Banker for the World: Global Capital and America’s Financialization

Financialization may constitute the single most important development in the American political economy. Yet, this development is not fully understood. Existing treatments attribute financialization to the rising power of the financial services providers and their consequent ability to press politicians to deregulate their industry. We o↵er an alternative explanation rooted in Americas global hegemony. More specifically, we argue that the dollars role as the worlds primary reserve currency, the willingness of American private and public institutions to support the value of dollar-denominated assets in periods of market stress, and a comparative advantage in cross-border intermediation that American banks held placed the US at the center of the global financial system. As a result, as states in the European Union and emerging markets liberalized their capital accounts beginning in the 1980s, foreign demand for dollar-denominated assets and for the services provided by American financial firms increased dramatically. We demonstrate empirically that financialization occurred as a response to these global changes rather than as a consequence of financial deregulation.