Footnote:
In: Virginia Journal of International Law, Forthcoming
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments September 23, 2015 erstellt
Description:
This paper analyzes the international controversy surrounding the U.S. effort to regulate cross-border banks in the aftermath of the global financial crisis. It proceeds as a case study of the Federal Reserve's enhanced prudential standards for large banking organizations, implemented in 2014 pursuant to Dodd-Frank mandate. The Fed's rulemaking has ruffled feathers internationally because a key provision imposes a structural “ring-fencing” requirement on foreign banking organizations that does not apply to domestic ones. The rule requires foreign banks with at least $50 billion in U.S. non-branch assets to place their U.S. operations in an intermediate holding company (IHC) structure in the United States. The IHCs are then subject to prudential regulation by the Fed as standalone entities. Banks, central bankers, and national regulators from around the world have criticized the ring-fencing provision for discriminating against non-U.S. actors, deviating from international norms, and threatening to aggravate — rather than mitigate — global systemic risk.Drawing primarily on comment letters submitted to the Fed during the rulemaking, the paper identifies a deeply held hostility towards “balkanization” in international finance — i.e., the fragmentation of capital and liquidity along geographical lines as well as the proliferation of regulatory bodies charged with overseeing those pools of capital and liquidity. The principal contribution of the paper is to shed light on a serious deficiency in the anti-balkanization rhetoric: namely, that arguments against balkanization implicitly support greater consolidation in global finance. However, that conclusion is problematic because it is in tension with the post-crisis effort to end or mitigate “Too Big to Fail” — the situation in which a bank becomes so large that a government bailout is virtually guaranteed during times of stress. In view of this tension, the paper suggests that the Fed should be applauded for resisting the pro-consolidation ideology that took hold in the decades leading up to the financial crisis. Against the “common sense” view of influential banking jurisdictions and standard-setting bodies like the Basel Committee, the paper ultimately suggests that it may be time to embrace balkanization in global finance