Both the present and the past need to be considered to understand the future regarding international financial regulation. The past, because of historical matters; the present, because the issues surrounding banking and financial reform are no longer only the domain of the specialist. This chapter firstly examines the rationale of international regulation, discussing the inadequacy of the principle of sovereignty for the regulation of cross-border financial institutions. Then, it deals with the current status quo, characterized by the coexistence of national law and institutions and global financial markets. Finally, we consider the emerging lex financiera and debate the need for a World Financial Organization (WFO). It has to be noticed that the crisis has shown that the pursuit of the private interest is at times greatly misaligned with the pursuit of the common good and that, with cross-border banks and financial institutions, national solutions alone or uncoordinated national solutions are not enough to combat systemic risk. International solutions are needed for international problems. The future of financial law and regulation should reflect the overlapping jurisdictions that represent the reality of international finance: the national, the European (or regional) and the international dimensions. Secondly, though soft-law rules have filled the vacuum left by the absence of formal international law in this area, greater formalization of the emerging lex financiera is needed over time. When dealing with the international financial regulation, we should remember that general principles must be balanced with more prescriptive technical rules that can be adjusted to new circumstances with flexibility. Regulation should be designed in good times, when rapid credit expansion and exuberant optimism cloud the sound exercise of judgment in risk management, rather than in bad times, in response to a crisis. The author also underlines that we must also remember that markets are part of the solution since it is well-functioning markets that generate growth. The financial crisis has triggered a revolution in regulatory thinking. For markets to prosper, markets need rules and international financial markets need international rules. We need an effective system for the cross-border resolution of banks and other financial institutions, and in order to achieve it, we need international laws. We also need an effective system for the resolution of sovereign debt crises. The exercise of supervision is about gathering information and, according to the author, the International Monetary Fund, the institution at the center of the international monetary and financial system, is best placed to adopt a role as a ‘global sheriff’.
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