Summary:The financial crisis of 2007-2008 and subsequent global economic turmoil underscored the interconnectedness of the global financial system as well as its weaknesses. In the wake of the crisis, leaders from the United States and other countries have pursued a wide range of reforms to the international financial regulatory system. Â At a basic level, the goal of international financial regulation is to maximize economic gains from integrating global financial markets while minimizing losses from instability and financial crises. Over the past several decades, global capital flows have grown rapidly, driven by deregulation of national financial sectors, advances in technology, and innovation of financial products and instruments. While financial markets have become more global, financial regulation remains territorial, exercised by national governments over financial transactions occurring within their geographic borders. Â International financial stability is a policy objective that transcends national boundaries. In the absence of an international financial supervisory or regulatory body, countries, for the past several decades, have negotiated voluntary international financial standards and best practices. However, despite decades of efforts among national regulators to agree on and coordinate international standards on accounting, securities, and bank capital adequacy among the major economies, substantial regulatory differences exist among national regulations. Furthermore, the absence of an institution with the authority to conduct prudential supervision of transnational financial institutions may have contributed to the failure to prevent the 2007-2008 crisis and hampered efforts to contain the spread of financial instability throughout the global economy in the years following the crisis.
