Financial Regulation At the Crossroads: Implications for Supervision, Institutional Design and Trade

To gain from trade, modern economies rely on a stable financial system. In many countries around the world, the benefits of finance are taken for granted. Financial stability comes to the forefront only in times of crisis. The global financial crisis of 2008 and 2009 exposed some of the regulatory and market failures of a more and more globally organized financial system and led to far-reaching discussions about a broad range of academic and policy issues on the regulation of financial services.

Against this background, this edited volume brings outstanding expertise and provides insightful perspectives from nineteen authors with diverse backgrounds, including officials from international organizations, national regulators, and commercial banking, as well as academics in law, economics, political economy, and finance. The authors not only shed light on the causes of the financial turmoil, but also present thoughtful proposals that contribute to the future policy debate, and discuss opportunities that financial services can offer in funding activities which raise standards of living through initiatives in microfinance, renewable energy, and food distribution.

The contributions to this volume tackle several of the thorniest issues of financial regulation in a post-crisis environment, such as:

• the mechanics of contagion within the financial system and the role of liquidity;
• moral hazard when large financial institutions are no longer subject to the disciplinary effects of bankruptcy;
• bank capital requirements;
• management compensation;
• design of bank resolution schemes;
• a function-centric versus institution-centric regulatory approach;
• subsidization and compatibility of stimulus packages with EU rules on state aid;
• trade finance and the role of the GATS prudential carve-out; and
• the role of financial services in promoting human rights or combating climate change. ; ; ; ; ; ; ; ; ;

While the debate about regulatory reform has just begun and will inevitably be characterized by controversies, it will be vital to appreciate the interconnected nature of the financial system. Without effective coordination of regulatory responses to financial crises, tackling the pressing challenge to limit cross-border contagion in times of crisis without jeopardizing the benefits of financial globalization is almost certainly doomed to failure.

About the Editors

List of Contributors

List of Figures

List of Tables

List of Boxes

Preface

Acknowledgements

List of Abbreviations

Financial Regulation at the Crossroads Panagiotis Delimatsis & Nils Herger

Part I Financial Stability and Banking Regulation

Chapter 1 The Impact of Cross-Border Exposures on Financial Contagion Hans Degryse, Muhammad Ather Elahi & Maria Fabiana Penas

Chapter 2 In the Quest of Systemic Externalities: A Review of the Literature Wolf Wagner

Chapter 3 Bank Resolution: A Conceptual Framework Thorsten Beck

Part II Institutional and State Responses to the Recent Financial Crisis

Chapter 4 Too Big, Too Interconnected and Too International to Resolve? How to Deal with Global Financial Institutions in Crisis Eva Hüpkes

Chapter 5 Regulating Credit Rating Agencies in the European Union Fabian Amtenbrink & Jakob de Haan

Chapter 6 Bailouts in the Financial Sector: The Compatibility with the EU State Aid Rules Leigh Hancher

Chapter 7 Sovereign Debt Restructuring in the EU: Lessons from the Recent Crisis Kern Alexander

Part III Myths and Realities: The Role of Regulation and Market Discipline

Chapter 8 Breaking Up Mega-Banks: A New Regulatory Model for the Separation of Commercial Banking from Investment Banking Emilios Avgouleas

Chapter 9 Rethinking Market Discipline in Banking: Lessons from the Financial Crisis Constantinos Stephanou

Part IV Financial Services Regulation: WTO and Preferential Trade Perspectives

Chapter 10 Trade, Trade Finance, and Financial Crises Nils Herger

Chapter 11 The GATS Prudential Carve-Out Juan Marchetti

Chapter 12 Financial Services in Free Trade Agreements: The Case of Switzerland Christian Pauletto & Christoph König

Part V ‘New’ Issues in the Regulation of Financial Services

Chapter 13 Financial Regulation in the Aftermath of the Global Financial Crisis from a Human Rights Perspective: Microfinance Matters Nicola Jägers

Chapter 14 Promoting Renewable Energy through Adaptive Prudential Regulation in Financial Services Panagiotis Delimatsis

Epilogue

Chapter 15 Two Peas in a Pod: Thoughts on the Future Regulation of Global Food and Finance Judson Osterhoudt Berkey

Index