(p.248) Chapter Ten Financial Reform Revisited
(p.248) Chapter Ten Financial Reform Revisited
Prior to the recent financial crisis, the U.S. monetary system was characterized by the absence of legal restrictions on the issuance of private money (cash equivalents), coupled with an implicit commitment by the state to honor these instruments. This dubious structure remains basically unchanged. Rather than addressing the deep structural defects in the existing monetary framework, we have opted (through the Dodd-Frank Act and other reforms) for a staggeringly complex and hypertechnical regulatory overlay. This chapter provides an overview of the key components of these reforms, with a particular focus on so-called “macroprudential” or “systemic risk” regulation and on the development of special “resolution” tools for complex financial institutions. The chapter argues that these reforms’ prospects for success are doubtful: the system that has emerged is unworkable. The chapter suggests that a thoughtful revamp of the monetary framework could largely obviate the need for other forms of financial stability regulation. It concludes with some final thoughts on the legal engineering of monetary institutions.
Keywords: Dodd-Frank Act, macroprudential regulation, systemic risk, resolution, financial institutions
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