ABSTRACT
As noted in the introductory chapter, the global financial crisis that began in 2007 has produced an important shift in the balance of public-private responsibilities in international financial regulation. This chapter examines two areaswhere this trend has been particularly dramatic: hedge funds and derivatives. Although these two sectorswere put on the agenda of international regulatory bodies several times over the past two decades, policymakers decided not to take on the task of regulating them directly. They chose instead to rely on market discipline and self-regulatory mechanisms designed by the financial industry. At the outset of the current crisis, the initial international regulatory response followed the same pattern. But in the fall of 2008 and spring of 2009, this situation suddenly changed as policymakers set out new international objectives to place the responsibility to regulate these two sectors squarely on the shoulders of public officials. Although hedge funds and derivatives played a very different role in generating the crisis, with the latter clearly at its core and the former being more a channel of transmission, they were both suddenly brought under the public international regulatory umbrella.
