Reforming financial systems after the crisis: a comparison of EU and USA

The financial crisis, that began to unfold in the summer of 2007 in the United States and led to the worst economic downturn after the Great Depression, with huge direct and indirect costs to public finances, brought to the fore great weaknesses in the system of financial surveillance worldwide. Macroeconomic imbalances were major underlying factors of the crisis, together with the a-critical celebration of the “invisible hand” and of markets’ efficiency, rationality and self-corrective properties. The need was, therefore, recognized to bring together a better understanding and adjustment of macroeconomic and financial issues. In particular, financial surveillance should be better designed and implemented around sustainable macroeconomic developments. To ensure a good regulatory and supervisory framework, major changes had to be made to the whole regulatory framework. A summary and an analysis of the different reforms will be presented. A chronological-analytical perspective will be adopted: section 1 will recall the main features of the de Larosière Report; section 2 is a critical summary of the Dodd-Frank Act; section 3 outlines the financial regulatory reform in Europe. Some concluding remarks – which take account of the G20 global regulatory agreement reached in the November 2010 Seoul Summit meeting (Seoul Summit, 2010) – are presented in the final section. The agreement of the Basel Committee Oversight Body (BCOB) on quantification and timing of Basel III capital standards – which represents an integral part of regulatory repair – is summarized and assessed in the Appendix.