Fiscal and Foreign Relations Dimensions of Financial Stability Regulation

Ilya Beylin

No 7k5nv_v1, LawArchive from Center for Open Science

Abstract: Lawmakers face a conflict of interest in crafting financial stability regulation. In the course of regulating areas such as capital, margin, stablecoins and money market funds, lawmakers specify the relative desirability of various assets, including sovereign debt. Ideally, lawmakers would calibrate these rules based on the risk these assets pose. However, in practice, calibration may account for fiscal considerations, i.e., encouraging the financial system to absorb sovereign debt. This Article explores this conflict of interest. For example, it criticizes U.S. banking regulators’ approach of applying zero risk weights to all high-income Organisation for Economic Co-operation and Development (OECD) countries’ sovereign debt. It also questions why U.S. derivatives clearinghouses have stringent collateral rules that privilege U.S. government debt. Normatively, the Article makes modest suggestions towards insulating financial stability regulation from bias that may be injected on the basis of fiscal considerations.

Date: 2026-10-09
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Persistent link: https://EconPapers.repec.org/RePEc:osf:lawarc:7k5nv_v1

DOI: 10.31228/osf.io/7k5nv_v1

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