Financial Stability, Economic Growth, and the Role of Law

Cover......Page 1
Half-title......Page 3
Title......Page 5
Copyright......Page 6
Dedication......Page 7
Contents......Page 9
Introduction......Page 11
Financial markets and the international financial architecture......Page 13
Foundations of financial sector development......Page 16
Looking forward......Page 17
Part I: Finance and the International Financial Architecture......Page 21
1 Law, Finance and Development......Page 23
1.1.1 Geography and Endowments......Page 24
1.1.2 Policies......Page 25
1.1.3 Institutions......Page 26
1.1.4 Recent Empirical Evidence......Page 28
1.1.5 The Role of Law......Page 29
1.1.6 The Way Forward......Page 30
1.2 Financial crises in the 1990s......Page 32
1.2.1 Prelude: 1990–95......Page 33
1.2.2 The Mexican Financial Crisis: 1994–95......Page 34
1.2.3 The East Asian Financial Crisis: 1997–98......Page 37
1.2.4 International Contagion: 1995 and 1998–99......Page 42
1.3.1 Lessons from Financial Crises......Page 45
1.3.2 The Financial System and Economic Growth......Page 48
1.3.3 The Role of the Financial Sector......Page 50
1.3.4 Financial Sector Development......Page 55
1.4 Law, the financial sector and economic growth......Page 56
1.5 Conclusion......Page 60
2 Law, Financial Stability and the International Financial Architecture......Page 61
2.1 The Bretton Woods System and Globalization of Financial Markets......Page 62
2.1.1 Bretton Woods as Designed......Page 63
2.1.2 Bretton Woods in Practice: 1944–94......Page 64
2.1.3 Responses to the Mexican Financial Crisis......Page 67
2.2.1 The Changing Nature of Finance: Globalization......Page 73
2.2.2 Crisis Prevention and Financial Stability: Structure and Process......Page 81
2.3 International Financial Standards and Standard-setting Organizations......Page 84
2.3.1 Coordination......Page 85
2.3.2 Key Standards for Sound Financial Systems......Page 86
2.3.3 Standard-setting and Standard-setting Organizations......Page 87
2.3.4 Compendium of Standards......Page 88
2.4 Implementation and Monitoring......Page 89
2.4.2 International Financial Institutions: The Standards and Codes Initiative......Page 90
2.4.3 Other Initiatives......Page 96
2.5 conclusion......Page 97
Part II: Foundations of Finance......Page 99
3 Preconditions for and Institutional Underpinnings of Finance......Page 101
3.1 Preconditions for Financial Sector Development and Economic Growth......Page 103
3.1.1 Governance......Page 104
3.1.2 Property Rights......Page 108
3.1.3 Enforcement of Contracts, Protection of Property Rights and Resolution of Commercial Disputes......Page 111
3.1.4 Human Capital Development......Page 114
3.2 Institutional Underpinnings of Finance......Page 115
3.2.1 Use of Property Rights......Page 117
3.2.2 Company Law......Page 125
3.2.3 Sustainable Fiscal and Taxation System......Page 128
3.2.4 Rule of Law......Page 131
3.3 Conclusion......Page 135
4.1 Central Banking......Page 136
4.2 Monetary Stability......Page 139
4.2.1 Monetary and Financial Policy Transparency Code......Page 140
4.2.2 Transparency of Macroeconomic Data......Page 142
4.3 Financial Stability......Page 145
4.3.2 Contingency Planning......Page 148
4.3.3 Lender of Last Resort......Page 149
4.3.4 Financial intermediary Resolution and Insolvency......Page 150
4.4 Payment and Settlement......Page 151
4.4.1 International Efforts......Page 153
4.4.2 International Standards......Page 154
4.4.3 Developing Payment and Settlement Systems......Page 159
4.5 Market Functioning: Government Securities Markets......Page 161
4.7 Conclusion......Page 162
5 Financial Infrastructure......Page 164
5.1 Insolvency......Page 165
5.1.1 International Efforts......Page 167
5.2 Corporate governance......Page 170
5.2.1 Recent Empirical Evidence......Page 171
5.2.3 Financial Stability Forum Key Standard: Principles of Corporate Governance......Page 175
5.3 Financial information......Page 178
5.3.1 Accounting......Page 179
5.3.2 Auditing......Page 188
5.4 Market integrity: corruption, money laundering and financial crime......Page 191
5.4.1 Corruption......Page 192
5.4.2 Money Laundering and Terrorist Financing......Page 200
5.4.3 Financial Crime......Page 201
5.5 Conclusion......Page 202
Part III: Financial Regulation and Supervision......Page 203
6 Banking: Regulation, Supervision and Development......Page 205
6.1 Banking Development......Page 208
6.2.1 Financial Stability Forum Key Standard: Core Principles for Effective Banking Supervision......Page 212
6.2.2 Other Financial Stability Forum Standards......Page 214
6.2.3 Implementation......Page 215
6.3 Basel Core Principles (2006)......Page 216
6.3.1 Preconditions for Banking......Page 217
6.3.3 Banking Activities (Principles 2 through 18 and 22)......Page 218
6.4 Framework for Addressing Banking Problems......Page 224
6.4.1 Depositor Protection Schemes......Page 228
6.4.2 Bank Insolvency......Page 232
6.5 Conclusion......Page 234
7 Nonbank Finance: Securities, Insurance, Pensions and Microfinance......Page 237
7.1.1 Financial Stability Forum Key Standard: Objectives and Principles of Securities Regulation......Page 238
7.1.2 Other Financial Stability Forum Standards......Page 242
7.1.3 Implementation......Page 243
7.1.4 Developing Securities Markets......Page 244
7.2 Insurance......Page 259
7.2.1 Financial Stability Forum Key Standard: Insurance Core Principles......Page 260
7.2.2 Other Financial Stability Forum Standards......Page 262
7.2.3 Implementation......Page 263
7.2.5 Developing Insurance......Page 264
7.3 Pensions......Page 266
7.3.1 International Standards......Page 268
7.4 Other Forms of Nonbank Finance: microfinance and related activities......Page 270
8 Financial Liberalization, Financial Conglomerates and Financial Regulatory Structure......Page 272
8.1.1 New Financial Intermediaries......Page 273
8.2 Foreign and domestic participation and competition......Page 274
8.2.2 State Ownership in the Financial Sector......Page 275
8.2.3 Foreign Competition......Page 276
8.3.1 Risks of Liberalization......Page 278
8.3.2 The World Trade Organization and Financial Liberalization......Page 281
8.3.3 The World Trade Organization and Domestic Regulation......Page 283
8.3.4 The World Trade Organization and International Financial Regulatory Standards......Page 286
8.4.1 International Standards......Page 287
8.4.2 Addressing Financial Conglomerates......Page 288
8.5 Financial regulatory structure......Page 289
8.5.1 International Standards......Page 293
8.5.2 Developing Effective Financial Authorities......Page 295
8.5.3 Coordination Among Financial Authorities......Page 297
8.5.4 Access to Reliable and Current Information......Page 298
Part IV: looking forward......Page 301
9 The International Financial Architecture......Page 303
9.1 International Standards and Codes......Page 304
9.1.1 International Standards and Codes and Financial Stability......Page 305
9.1.2 Integrating Development with Financial Stability......Page 306
9.2.1 International Institutions, Financial Stability and Financial Development......Page 308
9.2.2 Integrating the International Financial Architecture......Page 312
9.3.1 Crisis Resolution: An On-Going Debate......Page 313
9.3.2 Contemporary International Lending......Page 321
9.3.3 Proposed Solutions......Page 323
9.3.4 Private Lending and Investment......Page 326
9.3.5 The International Financial Architecture and Crisis Resolution......Page 327
9.4 conclusion......Page 329
10.1 Supporting Financial Development......Page 330
10.2 The Role of the International Architecture......Page 331
10.3.1 The Regulated Market Economy......Page 332
10.3.2 Financial Structure......Page 333
10.3.3 Domestic Financial Development......Page 337
10.4.1 The European Experience......Page 340
10.5 Conclusion......Page 345
Index......Page 351