World finance4/30/2023 ![]() The financial crisis exposed the limitations of relying upon a loose network of soft-law standard-setters and an inadequate system of resolution of financial crises. ![]() ![]() Globalization has also challenged the traditional law-making process. As a consequence, financial markets need to rely on different levels of governance (e.g., banking union in the EU is a recognition of this need at a regional level). Indeed, all these institutions transcend national boundaries, and so do financial stability and systemic risk. Paradoxically, when it comes to modern financial markets, sovereignty is an inadequate principle to deal with financial conglomerates, complex groups and, generally, with cross-border institutions and markets. What it has to be critically emphasized is that, despite the fact that the financial crisis was global, the solutions to the problems were in the main national. Globalization has magnified the impact and geographic outreach of systemic risk, and the globalization and liberalization of financial markets have proceeded at a much faster pace than the development of an appropriate international legal and institutional framework. The analysis starts with the broad observation that globalization has changed the traditional understanding of financial markets and has led to the emergence of multinational banks, financial groups and new instruments and markets that operate across jurisdictions. Then, after investigating the current coexistence of national laws and institutions and global financial markets, she considers the emerging lex financiers and debates the need for a World Financial Organization (WFO). In this forward-thinking article, Professor Lastra examines the rationale of international regulation and discuss the inadequacy of the principle of sovereignty for the regulation of cross-border financial institutions. Professor Lastra discusses the need for a World Financial Organization as a mean to prevent future crisis.
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