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Daniel K. Tarullo, Rules, Discretion, and Authority in International Financial Reform, 4 J. Int'l Econ. L. 613 (2001).


Abstract: Proposals to reform the ‘international financial architecture’ in the wake of the global financial crisis of 1997–98 echo the traditional debate over the merits of rules versus discretion in the administration of government functions. Proposals for rules‐systems to govern International Monetary Fund (IMF)assistance and for international bankruptcy regimes promise solutions to the problems of moral hazard and collective action that contribute to financial crises, but they disregard key financial market characteristics and the differences between regulating sovereigns and private market actors. The official reform agenda eschews the rigidities of rules‐systems in favor of a mix of reforms initiated without basic changes in relevant international and national legal rights and obligations, in a way that parallels central bank policies in containing domestic financial crises. The differences in authority and credibility between national central banks and the IMF make this policy of discretionary eclecticism suspect in an international context, validating to some degree the concerns of the rules‐proponents. While some alternative approaches try to blend elements of rules‐systems and discretionary judgment, none appears likely to bridge this authority gap successfully. This circumstance reflects the problems of regulating global economic activity in a world of nation‐states and suggests that the world will remain vulnerable to damaging financial crises in the future.