Regulating Capital

Regulating Capital: Setting Standards for the International Financial System

David Andrew Singer
Copyright Date: 2007
Edition: 1
Published by: Cornell University Press
Pages: 176
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  • Book Info
    Regulating Capital
    Book Description:

    Financial instability threatens the global economy. The volatility of capital movements across national borders has led many observers to argue for a reformed "global financial architecture," a body of consistent rules and institutions to prevent financial crises. Yet regulators have a decidedly mixed record in their attempts to create global standards for the financial system. David Andrew Singer seeks to explain the varying pressures on regulatory agencies to negotiate internationally acceptable rules and suggests that the variation is largely traceable to the different domestic political pressures faced by regulators.

    In Regulating Capital, Singer provides both a theory of the effects of domestic pressures on international regulation and a detailed analysis of regulators' attempts at international rulemaking in banking, securities, and insurance. Singer addresses the complexities of global finance in an accessible style, and he does not turn away from the more dramatic aspects of globalization; he makes clear the international implications of bank failures and stock-market crashes, the rise of derivatives, and the catastrophic financial losses caused by Hurricane Katrina and the events of September 11.

    eISBN: 978-0-8014-6184-2
    Subjects: Political Science

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. Preface
    (pp. ix-xii)
    David Andrew Singer
  4. Chapter 1 Introduction: Financial Regulators and International Relations
    (pp. 1-12)

    Dramatic episodes of financial instability have become increasingly common in the global economy. Since the collapse of the Bretton Woods international monetary system in the early 1970s, the movement of capital has become both more international and more volatile. In the early 1980s the debt crisis in Latin America roiled the global economy and nearly brought down some of the world’s most venerable commercial banks. Later in the decade the “Black Monday” stock market crash in 1987 reverberated throughout the largest securities markets, from New York to London to Tokyo. More recently, speculative currency attacks on several Asian countries in...

  5. Chapter 2 Capital Regulation: A Brief Primer
    (pp. 13-19)

    Before proceeding to the analytical framework, let us examine the purposes of financial regulation and the costs and benefits that regulation imposes on financial institutions and the global economy. This chapter explains the various risks assumed by financial firms, the role of regulation—especially capital adequacy requirements—in mitigating these risks, and the consequences of regulation for firm competitiveness and profitability.

    The purpose of any financial system is to channel funds from savers to borrowers, thereby enabling those with productive investment opportunities to avail themselves of much-needed capital. This process is fraught with difficulties. With few exceptions, individuals and businesses...

  6. Chapter 3 Regulators, Legislatures, and Domestic Balancing
    (pp. 20-35)

    The globalization of capital markets complicates the role of financial regulators in the developed world. On the one hand, regulators must be sensitive to the competitive implications of regulatory policy. Cross-country discrepancies in financial regulation have significant ramifications for the competitiveness of financial firms. In the highly price-sensitive realm of finance, strict regulations can cause domestic firms to lose market share to foreign firms in less-regulated jurisdictions. On the other hand, regulators are responsible for safeguarding the stability of national financial markets and must impose appropriate prudential regulations on financial institutions. These regulations are costly, but without them firms may...

  7. Chapter 4 Banking: The Road to the Basel Accord
    (pp. 36-66)

    In late 1987 central bankers from the Group of Ten (G-10) countries announced the creation of an international capital adequacy standard for commercial banks, now known as the Basel Accord. Scholars have heralded the agreement as a landmark in international financial cooperation and have sought to explain why the agreement was created.¹ Often overlooked in these analyses are the substantial differences in regulator preferences during the negotiations leading up to the accord. The U.S. Federal Reserve Board and the Bank of England were aggressive in their attempts to create an international standard in the face of enormous technical barriers and,...

  8. Chapter 5 Securities: Financial Instability and Regulatory Divergence
    (pp. 67-95)

    The Basel Accord has captured the attention of political scientists and economists, but it is by no means the only example of an attempt by regulators to harmonize their domestic prudential regulations. In 1987, just as central bankers were finalizing the accord, a group of securities regulators initiated discussions on harmonizing capital requirements for securities firms under the auspices of the International Organization of Securities Commissions (IOSCO). The ostensible motivations of the securities regulators were similar to those of the central bankers: mitigate systemic risk by ensuring that all securities firms were adequately capitalized, and minimize the inefficiencies of cross-national...

  9. Chapter 6 Insurance: Domestic Fragmentation and Regulatory Divergence
    (pp. 96-113)

    After the dust of the September 11, 2001, tragedy began to settle, the financial press began to raise the mundane but important question: who is going to pay for this? The attacks constituted the largest insured loss in U.S. history. Two of the world’s tallest buildings collapsed, taking with them billions of dollars’ worth of equipment, artwork,¹ and other valuables, and reducing more than sixteen acres of prime New York real estate to uninhabitable rubble. Business operations in these buildings obviously ceased, resulting in lost revenue and costly transitions to new facilities. The Pentagon also suffered substantial damage, not to...

  10. Chapter 7 Conclusion: The Future of International Regulatory Harmonization
    (pp. 114-128)

    The word harmonization, which connotes a sense of frictionless and mutually beneficial cooperation between actors, is tossed around frequently in discussions of international financial regulation. To outside observers, the term might appear appropriate for the ostensibly apolitical gatherings of financial regulators which often result in proclamations of “governing principles”—and occasionally financial standards—for the world economy. Alan Greenspan, the quintessential U.S. financial regulator, appeared unconstrained by the fray of electoral politics during his long tenure at the Fed, especially in his dealings with his peers in other countries. His successor, Ben Bernanke, appears similarly apolitical, swayed by his prior...

  11. Notes
    (pp. 129-142)
  12. References
    (pp. 143-154)
  13. Index
    (pp. 155-164)