Document Type

Article

Publication Date

2012

Keywords

financial crisis, financial reform, risk, shadow banking, Dodd-Frank Wall Street Reform Act, Basel Committee on Banking Supervision, international financial regulation reform, financialization, financial reform, financial crisis, technology revolution

Subject Category

Banking and Finance | Law | Politics

Abstract

Multiple forces create a systemic crisis of the proportions of the Global Financial Crisis of 2008. Global and domestic financial reform is a difficult and perplexing task, one that is likely to take many years, and one that will surely continue to be shaped by a diverse range of forces. Recent measures remain incomplete and in some cases are even proving to be misdirected. This article considers seven fundamental forces shaping actions on future reform, specifically the (1) long term impact of the Crisis (and all financial crises); (2) increase in the “financialization” of the global economy, seemingly disproportionate to the growth in the real economy; (3) dramatic increase in financial interconnectedness worldwide, accompanied by a growing complexity in financial institutions and the regulatory framework, all of which could be becoming unmanageable; (4) “human factor” in finance, which tends to confound our assumptions about market behavior; (5) growth in the critical yet little understood and regulated “shadow banking system;” (6) deep technology revolution, which continues to transform the dynamics of the global economy; and (7) “next convergence” between Western and “emerging” economies, which is changing the global economic profile and presenting profound new challenges to financial reform