Internationalization and financial federalism - The United States and Germany at the crossroads?

In this article, the authors examine some effects of economic international ization on state structures, especially in regard to the distribution of po wer and authority within federalist systems. Using an institutional rationa l choice model, they analyze changes in financial regulation and market str uctures in Germany and the United States. The focus is on the financial rea lm because of its high degree of internationalization and because, in both countries, financial markets and regulation have historically exhibited fed eralist traits. The findings indicate that internationalization has led to significant convergence in financial market structures and regulation acros s the two countries and that in each case this convergence has been accompa nied by centralization of financial regulatory authority. Although both the German type of cooperative federalism and the U.S. model of competitive fe deralism proved to be vulnerable to the growing international pressures, th e two countries took different paths of change that reflected differences i n domestic institutions. Thus, the authors conclude that convergence is, an d will likely remain, of a limited nature.