Neoliberal Diffusion and Regulatory Capture of Financial Rules: Lessons from the 2007-8 Global Financial Crisis

Abstract

The 2007-2008 financial crisis that originated from the United States has caused global economic downturns in fear of plunging into a great recession. As situation evolves, regulatory problems of this systematic risk that spread from national to global levels should be detected and analyzed. This paper aims at tracing the origin and diffusion of neoliberal financial governance in the past three decades, which have paved way for today's financial disaster. A perspective that bridges domestic regulatory foundation and international diffusion of rules should be in place to better grasp the nature of current crisis. At domestic side, a perspective of ”regulatory capture” in which special interests, regulatory incompetence of public institutions and the dogmatic ideologies all together contributed to this crisis. The regulatory capture further constrains policy options and impacts the following path of financial sector restructuring. In the wake of the U.S. financial meltdown, the Obama administration has made efforts on reforming the financial sector. The latest reform bills signal U.S. government' attempts to tame giant financial institutions and tighten up government regulation. For global implications, the U.S. crisis may jeopardize the credibility of the current global financial norms that have been promoted by advanced countries. The advanced world is now divided on how much more regulation should be imposed on new financial activities. It deserves special attention on tracking how a new set of regulatory rules is to be reformulated for years to come.