The Conundrum of Financial Regulation: Origins, Controversies, and Prospects

Abstract

This review surveys the origins and development of financial regulation as a concept and as a set of legal (state) and extralegal policies aimed at controlling financial sector activity, specifically stock market exchange. It outlines the basic tools that made financial capitalism possible, the establishment of state regulatory agencies, the cyclical nature of disaster and reform, and struggles over the viability, purposes, and sanctions regulators should pursue. I argue that recent developments, notably globalized trade and the neoliberal policies that states have pursued since the 1980s, have weakened the ability of regulators to take meaningful actions to control the antisocial acts of a financial sector that has grown, literally, too big to fail. Recent evidence indicates that the rate of technological innovations in the financial sector has outpaced the normative capacity of legal and regulatory structures. The review concludes with an examination of the solutions and remedies posed by a range of different scholars across various theoretical positions.