EU and U.S. Solutions to Systemic Risk and Their Potential Influence on a World Trade Organization Approach

Abstract

As the 2008 financial crisis spread globally, it became widely apparent that an essential ingredient to preventing future systemic crises was reform of the regulation of financial markets. Two ambitious initiatives for regulatory reform are the European Union's European System of Financial Supervision and the United States' Dodd-Frank Wall Street Reform and Consumer Protection Act. These two approaches to addressing systemic risk differ greatly in both their specificity and the level of authority they entrust to centralized regulators. They provide distinct models on which a potential global systemic risk regulator could be based – a regulator that could be formed via the World Trade Organization, which has successfully liberalized global trade and has a role in global finance. This paper explores the EU and U.S. systemic risk regulatory models and explains why the EU approach is better suited for adaptation to the WTO.