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By Joseph Stiglitz
Published: February 9 2010 22:19 | Last updated: February 9 2010 22:19
In the years before the crisis, there was a race to the bottom, with countries competing on the "lightness" of regulation. Iceland may have been the winner of that race, but its citizens were the losers. As the consequences of these failures continue to manifest themselves and discussions of the new regulatory regime proceed, the problem of global co-ordination has moved centre stage.
Banks within any jurisdiction threaten to take their business elsewhere if tough regulations are imposed (or even if they are asked to pay for a fraction of the costs they have imposed on others). Modern finance is a footloose industry, so the threat seems at least partially credible. If regulations are different in different jurisdictions, there is a real risk of regulatory arbitrage. With finance moving to the least well regulated jurisdiction, there is a danger that the problems that marked the global financial system before the crisis will persist.
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