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Why international institutions matter in the global credit crisis.

Article Excerpt
The global dimensions of the credit crisis of 2008 have become increasingly apparent. Bank failures, credit freeze-ups, and sharp stock market declines have spread well beyond the borders of the United States, the original epicenter of the crisis. What role, then, should international regulatory institutions play in addressing the crisis? Much public discussion of the crisis has underestimated the relevance of such international institutions, often assuming that they do not exist, or that they are so weak that we will have to relay to rely on nation-states for any meaningful response.

In contrast, I argue in this article that a relatively well-established set of existing international institutions should and will play a central role in response to the crisis. (1) However, I also argue that policy makers, regulators, and financial elites have displayed too much complacency and self-interest in their attitudes toward these institutions, and these failings need to be corrected with greater public awareness and pressure regarding the role that these institutions can play.

To see the potential of existing international institutions to address the current credit crisis, it is necessary to go beyond the assumption that only states or formal intergovernmental organizations can have influence. Faced with extraordinary complexity, including the need to manage the negative effects of fast-paced global markets, public authorities have increasingly shifted from centralized "command and control" to rely more on hybrid mixes of decentralized public and private regulation, a phenomenon that has been called "regulatory capitalism." (2) A risk in this shift is that policy and regulatory processes will be captured and manipulated by the private sector actors that they are supposed to regulate. However, such capture is not inevitable, especially if mechanisms for asserting the public interest in these processes are strengthened.

Transnational Private Sector Institutions in Global Finance

While the financial products involved in the present crisis are often seen as toxic, mysterious, and chaotic, they also signify an increase in the institutionalization of global financial markets. The current crisis is the first transnational one involving personal credit. There are direct linkages between individual borrowers and global financial markets, in which creditors and investors are much more widely dispersed than previously. Such connections have been enabled by the growth of a variety of now well-established transnational practices, institutions, clearing houses,...

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