The Failure of Financial Regulation

The authors of this volume explain why that is a mistake and could invite yet another major crisis.” —Benjamin Cohen, University of California, Santa Barbara, USA “Leading political scientists from several generations here offer ...

The Failure of Financial Regulation

“This publication could not be more timely. Little more than a decade after the global financial crisis of 2008, governments are once again loosening the reins over financial markets. The authors of this volume explain why that is a mistake and could invite yet another major crisis.” —Benjamin Cohen, University of California, Santa Barbara, USA “Leading political scientists from several generations here offer historical depth, as well as sensible suggestions about what reforms are needed now.” —John Kirton, University of Toronto, Canada, and Co-founder of the G7 Research Group “A valuable antidote to complacency for policy-makers, scholars and students.” —Timothy J. Sinclair, University of Warwick, UK This book examines the long-term, previously underappreciated breakdowns in financial regulation that fed into the 2008 global financial crash. While most related literature focuses on short-term factors such as the housing bubble, low interest rates, the breakdown of credit rating services and the emergence of new financial instruments, the authors of this volume contend that the larger trends in finance which continue today are most relevant to understanding the crash. Their analysis focuses on regulatory capture, moral hazard and the reflexive challenges of regulatory intervention in order to demonstrate that financial regulation suffers from long-standing, unaddressed and fundamental weaknesses.

From Crisis to Crisis

This book presents a powerful indictment of this regulatory failure and calls for greatly increased attention to international financial law and analyses new regulatory measures with the potential to make a new recognition of the principles ...

From Crisis to Crisis

The global financial system has proven increasingly unstable and crisis-prone since the early 1980s. The system has failed to serve either creditors or debtors well. This has been reinforced by the global financial crisis of 2008, where we have seen systemic weaknesses bring rich countries to the brink of bankruptcy and visit appalling suffering on the poorest citizens of poor countries. Yet the regulatory responses to this crisis have involved little thinking from outside the box in which the crisis was delivered to the world. This book presents a powerful indictment of this regulatory failure and calls for greatly increased attention to international financial law and analyses new regulatory measures with the potential to make a new recognition of the principles that ought to underlie it. Using a historical approach that compares the various financial crises of the past three decades, the authors clearly show how misconceived economic policy responses have paved the way for each next 'crash'. Among the numerous topics that arise in the course of this revealing analysis are the following: overvalued exchange rates; excess liquidity in rich countries; premature liberalisation of local financial markets; capital controls; derivatives markets; accounting standards; credit ratings and the conflicts in the role of credit rating agencies; investor protection arrangements; insurance companies; and payment, clearing and settlement activities. The authors offer detailed commentary on: the role of multilateral development banks, the IMF and the WTO in responding to crises; the role of the Basel Accords, the Financial Stability Forum and Board, and the responses of the European Commission, the US, and the G20 to the most recent crisis. The book concludes by exploring systemic game-changing reforms such as bank levies, financial activities taxes and financial transaction taxes, and a global sovereign bankruptcy regime; as well as measures to remove the currency mismatches from the balance sheets of developing countries. Apart from its great usefulness as a detailed introduction to the international financial system and its regulation, the book is enormously valuable for its clear identification of the areas of regulatory failure, and its analysis of new regulatory approaches that offer the potential for a genuinely more stable system. Banking and investment policymakers at every level, the lawyers that serve these markets and the regulators that seek to regulate them, cannot afford to neglect this book.

Why Bank Regulation Failed

The current crisis in banking regulation is the subject of this volume, which evaluates the recent shift in regulatory strategy and looks at the techniques by which agencies implement regulatory policy.

Why Bank Regulation Failed

The current crisis in banking regulation is the subject of this volume, which evaluates the recent shift in regulatory strategy and looks at the techniques by which agencies implement regulatory policy. Garten cites the changes that have lessened the profitability of the deposit-lending business, as well as the deregulation that has taken place, but contends that more significant changes are occurring in the regulation that remains. Regulators are experimenting with initiatives that mirror the disciplinary techniques of the corporate equityholder, though Garten argues that this strategy may not be enough to help the industry.

Global Governance and Regulatory Failure

The author provides a theoretical framework of the global political economy of banking regulation and analyses the policies and politics of the Basel Committee on Banking Supervision.

Global Governance and Regulatory Failure

The author provides a theoretical framework of the global political economy of banking regulation and analyses the policies and politics of the Basel Committee on Banking Supervision. He demonstrates how global governance has contributed to the onset of the Great Recession and continues to increase the likelihood of future global financial crises.

US Financial Regulation and the Level Playing Field

This book argues that the uniqueness of US regulation derives from its success in promoting four principles of competitive fairness that US players demand from financial markets.

US Financial Regulation and the Level Playing Field

What will deregulation and globalization of financial markets mean for the future of US financial regulation? This book argues that the uniqueness of US regulation derives from its success in promoting four principles of competitive fairness that US players demand from financial markets. The peculiar US notion of a 'level playing field' provides a novel approach to understanding the evolution of US regulation, including recent reform, and to predicting US attitudes toward questions of global financial market supervision.

Financial Regulation at the Crossroads

This book brings outstanding expertise and provides insightful perspectives from nineteen authors with diverse backgrounds, including officials from international organizations, national regulators, and commercial banking, as well as ...

Financial Regulation at the Crossroads

This book brings outstanding expertise and provides insightful perspectives from nineteen authors with diverse backgrounds, including officials from international organizations, national regulators, and commercial banking, as well as academics in law, economics, political economy, and finance. The authors not only shed light on the causes of the financial turmoil, but also present thoughtful proposals that contribute to the future policy debate, and discuss opportunities that financial services can offer in funding activities which raise standards of living through initiatives in microfinance, renewable energy, and food distribution. The contributions to this volume tackle several of the thorniest issues of financial regulation in a post-crisis environment, such as: the mechanics of contagion within the financial system and the role of liquidity; moral hazard when large financial institutions are no longer subject to the disciplinary effects of bankruptcy; bank capital requirements; management compensation; design of bank resolution schemes; a function-centric versus institution-centric regulatory approach; subsidization and compatibility of stimulus packages with EU rules on state aid; trade finance and the role of the GATS prudential carve-out; and the role of financial services in promoting human rights or combating climate change.

Why Banks Fail

With the recent credit crisis there is a renewed interest in how banks operate and sometimes fail. This book offers an understandable explanation of the complex banking system and how to prevent unreasonable risk.

Why Banks Fail

With the recent credit crisis there is a renewed interest in how banks operate and sometimes fail. This book offers an understandable explanation of the complex banking system and how to prevent unreasonable risk.

Global Bank Regulation

The book features definitions of the policy principles of capital regularization, the main justifications for prudent regulation of banks, the characteristics of tools used regulate firms that operate across all time zones, and a discussion ...

Global Bank Regulation

Global Bank Regulation: Principles and Policies covers the global regulation of financial institutions. It integrates theories, history, and policy debates, thereby providing a strategic approach to understanding global policy principles and banking. The book features definitions of the policy principles of capital regularization, the main justifications for prudent regulation of banks, the characteristics of tools used regulate firms that operate across all time zones, and a discussion regarding the 2007-2009 financial crises and the generation of international standards of financial institution regulation. The first four chapters of the book offer justification for the strict regulation of banks and discuss the importance of financial safety. The next chapters describe in greater detail the main policy networks and standard setting bodies responsible for policy development. They also provide information about bank licensing requirements, leading jurisdictions, and bank ownership and affiliations. The last three chapters of the book present a thorough examination of bank capital regulation, which is one of the most important areas in international banking. The text aims to provide information to all economics students, as well as non-experts and experts interested in the history, policy development, and theory of international banking regulation. Defines the over-arching policy principles of capital regulation Explores main justifications for the prudent regulation of banks Discusses the 2007-2009 financial crisis and the next generation of international standards of financial institution regulation Examines tools for ensuring the adequate supervision of a firm that operates across all time zones

Bank Regulation and the Network Paradigm Policy Implications for Developing and Transition Economies

Honohan and Vittas outline the basic regulatory framework needed to reduce bank failures. Without measures that ensure risk diversification and adequate capital reserves, for example, you get bank failures, as recent experience shows.

Bank Regulation and the Network Paradigm  Policy Implications for Developing and Transition Economies

August 1996 The blurring of boundaries between banking and the rest of the financial network has placed an upper bound on the effectiveness of banking regulation and supervision. Network externalities call for corrective action, but the redundancy and complexity of networks make successful interventions hard to design. So, a degree of modesty is appropriate in designing banking policy. Current issues in banking policy range from the need to construct basic institutions and incentive structures in transition economies -- to the challenges posed by the increasingly complex interactions involved in contemporary banking. Honohan and Vittas outline the basic regulatory framework needed to reduce bank failures. Without measures that ensure risk diversification and adequate capital reserves, for example, you get bank failures, as recent experience shows. Dissatisfaction with the diminishing effectiveness of postwar banking regulation led to substantial deregulation. Before adjusting to deregulation, bankers seemed vulnerable to a contagious euphoria, often manifested in overlending to property developers. Given the historic recurrence of carbon-copy banking failures, clearly private learning will not end all bank failure. And the disappointing performance of both regulated and unregulated financial sectors leaves a vacuum that theoreticians have been trying to fill. Theoreticians note that banking increasingly displays network characteristics that, on the one hand, may call for corrective action but that, on the other, make policy intervention ineffective or counterproductive. For one thing, networks are susceptible to externalities, redundancy (ensuring that flows cannot be obstructed by blocking just one path), and a tendency to adapt to disturbances in a complex manner. Regulation is justified, but the complexity of the network makes successful interventions hard to design. Supervision has a role, and Honohan and Vittas outline the basic regulatory measures needed. But the blurring of boundaries between banking and the rest of the financial network has placed an upper bound on the effectiveness of supervision. So, a degree of modesty is appropriate in designing banking policy. We have to put up with bank failures (mitigated by deposit insurance to protect small savers) but, they argue, partly because of network redundancy, the social cost of bank failure is not as high as is sometimes thought. This paper -- a product of the Financial Sector Development Department -- was an invited paper for the World Congress of the International Economic Association, held in Tunis, December 1995.

Better Banking

And will it work? These are the questions that industry experts Adrian Docherty and Franck Viort cover in Better Banking: Understanding and Addressing the Failures in Risk Management, Governance and Regulation.

Better Banking

Why did the financial crisis happen? Why did no one see it coming? And how did our banks lose so much of our money? What's being done to sort out the banking industry? And will it work? These are the questions that industry experts Adrian Docherty and Franck Viort cover in Better Banking: Understanding and Addressing the Failures in Risk Management, Governance and Regulation. They give a clear and thorough run-through of some of the key concepts and developments in banking, to enable the reader to understand better this vital yet perilous industry. Without excessive detail or jargon, they explain the most important issues in risk management, regulation and governance and build a comprehensive description of how failings in these areas resulted in the current financial crisis. In order to make the diagnosis clear, the authors illustrate their descriptions with a series of informative case studies. The book revolves around a critique of the current regulatory developments, which the authors feel will be ineffective in fixing the structural flaws in banking. Crucially, and as the title of the book suggests, they set out their own series of proposals to contribute to the development of a better, safer and more effective banking industry. Docherty and Viort's book fills an important gap in the literature on banking and its role in the current financial crisis. It is at once a history, a primer, a critique and a manifesto. It does not take sides but works through a constructive diagnosis towards ideas that could lead to major improvements in the quality and stability of the financial world. Better Banking: Understanding and Addressing the Failures in Risk Management, Governance and Regulation is a technical yet accessible book that seeks to engage interested readers of all kinds -- students, professionals, bankers and regulators but also politicians and the broader audience of citizens outside the banking industry, who are keen to inform themselves and understand what needs to be done to avoid a repeat of this crisis.

Banking supervision and regulation

Defaults on subprime mortgages underlying some of the instruments shattered confidence and financial markets seized up. The framework of regulation and supervision in Britain failed to avoid or mitigate the crisis.

Banking supervision and regulation

2007 and 2008 saw the biggest financial crisis since the 1930s. Banks looking for better yields from plentiful, cheap money made much more use of complex financial instruments, without fully understanding the risks to which they were exposing themselves and the financial system. Defaults on subprime mortgages underlying some of the instruments shattered confidence and financial markets seized up. The framework of regulation and supervision in Britain failed to avoid or mitigate the crisis. The tripartite authorities in the United Kingdom (Bank of England, Financial Services Authority (FSA) and Treasury) failed to maintain financial stability and were found wanting, in part because the roles of the three parties were not well enough defined and it was not clear who was in charge. Too little attention was paid to macro-prudential supervision (oversight of the aggregate impact on financial stability of individual banks' actions); only the Bank of England and the FSA were in a position to assess it. The FSA concentrated on its responsibility for conduct-of-business supervision (concerned mainly with consumer protection) and did not pay full attention to the solvency and sustainability of individual banks. It also had an inadequate understanding of the complexity and limitations of the risk assessment models used by the banks it was supervising. The Banking Act 2009 showed the Government had learnt the lesson that special resolution provisions are needed for banks since their failure can threaten the whole financial system. The Committee calls on the Government urgently to revisit the tripartite supervisory system in the United Kingdom and it should return responsibility for macro-prudential supervision to the Bank of England. Other recommendations cover bank capital regulation, ratings agencies and bank governance.

Too Big to Fail in Banking

This book provides a comprehensive summary of the latest academic research on the important topic of too-big-to-fail (TBTF) in banking.

Too Big to Fail in Banking


Senseless Panic

Praise for Senseless Panic "Washington had better read this book. Bill Isaac is absolutely on target in his acute analysis of what he rightly calls the 'Senseless Panic of 2008.

Senseless Panic

The truth about the 2008 economic crisis from a Washingtoninsider The 1980s opened with the prime interest rate at an astonishing21.5 percent, leading to a severe recession with unemploymentreaching nearly 11 percent. Depression-like conditions befell thecountry, the entire thrift industry was badly insolvent and themajor money center banks were loaded with third world debt. Some3,000 bank and thrifts failed, including nine of Texas’ tenlargest, and Continental Illinois, which, at the time, was theseventh largest bank in the nation. These severe conditions werenot only handled without creating a panic, the economy actuallyembarked on the longest peacetime expansion in history. In Senseless Panic: How Washington Failed America,William M. Isaac, Chairman of the Federal Deposit InsuranceCorporation (FDIC) during the banking and S&L crises of the1980s, details what was different about 2008’s meltdown thatallowed the failure of a comparative handful of institutions tonearly shut down the world’s financial system. The book alsotells the rousing story of Isaac’s time at the FDIC. Details the mistakes that led to the panic of 2008 and2009 An updated paperback revision of the bestselling book on the2008 economic crisis, including a fascinating new Epilogue Demystifies the conditions America faced in 2008 Provides a road map for avoiding similar shutdowns and panicsin the future Includes a foreword by Federal Reserve Chairman PaulVolcker Senseless Panic is a provocative, quick-paced, andthoughtful analysis of what went wrong with the nation's bankingsystem, a blunt indictment of United States policy, and a road mapfor making sure it doesn’t happen again.

Bank Funding Structures and Risk

This paper analyzes the evolution of bank funding structures in the run up to the global financial crisis and studies the implications for financial stability, exploiting a bank-level dataset that covers about 11,000 banks in the U.S. and ...

Bank Funding Structures and Risk

This paper analyzes the evolution of bank funding structures in the run up to the global financial crisis and studies the implications for financial stability, exploiting a bank-level dataset that covers about 11,000 banks in the U.S. and Europe during 2001?09. The results show that banks with weaker structural liquidity and higher leverage in the pre-crisis period were more likely to fail afterward. The likelihood of bank failure also increases with bank risk-taking. In the cross-section, the smaller domestically-oriented banks were relatively more vulnerable to liquidity risk, while the large cross-border banks were more susceptible to solvency risk due to excessive leverage. The results support the proposed Basel III regulations on structural liquidity and leverage, but suggest that emphasis should be placed on the latter, particularly for the systemically-important institutions. Macroeconomic and monetary conditions are also shown to be related with the likelihood of bank failure, providing a case for the introduction of a macro-prudential approach to banking regulation.

The Future of Financial Regulation

In this book, Johan A. Lybeck uses case studies from Europe and the United States to examine and grade a number of bank resolutions in the last financial crisis and establish which were successful, which failed, and why.

The Future of Financial Regulation

A number of changes have been made to the supervision and regulation of banks as a result of the recent financial meltdown. Some are for the better, such as the Basel III rules for increasing the quality and quantity of capital in banks, but legal changes on both sides of the Atlantic now make it much more difficult to resolve failing banks by means of taxpayer funded bail-outs and could hinder bank resolution in future financial crises. In this book, Johan A. Lybeck uses case studies from Europe and the United States to examine and grade a number of bank resolutions in the last financial crisis and establish which were successful, which failed, and why. Using in-depth analysis of recent legislation, he explains how a bank resolution can be successful, and emphasizes the need for taxpayer-funded bail-outs to create a viable banking system that will promote economic and financial stability.

Misalignment

In Misalignment: The New Financial Order and the Failure of Financial Regulation, Joel Seligman provides a broad account of banking, insurance, and securities regulation from the beginning of the United States through the 2007-2009 ...

Misalignment

In Misalignment: The New Financial Order and the Failure of Financial Regulation, Joel Seligman provides a broad account of banking, insurance, and securities regulation from the beginning of the United States through the 2007-2009 financial crisis and concludes with a plan for a fundamentally different approach to financial regulation that is more likely to avoid financial meltdowns in the future and minimize financial perturbations. The history of financial regulation in the United States is a history of crisis reaction. Before the New Deal, uncoordinated regulatory systems were established in banking and insurance. In the New Deal period, the U.S. achieved a long-stable model of financial regulation that atomized financial firms and substantially increased investor and depositor protection. After World War II, the New Deal financial regulatory model deteriorated and vast areas of finance evolved outside of regulation. No event better crystalized this deterioration than the financial debacle of 2007-2009. How was such a debacle possible in a nation whose financial regulatory system was long considered the finest in the world? More than any other cause, the misalignment of the Treasury, Federal Reserve System, and regulatory systems designed in earlier crises to address specific industries was overwhelmed by a New Financial Order, financial supermarkets that operated in several financial fields simultaneously. The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was at best a partial response to the greatest financial calamity in our history since the 1929-1932 stock market crash. The failure of Dodd-Frank to address the structure of financial regulation was its most conspicuous weakness. Misalignment proposes a plan for a different approach to financial regulation designed to avoid economic failures in the future and minimize financial disorder.

Banking Law

This authoritative text offers an in-depth analysis of modern banking law and regulation, while providing an assessment of its effectiveness and normative underpinnings.

Banking Law

Banking regulation and the private law governing the bank-customer relationship came under the spotlight as a result of the global financial crisis of 2007–2009. More than a decade later UK, EU and international regulatory initiatives have transformed the structure, business practices, financing models and governance of the banking sector. This authoritative text offers an in-depth analysis of modern banking law and regulation, while providing an assessment of its effectiveness and normative underpinnings. Its main focus is on UK law and practice, but where necessary it delves into EU law and institutions, such as the European Banking Union and supervisory role of the European Central Bank. The book also covers the regulation of bank corporate governance and executive remuneration, the promises and perils of FinTech and RegTech, and the impact of Brexit on UK financial services. Although detailed, the text remains easy to read and reasonably short; pedagogic features such as a glossary of terms and practice questions for each chapter are intended to facilitate learning. It is a useful resource for students and scholars of banking law and regulation, as well as for regulators and other professionals who are interested in reading a precise and evaluative account of this evolving area of law.

Bank Regulation Modified Prompt Corrective Action Framework Would Improve Effectiveness

Charts and tables. This is a print on demand report.

Bank Regulation  Modified Prompt Corrective Action Framework Would Improve Effectiveness

More than 300 insured depository institutions have failed since the current financial crisis began in 2007, at an estimated cost of almost $60 billion to the deposit insurance fund (DIF), which covers losses to insured depositors. Since 1991, Congress has required federal banking regulators to take prompt corrective action (PCA) to identify and promptly address capital deficiencies at institutions to minimize losses to the DIF. This report examines: (1) the outcomes of regulators¿ use of PCA on the DIF; (2) the extent to which regulatory actions, PCA thresholds, and other financial indicators help regulators address likely bank trouble or failure; and (3) options available to make PCA a more effective tool. Charts and tables. This is a print on demand report.

Governing Banking s Future Markets vs Regulation

Risk-based capital standards presume a need for common capital standards across countries. The details of forging an agreement were left to the staffs of the primary bank regulators in each country, and compromises were inevitable.

Governing Banking   s Future  Markets vs  Regulation

Risk-based capital standards presume a need for common capital standards across countries. The details of forging an agreement were left to the staffs of the primary bank regulators in each country, and compromises were inevitable. Although domestic constituencies' reactions to the proposals were invited, the arduous negotiations that led to the proposals generated intense pressure on the principals not to make changes. The European Community's approach to financial integration seems to be driven by a political desire to achieve an integrated market within Europe, despite significant institution al differences among countries. Underlying that desire is a belief that the market pressures that result from different regulatory systems operating in the same market will produce the right answer . The financial provisions of the U .S.-Canada free-trade agreement take a direction that, in my judgment, is more productive. The provisions are more limited in scope than are those of the European initiative. National treatment and national sovereignty are preserved. However, the delicate issue of national responsibility for failing institutions, and its relationship to monetary policies, is not addressed. A Better Alternative A productive basis for international regulation can be formulated around three principles: 1. free entry for foreign-owned subsidiaries chartered under the laws of the host country; 2. national treatment for those subsidiaries; and 3. national responsibility for (a) monetary policy, (b) prevention of unwarranted financial panics in domestically chartered institutions, whether foreign or domestically owned, and (c) supervision of all domestically chartered institutions, regardless of ownership.

Preventing the Next Financial Crisis

The financial storm gradually died down in 2009, at least in the United States, but even six years after that, much of the world had yet to fully recover from the enormous economic damage caused by the crisis.This essay describes what ...

Preventing the Next Financial Crisis

The financial crisis that began in 2007 brought much of the global economy to its knees and nearly triggered another Great Depression. The financial storm gradually died down in 2009, at least in the United States, but even six years after that, much of the world had yet to fully recover from the enormous economic damage caused by the crisis.This essay describes what happened and outlines a new approach to financial regulation (macroprudential policy) that aims to prevent such crises from happening again.