Category: Regulation

Bolstering financial stability regulation

August 28, 2009 2:52 pm by Financial Times

By Masahiro Kawai and Michael Pomerleano

In a previous article in the Economists’ Forum, we expressed skepticism about the capacity of the Financial Stability Board to implement sound international financial stability regulatory architecture. We concluded that the prospects were more promising on the domestic front; this led to a discussion on creating a financial stability regulator at the national level.

The Obama administration has proposed that the Federal Reserve should become the overseer of financial stability in the US. The central bank would gain power to monitor risks across the financial system and sweeping authority to examine any firm that could threaten financial stability. The nation’s biggest and most interconnected firms would be subject to heightened oversight.

Continue reading: “Bolstering financial stability regulation”

Posted in Central banks, Crisis, Economics, Federal Reserve, Fiscal policy, Monetary policy, Regulation |

Rating agencies vs. investment banks: Who’s minding the shop?

August 25, 2009 5:11 pm by Financial Times

By Marc Flandreau

Our research shows investment banks are no longer selective when they underwrite emerging market debts. This is because responsibility for certification has been outsourced to rating agencies, leading to the emergence of a market for securities than is riskier than previous counterparts.

The debate on the responsibility of rating agencies for failing to see the making of the sub-prime crisis and even contributing to it through their behaviour neglects one important aspect of the matter which I came across with colleagues.

Continue reading: “Rating agencies vs. investment banks: Who’s minding the shop?”

Posted in Banks, Crisis, Regulation |

How the EU could stop the global crisis becoming a European problem

August 23, 2009 1:58 pm by Financial Times

By Andre Sapir

Imagine the US was facing the current crisis with the following situation: only 30 of its 50 states belong to the dollar area; most of the southern states are outside the dollar area and so is New York, home of the US financial centre; the seat of the US government is in Washington, but dollar area chairman Ben Bernanke operates from Pittsburgh and secretary Tim Geithner is mainly governor of Vermont, one of the smallest US states, with a population of roughly half a million.

Absurd? Yet this is exactly what the European Union looks like, with only 16 of its 27 member states belonging to the euro area; most of the eastern states and the UK, home of the EU financial centre, outside the euro area; the seat of the EU institutions in Brussels, but ECB president Jean-Claude Trichet operating from Frankfurt and Eurogroup chairman Jean-Claude Juncker mainly the prime minister of Luxembourg.

Continue reading: “How the EU could stop the global crisis becoming a European problem”

Posted in Eurozone, Fiscal policy, IMF, Regulation |

Central banks must time a ‘good exit’

August 12, 2009 1:42 am by Financial Times

by Randall Kroszner

Pinn illustration

Leaving a financial crisis is like leaving an awkward social gathering: a good exit is essential. In 1936-37, the Federal Reserve made a colossal mistake in its “exit strategy”. This time round it is crucial that central banks get their timing right.

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Posted in Central banks, Crisis, Regulation |

Further reading

August 11, 2009 3:35 pm by Financial Times

From the FT:

Germany still in credit crunch danger: James Wilson investigates the suggestion that Germany could still suffer as the financial crisis reaches its lowest point

Singh’s big chance to unchain the Indian economy: Eswar Prasad says financial sector reforms will determine the pace and quality of India’s growth

Elsewhere:

Easing job losses don’t change weak prospects for US recovery: RGE Monitor

Undersized: Could Greenland be the new Iceland? Should it be? Anne Sibert in VoxEU.org


Posted in Credit squeeze, Recession, Regulation |

Ring-fence cross-border financial institutions

August 10, 2009 4:47 pm by Financial Times

By Michael Pomerleano

Josef Ackermann, Deutsche Bank chief executive and chairman of the Institute of International Finance, wrote last month in the FT: “There is a danger that changes in the regulatory environment will, by accident or design, lead to a refragmentation of markets…Consequently, we should not seek answers in the perceived safety of nation-based structures, but rather establish effective processes for cross-border crisis management”.

According to Mr Ackermann, the inability to reach binding cross-border standards and insolvency systems is likely to lead domestic regulators to abandon trust in home/host regulatory arrangements, and encourage financial institutions to contract to their home turf.  Should we support to Mr Ackermann’s recommendations? No.

Continue reading: “Ring-fence cross-border financial institutions”

Posted in Banks, Crisis, Regulation |

Adapting to Britain’s mediocre prospects

July 17, 2009 1:44 am by Martin Wolf

If the government of the UK wishes to find a suitable motto, it should adopt the advice of a great Scot. “Great Britain should,” wrote Adam Smith in The Wealth of Nations, “…endeavour to accommodate her future views and designs to the real mediocrity of her circumstances.” Smith offers wise counsel. The country’s circumstances are more mediocre than imagined two years ago. The question is how to respond.

Continue reading: “Adapting to Britain’s mediocre prospects”

Posted in Credit squeeze, Development, Regulation |

Fixing banks quickly

July 9, 2009 7:07 pm by Financial Times

By Richard Robb

In their classic routine, Carl Reiner asks Mel Brooks, the 2000 Year Old Man, to explain how he has managed to live for so long. Brooks replies that he avoids fruits, vegetables, meats, grains – each of which causes some comic side effect. All that’s left for him is “cool mountain water.” “Just that,” the old man says, “and a stuffed cabbage.” Reiner asks whether stuffed cabbage is allowed on his diet. The answer, of course, is “What, you think for a little mountain water I’m gonna keep myself alive?”

Financial risk-taking has come to a similar juncture. Politicians and regulators agree that risk doesn’t belong in banks because it might require another taxpayer bailout. It doesn’t belong in hedge funds either – they are murky and generally wicked. Be sure not to imperil insurance companies or government agencies. And keep risk far away from retail investors, who need protection most of all. Oh yeah, we want risk-taking somewhere so we can have a dynamic economy. It’s our financial stuffed cabbage.

Continue reading: “Fixing banks quickly”

Posted in Central banks, Recession, Regulation |

Economic witch-hunting

July 8, 2009 4:54 pm by Financial Times

By Ricardo Caballero

Perhaps one of the economic phenomena most akin to witch-hunting is the diagnostic and policy response that develops during the recovery phase of a financial crisis.  Understandably, pressured politicians and policymakers rush to find culprits and sources of instant gratification. All too often they find a ready supply of these in preconceptions and superficial analyses of correlations.  This time around the scapegoats are global imbalances and leverage.

Continue reading: “Economic witch-hunting”

Posted in Capitalism, Credit squeeze, Crisis, Fiscal policy, Recession, Regulation |

The cautious approach to fixing banks will not work

July 1, 2009 1:26 am by Martin Wolf

OP

With one bound the banks are free, or so it seems. Already, the panic of the autumn of 2008 is fading. The period within which lessons can be learnt and changes made is closing. Yet without radical changes, another crisis is certain. It may not even be that long delayed.

In a recent speech, governor Elizabeth Duke of the Federal Reserve told an anecdote from just after the failure of Lehman Brothers last September. Ben Bernanke, chairman of the Federal Reserve, was asked: “Well, what if we don’t do anything?” To which he replied: “There will be no economy on Monday.” Instead, all institutions deemed systemically significant were saved, by shifting almost all of the risk on to taxpayers.

“Never again” might be too much to ask. But “not for a generation” is essential. Governments cannot afford an early repeat, financially, politically, perhaps morally: the lives of so many cannot soon be sacrificed to the whims of a foolish few.

The remainder of the article can be read here. Debate from our panel of economists appears below.

Posted in Aid, Banks, Regulation |
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