Regulating Global Financial Markets (original) (raw)
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QUO VADIS GLOBALISATION? LIMITS OF GLOBAL FINANCIAL REGULATION
Since the 1990’s the global capital movements in the world economy took new direction: the previous scruples of the activity of transnational companies have disappeared. The global phenomena of market-oriented liberal economic policies swept aside the formal objection and uncertainty against international working capital flows. The general conviction was that the markets are more effective regulators than governments, parallel with the confidence that transnational companies are the most successful forms of market efficiency. Then came the crisis of 2008, and since the Lehman Brothers has felt, the governments, specialists and scholars are searching for a better equilibrium of regulation of the financial markets. I am deeply concerned that we are just at the beginning of the road towards a better or at least safer global financial market. The study is analyzing three levels of regulation of financial markets: (1) global, (2) regional and (3) national efforts made to avoid a next crisis. On the global scale, the IMF-FSB cooperation is examined, and among this the Early Warning Exercise. On the regional level the study compares the USA governmental regulation based on the Dodd Frank Act and the EU’s legal instruments on preventing the upcoming crises, basically the European System of Financial Supervision. As for the national level, a non-Eurozone member state’s current regulation is analyzed (Hungary) to show how the global and regional sources can influence a national legislation. How far the globalized market regulation may go? What indicators will show the success (or fail) of these new institutions and procedures? Is there any space for national authorities to choose a different way but the common? The study will examine the upper questions, and come to an answer that after circa 30 years of global liberalization on the financial markets it can’t be a surprise that the impacts of the crisis cannot be eliminated during some years of strictness. The study summarizes that while the “impossible trinity” is working in the financial markets, without a global (or at least European) regulatory framework the common goals are unreachable. Keywords: financial crisis, new equilibrium, financial supervision, impossible trinity JEL: G28, G32
The governance and regulation of international finance
Environment and Planning C: Government and Policy, 2014
The extensive failures revealed by the global financial crisis have brought the reform of the existing financial regulatory architecture near to the top of the public policy agenda in Europe, the US, as well as international bodies such as the G20. Regulatory agencies in most industrialized economies have frequently been accused of having fallen 'asleep at the wheel' in the years before the crisis, and their conduct has received renewed scrutiny. However, most debates concerning the regulatory response to the crisis frequently neglect a key point: the regulation of financial markets is more than what regulators do. This insight is central to the volume written by Geoffrey P Miller and Fabrizio Cafaggi, together with Tiago Andreotti, Maciej Borowicz, Agnieszka Janczuk, Eugenia Macchiavello, and Paolo Saguato. The volume is part of a broader collaborative work investigating the mix of public and private regulation and enforcement. Among the different domains and industries, finance stands out for the extent, variety, and relevance of governance arrangements designed and administered by the same financial industry. The volume makes an important contribution to the studies of financial regulation by systematically reviewing and analyzing the diversity of these private regulation and enforcement mechanisms. Indeed, private regulatory mechanisms are to be found at a multitude of levels, starting from inside individual financial firms where internal compliance officers, internal auditors, and risk management officers perform functions that are key to the orderly functioning of financial markets. Financial industry associations gathering the key stakeholders active in a given domain also play key regulatory functions in governing some of the newest and most rapidly developing areas of financial markets, such as microfinance and derivatives, as well as in one of the most traditional areas-that is, the payment system and international accounting standards. Indeed, as the analysis of the International Swaps and Derivatives Associations (a private standard-setting body composed of the major participants in the market, for regulating credit derivatives contracts) highlights, the regulatory impact of financial industry associations is often not limited to the national sphere but also fills gaps in international regulatory architecture. These private governance arrangements, however, rarely remain completely outside of the sphere of influence of government. For example, the volume emphasizes how banking regulatory authorities that comprise the Basel Committee on Banking Supervision have come to incorporate a greater role for private regulatory mechanisms in international banking standards. The cornerstone of the international banking regulation, the Basel Agreement, relies heavily on internal modeling, processes, and risk assessments by the financial institutions that they are designed to regulate. More broadly, the domains analyzed in this book reveal a wide range of variations in the division of responsibilities between public and private actors in the process of standard setting and enforcement. What is, then, the proper allocation of regulatory authority between public and private actors? The authors take upon themselves the task of assessing the relative strengths and weaknesses of different private governance arrangements, including their legitimacy
The Northern Ireland legal quarterly, 2013
Over the last few years since the financial crash in 2008, it has become clear that the structure of financial markets is a major threat for financial stability and wealth, and this not just for countries as diverse as Austria (with its extensive exposure to Central and Southern Eastern European countries), Cyprus, Iceland, Sweden (with a banking crisis in the early 1990s), or the UK, where the financial sector has grown to a proportion of the gross domestic product that could only too easily bring down these economies entirely, not to mention the global effects that could occur in a worst case scenario. Throughout the most developed countries modern finance has become a too complex system with a huge variety of financial institutions which no longer only perform services of financial intermediation in terms of classical banking definitions. Massively driven by speculation, this system is characterised by a dominance of internationally active megabanks and large financial conglomera...
Regulating the International Financial System: Regulators Afoul in a Complex Network
In his widely recognized speech to the Financial Students Association, Andrew G. Haldane, Executive Director of the Bank of England, characterized the global financial system as a complex, adaptive network (Haldane 2009). National financial markets and institutions are strongly interconnected. Turmoil in one region of the network quickly affects other regions. In this paper, I review the findings of hitherto network analyses of the financial system and discuss their policy implications. I consider two strands of literature: Studies belonging to the first strand predominantly use mathematical modeling to examine the relation between the interconnectedness of financial institutions and the risk of contagion. Studies belonging to the second strand are based on empirical data from the BIS International Banking Statistics and describe the structural developments of the global network of national financial sectors (these are interconnected through cross-border bank exposures) from the 1980s onward. On the basis of these studies’ findings, I discuss past and present developments in international financial regulation.
A Holistic Approach to the Governance of Global Financial Regulation
In the aftermath of the 2007-2008 worldwide crisis, it became obvious that something went wrong with liberalized financial capitalism. Financial markets and banking system collapsed and a few months later, they dragged down global economic relations within a generalized turmoil. Several questions arose along with this evolution. One of them is related to the sustainability of international monetary and financial relations. As the economies are increasingly interdependent, it does not seem to be possible to envisage a possible recovery only at a national level. An international coordination and cooperation process is an urgent prerequisite to envisage consistent recovery and stabilization policies. Financial systems play the role of a core reactor of the economic engine in market-related capitalist economies. In a globalized environment, the evolution of financial markets affects every domestic economy even when some of them are not totally integrated within international financial circuits. Even weakly financialized emerging markets are affected by the financial markets turmoil. From this perspective, a relevant alternative organization of international financial relations should regard the financial system as a public infrastructure that must be organized and supervised by a non-market institution. The same assertion holds for financial stability, the management and the supervision of which require a public organization. Stable and sustainable financial markets then require specific governance for their global regulation. This article argues that a relevant alternative global financial regulation should aim at organizing, managing and directing financial activities (markets, actors, means) towards common objectives. It maintains that the regulatory reforms designed in the aftermath of the 2007-2008 crisis do not include such alternative objectives to enable the international coordination and cooperation strengthened enough to cope with growing imbalances. A consistent reform of global financial governance might rest on a regulatory reform that would transform the finance-as-the-aim into the finance-as-the-means in the service of social development. This article adopts a holistic view and exhibits arguments in favor of a comprehensive, inclusive and developmentalist financial framework of capitalism at the international level.
Global Financial Standards and Networks: the Global Administrative Law Perspective
Diferentes tipos de autoridades forman parte en la arquitectura financiera global: internacionales, transnacionales y nacionales; públicas y privadas. El Consejo de Estabilidad Financiera (FBS por sus siglas en inglés), fortalecido en 2009, tiene por objeto coordinar el trabajo de estos organismos. Sin embargo, no todos los actores cumplen las mismas funciones: el G20 tiene por objeto establecer la agenda de reforma y dar el respaldo político a organismos técnicos; el FMI y el BM que, a través de FSAP y ROSCs, tienen el objetivo de hacer cumplir las normas, y no de crearlas. El proceso de elaboración de normas, incluso después de la crisis, todavía está en manos de las redes transnacionales.
Disembedding and Regulation: The Paradox of International Finance
The financial crash of 2007-8 is the latest and greatest of the crises resulting from the process of `financialisation' of the past 30 years. The breakdown of the Bretton Woods system in the early 1970s unleashed a process of liberalisation and internationalisation of finance, and a shift away from relationship-based to market-based finance, led by the UK and the US, acting in tandem as the dominant centres of global finance. Although often described as a period of deregulation, the disembedding of finance through liberalisation was accompanied by an enormous growth of formalised regulation. Although it has been generally reactive, and continually amended and reformed, regulation has mediated the processes through which the competitive and dynamic processes of change have been contested. The proliferation of regulation was national in focus, but it developed as an international process, through networks of regulators and specialists, who developed principles and standards, chang...
Financial globalisation and regulation
Research in International Business and Finance, 2004
The Levy Economics Institute Working Paper Collection presents research in progress by Levy Institute scholars and conference participants. The purpose of the series is to disseminate ideas to and elicit comments from academics and professionals. The Levy Economics Institute of Bard College, founded in 1986, is a nonprofit, nonpartisan, independently funded research organization devoted to public service. Through scholarship and economic research it generates viable, effective public policy responses to important economic problems that profoundly affect the quality of life in the United States and abroad.