The Upcoming Millennial’s Recession: Legal and Regulatory Imperatives for a New Global Financial Architecture and Authority

The global financial crisis that started in 2007 sparked several academic debates about the role that financial sector regulators played in the crisis and prompted policy reforms in the financial supervision architectures of several countries. This book focuses on the question of what accountability, independence, transparency and, more generally, governance mechanisms applicable to financial regulators can better contribute to building responsive, responsible and effective regulatory and supervisory frameworks that tackle the weaknesses of the pre-crisis regimes. It re-visits the concepts of accountability and independence of financial regulators as well as the main economic theories underlying financial services policy-making, in light of the crisis experience. In addition, it critically examines the post-crisis institutional frameworks of financial regulation and supervision in the EU, the US and Canada with a view to assessing whether the financial regulators of the post-global financial crisis era are well suited to effectively address the challenges and threats that global financial markets pose to the stability, integrity and good functioning of financial systems as well as to the protection of consumers, investors and society at large.Topics addressed in this volume include:- The theoretical foundations of accountability and independence in financial regulation after the crisis; - The influence of economic theory on the quality of financial regulation and supervision;- Accountability in the European Banking Union and the European System of Financial Supervision;- Post-crisis structures of financial regulation in the US and their impact on consumer/investor protection and financial stability;- The role of financial supervision architecture in the stability of the Canadian financial system. The contributors to this volume are economists, lawyers, political scientists and sociologists from both academia and practice. Therefore, this book will be highly relevant to scholars and practitioners in these areas.

I agree with just about everything Jonathan Macey (2017) says in his symposium contribution. His claim that bureaucratic tendencies toward regularity—specifically, treating like cases alike—generate errors in categorization seems appropriate to me. His explanations of the pathologies in financial regulation should fall in the category of essential or required reading for anyone who chooses to write on the topic. Where I differ from Macey is in the choice of framework, or perspective from which to view the pathologies. Whereas Macey adopts an “error cost” framework, which is clearly appropriate for this symposium, I would build explicitly on a “public choice” framework.

The regulation of finance is central to the growth and development of every economy. Financial regulation determines the overall character of the financial system, the relationship between borrowers and savers, the allocation of capital, and the macroeconomic performance of the economy. Financial market regulation is distinct from regulation of other sectors of the economy because of the essential infrastructural role of finance—all other sectors of advanced economies depend on the financial system. Despite its enormous importance, financial regulation normally has low political salience. Except in times of crisis, most voters—and therefore politicians—have relatively little interest in the matter. This can be attributed in part to the complex and technical nature of financial markets and regulation, which relatively few people understand well. Low political salience facilitates a regulatory process that is very heavily shaped by regulators (technocrats) and the industry they regulate, with only minor direction from elected political leaders. In the long history of capitalism, bank and financial system crises have been regular occurrences. Regulation, or regulatory failure, is often seen as a cause of crises, but regulatory change is also the response. Thus any given financial regulatory regime is never settled for long. After the Great Depression, advanced capitalist economies introduced highly restrictive financial regulatory regimes designed to minimize systemic risk from bank failures. In the postwar period, restrictive regulatory regimes were combined with capital controls that limited international movements of capital. The postwar Bretton Woods international monetary regime stabilized fixed exchange rates through such controls and, when necessary, lending by the International Monetary Fund (IMF) to countries that could not pay for their external debts. Starting with the collapse of the Bretton Woods regime in the early 1970s, all the advanced economies started liberalizing financial market regulation and removing capital controls as part of a broader shift toward a neoliberal economic philosophy. These deregulatory measures brought about a dramatic transformation of domestic financial systems and the reemergence of a dynamic and rapidly growing international financial market. Such dynamic and internationalized financial market was, in large part, the root cause of the early-21st-century financial crisis. The Great Financial Crisis of 2008 precipitated widespread review and revision of financial market regulations at both the domestic and international levels. These revisions include a shift from private self-regulation to state-driven regulation of financial markets, the centralization of regulation at the level of the European Union, and a closer cooperation between states in forging international regulatory standards. Nonetheless, despite the dramatic growth of the international financial market and transnational efforts to coordinate regulation, financial regulation remains overwhelmingly a domestic affair.

Reviewed by: A History of Financial Technology and Regulation: From American Incorporation to Cryptocurrency and Crowdfunding by Seth C. Oranburg Florian Vetter (bio) A History of Financial Technology and Regulation: From American Incorporation to Cryptocurrency and Crowdfunding By Seth C. Oranburg. Cambridge: Cambridge University Press, 2022. Pp. 200. This book is an important contribution for financial historians insofar as it shifts away from a purely institutional perspective. At first glance, Seth C. Oranburg's work appears to reconstruct the milestones of the regulations of the U.S. financial markets and their transformation through the introduction of technology. However, a closer reading reveals that the author focuses on a large panorama of actors such as investors, state institutions, financial institutions, and small investors. In doing so, Oranburg highlights that ordinary investors and small businesses are often left behind when it comes to investing. He argues that today's regulatory apparatus in America is incredibly cost intensive for the taxpayer, leads to disparities in wealth, and makes it almost unprofitable for new actors to enter financial markets. Oranburg's book distinguishes itself from other works of financial history by its analysis of the intertwining of regulation and technology. The author bases his arguments mainly on current literature, quotations, advertisements, and photographs. The work covers the period between the 1790s and 2020. After a brief introduction, Oranburg introduces the key concepts of financial regulation and digital investment strategies in eleven chapters. The book focused on the intertwining of technology, regulation, and various actors within the American financial market. In addition, Oranburg demonstrates how laws and regulations prevented financial crises but also caused them. The history of corporate finance and financial markets in the United States is described across three epochs. The author shows that the first era (1790s–1930s) was characterized by capitalism and individualism. It becomes clear that between the 1790s and 1930s, the United States consisted of many unconnected financial markets. However, the advent of technologies such as the railway or the telegraph helped the individual states to grow together into an economic union. Consequently, the advent of technology led to the fact that financial crises took place on a national scale in the United States. The second era (1933–2008), according to the author, was characterized by a centralized command and control approach to securities regulation. Furthermore, the Great Depression had a significant impact on political and economic change in the United States. Here, Oranburg describes how the U.S. government created new federal agencies to counteract inflation after Franklin Delano Roosevelt became president. The Securities and Exchange Commission (SEC) serves here as a case study to demonstrate how the growing federal bureaucracy became increasingly costly for the taxpayer. Thus, it becomes clear that the international crisis also led to centralization and consolidation [End Page 615] in the United States. As a result, New York rose to prominence as a financial center. Silicon Valley started to flourish as investors began to invest in new companies and start-ups instead of publicly listed companies. During this period, America's middle class also began to benefit from these regulations and changes as corporate profits seemed to flow into a growing middle class. From the 1990s onward, Oranburg highlights a fundamental change in investment. Until this time, stocks were primarily owned by large corporations rather than individuals. The author concludes this period with the dot-com era (mid-1990s–2000s) and illustrates through the resulting financial crisis in 2000 how domestic stock markets were reregulated to prevent further crises. In the third era (2008–20), Oranburg uses Bitcoin, social media activism, decentralized finance, and crowdfunding as case studies to show how financial regulation has fallen far behind financial technology. In doing so, he skillfully builds a bridge from the Great Depression to the digital age. He demonstrates that federal laws to regulate communication about investment opportunities from the beginning of the twentieth century are now no longer applicable. Oranburg has managed to write a book that offers financial historians as well as nonspecialists new perspectives. By adding simplified examples of economic theory in each chapter, the book serves as a good introduction for readers outside the field of financial history. These examples help...

Regional Financial Regulation in Asia

The Asian financial crisis (1997–1998) and the global financial crisis (2007–2009) highlighted the potential value of financial regionalism, i.e., regional-level cooperation in financial policy. This paper argues that there is a mediating role for regional-level institutions of financial regulation between national regulators in Asia and global-level institutions such as the International Monetary Fund and the Financial Stability Board. This potential role includes : (i) monitoring financial markets and capital flows to identify regional systemic risks such as capital flows; (ii) coordinating financial sector surveillance and regulation to promote regional financial stability; and (iii) cooperating with global-level institutions in rule formulation, surveillance and crisis management. This is particularly important in an environment of increasing financial integration and harmonization in the region. The paper considers experiences of the European Union (EU) and Asia in regional financial cooperation and regulation and draws lessons for Asia. The EU represents the most advanced stage of regional financial integration and regulation in the world today, and can provide valuable lessons for Asia. Asia’s greater diversity of financial development and openness requires a more nuanced approach to integration. Despite its shortcomings and slow pace, the Association of Southeast Asian Nations (ASEAN) Economic Community process probably provides the most feasible and relevant model for regulatory cooperation on a voluntary basis. It would be desirable to extend this framework further in Asia, say to the ASEAN+3 countries for a start. Asian economies can also strengthen existing surveillance processes; enhance and diversify the resources, functions and membership of the Chiang Mai Initiative Multilateralization and the Macroeconomic Research Office for surveillance and provision of a financial safety net; and create an Asian financial stability dialogue to monitor regional financial markets, facilitate policy dialogue and cooperation, and secure regional financial stability.

In the globalizing world of fi nancial and economic interdependence, a polycentric, multi-level, and hierarchical system of global financial regulation is emerging. The article highlights two vectors of recent development in international fi nancial regulation: the rise of cooperation through the mechanisms of the Group of Twenty (G-20) on the one hand, and the efforts to maintain the US leading role in global fi nance, on the other hand. In the circumstances of the global fi nancial crisis of 2008, the G-20 countries initiated an international reform of fi nancial regulation. According to G-20 decisions, international standardsetting organizations developed transnational regulatory regimes in the fi elds of banking, derivatives and bankruptcy resolution, and the states now implement these regimes in their jurisdictions. The so-called “soft law system”, which is not legally binding, allows the states to sustain national sovereignty in their fi nancial policy. The United States play a leading role in the international fi nancial reform, as well as in the shaping of the global fi nancial regulation system. The American regulators push for extraterritorial application of the US norms and take other unilateral actions on the international arena. The article also touches upon legitimacy problems of the emerging system of global fi nancial regulation. The most important constrains are the excessive infl uence of the fi nancial industry (“regulatory capture”), the weakness of civil society participation, and also the fact that for the rest of the world the American norms lack legitimacy, as they are adopted by regulators assigned by offi cials elected by population of a foreign territory.

The financial system and its regulation have undergone exponential growth and dramatic reform over the last thirty years. This period has witnessed major developments in the nature and intensity of financial markets, as well as repeated cycles of regulatory reform and development, often linked to crisis conditions. The recent financial crisis has led to unparalleled interest in financial regulation from policymakers, economists, legal practitioners, and the academic community, and has prompted large-scale regulatory reform. The Oxford Handbook of Financial Regulation is the first comprehensive, authoritative, and state-of-the-art account of the nature of financial regulation. Written by an international team of leading scholars in the field, it takes a contextual and comparative approach to examine scholarly, policy, and regulatory developments in the past three decades. The first three Parts of the Handbook address the underpinning horizontal themes which arise in financial regulation: financial systems and regulation; the organization of financial system regulation, including regional examples from the EU and the US; and the delivery of outcomes and regulatory techniques. The final three Parts address the major reoccurring objectives of financial regulation, widely regarded as the anchors of financial regulation internationally: financial stability; market efficiency, integrity, and transparency; and consumer protection. The Oxford Handbook of Financial Regulation will be an invaluable resource for scholars and students of financial regulation, and for economists, policy-makers and regulators.

Book synopsis: The financial system and its regulation have undergone exponential growth and dramatic reform over the last thirty years. This period has witnessed major developments in the nature and intensity of financial markets, as well as repeated cycles of regulatory reform and development, often linked to crisis conditions. The recent financial crisis has led to unparalleled interest in financial regulation from policymakers, economists, legal practitioners, and the academic community, and has prompted large-scale regulatory reform. The Oxford Handbook of Financial Regulation is the first comprehensive, authoritative, and state-of-the-art account of the nature of financial regulation. Written by an international team of leading scholars in the field, it takes a contextual and comparative approach to examine scholarly, policy, and regulatory developments in the past three decades. The first three Parts of the Handbook address the underpinning horizontal themes which arise in financial regulation: financial systems and regulation; the organization of financial system regulation, including regional examples from the EU and the US; and the delivery of outcomes and regulatory techniques. The final three Parts address the major reoccurring objectives of financial regulation, widely regarded as the anchors of financial regulation internationally: financial stability; market efficiency, integrity, and transparency; and consumer protection. The Oxford Handbook of Financial Regulation will be an invaluable resource for scholars and students of financial regulation, and for economists, policy-makers and regulators.

Financial regulation is an important component of long-term planning of domestic enterprises. The purpose of the article is to investigate the methods of financial regulation of the activities of state and economic enterprises in modern society of the financial and economic conditions. The process of financial regulation actively affects all aspects of the enterprise activities through the selection of financing objects, allocation of funds, depending on their targets, promotes rational use of financial resources, involves the development and justification of planned indicators characterizing the development of the economy in the future. The function of financial regulation in the enterprise management system is one of the basic, central functions that determines the final results of production and sales, economic, financial and investment activities. The mission of financial regulation is to identify the enterprise’s general need for financial resources, in the extent that will ensure its normal activity along with the fulfilment of obligations to its creditors, such as banks, the budget, etc. Financial regulation covers the most important aspects of the financial and economic activity of the enterprise, ensures appropriate control over the formation and use of material, labour and monetary resources, creates conditions for strengthening the financial state of the enterprise. The research methodology is based on general research methods of analysis and synthesis, induction and deduction, observation and abstraction, which are used to systematize the achievements of the theory and practice of modeling the financial system of enterprises. The results of the study showed that the methods of financial management must be actively used in the activities of state and economic enterprises. There can be distinguished the following types of financial regulation: tactical regulation; strategic regulation. Implementation of financial regulation is carried out on the basis of five consecutive stages: analysis of the financial situation, development of the enterprise’s financial strategy, drafting and adjustment of current financial plans, development of operational financial plans. The process of financial regulation is characterized by the general and special principles. Practical implications. At the state-owned enterprises, the process of financial regulation should be implemented through budgeting. Budgeting is a tool for implementing the strategy of the state-owned enterprise, because it ensures an inextricable connection between strategic goals and plans aimed at achieving them. There are the following principles of budgeting organization: unity, separation of income and expenses, balance, independence, completeness of reflection of income and expenses in the budget, general coverage of expenses, efficiency of the use of funds, reliability. The principles of budgeting are as follows: integration, consistency, regulatory approach, end-to-end budgeting, decomposition, economic integrity, and methodological comparability. The main elements of the budgeting system are as follows: financial structure, budget structure and regulations on budget management. Financial regulation of economic enterprises is carried out on the basis of financial indicators, which are formed in the process of all its activities and determined on a certain specific date. A set of methods for assessing the enterprise’s financial indicators is divided into two groups: express diagnostics and fundamental diagnostics of the stability of business operation. Financial indicators are the state of financial resources, their distribution and use, which ensures the development of the enterprise based on the growth of profit and capital while maintaining solvency and creditworthiness under the conditions of an acceptable level of risk. The data characterizing financial indicators of the enterprise mostly include liquidity and solvency, financial stability, business activity, profitability of the enterprise. In order to obtain complete information about the level of sustainability of the enterprise development, the analysis of the current (operational) financial sustainability and the assessment of the prospects for its preservation in the future are carried out. The enterprise’s liquidity is evaluated according to the following indicators: absolute liquidity ratio, quick liquidity ratio, total liquidity ratio (coverage). The following indicators are used to assess financial stability: coefficient of autonomy (concentration of the equity capital), coefficient of manoeuvrability, coefficient of providing assets with the working capital, debt ratio (the ratio of equity and borrowed capital), leveraged capital structure ratio, coefficient of business activity, profitability ratio. Value/originality. The system of measures for financial regulation of enterprises should provide for constant monitoring of the external and internal state of enterprises, the development of measures to reduce the external vulnerability of enterprises, the development of preparatory plans in case of problematic situations, the implementation of preliminary measures to ensure them, the implementation of plans for practical measures in case of a crisis situation, the adoption of risk and non-standard solutions in case of deviation of the development of the situation, coordination of actions of all participants and control over the implementation of measures and their results.

Like other cross-border businesses, international financial business heavily depends on the predictability and stability of its business environments. The current crisis has focused on the national and world political processes around the issues of new international financial architecture and regulation. Despite numerous intergovernmental organizations’ plans, many national support packages have been implemented. Similarly, norms to regulate international finance have been developed but only within the realm of national hard law. Bearing in mind the reality of the Westphalian system, the soft-law approach is probably the only feasible possibility to commence the process of redesigning international financial regulation. Even though the concept of international agreements, based on soft law, might be a framework to deliver certain results in the future, the present level of discrepancy among national political agendas is still too significant for the general goals of international financial regulation to be agreed upon. Key words: International finance, crisis, regulation, soft law.

The Precautionary Principle: Financial Regulation's Missing Ingredient

Managerialism, Structuralism, and Moral Judgment: Law, Reform Discourse, and the Pathologies of Financial Reform in Historical Perspective

Contents: Preface 1. The Global Financial Crisis and its Implications for Financial Sector Reform and Regulation in Asia David G. Mayes and Peter J. Morgan PART I: FINANCIAL SURVEILLANCE AND REGULATION TO PREVENT CRISES 2. Regulating Systemic Risk Masahiro Kawai and Michael Pomerleano 3 Enlisting Macroprudential and Market Regulatory Structures to Strengthen Prudential Supervision Larry D. Wall 4. Dynamic Provisioning: Some Lessons from Existing Experiences Santiago Fernandez de Lis and Alicia Garcia-Herrero 5. Securitized Products, Financial Regulation and Systemic Risk Mariko Fujii 6. Liberalization and Regulation of Capital Flows: Lessons for Emerging Market Economies Rakesh Mohan and Muneesh Kapur PART II: REGIONAL FINANCIAL MONITORING AND COORDINATION 7. The Financial Crisis: A Wake-up Call for Strengthening Regional Monitoring of Financial Markets and Regional Coordination of Financial Sector Policies? Adalbert Winkler 8. Regional Monitoring of Capital Flows and Coordination of Financial Regulation: Stakes and Options for Asia Michael G. Plummer PART III: FINANCIAL CRISIS MANAGEMENT AND RESOLUTION 9. The Role of State Intervention in the Financial Sector: Crisis Prevention, Containment and Resolution Yoon Je Cho 10. The Role of the State in Managing and Forestalling Systemic Financial Crises: Some Issues and Perspectives Charles Adams PART IV: PROMOTION OF ASIAN BOND MARKETS 11. Developing Asian Local Currency Bond Markets: Why and How? Mark M. Spiegel 12. Foreign Bond Markets and Financial Market Development: International Perspectives Jonathan A. Batten, Warren P. Hogan and Peter G. Szilagyi

As part of the response to the financial crisis, the ECB has been transferred tasks in banking and financial supervision. In parallel to its traditional mandate, the implementation of monetary policy, it is now responsible for ensuring financial stability and acts as a central supervisor of credit institutions. This paper deals with challenges that arise from entrusting the ECB with tasks of banking and financial supervision and therefore the ambiguity of the term “financial market regulation in the crisis”. Financial market regulation in the crisis can be looked at from two perspectives: On the one hand, it can be understood as being a response to the crisis. On the other hand, the term can imply that financial regulation itself is in a crisis. In this paper the difference between the two possible interpretations is discussed based on the example of the ECB and its tasks in banking and financial supervision. To this end, the new fields of activity of the ECB and possible problem areas are presented. Afterwards, it is concluded that financial regulation has developed from a financial market regulation in response to the crisis into a crisis of financial regulation.