For Diversity in the International Regulation of Financial Institutions: Critiquing and Recalibrating the Basel Architecture

This Article challenges the prevailing view of the efficacy of harmonized international financial regulation and provides a mechanism for facilitating regulatory diversity and experimentation within the existing global regulatory framework, the Basel Accords. Recent experience suggests that regulatory harmonization can increase, rather than decrease, systemic risk, an effect that is the precise opposite of the objective of harmonization. By incentivizing financial institutions worldwide to follow broadly similar business strategies, regulatory error contributed to a global financial crisis. Furthermore, the dynamic nature of financial markets renders it improbable that regulators will be able to predict with…