With the benefit of hindsight, financial markets and institutions proved to be much more fragile to shocks than regulators and supervisors expected. Financial innovation was accused of having played a decisive role in the recent financial turmoil. In the wake of the crisis and after the adoption of generous rescue packages and liquidity facilities by several governments, a co-ordinated effort is being made to revise prudential standards, both at the micro-and the macroprudential level. In these efforts, governments appear to follow the rules promulgated within the Basel Committee on Banking Supervision (BCBS). After an examination of the interaction between prudential regulation and financial innovation, the paper critically reviews the new prudential standards adopted within the BCBS known as 'Basel III', in particular those relating to regulatory capital and liquidity. One of the essential lessons of the crisis is that such requirements can no longer be limited to banks, in view of the contribution of the shadow banking system to the crisis. Furthermore, relevant national initiatives in the EU and the US are discussed and potential conflicts with the Basel III framework are pinpointed. In addition, the relevance of the prudential carve-out within the General Agreement on Trade in Services (GATS) is examined. As rule creation outside the GATS grows, rule outsourcing in the area of financial services becomes well-established, thereby increasingly pointing to the limited role of the GATS in this area.

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The stunning failure of banks put regulatory intervention high on the agenda of governments. Adequate risk monitoring, including by credit rating agencies, measurement and management have proven to be a daunting task, whereas regulation of innovative financial instruments has not brought about adequate disclosure and transparency. After critically reviewing the virtues and pitfalls of financial innovation, this paper offers an analysis of the main transparency initiatives undertaken in the EU and the US in the wake of the crisis to harness various financial innovations that have marked the history of financial markets in the last three decades. In addition, the paper identifies the approach as to financial innovation that the General Agreement on Trade in Services (GATS) of the World Trade Organization (WTO) has adopted in the early '90s and assesses the likely impact of the recent financial crisis on this stance. As the perimeter of regulation grows and countries become more suspicious vis-à-vis home-country financial regulation, trade in financial services will most likely not remain unaffected.

This paper analyzes the most recent WTO Appellate Body (AB) report in a series of disputes between the US and the EU over government support to aircraft manufacturers Boeing and Airbus. The measures under dispute in US-Tax Incentives were investment promotion subsidies provided to Boeing by the State of Washington. The EU contended that the Washington State subsidies, which were conditioned on Boeing locating production of specific parts of its new 777X program within the state, were prohibited import substitution subsidies. The AB took this case as an opportunity to consolidate WTO case-law on import substitution subsidies. It confirmed a single legal standard for export promotion and import substitution subsidies but with a stricter requirement for a finding of a violation in the case of import substitution subsidies. We argue that the AB, in allowing the subsidies to Boeing, unnecessarily blurred the distinction between contingency in law and contingency in fact by ruling that identifying a condition requiring the use of domestic inputs would be a necessary element for a determination of a de facto contingency. This appears to be an unduly formalistic view that leaves little legal space for any de facto contingency claim in the future.