The New Autarky? How U.S. and UK Domestic and Foreign Banking Proposals Threaten Global Growth

Since the 2007–08 financial crisis, global regulators have engaged in a lengthy struggle to reshape the international financial system to make it more resilient under stress. The purpose of this paper is to evaluate two recent and transformative proposals: the “Foreign Banking Organization” proposal of the U.S. Board of Governors of the Federal Reserve System and the United Kingdom’s “ring-fencing” plan. Both of these proposals are intended to protect national financial systems from the risks posed by a failure of one or more global, interconnected banking organizations operating within national borders.

These proposals underscore the problems with national regulators adopting a parochial, protectionist, or “home country first” approach to regulation. We argue that even poorer outcomes would have resulted from the prior crisis had these proposals been in place at the time. We contend that regulators should instead focus their attention on creating a credible, coordinated resolution process for globally significant firms.

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AUTARKY: A nation or entity that is self-sufficient. A political/economic term, Autarky is achieved when an entity, such as a political state, is self-sufficient and exists without external aid.