The financial deregulation in major Western economies in the 1970s and 1980s freed banks from many preexisting constraints, facilitating competition and greater risk-taking and eventually leading to prudential regulation and supervision as a specific, well-defined area of regulatory activity. It was codified in the Basel Accord, which allowed banks considerable discretion in how they met broadly specified regulatory requirements and was focused primarily on individual bank safety. The financial crisis of 2007–2008 highlighted numerous weaknesses in the design and application of this approach. The previous micro-orientation has been complemented by a macroprudential focus, suggesting a strengthened case for central bank involvement in prudential regulation. Microprudential regulation has been strengthened, with changes reflecting less confidence in the previous market-oriented approach and more reliance on direct controls. The wheel has turned such that prederegulation approaches and attitudes have been incorporated into the postcrisis design and approach of prudential regulation.
David T. Llewellyn
The most serious global banking crisis in living memory has given rise to one of the most substantial changes in the regulatory regime of banks. While not all central banks have responsibility for regulation, because they are almost universally responsible for systemic stability, they have an interest in bank regulation. Two core objectives of regulation are discussed: lowering the probability of bank failures and minimizing the social costs of failures that do occur. The underlying culture of banking creates business standards and employee attitudes and behavior. There are limits to what regulation can achieve if the underlying cultures of regulated firms are hazardous. There are limits to what can be achieved through detailed, prescriptive, and complex rules, and when, because of what is termed the endogeneity problem, rules escalation raises issues of proportionality, a case is made for banking culture to become a supervisory issue.
Kim Christian Priemel
The debate on how to rein in transnational corporate power has greatly intensified over the past decades. Following a series of scandals, conflicts, and crises, civil rights activists, lawyers, and heterodox economists have been promoting efforts to hold private business accountable for the social, economic, ecological, and political costs of its actions. National legal cultures, however, differ widely on that issue, in particular with an eye to corporate personhood and extraterritoriality. After centuries of not prosecuting corporations on grounds of their lack of mens rea, the pattern changed in the twentieth century as developments in different legal spheres intertwined. When competition law coalesced with tightened national corruption standards as well as the emergence of international war crimes prosecution, a path toward international corporate liability opened up. By now a patchwork set of approaches has emerged in which soft and hard law, statutory and treaty law, and national and international regulation converge on corporate liability.
It has been posited that the international arbitration process carries with it not only fact-finding and lawmaking functions but also a governance function insofar as “arbitrators … can and do engage in autonomous normative action while still adhering to the rule of law.” This contribution explores the role and ambit of the exercise of discretion by international arbitration tribunals and its interplay with the tribunals’ governance function, as arbitrators must consider “the impact of their rulings on states, persons or entities not directly represented in the case before them.” It questions whether the use of discretion is suited to the governance role of arbitral tribunals and serves, rather than compromises, the effective exercise of that role. It asks what measures ought to be considered to make arbitrators better prepared for the exercise of their governance function.
Markets and societies need protection against corruption. Though governments have introduced tougher regulations against the problem, enforcement failure is common. This chapter explains why. The nature of corruption makes the problem difficult to control, enforcement functions are dysfunctional, and political quests for commercial benefits reduce government commitment. Forces that strengthen the effect of anti-corruption regulations nevertheless exist. Across the globe, enforcement agencies are starting to pick up economic ideas on how to break the trust between those who collude and how to incentivize firms to self-report incidents and self-police their operations. Increasingly, firms want returns from their investment in corporate compliance, and major players in the private sector support policy initiatives for predictable and consistent law enforcement. Combined with regulations that target the problem indirectly—such as competition oversight, financial oversight, and anti-money-laundering tools—the costs associated with bribery outweigh the benefits for an increasing share of market players.