A Comparison of the Handling of the Financial Crisis in the United States, the United Kingdom, and Australia

The United States has over 115 different state and federal government agencies regulating financial services, which encompasses banking, securities and insurance firms and products. Various commentators have noted that at least part of the blame for the financial crisis of 2007-2009 in the United States was due to the regulatory gaps that existed between these agencies and the regulatory arbitrage in which some financial service firms engaged. They have suggested that the United States would benefit from consolidating its regulatory structure either along the lines of the "twin peaks" model employed by Australia or the single regulator model employed by the United Kingdom. Opponents of consolidation, however, have argued that consolidated regulatory structures, particularly the single regulator model used by the United Kingdom, did not insulate nations from the current financial crisis. This article examines: (1) how the regulatory structures in the United States, the United Kingdom, and Australia influenced how each nation regulated financial services prior to the crisis, (2) to what extent the different regulatory structures affected the types and severity of the financial shocks each nation experienced, and (3) how the regulatory structures are influencing what regulatory reforms are considered necessary to avoid or minimize similar problems to the ones confronted in this crisis in the future. The evidence from this examination suggests that Australia was able to avoid many of the problems that arose in the United States and the United Kingdom and that this was at least partly due to its twin peaks regulatory structure. As a result, the United States probably would benefit if it enacted reform proposals that moved the United States closer to a twin peaks model like the one employed by Australia.