New Paradigms for Financial Regulation

New Paradigms for Financial Regulation: Emerging Market Perspectives

MASAHIRO KAWAI
ESWAR S. PRASAD
Copyright Date: 2013
Pages: 300
https://www.jstor.org/stable/10.7864/j.ctt1261n4
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  • Book Info
    New Paradigms for Financial Regulation
    Book Description:

    The global financial crisis has led to a sweeping reevaluation of financial market regulation and macroeconomic policies. Emerging markets need to balance the goals of financial development and broader financial inclusion with the imperative of strengthening macroeconomic and financial stability. This volume develops new analytical frameworks and provides policy prescriptions to do just that.

    New Paradigms for Financial Regulationpresents medium- and long-term strategies for strengthening the regulatory frameworks that facilitate and broaden financial development while also helping to manage and mitigate the risks involved. It provides prescriptions for how the policy frameworks should be adapted to a world of more free (and more volatile) capital.

    Specific topics covered by the volume include

    • Implications of global regulatory changes for emerging markets, with particular emphasis on Asian emerging markets

    • Effective design of regulatory and policy frameworks to promote financial system development and stability

    • Monetary policy frameworks to enhance financial stability and international policy coordination

    • Principles for a sound global regulatory architecture

    eISBN: 978-0-8157-2265-6
    Subjects: Business, Finance, Political Science

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Preface
    (pp. vii-viii)
  4. 1 Introduction and Overview
    (pp. 1-10)
    MASAHIRO KAWAI and ESWAR S. PRASAD

    The global financial crisis has led to a sweeping reevaluation of frameworks for financial market regulation and macroeconomic policies. Some progress has been made on strengthening these frameworks, both at the national and international levels, but numerous challenges lie ahead in terms of developing an analytical framework to guide these changes in a manner that promotes financial stability. This book provides a stock-taking exercise for these issues and evaluates recent developments from an emerging markets perspective.

    The main objective of this book is to develop analytical frameworks and policy prescriptions for emerging markets for balancing the goals of financial development...

  5. Part I. The Evolving Global Regulatory Landscape:: Implications for Emerging Markets

    • 2 The Dodd-Frank Act and Basel III: Intentions, Unintended Consequences, and Lessons for Emerging Markets
      (pp. 13-44)
      VIRAL V. ACHARYA

      This chapter is an attempt to explain the changes to financial sector reforms under the Dodd-Frank Act in the United States and, globally, under the Basel III requirements; their unintended consequences; and lessons for currently fast-growing emerging markets. The following are also addressed: government involvement in the financial sector, possible macroprudential safeguards against spillover risks from the global economy, and the management of government debt and fiscal conditions. I start with a summary of reforms under the Dodd-Frank Act and highlight four of its primary shortcomings:

      —Lack of any attention to the distortive roles played by government guarantees to...

    • 3 Global Financial Regulations and the Asian Financial System: Lessons from the Financial Crisis
      (pp. 45-74)
      YOSHINORI SHIMIZU

      Responding to the financial crisis that occurred in 2008, a new regime of global financial regulations, Basel III, is being constructed. Its essence is to strengthen banks’ capital regulations both quantitatively and qualitatively with additional surcharges to systemically important financial institutions (SIFIs). Capital regulation has been the main pillar of global bank regulations during the last quarter of a century, but it did not work to prevent the financial crisis. Regulatory strengthening is politically inevitable after such a critical financial crisis, especially due to taxpayers’ intense criticism of the bailouts of large financial institutions and high remuneration for their management....

  6. Part II. Promoting Financial Development and Inclusion

    • 4 The Asian Financial System: Development and Challenges
      (pp. 77-109)
      CYN-YOUNG PARK

      Surviving the event of the Lehman collapse in September 2008 and the post-crisis recession, the global economy struggles to regain strength. In response to the crisis, the G-20 leaders made firm commitments to “build a stronger, more globally consistent, supervisory and regulatory framework for the future financial sector, which will support sustainable global growth.”¹ Yet the G-20 reforms, having thus far focused rather exclusively on strengthening the global regulatory system and restoring financial stability, paid limited attention to urgent development needs in many developing economies’ financial systems, given the role of finance in supporting balanced and sustained growth.

      Despite the...

    • 5 Financial Globalization in Emerging Countries: Diversification versus Offshoring
      (pp. 110-136)
      FRANCISCO CEBALLOS, TATIANA DIDIER and SERGIO L. SCHMUKLER

      Starting in the early 1990s, as developed and emerging countries became more integrated within the global financial system and especially as international transactions seemed to grow, interest in financial globalization increased substantially.¹ Since then, many have questioned the links between financial globalization and economic growth and have revisited the overall costs and benefits of financial integration.² In principle, financial globalization should increase access to capital and lower its costs.³ But financial globalization may also expose countries to foreign shocks and crises, thus raising several new macrofinancial challenges, such as the regulation and use of domestic financial markets and the conduct...

  7. Part III. Strengthening Macroeconomic Frameworks

    • 6 Strengthening Macroeconomic Frameworks: The Indian Experience
      (pp. 139-168)
      SUBIR GOKARN

      As we look back over the recent financial crisis with a view to drawing lessons for future policy, it is important to see it in a historical context. From this perspective, a comparison of crises over time suggests that, although the recent crisis manifested some new characteristics, some fundamental ones remained the same. The recurrence of crises reflects a basic procyclicality in the system, which is characterized by a buildup of risk taking and leverage in good times and an abrupt withdrawal from risk and an unwinding of leverage in bad times. In this sense, the patterns of asset prices...

    • 7 The Macroprudential Policy Framework from an Asian Perspective
      (pp. 169-190)
      KIYOHIKO G. NISHIMURA

      In this chapter I take up several key issues relating to macroeconomic policy frameworks, explicitly taking account of financial markets, or macroprudential policies, especially from an Asian perspective. In particular, I ask the following two questions: What methods should we employ to detect intolerable accumulation of risks in the financial system? And how should we maintain financial stability in the short run while improving efficiency in credit intermediation functions to support long-term economic growth?

      I am seeking practical, best-practice answers to these questions, rather than optimum solutions based on a particular theory.¹ This practical and somewhat atheoretical approach is warranted,...

    • 8 Emergence in the Postcrisis World: Widening Asymmetries between Advanced and Emerging Economies
      (pp. 191-222)
      MEHMET YÖRÜKOĞLU

      From a so-called Great Moderation to a savings glut during the last two decades, the world economy witnessed a very rapidly changing economic landscape. Globalization, emergence, and rapid technological change were the most important drivers of this change. Globalization increased productivity all over the world, helped to improve welfare tremendously in both advanced and developing countries, and has been one of the important factors shaping the Great Moderation era. Financial markets and goods markets became increasingly interconnected, as individuals and firms kept diversifying their financial portfolios to avoid idiosyncratic risks, without caring about increasing systemic risks resulting from this increased...

  8. Part IV. Developing a Sound Global Regulatory Architecture

    • 9 The Impact of Changes in the Global Financial Regulatory Landscape on Emerging Markets
      (pp. 225-243)
      TARISA WATANAGASE

      The Global financial crisis in 2008 can be attributed to a number of factors, but the main root causes are twofold: inadequate supervision, including a large unregulated shadow-banking sector; and systemic risks originating in the financial imbalances of several economies and in the interconnectedness of financial institutions’ balance sheets through leverage and the creation of opaque products. In response, the Basel Committee on Banking Supervision (BCBS) developed a financial regulatory framework to reform, improve, and strengthen the financial sector as well as to reduce systemic risks and enhance financial stability, taking into account the lessons learned from the crisis. The...

    • 10 International Financial Reforms: Capital Standards, Resolution Regimes, and Supervisory Colleges and Their Effect on Emerging Markets
      (pp. 244-278)
      DUNCAN ALFORD

      While the 2007–08 financial crisis began in the United States, the crisis quickly spread globally, causing decreases in gross domestic product and employment levels around the world.¹ The crisis revealed numerous general weaknesses in the supervision and regulation of global banks and financial institutions. National governments and international bodies also recognized these weaknesses in the regulatory and supervisory system of global financial institutions and have begun to take steps to improve the system with the hope of avoiding, or at least mitigating, future financial crises.

      Since the fall of 2008 when, the G-20 met in Washington, D.C., at the...

  9. Contributors
    (pp. 279-280)
  10. Index
    (pp. 281-290)
  11. Back Matter
    (pp. 291-292)