Governance of Global Financial Markets: The Law, the Economics, the Politics (Introduction)
University of Edinburgh - School of Law; Centre for International Finance and Regulation (CIFR)
February 28, 2012
Governance of Global Financial Markets: The Law, the Economics, the Politics, Cambridge University Press, 2012
The recent financial crisis proved that pre-existing arrangements for the governance of global markets were flawed. With reform underway in the USA, the EU and Internationally, this book explores most of the questions associated with building an effective governance system and analyses the evolution of existing structures. The book provides a new reading of the causes of the Global Financial Crisis. By critiquing the soft law structures dominating international financial regulation and examining the roles of financial innovation and of neo-liberal policies in the expansion of global financial markets, it offers a new epistemological reading of the causes of the global financial crisis. It argues that the Global Financial Crisis was to a large extent a technology/knowledge revolution, which, unlike the industrial revolution, was badly mismanaged because of excessive and unchecked insider rent-seeking and policy makers' inherent cognitive limitations. Recent reforms are steps in the right direction. However, they leave serious gaps in cross-border supervision and resolution of global financial institutions and in the monitoring of risk originating in the shadow banking sector. To close these gaps and safeguard the stability of the international financial system, an evolutionary governance system is proposed based on four pillars.
The first pillar comprises the macroprudential supervisor, a role that could be discharged by the IMF; the second pillar comprises the microprudential supervisor, with the FSB and the BIS being the best placed to discharge the role; the third pillar comprises the lead standard setter and knowledge regulator with oversight over transnational regulatory networks, a role that could be discharged by the OECD; finally, the fourth pillar comprises a global resolution authority with exclusive coverage over globally systemically significant financial institutions. The model also provides for strong accountability mechanisms and a set of general principles/values. These give paramount importance to global financial stability and address the issues of development and poverty eradication.
Number of Pages in PDF File: 18
Keywords: Global Financial Crisis, Global Governance, International Finance, Soft Law, Global Financial Markets, Global Financial System, Financial Innovation, International Financial Regulation, Global Financial Governance, G-SIFIs, IMF, BIS, OECD, FSB, Banks, Systemic Risk, CDS, CDOs
JEL Classification: E44, F33, F34, F55, F59, G1, G15, G2, N20, N40Accepted Paper Series
Date posted: May 15, 2012
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