International Finance and Policy Cooperation: Before and After the 2007-2010 Financial Crisis

Abstract

The purpose of this paper is to assess regional and international policy cooperation in financial regulation from the 1980s to the early 2000s. Despite the development of regulatory and supervisory standards from Basel I to Basel II, a financial crisis severely hit the global economy in 2007-2010. The paper shows how difficult it has been to overcome the collective action problems in international financial regulation, and discusses the regional aspect of financial vulnerability. In particular, the paper investigates the role that an interconnected financial network may have had in contributing to the crisis and stresses the necessity of cross-nationally monitored macro-prudential regulation. Europe's regulatory history and its significant exposure to financial losses stemming from this crisis lead us to question whether regional policy arrangements, which have been more successful in facilitating financial liberalization, are well-suited to develop instruments to effectively monitor increasingly-liberalized financial markets. Discussion includes consideration of the kind of financial institutional architecture that is required at both regional and global levels in order to ensure financial stability.