting risks due to economic volatility and innovation? To what extent has the extraordinary regulatory response to the pandemic created new vulnerabilities, particularly as risks have shifted from the banking sector to the non-bank finance (shadow banking) sector? Have the FSB and other international standard setting bodies provided an effective institutional framework for a coordinated response to emerging systemic risks? To address these questions, we will examine 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; the Basel III Capital Accord; the IOSCO (International Organization of Securities Commissions) Principles of Securities Regulation; the 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. Using the IMF Financial Sector Assessment Program reports, we will examine how international standards are used in assessing financial stability risk in G20 jurisdictions. The course provides students with an introduction to the principles of financial regulation and an understanding of the policy choices that jurisdictions need to consider in implementing agreed-upon international financial regulatory standards. The course provides a principles-based overview of financial regulation; it does not delve into the laws of a specific jurisdiction. It can serve as an introduction to further study of banking or securities law, or it can serve as an opportunity for those who have studied banking or securities law to better understand the institutional and policy frameworks for global regulatory coordination. There are no prerequisites. Each weekly session will consist of a class discussion (60 minutes) followed by a brief presentation in lecture format to summarize key points. Students will be asked to submit a short (150-250) word response to assigned readings before each session; two students will be assigned to initiate the discussion for each session based on the response papers and readings. Final grades will be based on class participation (20%), the short response papers (30%), and the final (take-home) examination (50%). With prior permission, students may opt to write a paper in lieu of the final examination.

Students are invited to send a statement of interest to the instructor; students will be selected from the waitlist after the first 12 slots are filled through the lottery.