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Regulation Viewpoints

Warwick Commission Highlights the Local and Political Dimensions of Global Financial Reform

by Leonard Seabrooke

As director of the Warwick University Centre for the Study of Globalisation and Regionalisation (CSGR), you were closely involved with the Warwick Commission on International Financial Reform. Can you tell us what effect that report has had since it was published in November 2009, and then summarize the main findings of the Commission?

The Commission and its report reflect the University of Warwick’s commitment to being involved in important international policy debates. We have a particular interest in highlighting the impact that rigorous scholarly analysis can have on policy thinking. The Commission’s chair was Avinash Persaud, who brought a bag of ideas and a bundle of energy to the project. The Commission comprised world-class political scientists and economists, who met at Warwick, Berlin, and Ottawa over nine months to discuss the political economy of international financial reform. I certainly feel that the argument we ended up with was very different from our opening positions—which was a sign that there was some real learning going on. Avi, I, and the commissioners are all proud of the findings published in the report and think that they highlight not only how some key problems should be addressed, but also that we have to recognize that financial systems are political—they are linked to the welfare system and the economy as a whole and are, therefore, of great political interest.

There is plenty of anecdotal evidence that the main findings of the report have found their way into mainstream thinking by regulators, politicians, and financial market practitioners. Given the nature of the report and its far-reaching conclusions, I hope that it will inform thinking long after the most acute effects of the crisis have passed. It bears fundamentally on the key question: What is a financial system for? In other words, who does it serve, and what is its purpose?

Financial markets are highly complex, and it is all too easy for well-intentioned initiatives aimed at implementing macro-prudential regulation to have unintended consequences. To quote from Lord Adair Turner’s introduction to the Commission’s report:

“[The Report’s] focus on the credit cycle as the key driver of financial and macro-economic instability is correct and crucial, and the Report rightly identifies the danger that apparently sophisticated risk management and regulatory techniques, seeking to draw inference from observed market prices for assets and risks, can themselves generate instability of asset prices, of maturity transformation, and of credit extension.”

Lord Turner (chair of the UK Financial Services Authority) goes on to praise the way that the report draws a strong distinction between macro-prudential and micro-prudential regulation. Armed with this distinction, the Commission argues that if the regulatory focus is all at the macro level it will miss the point, and that micro-prudential regulation is an equally essential part of the mix. We also argue strongly that the current focus on global regulation—understandably inspired by the desire to avoid regulatory arbitrage by financial service players (where they simply move their operations to the regulatory environment with the lightest touch)—misses the importance of local regulatory responsibilities and initiatives at the national level. The subtitle of our report is “In praise of unlevel playing fields,” and this side of the argument has yet to be fully taken on board in present regulatory discussions in the European Union and the United States.

One of the big questions for regulators to decide is whether to focus on instruments or on behaviors. My view, and that of the Commission, is that the right target is behaviors.

The ratings agencies clearly had a role in the crisis. What is your opinion of how they should be treated going forward?

The power of the major ratings agencies, such as Standard & Poor’s and Moody’s, has not gone away since the crisis, despite the outcry against them from politicians or their conspicuous errors in classifying subprime-backed securitized products as triple A. The knee-jerk reaction from both European politicians and the European Commission was initially to threaten to extend regulatory control over the ratings agencies. Many people have discussed various solutions to how they should be regulated, including very innovative proposals from Jacques Delpla, the French economist, and others that would require strong political backing. But perhaps the moment for such change has already passed. The sovereign debt crisis has moved us in a direction that has taken the debate on a different course from talking serious regulation of the ratings agencies. European politicians and regulators are now all too aware that when it comes to eurozone economies that are not doing so well, they have no real mechanism as yet that bears on this problem other than to urge prudence on national governments.

This leads to massive inefficiencies. The case of Greece gives us a very clear example. When that country’s crisis was winding up, it struck me that the sums it was originally asking for to keep the vultures at bay were not vast. They were directly comparable to the US$15 billion that the three EU countries involved had put up to bail out Fortis. So on the one hand we had prompt action to rescue a failing private institution by just three members of the eurozone, while on the other we had inaction on the part of the whole European Union to bail out Greece at a time when all that the markets needed was a sign that the European Union would stand behind Greek debt.

What the incident showed very clearly was that, although the European Union is a political entity centered on Belgium, it is also an economic entity centered on Germany. When the economic and political centers of the European Union come into conflict, the economic center wins hands down. A colleague of mine on the Commission, Eleni Tsingou, who is also a research fellow at the CSGR, points out that what this highlights is a profound difference in Europe between countries that make things and those that do not. The European Union is a political project, and when things get tough the level of industry inside a country becomes extremely important. This in turn leads on to the question of what one does when it becomes clear that some of the countries within the European Union are to all intents and purposes emerging markets. In a crisis, an emerging market country would normally devalue its currency and look to export its way out of its difficulties. With the weaker EU countries that option is not available. The euro actually favors the heavily industrialized countries in general and Germany in particular, since it helps them to export. But that is achieved at the expense of countries like Greece and Spain. As a regulator trying to make sense of systemic risk, you cannot ignore macro factors like this.

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Further reading


  • Abdelal, Rawi. Capital Rules: The Construction of Global Finance. Cambridge, MA: Harvard University Press, 2007.
  • Helleiner, Eric, Stefano Pagliari, and Hubert Zimmermann (eds). Global Finance in Crisis: The Politics of International Regulatory Change. Warwick Studies in Globalisation. Abingdon, UK: Routledge, 2010.
  • Seabrooke, Leonard. The Social Sources of Financial Power: Domestic Legitimacy and International Financial Orders. Ithaca, NY: Cornell University Press, 2006.
  • Sharman, J. C. Havens in a Storm: The Struggle for Global Tax Regulation. Ithaca, NY: Cornell University Press, 2006.


  • Seabrooke, Leonard, and Eleni Tsingou. “Responding to the global credit crisis: The politics of financial reform.” British Journal of Politics and International Relations 12:2 (May 2010): 313–323. Online at:


  • Warwick Commission. “The Warwick Commission on international financial reform: In praise of unlevel playing fields.” Coventry, UK: University of Warwick, November 2009. Online at:


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