Financial Regulation in the Global Economy

Article excerpt

Financial Regulation in the Global Economy, by Richard J. Herring and Robert E. Litan. Washington, D.C.: The Brookings Institution, 1995. Pp. 187. $28.95 (hardcover).

As the global marketplace expands, so does the demand for trans-border financial services. In Financial Regulation in the Global Economy, a recent addition to the Brookings Institution's Integrating National Economies series, authors Richard J. Herring and Robert E. Litan examine financial regulatory schemes in both the international and domestic fora. They examine the tension between the political autonomy of nations and the reality of economic integration among nations. At the conclusion, the authors advocate a theory of regulation by the market, rather than by regulators.

The study is divided into six chapters. The first gives an overview of the "internationalization of finance" and the interdependence of national markets. The authors begin with the premise that most restrictions against cross-border financial transactions are imprudent in today's economic environment. The authors point to a need among nations to harmonize and coordinate the supervision and regulation of financial activities, especially as individuals and institutions today may engage in "regulatory arbitrage"; namely, the moving from a jurisdiction with strict regulations to one which is more permissive.

Chapter two discusses the ongoing process of international financial integration. The chapter outlines the effects of technological advances on users of financial services, on financial service institutions, and on regulators. In the past twenty-five years, the major industrialized countries have liberalized domestic financial regulations, partially in response to the spread of technology. The chapter concludes with the assertion that higher levels of international financial regulation are possible, but are dependent on the reduction of the uncertainty of exchange rates. …