International Financial Regulation

11 Key excerpts on "International Financial Regulation"

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  eBook - ePub

  Regulating Capital

  Setting Standards for the International Financial System

  • David Andrew Singer(Author)
  • 2015(Publication Date)
  • Cornell University Press

    (Publisher)

  My focus is on the creation of global standards rather than on international memoranda of understanding that facilitate ad hoc cooperation in areas such as securities fraud and other criminal activity. Substantively, my emphasis is on capital, and therefore on the stability of financial institutions, rather than on consumer protection or the fight against illicit activity. And as should be clear, I focus on the role of public-sector regulatory agencies that have been delegated responsibility by the government rather than on private standard-setting organizations or industry self-regulation. 30 Financial Regulation and International Relations Why study International Financial Regulation? Regulation at the domestic level is often designed to address market failures, in which the unfettered activities of firms and consumers result in unfavorable outcomes. For example, the decentralized decisions of banks and their clients may lead the former to lend too aggressively, thereby putting the stability of the financial sector—and the entire economy—at risk. The prevalence of market failures in domestic financial markets provides incentives for governments to step in, as necessary, by establishing financial regulations. With the globalization of financial markets, market failures have moved to the international level. Examples such as the 1987 stock market crash, which roiled financial markets in New York, London, Tokyo, and throughout the rest of the world, demonstrate that financial instability in one country can affect many other countries that are tied together in the global economy. However, addressing international market failures is not as straightforward as in the domestic case. International Financial Regulation, in short, requires international cooperation

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  Regulating Financial Services and Markets in the 21st Century

  • Eilís Ferran, Charles Goodhart CBE, Eilís Ferran, Charles Goodhart CBE(Authors)
  • 2001(Publication Date)
  • Hart Publishing

    (Publisher)

  THE DEVELOPMENT OF International Financial Regulation The development of International Financial Regulation since 1974 has been essen-tially reactive. The first major reaction was to the fact of liberalisation itself. The three decades following the end of World War II had seen the refinement of the tools for managing systemic risk in domestic monetary and financial systems. Allied with the international commitment to the management of financial flows that was a key component of the Bretton Woods system, these domestic arrange-ments had resulted in 25 years of reasonable financial stability in most OECD countries. This is not to say that there were not financial crises; there were. But they were predominantly of macro-economic origin, disrupting the micro-economy: high inflation rates undermining confidence in monetary policy, or persistent current account deficits undermining confidence in the exchange rate. The bad old days of micro-economic instability spreading as contagion through the financial sector and destabilising the macro-economy belonged to the pre-war era of economic disaster, from which important lessons had been learned. 6 Those lessons were now embodied in appropriate policies and institutions. Important amongst these institutions were powerful regulatory structures and interventionist central banks dedicated to the management of (indeed the min-imisation of) systemic risk. There had, of course, been a partial relaxation of wartime and immediate post-war regulation throughout the 1950s and 1960s. But even at the end of the 1960s the regulatory regime was powerful and national. In the United States domestic money markets were particularly tightly regulated, and President Johnson’s interest equalisation tax was used to manage international capital flows.

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  The Reform of International Economic Governance

  • Antonio Segura Serrano(Author)
  • 2016(Publication Date)
  • Routledge

    (Publisher)

  The redesign of International Financial Regulation – and the main objective of global financial governance – is regulatory challenge posed by the financial crisis will be how regulators and central bankers can strike the right balance between micro-prudential regulation and supervision with macro-prudential controls on the broader financial system and economy. The overriding theme of the international financial reform initiatives (for example, the G20, the Financial Stability Board and Basel Committee) that began with the G20 Summits in Washington DC in November 2008 and London in April 2009 35 has been how to devise effective regulatory frameworks that durably link micro-prudential supervision with broader macro-prudential systemic risk concerns. Indeed, a major reform of global financial governance has been the shift in regulatory and supervisory focus from micro-prudential to macro-prudential regulation. The focus on macro-prudential regulation has involved, for instance, devising regulatory standards to measure and limit leverage levels in the financial system and to require financial institutions to have enhanced liquidity reserves against short-term wholesale funding exposures. Macro-prudential regulation will also involve capital regulation that is counter-cyclical – requiring banks to hold more regulatory capital during good times and permitting them to hold less than what would be usually required during bad times. Counter-cyclical capital requirements would link capital charges to points in the macro-economic and business cycle. For example, this would involve dividend restriction policies during a crisis or recession so that banks will lend more. 36 This will necessarily involve banks using more forward-looking provisions based on expected losses

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  International Economic Regulation

  • Jane Kelsey(Author)
  • 2018(Publication Date)
  • Taylor & Francis

    (Publisher)

  Part IIRegulating International Finance and Investment Passage contains an image

  [5]

  Regulating Global Financial Markets

  SOL PICCIOTTO* AND JASON HAINES**

  This paper discusses the role of regulation in the emergence of a global system of linked financial markets. It traces the origins of the internationalization of financial markets to the emergence of new competitive pressures, rooted in changes in the social structures of savings and investment, breaking down both national systems of financial control and international arrangements for monetary and financial co-ordination. These changes have been accompanied and facilitated by a process of international re-regulation, through informal specialist networks. Although these have facilitated the international diffusion of regulatory standards and practices, and attempted to co-ordinate them, they are greatly hampered by espousing the perspectives of the various markets and firms which it is their task to supervise. Together with their minimalist view of the aims of public legitimation and oversight of financial markets, they have proved inadequate to prevent the destabilizing effects of the new global finance on the world economy.

  This paper greatly benefited from a grant from the Leverhulme Trust to fund research by the authors into Regulation of Globalized Futures Markets. Earlier papers exploring these issues were presented to the Second Consortium on Globalization, Law and Social Sciences, University of Glasgow, June 1996; and the Third Consortium on Globalization, Law and Social Sciences, Institute for Law and Society, New York University, United States of America, April 1997. A draft of this paper was delivered at the W. G. Hart Workshop on Transnational (Corporate) Finance and the Challenge to the Law, Institute for Advanced Legal Studies, University of London, July 1998. We are grateful to the organizers and participants at these workshops for the opportunity to debate the issues, and especially to David Campbell, Kevin Dowd, and Dede Boden for many helpful comments and fruitful discussions, and to the journal's referees for specific suggestions. We would also like to thank the many financial market participants and regulators who have spared some of their valuable time to participate in our continuing research.

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  Achieving Financial Stability and Growth in Africa

  • Stephany Griffith-Jones, Ricardo Gottschalk, Stephany Griffith-Jones, Ricardo Gottschalk(Authors)
  • 2016(Publication Date)
  • Taylor & Francis

    (Publisher)

  2    Financial regulation, stability and growth in low-income countries A review of the evidence and agenda for research Stephen Spratt Introduction

  For many low income countries, especially in Africa, financial regulation policies constitute the foundation basis for the mechanisms through which financial development exerts a positive impact on economic growth and poverty reduction.

  (Murinde, 2012)

  Without effective regulation, financial systems become unstable, potentially triggering crises with devastating effects on the real economy. The continuing impacts of the global financial crisis of 2007–8 show how large these can become. While the avoidance of crises is a necessary condition for productive economic activity to flourish, it is not sufficient. Another more positive side to regulation is one which shapes the evolution of financial structures and influences the ways in which financial actors serve the real economy. The purpose of regulation is thus twofold: to maintain financial stability and to promote inclusive economic growth. Achieving the right balance between these objectives is a delicate, but crucial task. Too great a focus on stability stifles growth, while a headlong dash for growth is very likely to sow the seeds of future crises.

  The structures of low-income countries’ (LICs) real and financial sectors are different to those in developed countries. Institutional capacity to implement certain kinds of financial regulation is also generally lower. Therefore, the set of regulatory instruments best able to maximise growth, while maintaining stability, should also be different.

  While this has always been broadly accepted in principle – if rarely in practice – the global financial crisis highlighted a more fundamental issue. Given what we learnt about ‘sophisticated’ finance, it is simply no longer tenable to view the regulatory practices that evolved in the world’s major financial centres as a model to which developing countries should aspire. As regulatory options continue to be re-assessed in developed economies, the time is ripe to do the same in developing countries in general, and LICs in particular.

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  Reforming Global Economic Governance

  An Unsettled Order

  • Carlo Monticelli(Author)
  • 2019(Publication Date)
  • Routledge

    (Publisher)

  Conventionally, the international standards relevant to financial stability are grouped into three areas. The first one regards the transparency of macroeconomic policies and data. It includes principles that should be adhered to in: i) compiling and disseminating economic, financial, and socio-demographic harmonized statistics; ii) adopting practices so as to provide a clear picture of the structure and finances of government; iii) ensuring transparency in the conduct of monetary and financial policies; and iv) producing and disseminating information in order to access international capital markets. 5 The second area focuses on financial regulation and supervision, and covers standards to define the framework for: i) the supervision of the insurance sector; ii) the sound prudential regulation and supervision of banks and banking systems; and iii) securities regulation protecting investors, reducing systemic risk, and ensuring that markets are fair, efficient, and transparent. 6 The third area covers institutional and market infrastructure, and comprises standards defining: i) independent auditors’ responsibilities; ii) the legal, institutional, and regulatory framework that influences corporate governance; iii) benchmarks to assess the quality of deposit insurance systems; iv) the features of systemically important payment systems, central securities depositories, securities settlement systems, central counterparties, and trade repositories as well as the responsibilities of the respective supervising authorities; v) the legal, regulatory, and operational measures for combating money laundering and the financing of terrorism; vi) ways to evaluate and improve insolvency and creditor/debtor regimes; and vii) a single set of accounting standards to be applied on a globally consistent basis. 7 On the other hand, if the international standards regime complemented by a pivotal forum bringing together the

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  State and Financial Systems in Europe and the USA

  Historical Perspectives on Regulation and Supervision in the Nineteenth and Twentieth Centuries

  • Jaime Reis, Stefano Battilossi(Authors)
  • 2016(Publication Date)
  • Routledge

    (Publisher)

  The next part of the chapter develops the history of prudential regulation and supervision of international banking that began after the end of the Bretton Woods system. This area has remained a challenge for regulators for much the same reasons that were present in the 1970s: problems of enforcement, the privacy of banking business, and the primacy of national over international interests. A second theme of the chapter, therefore, is the enduring conflict between the desire to have national sovereignty over financial markets on the one hand, and the need for supranational oversight to ensure consistency and enforcement of prudential supervision and regulation in an increasingly global market.

  I

  The regulation of international financial markets in the 1950s and 1960s was closely linked to the Bretton Woods solution to the ‘trilemma’ or ‘impossible trinity’, which explains that maintaining policy sovereignty in the context of fixed exchange rates requires imposing limits on international capital flows.1 The over-riding goals of national economic growth and full employment as well as the development of welfare states after 1945 required that national sovereignty was prioritized over freer capital flows.2 Countries with balance-of-payments deficits used direct controls on outflows to avoid relying solely on higher domestic interest rates. Conversely, countries with pressures for surplus and inflation used regulations to protect their domestic monetary systems from inflows of capital.

  The terms of the Bretton Woods agreement reflected a broad international consensus that freer markets in goods were beneficial for growth, employment and incomes overall, but that international financial markets should be closely regulated.3 While the link between freer trade and growth is fairly well established, there is still no such consensus for the link between liberalization of financial markets and growth. It makes sense to assume that freer capital markets will generate a more efficient global allocation of investment resources and so provide the best prospects for growth. However, empirical research has revealed an ambiguous relationship between capital-account liberalization and economic growth.4 Crafts has observed that there is ‘no evidence that abolishing capital controls per se leads to higher growth …. But there is quite good reason to believe that financial liberalization significantly increases the risk of a subsequent financial/currency crisis’.5 In 1997, the IMF began to consider including capital-account liberalization in its Articles of Agreement, but this process was stalled in the wake of the financial crises of the late 1990s. In December 2003, Anne Kreuger, Director of the IMF, advised that ‘Capital flows are, in some respects, like antibiotics. Anything capable of doing good is also powerful enough to inflict harm when wrongly used. That is not a reason to restrain capital flows, though, but to harness them so that they can do most good’.6

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  The Future of International Law

  Global Government

  • Joel P. Trachtman(Author)
  • 2013(Publication Date)
  • Cambridge University Press

    (Publisher)

  He argues that any move along these lines would have to be global, rather than national, because of these types of externalities. 307 Of course, at least in the general international system, as opposed to, say, the EU, there is no rule of exclusive regulation by the home country. So, as a possible alternative to a Global Glass-Steagall, a potential host country could block market entry by the laxly regulated foreign financial institution. On the other hand, however, there are incentives for states to reduce inefficient or even merely uncompetitive regulation. As noted, states such as the United States that formerly imposed greater limits on the powers of their institutions found them disadvantaged in terms of operations in more lax markets, where the 307 Barry Eichengreen, “Out of the Box Thoughts About the International Financial Architecture” (IMF Working Paper WP/09/116, 2009). Retrieved from http://www.imf.org/external/pubs/ft/ wp/2009/wp09116.pdf. Global Regulation of Finance 185 U.S. financial institutions might have enjoyed a broader range of powers. Thus, unilateral action alone, by virtue of market access rules, does not appear to be sufficient to establish appropriate rules. Furthermore, it may be difficult to distinguish such unilateral action from protectionism. Therefore, discourse on the basis of regulatory expertise, toward multilateral essential harmonization, seems appropriate in this area, again, assuming that we are able to overcome uncertainty as to appropriate regulatory action. Of course, there is another type of uncertainty that is more difficult to overcome: uncertainty regarding the appropriateness of a particular regulatory rule across different legal, financial, and social systems. However, under circumstances of increasing globalization, greater homogenization and greater mobility of abuse will militate toward essential harmonization of financial regulation rules in this area.

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  Global Finance in the 21st Century

  Stability and Sustainability in a Fragmenting World

  • Steve Kourabas(Author)
  • 2021(Publication Date)
  • Routledge

    (Publisher)

  https://www.oecd-ilibrary.org/economics/the-prudential-regulation-of-financial-institutions_5jz6zgzzw8s4-en , accessed 29 December 2020

  Zaring D, ‘International Law by other Means: Twilight Existence of International Financial Regulatory Organizations’ (1998) 33(2) Texas International Law Journal 281

  Zaring D, ‘Finding Legal Principle in Global Financial Regulation’ (2012) 52(3) Virginia Journal of International Law 682

  Other publications

  Australian Department of the Treasury, Financial System Inquiry: Final Report (1997)

  Bank for International Settlements, Bimonthly Meetings . https://www.bis.org/about/bimonthly_meetings.htm , accessed 28 November 2020

  Bank for International Settlements, Committee on the Global Financial System . https://www.bis.org/cgfs/index.htm , accessed 28 November 2020

  Bank for International Settlements, History of the Basel Committee . https://www.bis.org/bcbs/history.htm , accessed 29 December 2020

  Bank for International Settlements, High-Level Conference Discusses Ways to Reduce Global Financial Risk and Improve Macro-prudential Regulation (2011). https://www.bis.org/ press/p110418.htm , accessed 30 December 2020

  Bank for International Settlements, Governors and Heads of Supervision Announce Deferral of Basel III Implementation to Increase Operational Capacity of Banks and Supervisors to Respond to Covid-19

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  European Union Economic Diplomacy

  The Role of the EU in External Economic Relations

  • Stephen Woolcock(Author)
  • 2016(Publication Date)
  • Routledge

    (Publisher)

  The approach adopted by the Commission was analogous to that of the Cockfield White paper for goods launched slightly more than 10 years earlier. The FSAP listed 42 measures that were considered necessary to harmonise EU regulatory standards in the financial sector (European Commission, 1999). These measures covered banking, securities, insurance, mortgages and pensions and were intended to help bring about broad equivalence in the national regulatory regimes that was necessary for home country control to function properly. Despite this agreement to work on a list of specific standards/norms, underlying differences remained. As noted above, there were differences between the regulatory ‘cultures’ in the member states. There was also the question of how EU regulatory standards should relate to international regulation. If the EU could develop common EU regulatory standards, it could be expected to have a major influence on international standards (Becht and Correia da Silva, 2007). But some member states, such as Britain, and some interests preferred the international level and feared EU standards would be more restrictive and thus undermine the competitive position of the City of London as a financial market. The approach to financial markets was also shaped by the prevailing mood of the late 1990s, which was one of fatigue with EU level legislation. The sentiment of the member state governments at the time of the Cardiff European Council in 1998 when the Single Financial Market Action plan was adopted, was generally sceptical of the need for greater centralisation and favoured more flexibility.

  Before very long however, there was recognition that the institutional arrangements for EU decision-making in financial market regulation were not fit for purpose. Financial markets were developing, and new ‘products’ were being introduced that Commission officials could not easily follow. EU legislation on financial regulatory standards was being adopted, but these tended to lag behind the implementation of international agreements by the member states. Thus, new standards would be agreed in the various international bodies such as the BCBS and adopted at the national level before the EU endorsed the same international standard in an EU directive. So the role of the EU in international financial regulatory standards-making was one of a follower rather than a leader. In an attempt to improve and speed up the EU decision-making process as well as bring more clarity into the complex decision-making procedures within the EU, the Commission set up a Committee of Wise Men under the chairmanship of Baron Alexandre Lamfalussy.

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  Globalization, Marginalization and Development

  • Mansoob Murshed(Author)
  • 2002(Publication Date)
  • Taylor & Francis

    (Publisher)

  2 Financial sector regulation in a globalized context

  S. Mansoob Murshed and Djono Subagjo

  In his presidential address to the American Economics Association, Milton Friedman gave us the authoritative version of the monetarist creed:

  …monetary policy can prevent money itself from being a major source of economic disturbance… A second thing monetary policy can do is to provide a stable background for the economy. Milton Friedman (1968: 12–13)

  This statement has become the cornerstone of macroeconomic policy advice dispensed to all developing and transitional economies. It also constitutes the raison d’être for the primacy of inflation control, as well as the stabilization and structural adjustment programmes of the 1980s, and the associated liberalization of financial markets. But as we all know, with hindsight, this view (generally described as the Washington consensus) ignored the need for prudential regulation of the financial sector as a prerequisite for sound monetary policy. The converse is equally true: stable monetary policies are needed if an efficient financial sector is to flourish. Simple (or simple-minded) capital account liberalization, as part of a strategy of integration into the global economy, has become discredited in the wake of the Asian crisis of 1997 (see Rodrik 1998). In addition, it is recognized that monetary policy reform geared to controlling inflation will not benefit the economy fully unless and until the private financial sector is well functioning. Also in the presence of many other distortions in the economy, financial liberalization may be undesirable, due to second-best considerations. The over-arching problem lies in the weak nature of institutions and the type of strategic interaction between the state and various groups in developing countries (LDCs).

  This chapter aims to make a policy-oriented contribution to the literature on prudential bank regulation for LDCs. It does three things: first, it argues that there is a need to place banking sector regulation high on the policy agenda. Second, it provides some theoretical insights, emphasizing the difficulties of the regulation process. Finally, it critically analyses policy advice in a taxonomic style with regard to prudential regulation, paying close attention to the capabilities of lowincome and small LDCs. The first section examines the need to pay attention to banking regulation, the second section is devoted to the theoretical and policy analysis on bank regulation, and, finally, the third section concludes with policy recommendations.

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