Banking, finance, and the role of the state (original) (raw)
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Financial Regulation in the light of the current global economic crisis
International Critical Thought, 2012
The regulation or non-regulation of finance and its extent and forms has always been an issue in capitalism’s historical course. This is a crucial issue for the system’s modus operandi since in capitalism money (and its provision, i.e. finance) operates as capital (i.e. provider of means for entrepreneurial activities), whereas its importance in previous socioeconomic systems was significantly lesser. This paper argues that there is an inherent unsolvable contradiction between capitalism’s tendency to unleash finance and its tendency to reign on its instabilities. The paper argues that although the crisis signifies the need of re-regulation, there are significant vested interests that deny it. The rampant internationalization of money and capital markets in recent decades has created a global power structure in favour of internationalized finance. This global power structure promoted national reforms that curtailed regulation and led to extreme open-market practices (i.e. the model of private banking). The crisis signified the failure of this model. However, international finance’s global power remains and thus blocks any moves to circumvent it. The paper ends with a call for public banking as a means of reforming the financial aspects of the current crisis to the benefit of labour.
2019
This paper aims to analyze the dynamics of financial regulation – mainly banking regulation – on an international level. It takes the 10th year anniversary of the Global Financial Crises as an opportunity for this reflection. In order to do that, the first step is a conceptual analysis of banks, banking system, risks and regulation, pointing out that the swings on regulation have to be understood in a broader context, which takes in consideration the different stages of capitalism. Following that, the paper tries to assess the impacts of the GFC on banking regulation. That said, one can notice that regulation moves like a pendulum, swinging from a more pro-market framework to another in which the regulation imposes more barriers to the functioning of banks. Besides, the paper points out that, no matter from where you depart in terms of a more or less pro market regulation, competition among banks, and the need they have to innovate in order to survive in the market, will change regu...
Regulation of Banking and Financial Markets
Social Science Research Network, 2011
The dynamic evolution of the financial system is stirring up the regulatory debate. Recent theoretical insights in the role of financial intermediaries and banks shed new light on the role of financial regulation. Information asymmetries, adverse selection and moral hazard problems help to explain the need for investors' protection and the occurrence of systemic crises that may endanger financial stability. Lender of last resort interventions and deposit insurance are to be complemented by incentive compatible capital adequacy rules in an efficient corporate governance perspective. The balance between market and government is shifting, replacing structural by prudential measures, eventually moving towards worldwide regulation.
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European Journal of Economics and Economic Policies: Intervention, 2012
The paper considers the different ways in which we can approach reform of banking regulation by reflecting on different views on the nature and purpose of money and banks. We consider first the mainstream theory of banking and the interpretation of moral hazard as an expression of calculative rational behaviour, such that reform of banking regulation is formulated in terms of financial incentives and constraints. Post-Keynesian banking theory rather emphasises banks' role in providing society's money and thus the centrality of social conventions, particularly confidence in the money asset. The key is to design regulation so as to allow banks to play their supportive role in the economy, while suppressing scope for a negative role. This approach involves a broader understanding both of moral hazard and of regulation itself.
Brazilian Keynesian Review
Based on the Post-Keynesian approach, we argue that commercial banks, through the financial reforms of 1980 and 1999, which made financial institutions more flexible, increased their capacity to operate in the capital market by becoming Banking Financial Holding Companies. The 2007/2008 crisis is understood as a consequence of financial deregulation and financial innovation process that weakened the Federal Reserve's capacity to restrain banking activity. Initially, we discuss the new institutional context that emerged from these changes in the financial regulatory framework between 1980 and 1999. Then, we focus on how financial deregulation allowed banking business to advance in financial markets, how this process contributed to the economic crisis of 2007, characterized both as a liquidity crisis and a solvency crisis, safeguarded by the National States. Finally, we analyze the Dodd-Frank Law (2010), which is interpreted as the reaffirmation of this endogenous process of finan...
Some Lessons for Regulation from Recent Bank Crises
The New Architecture of the International Monetary System, 2000
"regulatory regime,'' which is a wider concept than the set of prudential principles and business rules established by external regulatory agencies. The role of external regulation in fostering a safe and sound banking system is limited. The incentive's structure for private banks and the efficiency of monitoring and supervision have to play a great role. Liberalization of markets can have bad effects in the transitional period, but advantages can be enormous after the system starts to work correctly. The main lesson of recent bank crises is that there needs to be more effective surveillance of financial institutions both by supervisory authorities and by markets. Effective regulation (internal and external) and supervision of banks and financial institutions have the potential to give a major contribution to the stability and robustness of financial system.
Some lessons for bank regulation from recent crises
2000
The causes of systemic bank distress are complex and multi-dimensional involving economic, financial, regulatory and structural weaknesses. This also means that regulatory approaches also need to be multi-dimensional. The paper suggests that an optimum "regulatory regime" needs to incorporate seven key components: regulation (the rules imposed by official agencies), official supervision, incentive structures within banks, market discipline, intervention arrangements in the event of distress, corporate governance arrangements with banks, and the accountability of regulatory agencies. All are necessary but none alone are sufficient for systemic stability. As there are trade-offs between the components, regulatory strategy needs to focus on the overall impact of the regime rather than only the regulation component.