A New World of Possibilities
As Congress labors to adopt financial markets reform, it is not surprising that the legislation that members have proposed centers on addressing moral hazard concerns – fears that institutions deemed “too big to fail” seek government assistance when facing threats of insolvency. Proposed reform provisions and amendments suggest, among other measures, segregating business lines that engender excessive risk from commercial and individual savings or deposit businesses and limiting the size of banks. These valuable and important suggestions are newsworthy because of what they aim to accomplish (whether or not the goals are feasible – see here): the prevention of future credit and liquidity crises. Another story receiving less fanfare, is, however, developing in the margins. The G-20 has initiated efforts to gather international banking regulators, finance scholars and banking executives together to revisit the Basel accords and adopt international capital requirements for banking institutions. These efforts focus on creating a more resilient banking sector and preventing the collapses and near-collapses witnessed in the most recent crisis. As predicted, regulators from differing countries have a diversity of viewpoints regarding issues such as the appropriate amount of leverage that institutions may use, banks inclusion of commercial and individual savings deposits as a factor in calculating liquidity or simply, the timing of the implementation of reforms.
Hopefully, the international banking regulators will identify all of the correct concerns and adopt effective resolutions. Even if banking regulators fail to adopt and implement ideal reforms, their collaborative process may offer a critical illustration of the necessary coordination that must occur for any individual nation to obtain safety and soundness within its national banking sector. The cooperative efforts of the G-20 illustrate the benefits of the theory of transgovernmentalism, a model that posits that regulatory networks present an increasingly invaluable element in resolving threats to international infrastructure systems such as finance markets or the environment. Resting upon the notion of “disaggregated sovereignty,” the theory of transgovernmentalism suggests that the sum of different nations’ bureaucratic parts – regulatory agents and agencies, scholars and professionals- is greater than the whole.“[U]nbundling the state–and reconnecting the constituent parts across national borders” establishes networks of relationships among the many crucial interests in a regulated industry. (See here.) Appropriate oversight of increasingly interwoven finance markets requires greater efforts to establish collaborative regulation within our federal administrative network and the broader international network.