Do We Need a World Financial Organization?

International trade law under WTO is a mature field of international economic law (IEL). In contrast, international monetary and financial law is still emerging as a discipline within IEL. With the exception of the International Monetary Fund (IMF), international monetary and financial law is still characterized by the predominance of soft law, soft obligations, and an informal institutional structure. Financial markets have become much more international in recent decades, while their regulation, supervision and—if necessary—resolution remain constrained by the domain of domestic jurisdictions. The global financial crisis has taught us several lessons. One of them is that banking crises often lead to sovereign debt crises because of the vicious link between bank debt and sovereign debt (the so-called ‘doom loop’, the catalyst for the adoption of banking union in the EU). Another lesson is that financial institutions retrench to national frontiers when things turn sour (they live globally, but die nationally). This state of affairs has to change if financial institutions and markets can remain credibly global. It is urgent and important to devise adequate international structures and international norms to govern financial markets and to control systemic risk in finance. The debate about the need for a World Financial Organization ought to be understood in this context.