Financial Crisis Part II : Regulators and Rules - President Obama's Financial Regulatory Reform vs the European Commission's Draft

This paper makes a comparison between the US and the European reforms of the financial markets. At a first glance, these two schemes move from a similar less-market-and-more State grounds. However, a closer examination will show some differences the success of the reform may depend on. Basically, while the U.S. program has assigned to the Federal Government the definition of general criteria for future prudential regulation to prevent systemic risks; the EU Commission is focused on establishing three new European Supervisory Authorities. However, the common political decision-making has not improved. This difference between the US and European approach is due to the institutional weakness of the latter. As long as Europe is not able to settle the dilemma between being a strong political entity or a loose alliance of States, regulatory and supervisory powers cannot be concentrated in the hands of a Federal-like Government. Obviously, EU citizens will pay the price for this ambiguity. The inability of Europe to adopt solid and comprehensive regulations may favour the proliferation of a poor quality finance that will exploit the folds of complaisant rules for abuse and impunity