Factors that Limit Regulatory Response in the Wake of the Global Financial Crisis: Ideology, Regulatory Capture, and Power Dynamics

Conclusion

In conclusion, this essay has argued that systemic risks inherent in an increasingly interconnected capitalist world economy are insufficiently addressed by regulatory reactions to the global financial crisis due to three limiting factors: theoretical neglect of systemic risk by macro-prudential regulation, regulatory capture during the Basel III process, and hegemonic power of the US to choose not to strengthen international organizations.

But here, one may point out that while systemic risks are insufficiently addressed, industry based risks have been sufficiently addressed; hence, one need not be completely dismissive of the effectiveness of the regulatory reactions. Indeed, in areas of OTC derivatives, CRA ratings (in EU), and issues of moral hazards there have been strong regulatory reforms. But the counterargument is that these reforms have been market-friendly (Helleiner, 2014). This demonstrates the persistence of market fundamentalism as an ideology and even the limited grounds even MPR has gained.

It also speaks to the exclusive club-style governance structure within the elite financial community to capture regulators through lobbies. Thus, the significance of the argument here is to suggest that these factors can influence how measures are executed within the finance sector and within the global economic system.

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Endnotes

1. Powerful is indeed the appropriate adjective to describe Alan Greenspan. Not only was he in command of the economy of the world’s most powerful state, he was viewed as an oracle by investors who thought his simple words could signal market confidence or crush the market.
2. The report is accessible from http://archives.hud.gov/reports/treasrpt.pdf
3. Hence, Meszaros rightly critiques, “MPR is endowed with properties it simply does not possess. For this reason, the time may have come to abandon the term altogether and shift the debate in a more radical direction that includes… the unavoidable…nature of the capital system’s cycles of accumulation and destruction” (Meszaros, 2013).