Rethinking Bretton Woods | Wed, Feb 16, 2011
In 2007 the US financial system experienced a financial crisis that would, one year later, acquire global proportions, affecting the global economy. In June 2009, starting with a proposal for legislation sent by the US Administration, the US Congress began a process that led to the adoption, in the summer of 2010 of the “Dodd-Frank Wall Street Reform and Consumer Protection Act.”
Studying the features of this process and what can be characterized as successes and failures isimportant not just for those interested in financial reform in the US but also, particularly, abroad. This is because the financial regulations passed in the US are likely to become an unavoidable reference point in efforts to develop financial regulations elsewhere.
The Dodd-Frank Act is the most comprehensive overhaul of the US financial system since the 1930s. The legislation addresses a number of issues that became patent during the financial crisis and serves as a vehicle for issues and proposals that had been debated over the years preceding the crisis but, until then, had failed to gain much traction.
Its main and overarching focus was on mechanisms to avoid a repeat of the taxpayer-funded bailouts of private firms that policy-makers had to decide in the wake of the crisis, as the least harmful alternative to that of allowing the collapse of financial companies that had become “too big to fail.”
Other issues that were the focus of much debate during the legislative process were banking capitalrequirements, credit rating agencies, derivatives, hedge funds and private equity funds, taxation ofthe financial sector, consumer financial protection, financial transparency, the architecture for financial supervision, re-securitization, accountability of the Federal Reserve and investor protection.
The outcomes of US financial reform efforts have clear implications for international development concerns. The crisis repercussions on developing country efforts to raise development finance havemade clear how critical it is to have in place effective financial regulation in advanced economies that can reduce the frequency and severity of such events – if not prevent them altogether. The financial legislation can also be disaggregated into a number of pieces each of which has traceable links to developing countries’ ability to raise development finance. Nonetheless, the financial reform was driven by domestic – and in some cases quite parochial – political concerns and dynamics, rather than such international development dimensions.
The paper offers, alongside a critical assessment of progress on the main substantive issues covered in the legislation, insights from an observation of the experience of civil society in trying to influence the regulatory efforts.
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