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1. Evolve or Perish: The Global Forces Changing the Business of Banks

Author:
Robert Fay and Angelo Arcelli
Publication Date:
04-2019
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation
Abstract:
Following the 2008 financial crisis, the Group of Twenty embarked on an ambitious financial regulatory reform plan that has seen many banks worldwide make substantial progress in terms of both capitalization and governance. Over this period, banks have also become increasingly exposed to business risks from digitization, artificial intelligence and cybercrime, and major investments are necessary to manage these risks. New regulations have been introduced in the European Union to reduce these risks, but their associated costs have potentially created a lasting competitive disadvantage for European banks. This situation has raised some key questions that deserve to be discussed and investigated: How does regulation — including that outside the sector — affect banks’ ability to compete globally? What will be the impact of fintech players as well as globally active banks from China and other emerging markets? Can the Basel regulatory framework and Financial Stability Board (FSB) ensure a level playing field globally going forward, or has the regulatory pendulum swung too far? How will the supervisory approach need to be adapted to the changing structure of the global financial system? Moreover, how will the implementation of Basel reforms affect the industry? These and other questions remain about the effectiveness of the already-achieved reforms as well as their future direction. These issues were at the core of CIGI and Oliver Wyman’s fifth annual Financial Regulatory Outlook Conference, held in Rome on November 28, 2018. This conference report summarizes the key points of discussions at the conference, with a special focus on the 10 years of regulatory reform that was conducted under the auspices of the FSB and the new forces that are currently affecting banks and could have an impact on the future.
Topic:
Financial Crisis, Regulation, Europe Union, and Digital Culture
Political Geography:
Europe and Global Focus

2. Beyond International Standards: Mapping the Future of Capital Markets Regulation

Author:
Cally Jordan
Publication Date:
09-2018
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation
Abstract:
As a response to multiple financial shocks, international standards have disappointed. Consensus seeking has stifled innovation, perpetuating outdated regulatory concepts at a time of rapid market change. Markets are complex and idiosyncratic; they may not be receptive to efforts toward producing regulatory harmonization and convergence. Alternatives to international standard setting should be explored. Possibilities include fora for experimentation in capital markets regulation, the creation of a set of variegated model capital markets laws and a “restatement”-like treatise.
Topic:
Markets, Financial Crisis, Regulation, and Capitalism
Political Geography:
Global Focus

3. Addressing Excessive Risk Taking in the Financial Sector: A Corporate Governance Approach

Author:
Steven L. Schwarcz and Maziar Peihani
Publication Date:
09-2018
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation
Abstract:
Excessive corporate risk taking by systemically important financial institutions (SIFIs) is widely seen as one of the primary causes of the global financial crisis. In response, an array of international reforms, under the auspices of the Group of Twenty’s (G20’s) standard-setting bodies, has been adopted to try to curb that risk taking. However, these reforms only impose substantive requirements, such as capital adequacy, and cannot by themselves prevent future systemic collapses. To complete the G20 financial reform agenda, SIFI managers should have a duty to society (a public governance duty) not to engage their firms in excessive risk taking that leads to systemic externalities. Regulating governance in this way can help supplement the ongoing regulatory reforms and reduce the likelihood of systemic harm to the public.
Topic:
Financial Crisis, Reform, Regulation, Risk, and Financial Institutions
Political Geography:
Global Focus

4. Euro-area Governance Reform: The Unfinished Agenda

Author:
Miranda Xafa
Publication Date:
11-2018
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation
Abstract:
Since the debt crisis of 2010-2012, sustained efforts toward deeper integration, supported by accommodative monetary policy, helped promote the recovery of the euro-area economy and dispelled fears of a breakup of the single currency. Fiscal rules were tightened and macro surveillance tools were set up for crisis prevention. Yet significant challenges remain to be tackled. Gaps remain in the euro-area architecture; limited progress has been made in establishing the Capital Markets Union and the banking union remains incomplete. Today’s environment of solid growth remains an ideal time to advance the reform agenda. There is wide agreement that building a well-functioning and resilient monetary union in Europe requires further steps to break the bank-sovereign doom loop and to increase risk sharing among members of the union. Many competing proposals have been tabled to make the governance of the euro area more robust. Views differ on the shape and sequencing of reforms, and on the degree of integration that is ultimately desirable, with some observers arguing for a full fiscal union with shared risk, and others going all the way to full political union through the creation of a federal state. This paper assesses and prioritizes key proposals that are economically sound and politically feasible.
Topic:
Debt, Regional Cooperation, Financial Crisis, and European Union
Political Geography:
Europe

5. Assessing the Governance Practices of Sustainability Reporting

Author:
Jason Thistlethwaite and Melissa Menzies
Publication Date:
01-2016
Content Type:
Policy Brief
Institution:
Centre for International Governance Innovation
Abstract:
To promote climate change risk mitigation in financial markets, the Financial Stability Board recently proposed the creation of a Climate Disclosure Task Force, coordinated through the G20, to develop standards for companies to disclose their exposure to climate change risks. With more than 400 existing disclosure schemes, this task will be challenging. This brief identifies the key categories of governance practices that must be addressed, how these divergent practices challenge end-users, and how the establishment of criteria that define effective and efficient reporting is a critical first step for the Climate Disclosure Task Force.
Topic:
Climate Change, Economics, Markets, and Financial Crisis
Political Geography:
Global Focus

6. Does the Level of Public Debt Matter?

Author:
Susan Schadler
Publication Date:
04-2016
Content Type:
Policy Brief
Institution:
Centre for International Governance Innovation
Abstract:
Research on links between the level of a country’s public debt and its broader economic developments has been heatedly debated in the economic literature. Two strands of the research stand out — one linking the level of debt to a country’s GDP growth rate and the other examining the debt level as an EWI of economic crises. As a broad generalization, research at the moment favors the view that high levels of debt are not a cause, in and of themselves, of low growth nor are they particularly good predictors of impending economic or even debt crises. In principle, the empirical findings have obvious implications for policy makers confronting the question of how to fashion policies (and fiscal policy in particular) when a country has a high debt burden. The IMF, as both a contributor to the literature and an adviser concerned with preventing or dealing with debt crises, has a particularly important stake in navigating the findings. Whether in its surveillance (routine annual advice to all member countries) or the construction of its lending programs to support countries in or near crisis, the IMF must answer the question “how much does the level of debt matter?” Despite the empirical research that casts doubt on the importance of debt, the level of debt figures prominently in the algebra of debt sustainability and the IMF’s real world policy advice. This policy brief examines the nexus of the relatively strong conclusions coming from the academic research and the IMF’s policy advice. It addresses the following question: given that the broad conclusion from the academic literature is that the level of debt itself is not systematically bad for growth or stability, why does the debt level seem to figure rather prominently in the IMF’s policy advice and conditionality?
Topic:
Debt, Development, Economics, International Monetary Fund, Financial Crisis, GDP, and Global Markets
Political Geography:
Global Focus

7. Jurisdiction on the Internet: From Legal Arms Race to Transnational Cooperation

Author:
Bertrand de la Chapelle and Paul Fehlinger
Publication Date:
04-2016
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation
Abstract:
The past 20 years have witnessed a profound change in the types of non-resident investors who provide funding to emerging market economies (EMEs) and the financial instruments through which emerging market (EM) corporations borrow from abroad. Until the beginning of the new millennium, private capital flows to EMEs were mainly intermediated by large global banks, and EMEs were subjected to massive volatility in their external payments balances, exchange rates and domestic financial systems. But since the early 2000s the role of bank-intermediated credit has declined, as the base of investors willing to take on exposure to EM corporate debt has become much larger and more diverse. These structural changes have encouraged a vast growth in flows of funds, not only from the mature economies to EMEs as a group, but also among EMEs themselves.
Topic:
Debt, Economics, Emerging Markets, International Trade and Finance, and Financial Crisis
Political Geography:
Global Focus

8. Short-selling Bans and the Global Financial Crisis: Are They Interconnected?

Author:
Pierre L. Siklos, Martin T. Bohl, and Badye Essid
Publication Date:
03-2015
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation
Abstract:
This paper observes that short-selling bans spread globally beginning in 2007. We seek to empirically determine whether there were spillover effects over and above the domestic impact from the imposition of such bans. There is some evidence that the bans were unsuccessful, at least insofar as they did not take into account the global component a short-selling ban might have. In the individual countries we examine, the bans had relatively little impact. Nevertheless, our finding that equity returns do not appear to show a decline may be evidence that the bans stemmed further deterioration in stock prices that policy makers sought to avoid.
Topic:
Financial Crisis

9. The Shadow Banking System of China and International Regulatory Cooperation

Author:
Zheng Liansheng
Publication Date:
03-2015
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation
Abstract:
The shadow banking system was defined in 2007 by Paul McCulley, the managing director of Pacific Investment Management Company, but it began to receive significant attention in the immediate aftermath of the GFC. Since the beginning of the financial crisis in 2008, the regulatory agencies of different countries, international organizations and think tanks have all carried out in-depth research into shadow banking and have released a series of results. Regulatory reforms have also addressed shadow banking, the most important of which is the US Dodd-Frank Act of 2010, which aims to restrain the expansion and risk taking of shadow banking in the United States. The United Kingdom and the European Union have also adopted reforms and built up a supervisory system to track the risks of the shadow banking system.
Topic:
Financial Crisis
Political Geography:
United States, China, United Kingdom, and Europe

10. Changing Global Financial Governance: International Financial Standards and Emerging Economies since the Global Financial Crisis

Author:
Hyoung-Kyu Chey
Publication Date:
02-2015
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation
Abstract:
One of the most remarkable changes in global financial governance since the 2008-2009 crisis has been the primary forums that establish international standards extending their memberships to include emerging economies. There are two disparate perspectives in the literature on the impact of this change on international financial regulation: the weakening cooperation view, which sees an attenuation of international cooperation due to this change, and the enduring status quo view, which sees the domination of global financial governance by advanced economies persisting even despite it. This paper presents an alternative — more positive — perspective. It argues that extending membership to include emerging economies has, to some extent, actually strengthened their role in the rule-making process related to international standards, by allowing them to participate in that process from the very beginning. Their role, however, has been constrained due to their shortages of regulatory expertise, and has focused mainly on the defensive dimension of mitigating the negative effects of international standards on emerging economies. In addition, their lack of available resources significantly limits their ability to actually incorporate their preferences into international standards. The research presented in this paper also argues that the expanded membership has had positive impacts on emerging economies' compliance with international standards, by increasing their exposure to external compliance pressures and also by heightening compatibility between their own regulatory preferences and the international standards. These findings suggest that a further strengthening of emerging economies' inclusion in the rule making related to international financial standards is likely to enhance rather than hinder international cooperation in this area.
Topic:
Financial Crisis