Regulating the Financial Sector in the Era of Globalization: Perspectives from Political Economy and Management

Cover......Page 1
Contents......Page 6
List of Tables and Figures......Page 9
Notes on the Contributors......Page 11
List of Abbreviations and Glossary......Page 13
Acknowledgements......Page 17
Purpose and Organization of the Book......Page 18
The regulation and supervision of financial firms......Page 19
Financial crises......Page 20
Mitigating financial crises......Page 21
The incentive compatible approach to supervision and regulation......Page 23
The political economy of regulating the financial sector......Page 26
1 Introduction: Risks and Protagonists......Page 28
1.1 Risks of a financial institution......Page 29
1.2 Crises......Page 31
2.1 Stakeholders' risk-reward sharing......Page 38
2.1.1 Corporate boards......Page 41
2.1.2 Management's compensation......Page 42
2.2 Controversial practices......Page 45
2.3 Self-interest and self-regulation......Page 50
3.1 Vulnerabilities......Page 55
3.2 Justification of financial regulation......Page 58
3.3 The mission of public authorities......Page 59
3.4 The origins of international prudential co-operation: international payment and settlement risks......Page 63
3.5.1 Functions of capital......Page 66
3.5.2 Early co-operation in capital standards......Page 69
3.5.3 Towards enhanced risk sensitivity of capital......Page 73
3.5.4 Challenges......Page 75
3.6 Risk mitigation......Page 80
3.7 Regulatory gaps......Page 84
4 Effective Supervision and Enforcement......Page 87
4.1 Internal control and audit......Page 88
4.2 External audit......Page 90
4.3.1 Dereliction or forbearance......Page 95
4.3.2 Requisite expertise......Page 99
4.3.3 Supervisory approaches......Page 100
4.4 Integrated supervision: quis custodiet ipsos custodes?......Page 104
4.5.1 Market disclosure......Page 110
4.5.2 The case of credit registries......Page 113
4.5.3 Other inputs......Page 115
5.1 Span of protection......Page 118
5.2.1 Genesis......Page 122
5.2.2 Opposition to deposit insurance......Page 123
5.3.1 Adherence......Page 124
5.3.2 Funding: ex ante versus ex post funding......Page 127
5.3.3 Flat versus risk-sensitive premiums......Page 128
5.3.4 Cyclicality and limits on insurance funds......Page 129
5.4.1 The consolidation process......Page 132
5.4.2 Charging for the privileges of TBTF......Page 134
5.4.3 Resolution......Page 136
5.5 Mitigating moral hazard......Page 138
5.5.1 Explicit versus implicit protection......Page 139
5.5.2 Uninsured negotiable liabilities......Page 141
5.5.3 Limiting protection per depositor......Page 143
5.5.4 Reinsurance......Page 144
5.5.5 Informing and training......Page 145
5.5.6 Constraints on depositors' rights......Page 147
5.6 Investors' protection......Page 150
5.7 Recapitalizing financial institutions......Page 152
5.8 Calibrating ultimate liquidity: from bubble to crunch......Page 154
5.9 Non-commercial exposures......Page 158
5.10 Safety nets and contestable markets......Page 161
6.1 Crisis prevention/management and the IMF......Page 168
6.1.1 Moral hazard – the tequila crisis......Page 173
6.1.2 The breakdown of a currency board – Argentina......Page 177
6.1.3 IMF's rescues – an evaluation......Page 181
6.2 Whither the IMF's focus?......Page 183
6.2.1 Diagnosis of difficulties......Page 184
6.2.2 Ultimate liquidity provider?......Page 188
6.2.3 Facilitation of debt restructuring......Page 191
6.2.4 Capital account liberalization......Page 194
6.3 Financial co-ordination in emergencies......Page 195
6.3.1 Dramatic losses of 2001......Page 196
6.3.2 Prompt effective response......Page 197
7 Overview and Conclusion: Regulatory Progress......Page 205
7.1 Micro-level alerts......Page 206
7.2.1 Country indicators......Page 208
7.2.2 Bubbles and stocks......Page 211
7.3 Regulatory cycles......Page 214
7.4 Concluding remarks......Page 222
Notes and References......Page 225
Select Bibliography......Page 248
A......Page 252
B......Page 253
C......Page 255
D......Page 258
E......Page 259
F......Page 260
G......Page 262
I......Page 263
L......Page 265
M......Page 267
O......Page 268
P......Page 269
R......Page 270
S......Page 271
T......Page 273
U......Page 274
W......Page 275
Z......Page 276