The IMF's Rethink of Global Banks: Critical in Theory,Orthodox in Practice

The International Monetary Fund's (IMF) new financial interconnectedness agenda, developed in response to postcrisis calls from G20 to better understand systemic financial institutions, deploys a critical approach that stresses the spatial, political, and institutional dimensions of cross‐border financial networks. It portrays global banks as key nodes in those networks, “super‐spreaders” of systemic risk through complex business models that involve yield search, regulatory and tax arbitrage. Yet this critical view does not translate into its policy advice at country level. In regular surveillance of developing countries, the IMF remains committed to a benign view of transnational banking, even when confronted with growing cross‐border fragilities. During crises of cross‐border banking, the IMF tailors its conditionality to minimize domestic regulatory challenges to cross‐border banking models and to propose crisis measures that create new profit opportunities for transnational banks.     

Markets beyond politics? The state and the internationalisation of financial markets

Abstract. The role of politics is particularly difficult to discern in the domain of international financial markets, where the state's capacity to control or direct capital flows, without incurring considerable opportunity (and political) costs, appears so limited. In addressing this question, this paper argues that the process of internationalisation is first and foremost the consequence of political decision-making (to create open markets) and that many domestic interests linked to the international market have promoted internationalisation both through their policy preferences and economic activity. The paper will then go on to argue that the threat of financial instability and crisis, a consequence of the increased volatility of relatively unregulated capital flows, has prompted political demands for more concerted inter-state co-operation to maintain stability. Much of this takes place through transnational agreements among state agencies, such as the central banks, and much through 'reregulation' in the guise of 'harmonisation' of regulatory and prudential supervisory policies.
Some of this process has received considerable publicity, such as the harmonisation of EEC regulations to facilitate freer trade in banking and financial services as part of the preparation for the Single European Market in 1992. Likewise, the current Uruguay Round of GATT trade talks has the liberalisation of trade in financial services on its agenda. Other aspects of the process have been carried on quietly, far from public view, in such forums as the Bank for International Settlements. Such is the case of a recent agreement to harmonise minimum capital adequacy requirements for banks operating in international markets. The paper uses these three cases to support the argument about the role of politics and the state in international finance.     

Asset quality determinants of Indian banks: Empirical evidence and policy issues

The Indian banking industry has been suffering from a huge number of nonperforming loans, and the loan asset quality has been deteriorated over the years. This has led to significant capital erosion of many banks in India. The surge in corporate defaults leading to an enormous rise in nonperforming loan assets has been impairing the performance of Indian banking industry in particular and economic growth in general. Hence, it is intuitive to ask what are the determinants of poor asset quality of Indian banks. To answer this question, using a sample of 47 commercial banks over a sample period of 2000 to 2014, our study examines the bank‐, industry‐, and macroeconomic‐specific determinants of asset quality of Indian banks. Our empirical analysis also accommodates the impact of different ownership structures (public and private sector) and the impact of financial crisis while analysing the determinants of poor asset quality of Indian commercial banks. Results reveal that bank‐, industry‐, and macroeconomic‐specific factors are responsible for the burgeoning nonperforming loan assets of Indian commercial banks. The results are qualitatively similar across different ownership structures. The findings suggest that forecasting models for nonperforming assets should also consider macroecomomic‐ and industry‐specific factors along with the bank‐ specific factors.     

Why reregulation after the crisis is feeble: Shadow banking,offshore financial centers,and jurisdictional competition

A crucial element in the complex chain of factors that caused the recent financial crisis was the lack of regulation and oversight in the shadow banking sector, which is largely incorporated in offshore financial centers (OFCs), but instead of swift and radical regulatory reform in that sector after the crisis, we observe only incremental and ineffective measures. Why? This paper develops an explanation based on a two‐level game. On the international level, governments are engaged in competition for financial activity. On the domestic level, governments are prone to capture by financial interest groups, but also susceptible to demands for stricter regulation by the electorate. Governments try to square the circle between the conflicting demands by adopting incremental and symbolic, but largely ineffective, reforms. The explanation is put to empirical scrutiny by tracing the regulatory initiatives on shadow banks and OFCs at the international level and within the United States and the European Union, where I focus on France, Germany, and the United Kingdom.     

Lehman Brothers in the Dutch offshore financial centre: the role of shadow banking in increasing leverage and facilitating debt

Credit intermediation outside the regular banking system, or shadow banking, has increased immensely over the past decade. This paper situates this increase against the backdrop of the structural problem of overaccumulation, and thus the absence of profitable reinvestment opportunities in the production sphere, in addition to the scarcity of high-quality collaterals. Zooming in on Europe’s offshore world and Dutch conduit structures in particular, the paper illustrates, on the basis of the Amsterdam-based Lehman Brothers subsidiary (and others), how shadow banking enables regular banks to increase leverage and take on excessive debt. It will be argued that the continued expansion of debt at the systemic level, inter alia facilitated by shadow banking, heralds the prospect of a crisis far more dramatic than the one we are currently witnessing.     

Regulating finance after the crisis: Unveiling the different dynamics of the regulatory process

It is now widely recognized that regulatory failures contributed to the onset of the global financial crisis. Redressing such failures has, thus, been a key policy priority in the post‐crisis reform agenda at both the domestic and international levels. This special issue investigates the process of post‐crisis financial regulatory reform in a number of crucial issue areas, including the rules and arrangements that govern financial supervision, offshore financial centers and shadow banking, the financial industry's involvement in global regulatory processes, and macroeconomic modeling. In so doing, the main purpose of this special issue is to shed light on an often understudied aspect in regulation literature: the variation in the dynamics of regulatory change. Contributors examine the different dynamics of regulatory change observed post‐crisis and explain variations by accounting for the interaction between institutional factors, on the one hand, and the activity of change agents and veto players involved in the regulatory reform process, on the other.     

Regulatory novelty after financial crises: Evidence from international banking and securities standards, 1975–2016

Financial crises are often presented as triggers for important innovations in international regulation of financial markets, but existing evidence for this claim primarily derive from the analyses of individual initiatives, assessed against noncomparable benchmarks. In order to provide systematic evidence of financial crises' impact on international financial regulatory change, this paper develops a novel text-as-data approach to measure regulatory novelty. We use this approach to analyze the full population of international banking and securities standards between 1975 and 2016. Contrary to theoretical expectations, our empirical findings indicate rules designed by international banking and securities regulators following financial crises are on average as likely to build on existing international regulations as those designed before a crisis. We also find that international banking rules published after the 2008 Global Financial Crisis are an important exception.     

Crises and Paradigm Shift

Crises can force leaders and technocrats together, highlight failures and, more rarely, precipitate changes in ideological worldview and the prevailing consensus. In 2007–8, the worst financial and economic crises since the Great Depression of 1929 caused a paradigm shift in financial and regulatory ideology. G20 leaders and central bankers reasserted collective power and authority over financial markets and global banks to an extent and in a manner not seen since the collapse of the Bretton Woods system in 1971. The retreat of state authority reversed direction. The spell of the ‘mystical Anglo‐Saxon model of liberalisation and deregulation’ was broken. In 2014 the paradigm shift is still underway and still under attack by recalcitrant bank CEOs and their lobbyists, but the shift may be durable—signalling a major change in international regulation of the world's largest financial markets and firms.     

Risk and Financial Armageddon in Ireland: The Politics of the Galway Tent

This article examines Ireland's financial crisis. Thus far explanation has focused on individual or collective administrative failure: the office(r) of financial regulation singularly failed to scrutinise the banks sufficiently: it was a matter of poor risk management. While this article would agree that the (mis)management of risk was important to how the crisis unfolded, I argue that an explanation of why the crisis emerged demands an altogether different focus. Put simply, after financial regulatory reform, a reconfiguration of risk in politics took place as the locus of decision‐making about financial risk shifted from the realm of the political/legal (Cabinet/Central Bank/Department of Finance) to the economic/legal (retail banks, shareholders/consumers). It was a critical development, one that mirrored events taking place in the UK, upon which Ireland drew experience, for now assessments about risk undertaken by the banks demanded that intervention could be justified only on an ascertainable risk, not a theoretical uncertainty (or spurious fear). The evidentiary bar for intervention was therefore raised, removing the precautionary instinct implicit in the prudential governance of Central Banks.     

Wasting a Crisis? Democracy and Markets in Britain after 2007

The banking crisis of 2007-2008 briefly threatened to overturn a system of market government that had lasted for nearly three decades—a system designed to minimise democratic control over markets. The crisis drew politicians once more into financial politics and exposed bankers and banking institutions to popular criticism and control. But the development of regulatory debates, and of the institutions designed to manage the crisis, have combined to avert this threat to the established order. The crisis is being 'wasted': it is failing to produce radical reforms. The paper establishes the intellectual and institutional origins of this failure, and argues that, while the reform window is closing, it is not yet fully shut: there exists yet scope for radical argument and popular mobilisation in the creation of a financial system with fewer pathological features.     

Post‐crisis reforms in banking: Regulators at the interface between domestic and international governance

Post‐crisis international standards have been agreed on in certain areas of banking regulation, namely capital, liquidity, and resolution, but not others, namely bank structure – why? We articulate a two‐step analytical framework that links the domestic and international levels of governance. In particular, we focus on the role of domestic regulators at the interface between the two levels. At the domestic level, regulators evaluate externalities and adjustment costs before engaging in cooperation at the international level. This analysis explains why regulators in the United States and the European Union act as pacesetters, foot‐draggers, or fence‐sitters in international standard setting; that is to say, why they promote, resist, or are neutral toward international financial standards. At the international level, we explain the outcome of international standard setting by considering the interaction of pacesetters and foot‐draggers.     

Covering the private parts: the (re-)nationalisation of housing finance

Abstract

Is state power or control over financial markets really withering? Most narratives/analyses of financialisation see a growing penetration of private capital into everyday life that runs parallel to the increasing power of private financial capital over state policy. Yet housing finance – mortgages – sits at the centre of banking, and banking sits at the centre of the financial system. Large-scale mortgage markets only function where the state wraps around the banking system to remove maturity risks and to limit excessive credit creation. Partial deregulation in the 1990s and 2000s created a crisis that states resolved by re-nationalising much of mortgage finance. This renewed and overwhelming state presence suggests that financialisation is a state-driven story, and that private financial power, stability and instruments require state support above and beyond contract enforcement and prudential regulation.     

BANKING ON THE PERIPHERY: Bolivia's Financial Reforms, 1985–1996

This article examines the sequencing of financial reform in LDCs in Bolivia. Bolivia undertook a dramatic stabilization program in 1985 and, over the next decade, steadily improved the oversight and regulation of domestic banks. I explain how these reforms proceed under three democratically elected administrations who each used political pacts to ensure legislative support for their agenda. At the international level, external shocks twice precipitated deeper banking reforms, but Bolivia's underdeveloped capital markets prevented the speculative attacks observed in other cases. The Bolivian experience demonstrates the potential for financial reform in the poorest of LDCs and the need for further research in similar cases.     

The politics of state compliance with international “soft law” in finance

Why do jurisdictions comply (or not) with international soft law in finance? This research systematically links international and domestic explanations of compliance by highlighting the “disjuncture” between the international standard‐setting process and the process of domestic compliance. Two causal mechanisms that affect compliance are identified. In the uploading stage, elected officials delegate the making of international soft law to domestic regulators; large, internationally active financial institutions mobilize extensively and, to a large extent, successfully. In the downloading stage, domestic interest groups team up with elected officials in order to resist compliance with international soft law that has negative distributional implications for domestic constituencies. These arguments are illustrated through a structured, focused comparison, and process tracing of the mixed record of compliance of the two main jurisdictions worldwide—the United States and the European Union—with the main international banking standards, the Basel Accords.     

On the political economy of the financial crisis and bailout of 2008–2009

U.S. policies to promote home ownership and other banking regulatory decisions helped to create a highly leveraged international market for mortgage-based securities. Declines in the price of housing, consequently, had major effects on the balance sheets and portfolios of financial institutions throughout the world. The political response to the financial crisis has been rapid and large. In general, differences in the effectiveness of government policies show the advantage of standing institutions at crisis management relative to innovative legislation.     

Variation in central bank independence across countries: Some provisional empirical evidence

In this paper seven hypotheses to explain variation in central bank independence across countries are tested. The predictions based upon the theory that delegation of authority by politicians to the central bank is used as a commitment device are not supported: central bank independence is not higher the larger the employment motivated inflationary bias, the higher political instability or the larger the government debt. Central bank independence is positively related to historical inflation experience and negatively with political instability. We do only find limited support for the view that countries with a universal banking system and countries whose central banks do not regulate financial institutions have more independent central banks.     

Does regulating remuneration affect the market value of European Union banks? Large versus small/medium sized banks

The aim of this paper was to analyze equity market reactions to the mandatory European Union regulation of remuneration policies in financial institutions. Using event study methodology, we investigated market reactions to the first European Directive on compensation policies after the financial crisis using a sample of 124 banks operating in the European Union. We divided the sample into two groups according to bank size considering four criteria: the US Dodd‐Frank Act 2010, the Liikanen Report 2012, Global Systemically Important Banks 2011, and the European Central Bank 2014. We found strong evidence of an average negative market reaction to compensation regulation. Moreover, this negative reaction is stronger for large banks than for small/medium sized banks.     

Corporate values of the 25 largest European banks: Exploring the ambiguous link with corporate scandals

Corporate value statements communicate what a firm aspires for and what drives their value creation. In addition, corporate values often also define which behaviors are acceptable and which are not. Ideally, corporate values are representations of a firm's informal corporate values and organizational culture. However, in practice, there is an inherent tension between the aspirations and actual values and ensuing behaviors of and within a firm—let alone the potentially different interpretations of abstract corporate value statements. In this paper, we set out to provide more clarity on what corporate values are, how they are inherently ambiguous, and how in practice they compare to firm involvement in scandals. For this purpose, we study the corporate values of the 25 largest European banks after the financial crisis. “Integrity” appeared to be the most common value among the 25 banks, followed by “customer focus.” Nonetheless, over the past 6 years, 15 out of the 25 studied banks were involved in one or more scandals. Scandals can be systematic or caused by rogue employees, and benefitting the firm or their customers—in the latter case, providing an interesting interpretation of the customer focus value. Additionally, we found that courage or its synonyms were barely mentioned among banks' corporate values, potentially providing an additional explanation for the fast size of the financial crisis. Finally, we found that banks that had inclusive social principles such as respect, solidarity, and equality did not face large-scale scandals.     

French Corporate Governance in the New Global Economy: Mechanisms of Change and Hybridisation within Models of Capitalism

This article analyses the implications of the internationalisation of capital markets, and the influx of Anglo-Saxon institutional investors, for the French model of capitalism. Its central contention is that the global convergence thesis misrepresents contemporary evolutions because it pays insufficient attention to mechanisms of change within models of capitalism. Secondly, framing analysis in terms of hybridisation and fragmentation of national models, rather than convergence, offers greater explanatory purchase over the French model, constitutes a more accurate characterisation, and helps avoid the 'convergence or persistence' impasse within models of capitalism analysis. In exploring French corporate governance, it emphasises the importance of specifying the role of institutional mechanisms as transmission belts of change as a precursor to an assessment of how far shifts in international political economic context bring about changes within French capitalism. Focusing on financial market regulation regime, new legislation in corporate governance and company law, and the market for corporate control as three key potential mechanisms of change, it finds that pre-existing norms and structures endure, mediating the nature of a national political economy's articulation with the international context. Hybridisation and recombination of capitalist institutions drawn from different models provide a far more persuasive account than convergence.     

成渝经济区金融创新体系建设研究

金融创新体系是区域创新体系的重要组成部分和推动力量。成渝经济区金融创新体系建设面临的主要问题是金融支持体制不完善。加快成渝经济区金融创新体系建设,必须健全金融支持体制,完善信贷机制和风险投资市场,增强银行和风险投资机构的资金支持力度,为创新活动提供更加充足的信贷资金和风险资金。