The proposal by Larry Ribstein and Henry Butler to create in insurance the same kind of competitive structure that exists between states for the incorporation of businesses was certainly an innovative proposal.

It is at odds, however, with the increased pressure for global norms for all financial services. It also would face opposition as many would view it as creating a race-to-the-bottom in insurance regulation as large insurance companies would have an incentive to charter in the state with the weakest regulatory structure in order to maximize profits when things are going well and betting that they would be bailed out like AIG if things turned really ugly.

I'm not sure whether it's the death of federalism, but it's certainly looking like the death of stupid lending by moron bankers.

The Wall Street Journal reports in today's edition that one of New York City's most prominent chefs can't get a home loan, even with $100,000 down.

Why?

Because he's an illegal immigrant.

"If you want to buy a house and you're here without papers, now you can forget it," says Jesus Benitez, a real-estate agent who caters to illegal aliens in Brooklyn.

http://online.wsj.com/article/SB122463690372357037.html

Nice point, Elizabeth, the bailout thing makes a difference, no? Because most corporations aren't bailed out, state chartering doesn't pose that risk. But insurers might be too big to fail...

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"Global norms for all financial services," alas, is a quixotic aim. It suffers the same practical flaw that "flat tax" proposals do. Regulation will never outpace human ingenuity at outpacing regulation.

Jake,
You are misunderstanding the point of global norms, which right now are focusing primarily on prudential regulation. The Basel Committee on Banking and the International Association of Insurance Supervisors have both published new standards for solvency regulation for banks and insurance companies within the past five years. The goal is to have a uniform set of rules so that everyone is operating on a relatively level playing field. Whether someone can get around the rules depends on how they are written. In the current crisis, different financial institutions had to meet different regulatory standards for their capital requirements. Some of these standards were set by institutions, like the SEC, which had no experience or interest in setting them. As a result, the investment bank led financial conglomerates were allowed to maintain inadequate levels of capital to cover the downside of their investments, which result in Bear Stearns, Lehman Brothers, Goldman Sachs, and Morgan Stanley, to get into varying degrees of trouble. Obviously, prudential regulation will not prevent every bank failure but at least in the commercial banking area, it has decreased the likelihood of such events relative to what they would be without prudential regulation.

Your point about uniformity of regulatory standards is well stated, Elizabeth. I do not misunderstand it. I just doubt whether such a utopian policy aim can work in practice, except at the point of a gun (or a lawsuit).