Neoliberal Diffusion of Financial Regulatory Rules: Bridging Domestic and International Explanations

Abstract

The 2008 financial crisis that originated from the United States has caused global economic downturns in fear of plunging into a great recession. As situation evolves, the regulatory problems of this systematic risk that spread from national to global levels should be detected and analyzed. This paper aims at tracing the origin and diffusion of neoliberal financial governance in the past three decades, which have paved way for today’s financial disaster. A perspective that bridges domestic regulatory foundation and international diffusion of rules should be in place to better grasp the nature of current crisis. At domestic side, a perspective of “regulatory capture” in which special interests, regulatory incompetence of public institutions and the dogmatic ideologies all together contributed to this crisis. The regulatory capture further constrains policy options and impacts the following path of financial sector restructuring. In the wake of the U.S. financial meltdown, the Obama administration makes effortsto reform the financial sector. The latest reform bills proposed by the House and the Sendate signal US government’ attempts to tame giant financial institutions. For global implications, the U.S. crisis may jeopardize the credibility of global financial norms that have been promoted by advanced countries. It deserves special attention on tracking how the latest US reform proceeds and how an international agreements will be reached in the G20 meeting in November.