A Sraffian approach to financial regulation

The essay examines the evolution of financial regulation in USA from the 1930s to present day by adopting a Sraffian approach and relating this evolution to the recent financial crisis. It argues that after the 1970s financial regulation evolved from a ‘discretionary’ to a ‘rules-based’ regime, i.e. from a regime based on the discretionary powers of the authorities over the managers of financial firms to one based on the respect of capital coefficients. Much literature assumes that this change was introduced to pursue the public interest. We argue instead that it also reflects the attempts of the financial sector to improve its income share and that it was favoured by the pressures of this sector, which benefited from the expansion of its activities allowed by the new forms of regulation. The conversion to the new regime was gradual and reflected the strengthening position of the financial industry in the economy and in society. It was attended by scarce attention of the dominant literature to the questions raised by Levine and his colleagues. This scarce attention also influenced the reforms proposed and adopted after the crisis, in spite of the formal acknowledgement by official documents of the need to reinforce the supervisory powers of the authorities over the managers of financial firms.