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Symposium 2015

Financial Regulatory Frameworks: Current Reforms and Future Challenges

The Challenge

In the aftermath of the global financial crisis, most countries have seen a wave of new regulatory initiatives aimed at increasing financial stability and resilience. However, the implementation of reforms is still in progress, and financial systems worldwide are far from being immune to another financial crisis.

The implementation of Basel III, for instance, leads to a gradual increase in capital requirements for banks, though many economists still consider these requirements as too low. Another envisioned goal, the partial separation of "traditional" and "hedge" banking, has not yet been achieved. We are also far away from a global harmonization of standards, best practices, and supervision. Moreover, there might even be the temptation to misjudge the partial implementation of regulatory reforms as finished. In fact, we might need more fundamental changes in the structure of the financial sector to prevent a future financial crisis.

This GES session discusses the following questions: How promising are current reforms and reform proposals, and which are the most pressing issues that still must be addressed? What should a simple, coherent, and transparent regulatory framework look like? What can we learn from the latest research on financial stability? How can reform projects be protected against vested interests, and what role can NGOs play in this regard? How can we promote coordination among governments and international organizations, in order to harmonize regulations at a global level?

 

This session is organized by the Institute for New Economic Thinking. Please check out the tabs below for additional facts and information.

    Proposals

    Proposal
    Symposium 2015

    Overcoming Four Illusions to Foster Healthy Design of a Financial System

      The Global Financial System is currently governed by an evolving system of technocratic rules and institutions that are founded on four illusions.  Not even Harry Houdini could sustain his magic s ...

      The Global Financial System is currently governed by an evolving system of technocratic rules and institutions that are founded on four illusions.  Not even Harry Houdini could sustain his magic spell over public policy for as long as finance has, with its aura of complexity and power.  To look merely at the rules on the table in the regulatory process of the BIS, Central Banks and FSB and ranking or deciding amongst them, or examining their evolution over time with an eye toward progress entirely misses the point.  We need to fundamentally rethink our framework in light of one

    Polity, Academia, Business, Civil Society

    Background Paper

    Background Paper
    Symposium 2015

    Financial Regulatory Frameworks: Current Reforms and Future Challenges

    Polity, Academia, Business, Civil Society

    Virtual Library

    Virtual Library File
    Symposium 2015

    Across the Great Divide: New Perspectives on the Financial Crisis

    In this volume edited by Martin Neil Baily and John B. Taylor, numerous experts consider post-crisis regulatory policy reforms and emerging financial and economic trends. They discuss the role played ...

    In this volume edited by Martin Neil Baily and John B. Taylor, numerous experts consider post-crisis regulatory policy reforms and emerging financial and economic trends. They discuss the role played by the Federal Reserve and examine the concept of “too big to fail.” They review and assess resolution frameworks, considering experiences with Lehman Bros. and other firms in the crisis, Title II of the Dodd-Frank Act, and the Chapter 14 bankruptcy code proposal. See, in particular, Chapter 10: "Toward a Run-free Financial System".

    Virtual Library File
    Symposium 2015

    Running on Empty. Banks should raise more capital, carry less debt—and never need a bailout again

    In this article, John H. Cochrane presents a review of and thoughts on Anat Admati and Martin Hellwig's book "The Bankers' New Clothes". Admati and Hellwig raise broad critical questions about bank re ...

    In this article, John H. Cochrane presents a review of and thoughts on Anat Admati and Martin Hellwig's book "The Bankers' New Clothes". Admati and Hellwig raise broad critical questions about bank regulation.

    Virtual Library File
    Symposium 2015

    Capital adequacy and hidden risk

    In this column, Mike Mariathasan and Ouarda Merrouche argue that the way we implement capital regulation needs to be reconsidered because banks under-report risk, thereby escaping government intervent ...

    In this column, Mike Mariathasan and Ouarda Merrouche argue that the way we implement capital regulation needs to be reconsidered because banks under-report risk, thereby escaping government intervention and maintaining market access. One possible way forward, something already implemented under Basel III, is to ask banks to satisfy a capital requirement relative to total (rather than risk-weighted) assets. Overall, simple, transparent, workable rules are what we should be aiming for.

    Virtual Library File
    Symposium 2015

    A Viable Alternative to Basel III Prudential Capital Rules

    Stefano Micossi argues in this paper that the Basel framework for bank prudential requirements is deeply flawed and that the Basel III revision has failed to correct these flaws, making the system eve ...

    Stefano Micossi argues in this paper that the Basel framework for bank prudential requirements is deeply flawed and that the Basel III revision has failed to correct these flaws, making the system even more complicated, opaque and open to manipulation. In practice, he finds that the present system does not offer a reliable capital standard for banks to regulators and financial markets and its divergent implementation in the main jurisdictions of the European Union and the United States has broken the market into special fiefdoms governed by national regulators in response to untoward special interests.

    Virtual Library File
    Symposium 2015

    Interbank Exposure Networks

    This paper by Sam Langfield and Kimmo Soramäki reviews empirical research on the instability of complex interbank systems. Three network approaches are distinguished: descriptions of interbank exposu ...

    This paper by Sam Langfield and Kimmo Soramäki reviews empirical research on the instability of complex interbank systems. Three network approaches are distinguished: descriptions of interbank exposure networks; simulation and modelling; and the development of new metrics to describe network topology and individual banks’ relative importance. The paper concludes by inferring policy implications and priorities for future research.