The harmful effects on global financial stability that accompanied the 2007-2008 financial crisis (the “crisis”) were largely intensified by loose regulatory practices in the United States’ (U.S.) secondary mortgage market. Accordingly, the harm suffered on a global level warrants a comparative perspective on international securities regulation. This Article will examine several securitization methods in Europe and the U.S. and derive prospective solutions from these existing approaches that have the potential to address undue risks associated with asset-backed securities today.
This Article will initially discuss the history and causes of the subprime mortgage crisis and then discuss the particular difficulties with the secondary housing market and mortgage-backed securities. This Article will then compare the different methods of securitization in several countries and illustrate how these methods may improve the functioning of the U.S.’s secondary mortgage market today.
Next, this Article will review several countries’ regulatory structures with respect to securities and bank regulations, and analyze the issues that have been addressed by U.S. and European legislators since the crisis. More specifically, this section will analyze the obstacles to financial stability that exist in global markets today.
Finally, this Article will propose potential solutions to identified regulatory shortcomings in order to enhance and thereby preserve a vital part of the global economy and housing market. A key conclusion of this Article is that a global perspective is essential when developing a response to a future financial crisis due to the interconnectedness of the global economy. Regulatory effects, domestic or global, will impact the world economy.
Future regulatory reforms must have the clear objective of reducing the risks and consequences of future systemic financial crises, such that overall economic growth is not adversely impacted. This Article urges policy makers to focus on the financial system as a whole when developing legislation intended to mitigate undue risk exposure. While policy makers have recognized the need for this broad approach to securities regulation, the United States’ legislation post-crisis has failed to account for the interconnectedness of international economies. While economic systems necessarily differ according to specific needs and political imparities, the growth of technology and globalization in the twentieth century has created a worldwide interconnected and interdependent “system of systems.” Coupled with this Article’s proposed broad approach, the latest financial crisis is a very useful exemplar, which policy makers can use to address issues that remain pertinent to global financial markets in order to avoid future crises.
Nicolas M. Dillavou,
The Regulatory Trajectory of Synthetic Securitization: A Breakdown of International Regulatory Environments,
San Diego Int'l L.J.
Available at: https://digital.sandiego.edu/ilj/vol21/iss1/13