Financial Regulatory Reform Research Articles

A Comparative Analysis of the Design and Implementation of the Twin Peaks Model of Financial Regulation in South Africa and Australia

Abstract In response to the 2007-2009 global financial crisis, South Africa, like most other countries, embarked on a journey of financial regulatory reform. This transformation has seen the country shift away from a silo approach, where various sectoral regulators supervise different financial institutions, towards the Twin Peaks model of financial regulation. The term “Twin Peaks” refers to the separation of regulatory functions between two independent regulators. For instance, one regulatory agency is responsible for the supervision of the safety and soundness of financial institutions, and the other is focussed on the regulation of business conduct. The Twin Peaks model is designed to provide the benefits and efficiencies of an integrated approach while simultaneously addressing inherent conflicts between the objectives of the safety and soundness of the financial system and consumer protection. The Financial Sector Regulation Act provides for the Twin Peaks model in South Africa. This Act positions South Africa as one of the first developing countries to adopt the model. On the other hand, Australia is the pioneer of the model since it implemented it in 1998. Its implementation in Australia, much as in South Africa, involved the separation of regulators for prudential soundness on the one hand and market conduct and consumer protection on the other. In this article, the authors provide a comparative analysis of the design and implementation of the Twin Peaks model in Australia and South Africa. They argue that while there are minor differences between the design and implementation of this model in Australia and South Africa, the model was customised and implemented to align with the specific needs of each country

Study on the Development of Offshore RMB Market and Its Impact on the International Financial System

The internationalization of the Chinese yuan responds to challenges with the US dollar's dominance, spurred by events like the subprime crisis and unlimited quantitative easing. China's economic stature necessitates yuan's global role. Its journey involves five stages, from border trade usage to SDR inclusion and presence in global indices. Offshore markets are pivotal, facilitating capital flows and meeting investor needs. Financial regulatory reforms align with market dynamics, enhancing transparency and stability. This study explores the symbiotic relationship between yuan internationalization and financial regulatory reforms, offering theoretical insights and policy recommendations for China's financial evolution and yuan's global ascent.

International Experience and Reference of China's Financial Regulatory System Reform

Since the 1970s, in order to reduce financial risks in the context of fast-paced growing financial industry, China has been implementing reforms to its financial regulatory structure. In 2023, the State Administration for Financial Supervision and Administration was officially established, bringing China closer to mixed industry regulation. Currently, there are multiple types of financial regulation on a global scale, including segmented regulation, single regulation, functional regulation, and bimodal regulation. Given the rapid development of China's financial market, it is imperative to draw on better international expertise, innovate domestic regulatory framework, and persist pursuing bimodal regulatory mode under the mixed industry background. By implementing the bimodal regulation of macro prudential regulation and micro behavioral regulation, China is managing to control financial risks, protect investors lawful rights and interests, and foster the long-term and stable expansion of China's financial industry

Comparative Study on Quality Characteristics of International Accounting Standards and Chinese Accounting Standards

Whether accounting information can meet the needs of users depends on the quality of accounting information. The internationalization level of accounting standards reflects the degree of integration of a country's economy with the world. With the development of economic globalization and rapid progress of science and technology, the market economy is becoming more and more active. Meanwhile, the trade between various countries is becoming more and more frequent, which promotes the economic and trade cooperation between various countries. The demand for international convergence of accounting standards is becoming increasingly strong, and the relevant concept arises at the historic moment. In order to make the cooperation between countries more convenient and fast, countries began to integrate into the financial regulatory framework reform process of cooperation, and strive for the global unified high-quality accounting standards can be completed in a timely manner. This paper compares and analyzes the differences between Chinese and international accounting standards in terms of information quality characteristics from two aspects of content and level, summarizes the convergence and development trend of international accounting standards, and puts forward some suggestions for China to formulate accounting standards.

Shadow banking contraction and innovation efficiency of tech-based SMEs-based on the implementation of China’s New Asset Management Regulation

Tech-based SMEs are important subjects for achieving national innovation-driven development, and it is crucial to study whether and how changes in the macro-institutional environment affect their innovation efficiency. New Asset Management Regulation (NAMR) is a policy promulgated by the Chinese government to address the chaotic expansion of shadow banking in China, and this study treats it as a quasi-natural experiment, selecting a sample of Chinese GEM-listed firms from 2015 to 2019, adopting the event study method and the generalized double difference method, and empirically testing the impact of shadow banking contraction on the innovation efficiency of Chinese tech-based SMEs and its mechanism. This study finds that shadow banking contraction under the NAMR significantly improves innovation efficiency of tech-based SMEs. The mechanism test finds that the NAMR can optimize the debt financing structure of tech-based SMEs, reduce their financing costs and financing risks, and ultimately accelerate their innovation efficiency by improving their financing efficiency, which supports the hypothesis of “financing efficiency view”; it is further found that, to tech-based SMEs, the more they rely on shadow banking and the severer financing constraints they endure, the more obvious NAMR’s effect is on improving innovation efficiency. The findings not only provide some empirical evidence to clarify the controversy of shadow banking in China from the perspective of firm innovation, but also have some implications for the subsequent financial regulatory reform.

Financial Development and Private Sector Investment in the Post-Financial Liberalization Era in Tanzania

Abstract This paper examines the relationship between financial development and private sector investment in the post-financial sector liberalization episode in Tanzania. The proxies for financial development were the financial market depth index and financial institutions depth index. Applying Autoregressive Distributed Lag (ARDL) technique, the results show the nexus between financial development and private sector investment in Tanzania. We find that the financial market depth index has a positive and significant impact on private sector investment in the long run but not in the short run. This is linked to the underdevelopment of capital markets in Tanzania at present. Similarly, we find that the financial institution depth index positively and significantly impacts private sector investment in both the long and short run. The degree of openness of the economy recorded a positive and significant impact on private investment in both periods suggesting that it has played a critical role in the financial development and growth of the private sector in Tanzania. In contrast, we observe that the real exchange rate has recorded a negative and significant impact on private investment in the long and short run. This suggests that appreciation of the real exchange rate had a negative impact on private investment. We recommend increasing financial openness and reinforcing the financial regulatory reforms to widen and deepen the financial system that can effectively support the mobilization of short, medium, and long-term finance for private sector investment.

From shadow banking to digital financial inclusion: China’s rise and the politics of epistemic contestation within the Financial Stability Board

Global financial standard-setting has been the exclusive domain of advanced economies for decades. Following the 2008–09 crisis, China and other emerging markets and developing economies obtained formal membership in the forums of global financial regulatory governance. Has their incorporation changed global regulatory politics? We analyze the epistemic contestation, bargaining, and persuasion surrounding the latest item on the financial regulatory reform agenda of the G20 and the Financial Stability Board: non-bank credit intermediation. Our study identifies three groups of norm entrepreneurs with different epistemic backgrounds that advance partially overlapping and competing interpretative frames of how to define, understand, and regulate this amorphous financial (non-)sector. Regulators from Western advanced economies took the lead in defining non-bank finance as stability-threatening shadow banking, successfully asserting epistemic authority against alternative frames advanced by China and other developing countries that include developmental prerogatives. Confronted with this impasse, Chinese authorities have sought to re-frame non-bank finance at the G20 under the label of digital financial inclusion. Our findings challenge and refine salient theories of global regulatory politics and underscore the importance of epistemic concerns for debates over the consequences of the entry of new actors from the ‘Global South’ into the core institutions of global financial governance.

Global financial regulatory reforms and sovereigns' exemption

Global financial regulatory reforms and sovereigns' exemption

The New Approach for Risk Regulation in Banks

The purpose of this report is to present the necessity of proceeding to new reforms in bank regulation and to increase the stability and risk sensitivity of the capital base under applying the Standardised Credit Risk Assessment Approach (SCRA) in banks. The dynamics in the bank regulation and supervision of credit risk assessment approaches are explored. In the paper, a thorough theoretical-methodological and historical-logical analysis was made of the evolution of the development and chronology of the global regulatory frameworks for banks - Basel 1, Basel 2 and Basel 3. The contemporary projections and challenges for the banks' management under the new regulatory and institutional changes are presented. The SCRA is a positive asset in bank capital regulation in contemporary banking. The revisions to the regulatory framework – Basel 3 by is a long continuous process influenced by numerous economic, social and political factors. The preparation of the Bulgarian banking system for a new reform of financial regulation is analyzed. The need for adoption of a new risk-based approach for capital assessment and the importance of transparency in bank financial reporting is proved.

Restorative Justice, White-Collar Crime, And The 2008 Financial Crisis

Despite potential criminal behavior, no senior executives from major U.S. financial institutions were incarcerated for actions related to the 2008 financial crisis, an outcome decried by a variety of academics, journalists, and judges, as well as the broader public. This critique is premised on a retributive theory of justice and the belief that incarceration is an effective deterrent against future crime. But are calls for more criminal sanctions warranted? Restorative justice offers an alternative lens to critically evaluate the retributive paradigm that supports calls to put more bankers in jail, and underlays the broader approach to criminal justice in the U.S. Though restorative justice has been increasingly used around the world for blue-collar street crimes and state crimes, its theory and application to white collar crime is less well developed. This research fills that gap by evaluating the governmental response to financial wrongdoing related to the 2008 financial crisis through the lens of restorative justice. I argue that a restorative justice approach to financial regulation is theoretically desirable and outline a variety of financial regulatory reforms to more closely align the Department of Justice’s approach to white-collar financial crime and federal financial regulators’ approach to banking regulation with restorative justice principles.

Ten Years of the Global Reform of Financial Regulation: What is ahead?

Global financial crisis of 2008–2009 demonstrated the need for reforms in the system of financial regulation. An institutional mechanism was created under the auspices of the G20 with the purpose to implement a global reform. In the article results of the postcrisis global financial reform are analysed in contingent with review of the evolution of institutional mechanism, which specifics often determined success or its absence in particular directions of the reform. The author selects and reviews three main periods of development of the global financial regulation’s institutional mechanism. In the initial period – the first years after the crisis works were progressing in two directions simultaneously: a) co-ordination of activities of national financial regulatory bodies in coping with the crisis processes and neutralization of its consequences; b) development and reconciliation of major global standards of financial regulation. We can consider that period as successful because crisis processes were overcame in relatively short time, trade and currency wars were also avoided and at the same time international regulatory standards were widely agreed.The second period according to the author’s classification (approx. 2012–2015) – transmission to the implementation of agreed international standards at the national and supranational (EC) levels. That time a range of difficulties and contradictions between leading countries revealed. First of all these problems related to the spheres where the regulations of transnational activities of financial institutions had to be agreed. As the author shows exactly in that time a problem of the so-called asymmetrical sovereignty in the financial policy aggravated.The third period is continuing in the present time. During this period, from the one side, the global financial regulation expands its coverage according to emergence of new challenges, but from the other side the interest to the reform is being loosing and the trend to increase of the independence of the national financial regulators is expanding. So the threat to fragmentation of the international financial markets and revision of already agreed regulatory standards became not illusive.Special attention in the article was paid to analysis of the problem of regulating the shadow banking or non-bank financial intermediation (NBFI), which are till now largely outside of the regulatory mandate of the governance bodies. Rapid growth of transactions by the latter, according to the author’s opinion, is a threat to the global financial stability especially taking into account such factors as its close interconnectedness with traditional financial institutions (banks), exposure to the bank-like risks, the wide implementation of financial innovations for making new unregulated products.Investigating new challenges beyond the perimeter of the post-crisis reform the author came to the conclusion that implementation of financial technologies as well as the necessity to take into account ecological and social factors require serious transformation of the global financial system as well as it’s regulation. Taking into account the global nature of new challenges the need for international co-operation of financial regulatory bodies will be continued.

Divergent effects of international regulatory institutions. Regulating global banks and shadow banking after the global financial crisis of 2007–2009

The rules structuring the global economy frequently emerge from informal international regulatory institutions. A set of approaches in International Relations and International Political Economy conceptualize these institutions as negotiation arenas and deem powerful actors to determine rule creation. Others stress the change-inhibiting effects of densely institutionalized environments. Yet variation in policy outcomes of post-crisis financial regulatory reforms cannot be fully explained by either. I argue that conceptualizing institutional asset specificity helps explain international policy processes and outcomes. The institutional assets of regulatory institutions, their rules, prescriptions, and procedures of decision-making, offer divergent transaction cost reducing effects. Specific asset institutions possess narrow institutional scopes and stringently defined mandates. They reduce transaction costs by offering tested approaches and established regulatory instruments, while proving unadaptable to policy issues falling outside their scope. General asset institutions avoid constraints of specialization and can adapt to various purposes. The lower asset specificity in turn increases the ambiguity over regulatory instruments and the commensurate costs of standard development. I assess the argument by analyzing four post-crisis reform initiatives on regulating global banks and shadow banking.

Central banks under stress: Reputation, accountability and regulatory coherence

AbstractThis symposium homes in on an area of public administration that has been through a period of significant change in the last ten years. Since the global financial crisis, central banks have expanded their operations in financial markets, buying up vast quantities of assets as part of expansive monetary policy strategies. They have also played a leading role in the reform of financial regulation and have been entrusted with enhanced authority to supervise financial institutions. This activity has taken place amid heightened political contestation, with central banks increasingly viewed as the quintessence of a technocratic mode of governance that eschews traditional democratic control. The purpose of this symposium is to consider how central banks’ reputation, accountability and regulatory roles have changed since the financial crisis, and what those changes tell us about the balance of power between independent regulatory agencies and elected policy‐makers.

Political Opportunities and China’s Proposing Behavior in the G20

In global economic governance, political consensus reached by the G20 members plays an important role of defining governance ideas and governance directions as well as steering and boosting collective actions. Political opportunities are essential for the G20 members’ successful efforts to place their preferences into the political consensus of G20. This paper analyzes how the G20 members place their preferences into the political consensus of G20 through the lens of political opportunity, and provides a relatively detailed demonstration on China’s practice of proposing policy initiatives and placing its preferences into the political consensus of G20 by examining the cases of International Monetary Fund (IMF) quota reform and international financial regulation reform.

The Resolution of Systemically Important Financial Institutions: Lessons from Fannie and Freddie

There was perhaps no issue of greater importance to the financial regulatory reforms of 2010 than the resolution, without taxpayer assistance, of large financial institutions. The rescue of firms such as AIG shocked the public conscience and provided the political force behind the passage of the Dodd-Frank Act. Such is reflected in the fact that Titles I and II of Dodd-Frank relate to the identification and resolution of large financial entities. How the tools established in Titles I and II are implemented are paramount to the success of Dodd-Frank. This paper attempts to gauge the likely success of these tools via the lens of similar tools created for the resolution of the housing government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. An additional purpose of this paper is to provide some additional “legislative history” to the resolution mechanisms contained in the Housing and Economic Recovery Act of 2008 (HERA), which established a resolution framework for the GSEs similar to that ultimately created in Title II of Dodd-Frank. The intent is to inform current debates over the resolution of systemically important financial institutions by revisiting how such issues were debated and agreed upon in HERA.

Stabilizing Endogenous Instability: Proposals for An Institutionalist Reform of Financial Regulation

:A major and persistent question behind economic theories and related policies is whether the market can self-regulate without any restrictive exogenous intervention or whether regular and binding public regulation is necessary for ensuring the reproduction of the economic system in a sustainable way over time. This article considers this question with regard to the working of financial markets in a liberalized environment. Drawing upon an institutionalist stance, the article shows why the operation of a financialized capitalist economy usually leads to systemic imbalances and crises. The article then suggests an alternative framework for a consistent financial regulation that could prevent market actors from developing short-sighted strategies and gambling on macro stability.

Ten years after the crisis: Thoughts on the reform of financial regulation

Ten years after the crisis: Thoughts on the reform of financial regulation

2008 Global Financial Crisis-Ten Years After; Is Another Crisis ‘Resonating’?

The global financial crises have had severe impact on various financial markets and the world economies at large. At various points in time during economic recessions, the confidence of the global investors is always sapped while most investors panic for safety. The past ten years especially have witnessed intense governmental and intergovernmental interventions in the form of financial bailouts, regulatory reforms, coordinated stimulus and responses from the central banks to address liquidity problems caused by the global financial crisis. With the ever-growing populism around protectionism, the debates between globalism and capital control has become more intense. Considering the current issues bordering on tighter immigration, closing of boarders and higher tariffs for good produced in overseas by some countries, the coming years will become more interesting and difficult at the same time for many governments, countries, institutions and multinational companies. So, are we witnessing another global economic crisis? This paper decides to look into the effects, the widespread and the impacts of country governance on world economies at large.

The G20's Reform of Bank Regulation and the Changing Structure of the Global Financial System

AbstractThe G20's financial regulatory reform programme, underway since 2008, was designed as an integrated set of strengthened regulatory measures to make the global financial system more robust and less crisis‐prone. However, in practice the G20's stricter regulation of internationally active banks has not been matched by firmer oversight of other financial system participants that also take on large risks. The present article addresses the implications of this situation. Section 1 outlines the role of the banking sector within the broader market‐based financial system. Section 2 considers the dynamics of a crisis in such a system. The measures that the G20 has agreed thus far to strengthen the G‐SIBs, and regulators’ intentions with regard to strengthening other sectors of the financial system are summarized in Section 3. Section 4 describes how stricter bank regulation may affect the resilience of market‐based financial systems in conditions of stress. Section 5 discusses how the focus on strengthening bank regulation, combined with slow progress in extending regulation to other sectors, has accelerated structural change in the financial system and offers some conjectures on how this may alter financial risks, the way the financial system may respond to stress, and the implications for macroprudential regulation.

Global financial regulatory reforms and sovereign’s exemption

PurposeThe purpose of this paper is to underline the (hidden) risks posed after the crisis by the exemption of non-financial operators, especially sovereigns, from the regulatory reforms of over the counter (OTC) derivatives undertaken by G20 countries in the absence of accounting data on trading.Design/methodology/approachRecent financial regulatory improvements are reported to underline that the trading of OTC derivatives by sovereigns and local administrations does not take place under the new regulatory umbrella, because of the relative size of the institution, the lack of incentives to adhere to Centralized Counterparty Systems (CCPs) and most of all, the absence of proper accounting rules. Sovereigns and local administrations have the potential to undermine global financial stability.FindingsThe limited availability of accounting data on derivatives’ use by public administrations constitutes a barrier towards a full comprehension of risks involved. Sovereigns should be compelled to adhere to the CCPs and the collateralized system of trading; the short-term costs of adhering to CCPs are worth $20bn.Research limitations/implicationsThe new regulatory system failed to explicitly consider the trading of sovereigns and this can reduce the effectiveness of regulation itself and can have negative impact on financial stability; in fact, omitting sovereigns from these regulations represent a significant risk oversight because they are systemically important players, although with a special political power.Originality/valueDespite progress made in improving the transparency and resilience of OTC derivative markets after the subprime crisis, sovereigns and public administrations are exempted from the new regulation, posing severe risks to financial stability.