Financial Regulation in the Central Bank in the United States and the UK - Essay Example

?A Critical Review of Financial Regulation-Supervision in the Central Bank: A Comparison between the United s and the UK Introduction Regulationof financial institutions, both foreign and domestic, is the proverbial glue that holds the global financial market together. These are the laws that govern how financial institutions can and do operate and what laws they must abide by within these dealings. The extent to which global economies are currently converging is driven by national and international banking regulations (Rosenbluth and Schaap, 2003) and the General Agreement on Trade in Services (GATS), constituted the first global trade agreement that covered services (Key, 1999). Enacted by the World Trade Organization (WTO) during the Uruguay Round negotiations, GATS determines whether and to what extent global economies are coming together into a single pattern (Key, 1999). Despite such treatises, there are significant differences between the regulatory standards in banking between the United States and the United Kingdom, and this will be the focus of this paper. Although finance has become one of the most globally integrated sectors in the world, financial mobility and competition causes international differences that are systematic and resilient (Rosenbluth and Schaap, 2003). However, the similarities between the organizational structure of the British and American financial regulatory systems have significantly diverged since the UK consolidated its financial regulatory agencies within the unified body of the Financial Services Authority (FSA) and the financial system of the United States has remained decentralized and fragmented with a consortium of governing agencies (Jackson, 2005). Comparatively, the U.S has a more ambitious regulatory agenda that encourages a more elaborate system of financial oversight that is inherently more difficult to consolidate (Jackson, 2005). Contrarily, the goals of the financial regulators in the UK are more unpretentious and cost effectiveness is one of the country’s regulatory objectives in the field of financial regulation policy, which tends to promote a less awkward system of financial guidelines that more adequately accommodates consolidation of regulatory functions (Jackson, 2005). Even though British fiscal regulation is less rigorous than financial policies in the United States, both policies have a profound effect on the greater structure of global finance. The recent global financial crisis has put tremendous strain on both the financial markets of the U.S. and the UK, which has put both fiduciary structures under close scrutiny. The U.S. banking system and the UK financial system are nationally regulated by two separate governing bodies. The banking system of the U.S. is predominantly regulated under the Federal Reserve Act (FRA) (Federal Reserve Board (FRB), 2010) and the FDIC (Federal Deposit Insurance Corporation) (FDIC, 2009), while the UK financial system has recently been consolidated under the FSA (FSA, 2011). However, the overall motivation of prudential regulation remains the same internationally, despite the differentiations between the governing entities. The overall purpose of the regulatory bodies is to protect the banking system from financial crises by monitoring individual transactions to ensure that adequate collateral was presented and creating and enforcing regulations concerning self-dealing, capital requirements, and entry restrictions (Hellmann, Murdock, and Stiglitz, 2000). Additional optional restrictions could be placed on real estate lending and interest rates and the implementation of deposit insurance has been added for improved financial security (Hellmann, Murdock, and Stiglitz, 2000). Concerns also led many countries to establish central banks to serve as last resort lenders (Hellmann, Murdock, and Stiglitz, 2000), primarily for other banks. Literature Review organization of u. s. banks The Federal Reserve is the central bank of the United States and responsible for regulating the U.S. monetary system, determining how much money is printed, and how it is distributed as well as monitoring the operations of holding companies, traditional banks, and banking groups (Teslik, 2008). Its overall function is to provide financial stability to promote economic growth and regulates finances through its agents, which are the Board of Directors, the Federal Open Markets Committee (FOMC), and the reserve banks (Teslik, 2008). The FOMC is the primary agent that sets fiduciary policy in the U.S. by assessing the economic and financial environment to determine the "federal funds rate," which is the benchmark interest rate at which the Federal Reserve loans money to banks (Teslik, 2008). The Federal Reserve banking system is made up of twelve regional banks with twenty-five total branches that act as intermediaries between the local banks and the U.S. reserve banking system, store and distribute reserve funds, process checks and other forms of interbank payments, supervise the operations of commercial banks in their region, and they have additional regulatory authority over the 38 percent of U.S. commercial banks that are members of the Federal Reserve system (Teslik, 2008). While the Federal Reserve manages government payments, the U.S. Department of the Treasury recommends and influences fiscal policy, regulates U.S. imports and exports, collects all U.S. revenues, including taxes, designs and mints all U.S. currency, and functions primarily through the operations of the two agencies it oversees: the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS), whose functions are to regulate banks and savings and loans (Teslik, 2008). The OTS supervises federally chartered savings and loan associations (thrifts) and manages large savings deposits, issuing mortgages, regulates savings and loan holding companies and allows borrowers and lenders the ability to guide the association's management and financial practices (Teslik, 2008). The function of the OCC is to charter all U.S. banks and ensure the stability of the banking system by monitoring the bank's loan and investment portfolios, funds management, capital, earnings, liquidity, sensitivity to market risk, and compliance with consumer banking laws (Teslik, 2008). The duties of the OCC overlap with the general functions of the FDIC (Teslik, 2008). The purpose of the FDIC is to “maintain stability and public confidence in the nation's financial system by insuring deposits, examining and supervising financial institutions for safety and soundness and consumer protection, and managing receiverships” (FDIC, 2009). The purpose of the FRA is to “provide for the establishment of Federal Reserve Banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes” (FRB, 2010). The FRA created and established the Federal Reserve System of banks in throughout the United States in 1913 which established a universal monetary currency within the U.S. and regional regulatory banks each with its own branches, board of directors and district boundaries (FRB, 2010). It also gave regional banks the option to become members of the Federal Reserve and required them to purchase specified non-transferable stock in their regional Federal reserve bank to set aside a specific amount of non-interest bearing reserves with their respective reserve bank (FRB, 2010). Such membership entitled banks to discounted loans and permitted them to act as fiscal agents for the United States government (FRB, 2010). The Securities and Exchange Commission (SEC) is an independent government agency that oversees U.S. securities markets and enforces securities law, monitors stock exchanges, options, and other securities in addition to promoting transparency in securities markets and the protection of investors from fraud or corporate malfeasance (Teslik, 2008). The SEC requires firms to file quarterly and annual financial reports, provides guidance to corporations regarding U.S. accounting rules, and is authorized to bring civil charges against firms thought to have committed fraud breached regulations (Teslik, 2008). While the Justice Department has little jurisdiction over the laws that regulate financial markets, they are only able to prosecute that are recommended by the SEC (Teslik, 2008). The Justice Department's main jurisdictional frame is limited to anti-trust cases, but they are not allowed to independently track violations within the securities market (Teslik, 2008). The Sarbanes-Oxley Act of 2002 and the Credit Rating Agency Reform Act of 2006 are part of the body of financial legislations administered by the SEC (Teslik, 2008). The Commodities Futures Trading Commission (CFTC) regulates the derivatives clearinghouses that joins buyers and sellers of futures contracts, approves and regulates the organizations in charge of executing futures trades, and supervises buyers and sellers to prevent fraud and other violations of financial regulations (Teslik, 2008). The National Credit Union Administration (NCUA) is similar to the FDIC and the OCC in that it regulates credit unions rather than banks (Teslik, 2008). All of these regulatory agencies are collectively responsible for ensuring the financial systems in the U.S. run smoothly and attempt to provide a system of checks and balances that provides a network of security for fiduciary investments. The decentralized structure of traditional financial regulation in the United States creates numerous areas that create difficulties when attempt to coalesce the financial markets are made. Individual investors as well as trade groups, regulatory officials, and congressional representatives all oppose any deviations from the status quo, which is partially responsible for the collapse of the financial market in 2008 that has resulted in the current global financial crisis (Jackson, 2005). The reforms initiated by the Sarbanes-Oxley Act of 2002 did not address regulatory consolidation or simplification and, instead, added a new regulatory agency in the form of the Public Company Accounting Oversight Board (Jackson, 2005). The American reliance on self-regulatory organizations and congressional management has created a system with numerous loopholes that allow flagrant mismanagement and misallocation of funds with no controlling body of enforcement to ensure the safety of the billions of dollars that enter the American financial markets on a daily basis. organization of eu banks In response to the global financial crisis, in 2010, the UK’s Chancellor of the Exchequer instituted The Financial Services Action Plan (FSAP), which was hailed as an ambitious programme directed towards reformation of the current regulatory policies of the FSA (Jackson, 2005). Under the Chancellor’s plans, supervisors from the FSA will move to a new Prudential Regulation Authority, which will be a subsidiary of the Bank of England, and will be responsible for the administration of prudential regulation of financial firms, including banks, investment banks, building societies and insurance companies (European Commission, 2010). The purpose of this reformation is to ensure that the Bank, as the lender of last resort, has first-hand knowledge regarding the stability of the banks and to make sure that there is a clear chain of command in case of a crisis (European Commission, 2010). This plan entails four key strategic objectives, which are: “developing a single European market in wholesale financial services, creating open and secure retail markets, ensuring financial stability through establishing state of the art prudential rules and supervision, and setting wider conditions for an optimal single financial market” (Jackson, 2005). The financial crisis has negatively impacted both the stability of the banking sector and the degree of integration of the European financial sector, creating a pessimistic response between the public financial market and the banking sector (European Commission, 2010). The primary intention of the FSAP is to consolidate the UK financial sector and unify all member institutions under one governing body (HM Treasury, 2003). This plan was implemented to fully integrate the already closely linked markets of bond trading, bond settlement, equity trading, equity settlement, remote access, and cross-border investment by eliminating the main barriers to the integration of retail financial services, which are: Type of product Cost Tax Preference Delay Regulation Redress (HM Treasury, 2003) Overall, the FSAP is comprised of a group of regulations that are supposed to fill gaps and remove lingering obstructions to the complete integration of the financial markets within the EU (HM Treasury, 2003). While some FSAP processes are proposed as EC Regulations and apply directly to the Member States, other proposals are EC Directives, and must be incorporated into the existing laws of each Member State (HM Treasury, 2003). Some of these objectives are intended to replace earlier Directives that are currently outdated while others reintroduce previous suggestions that were rejected or were already under negotiation prior to the inception of FSAP (HM Treasury, 2003). Contrary to the formalities of the U.S. banking industry, the primary goal of the financial policies of the United Kingdom is to unify all financial institutions beneath one comprehensive legislative policy that include penalties for compliance failure. Certain directives in securities regulation require the movement of certain authoritarian functions out of self-regulatory organizations, such as the London Stock Exchange, and into governmental agencies and, the total volume of European Union directives in financial regulation required British controllers to presume tasks and meet formal standards outstanding of those conventionally undertaken (Jackson, 2005). While the old decentralized authoritarian arrangement could have been modified to meet these multi-lateral obligations, the occurrence of these new needs added to the national consensus in stipulating that the U.K. regulatory structures was in need of complete reform (Jackson, 2005). This overall view, contrary to the American performance decisions, spurned the creation of what is currently the UK financial market. This is the complete opposite of the reaction and reformation policies created by the U.S. policy makers in response to the collapse of their financial markets and the resulting financial depression the world is currently in. discussion Differences in the political contexts and purposes of the financial sectors of the UK and the U.S. have played a significant role in the development of the financial structures of the two countries. There are discernible differences in the manner of investments banks make, dependent upon the circumstances of the financial markets. During times of fiduciary prosperity, banks can be profitable businesses that make large campaign contributions and during times of financial decline, bank failures can cause significant problems for politicians (Rosenbluth and Schaap, 2003). However, countries still use a variety of regulatory measures that affect the competitiveness of domestic banking and can impede the full realization of the benefits of trade liberalization for financial and other services, despite the free cross-border movement of capital (Rosenbluth and Schaap, 2003). The free movement of capital plays a critical role in allowing efficient allocation of resources on a global basis and strongly impacts the global marketplace. Through the GATS, periodic negotiations are conducted to improve commitments and achieve increasing levels of liberalization and, once liberalized, the measures introduced form binding commitments GATS that prevents future backsliding (Key, 1999). The organizational structures of the U.S. and U.K. systems of financial regulation are widely divergent in numerous elemental factors. While the U.S. system is completely decentralized and fragmented, the new financial system implemented in the UK is now among the most centralized and integrated in the world (Jackson, 2005). Considered the result of the constant authoritative dictation of bureaucratic accretions and the continual addition of new administrative units and regulatory requirements without reforming or replacing the outdated modes of old, the U.S. financial regulatory boards are completely ineffectual and designed in a manner that promotes failure and disruption (Jackson, 2005). There are numerous contributory elements that have worked in concert and created the substantial divergence in U.S. and U.K. regulatory structures (Jackson, 2005). A few reasons for the development of two completely different fiduciary systems between the UK and the U.S. include: “difference in the political context in which both countries undertook financial reform in the late 1990's; differences in the national objectives for financial regulation in the two countries, differences in the intensity of regulatory oversight in the two countries” (Jackson, 2005, p.2-3) All of these factors have lent considerable contributions to the substantial difference in regulatory structure that separates the United States and the United Kingdom (Jackson, 2005). All financial institutions have universally accepted an international standard of operations that allows them to conduct business internationally called The Compendium of Standards (Financial Stability Board (FSB), 2006). This doctrine “lists the various economic and financial standards that are internationally accepted as important for sound, stable and well functioning financial systems” (FSB, 2006). The international financial community heralds this doctrine as an important aspect to the adoption and implementation of these standards due to their advantageous results on the steadiness of financial systems both nationally and worldwide (FSB, 2006). The compendium points out key standards which designated as deserving of priority implementation while keeping in mind the circumstances of all member countries (FSB, 2006) to instil fairness into the doctrine. The compendium is an initiative undertaken by the FSB and is a joint venture between various representative bodies and the FSB first developed in 1999 by the Financial Stability Forum, the predecessor of the FSB, and is reviewed and updated periodically (FSB, 2006). Standards may be classified by: • Sector: classifies the economic and organizational sectors, like the government or central bank, banking, securities, and insurance industries, and the corporate sector (FSB, 2006) or • Functional: this details the standards covered by governance, accounting, disclosure and transparency, capital adequacy, regulation and supervision, information sharing, risk management, payment and settlement, business ethics, and other determinants in each sector (FSB, 2006). From an implementation perspective, standards may also specify: • Principles: these are the basic doctrines relative to a broad policy area, typically implemented in a universal manner to offer flexibility appropriate to the countries served, like the Basel Committee's Core Principles for Effective Banking Supervision, IOSCO's Objectives and Principles of Securities Regulation, IAIS's Insurance Supervisory Principles, and CPSS's Core Principles for Systemically Important Payment, (FSB, 2006) • Practices: delineates the realistic purpose of the ideology within a more closely defined milieu, like the Basel Committee's Sound Practices for Loan Accounting, IOSCO's Operational and Financial Risk Management Control Mechanisms for Over-the Counter Derivatives Activities of Regulated Securities Firms, and IAIS's Supervisory Standards on Licensing (FSB, 2006), or • Methodologies/Guidelines: offer comprehensive direction on steps to be taken or requests to be met specific enough to permit a relatively objective assessment of the degree of observance (FSB, 2006) These standards have been implemented for the purpose of: •strengthening domestic monetary systems by encouraging stable guideline and management, honest dealings, and efficient institutions, markets, and infrastructure (FSB, 2006) and •promoting international fiscal constancy by facilitating lending and investment decisions based on better information, improving marketplace reliability, and reducing the risks of financial crises (FSB, 2006) Standards are only intended to be a means for promoting sound financial systems and sustained economic growth and are continually reviewed and updated so that they are able to maintain their relevancy (FSB, 2006). The importance of different standards to individual economies is relative to their financial structure and other domestic circumstance, which means inclusion of the standard, has to agree with the country's general strategy for economic and financial development and take into account the country’s stage of development, level of institutional capacity, and other domestic factors (FSB, 2006). Successful adaptation of standards entails a procedure of interpretation, application, assessment, and enforcement and economies need to have an effective enforcement framework already constructed to support the standard (FSB, 2006). Adaptation of the standards established by the FSB is a compulsory option and banks and other financial institutions are not required to participate. However, global commerce is dependent upon agreement in practices, procedures, and policies, which allows business and financial exchanges to flow smoothly. In accord with the other relevant parties, the FSB applied the following criterion to establish the list of standards for sound financial systems: pertinent and significant for an unwavering, vigorous, and well-functioning fiscal system in order to impart a sense of prioritisation in implementation, comprehensive and includes relevant data to cover all areas in all jurisdiction, flexible in performance, and broad enough to take into account the differing circumstances of the various counties widely sanctioned, primarily, to recognise the relevant stakeholders and areas through extensive public consultation process with a standard-setting body endorsed by International Financial Institutions (IFIs), like the IMF and the World Bank and assessable by national authorities or by third parties such as IFIs (FSB, 2006). Banks have the alternative of investing in careful asset yielding commodities with high expected returns or in an inefficient gambling commodity that can produce high private returns for the bank if the risk pays off but entails costs incurred on depositors if the venture fails (Hellmann, Murdock, and Stiglitz, 2000). If markets are adequately aggressive, the bank earns relatively little from cautious investment (Hellmann, Murdock, and Stiglitz, 2000), but the bank can always capture make a quick profit by gambling. Heightened rivalry tends to encourage gambling in the banking sectors (Hellmann, Murdock, and Stiglitz, 2000). Some form of prudential regulation is then necessary (Hellmann, Murdock, and Stiglitz, 2000) to encourage banks to invest carefully. Capital requirements force banks to have more of their own capital at risk (Hellmann, Murdock, and Stiglitz, 2000) so that they absorb the losses resulting from their risky ventures. The idea is that, when more of the bank’s capital is at risk, the banks will have no choice but to invest more carefully (Hellmann, Murdock, and Stiglitz, 2000). If a bank gambles and loses on its investment, it loses its franchise value (Hellmann, Murdock, and Stiglitz, 2000). Franchise value is considered intangible capital (Hellmann, Murdock, and Stiglitz, 2000), and banks can use this like actual capital. If a bank has enough franchise value (Hellmann, Murdock, and Stiglitz, 2000), it may decide to invest in more discreet assets and decrease the use of deposit-rate controls to create franchise value. Deposit-rate ceilings effectively combat this market-stealing effect (Hellmann, Murdock, and Stiglitz, 2000) by excluding banks from competing by using inordinately high deposit rates. The final issues linked to information provision relate to interaction between different fiduciary systems worldwide. The purpose of any monetary system is, essentially, to facilitate growth and wealth for the parent nation, which is the common thread between both the U.S. and UK banking systems. The underlying difference lies in the means by which both nations go about achieving this end. The U.S. chooses to use several governing bodies, all with sovereignty that sometimes conflicts with the overall purpose of other agencies and, at times, with the inner mandates of the agency itself. The UK elects to unify all the financial markets within one solidified structure that can be easily monitored and mandated top avoid regulatory malpractice. While neither system is perfect, the financial crisis that began in America in 2008 and has since spread around the globe has demonstrated that there is a strong need for considerable reassessment of the policies that regulate the capital market structure within the U.S. The key causes of the crisis include: “an unstable and inadequately supervised financial system opaque financial operations and products irresponsibility in some financial institutions, who pursued short-term profit, neglected risk management and paid unjustifiable bonuses a financial system that overlooked the fact that it was supposed to serve the real economy and society as a whole, contributed to the creation of bubbles, and often disregarded consumer interests” (European Commission Internal Market and Services, 2010). A connection exists between the British ability to endure and the ability of its financial system to avoid the sort of political chaos that characterizes U.S. reform efforts (Jackson, 2005). In the United States, the main source of resistance to regulatory reforms has come form the regulators themselves and has produced continual bureaucratic clashes that have derailed numerous the legislative processes (Malcolm, Tilden, Wildson, 2009). To avoid resistance of this sort, the framers of the FSA process guaranteed continuity of employ for all authoritarian personnel over the course of the consolidation process (Jackson, 2005). Although a seemingly minor feature in regards to the major legislative agenda, this attention to individual concerns helped ensure the smooth application of the reform proceedings although this came at the price of recognizing economies of scale in the short term (Jackson, 2005). “ This enabled the UK financial market to gain strength, avoid any protectionist tendencies, and revert to the principles of a social market economy which serves the needs of citizens and companies alike (European Commission Internal Market and Services, 2010). The crisis showed how instability can spread from within the financial system to the real economy and damage growth (European Commission Internal Market and Services, 2010) and it also demonstrated how problems in the US mortgage market can impact lending and investment in Europe. This revealed how the failure of important segments of the banking sector and their subsequent bailout (European Commission Internal Market and Services, 2010) can affect the daily lives of the European populace. Global financial services regulations failed to prevent or contain the crisis and this provoked a wide-ranging review of our regulatory policy (European Commission Internal Market and Services, 2010). conclusion Although this essay is limited to details concerning the financial regulatory structures of two nations, the implications are global in nature. The premise suggests that regulatory structures of individual countries (Popov, 2011) are affected by a myriad of factors that are likely to vary from country to country. The arrangement and priorities of domestic political organizations and the goals of financial regulation within individual countries can have a profound impact on the evolution of regulation structures globally (Popov, 2011), as the British and American experiences demonstrate. These factors also influence the magnitude of financial regulation, which themselves may affect the likelihood that particular areas will favour certain regulatory strategies, such as consolidation of regulatory functions. While there are many positive facets to international comparisons of regulatory design and structure, there are also copious and completely legitimate limitations to the harmonization of regulatory structures, at least in the short and intermediate interims. A further distinguishing feature of the political economy of the United Kingdom is the influence of the European Union and other European legal structures (Malcolm, Tilden, Wildson, 2009). While not prominently featured in many accounts of the birth of the Financial Services Authority (Malcolm, Tilden, Wildson, 2009), developments in the U.S. have played a vital role in the appearance of the agency. A number of European Union directives requested member states, such as the United Kingdom (Malcolm, Tilden, Wildson, 2009), to make certain changes to their regulatory structure. Directions in securities guidelines specifically required the movement of certain authoritarian functions out of self-regulatory organizations (Malcolm, Tilden, Wildson, 2009), like the London Stock Exchange, and into governmental agencies. Additionally, the total volume of European Union directives in the field of financial regulation required British regulators to assume tasks and meet formal standards well beyond those traditionally assumed (Malcolm, Tilden, Wildson, 2009). Economic exploration has focused strongly on the connotations of financial candidness to promote economic growth. However, volatility is a substandard gauge of risk in comparison to rare and abrupt contractions in production regarding disaster risk (Malcolm, Tilden, Wildson, 2009). While it has been thoroughly established that there are benefits of removing all of the U.S. business cycle instabilities (Malcolm, Tilden, Wildson, 2009), changes in expenditure can create uncertainties that causes indications of movement regarding the probability that economic disaster to have drastic implications for fiduciary interests. In particular, models that copy how asset markets prices utilize uncertainty, there were indications that individuals would be willing to pay large insurance premiums (Malcolm, Tilden, Wildson, 2009) in exchange for eliminating all chances for large macroeconomic reductions. Consequently, it is necessary to understand the involvement of financial candidness to disaster risk, as well as the macroeconomic circumstances which mitigate any potential welfare loss without hindering the positive effect of financial openness on growth (Popov, 2011). The main findings of the paper are that financial openness increases simultaneously the rate, the volatility, and the negative impact of output growth (Anderton and Tewolde, 2011). Following financial liberalization, the distribution of growth rates of capital accumulation, growth, and new business creation (Anderton and Tewolde, 2011) has become more distorted, while the distribution of employment growth rates has also become more twisted to the right. Another indication is that the direct effect of liberalization on negative impact is higher than the overall effect (Malcolm, Tilden, Wildson, 2009). Estimating the effect of openness on the three moments of output growth simultaneously enables me to isolate the direct effect on each moment from the effect through other moments. This approach reveals that some of the effect of openness on impact is mitigated through the channel of higher growth (Malcolm, Tilden, Wildson, 2009), which implies that financial openness increases disaster risk more in the short-run than in the long-run. Assessment of the role of institutions in determining economic outcomes, particularly the loss of financial liberalization in terms of a more negatively viewed distribution of growth rates (Anderton and Tewolde, 2011), is lower in countries with more developed national financial markets, as well as in countries with better institutions. The clear policy implication of these findings is that the welfare effects of liberalization vary with the degree of economic and financial development (Anderton and Tewolde, 2011), therefore financial liberalization is not a one-size-fits-all policy. This may be partly due to the fact that many policy measures that were implemented to improve world trade at a time that corresponded with the trade recovery (Anderton and Tewolde, 2011) but can not be captured by the specification. A key important contribution of the paper is that the time-varying parameter nature of the specification also captures the important role of the high and rising import intensity of exports associated with the rapid growth in “vertical specialisation”, suggesting that widespread global production chains may have amplified the downturn as well as the subsequent upturn in world trade and partly explains its high degree of synchronisation across the globe. Regulation of financial institutions, both foreign and domestic, is of major import to the financial climate of global commerce. This includes the laws that govern how financial institutions can operate and what laws they must abide by within these transactions with foreign or domestic partners. The extent to which global economies are currently converging is driven by national and international banking regulations (Rosenbluth and Schaap, 2003), which includes numerous legislative doctrines designed to ensure that transactions are conducted smoothly and with little to no disruptive influences. The global economic collapse has highlighted numerous differences between the financial regulatory regimes of both the U.S. and the U.K that have been highlighted in this paper. These differences have contributed to the disturbance in economic balance within global markets and may require adjustment to avoid future disruptions. Works Cited Anderton, R. and Tewolde, T., 2011. The Global Financial Crisis: Trying to Understand the Global Trade Downturn and Recovery. European Central Bank Working Paper Series, August. European Commission, 2010. Commission Staff Working Paper: European Financial Stability and Integration Report 2010. 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European Central Bank Working Paper Series, August. Rosenbluth, F. and Schaap, R., 2003. The Domestic Politics of Banking Regulation. The MIT Press, International Organization, Spring, 57(2): 307-336, [online]. Available at: [Accessed 22 August 2011]. Teslik, L.H., 2008. The U.S. Financial Regulatory System. [online]. Available at: [Accessed 22 August 2011]. Read More