Authors Iain Begg | Gabriel GlÃ¶ckler | Anke Hassel ... - The Europaeum

More documents

Recommendations

Info

prudential regulation – though only limited micro-prudential regulation. 21 The need to regulate applies particularly to financial instruments that have developed systemic significance, such as credit default swaps (CDS). In cases like CDS, over-the-counter bilateral financial transactions should become regulated by a centralised clearing house, with the power to impose trading conditions aimed to ensure systemic stability. The crisis showed how the alleged benefits of securitisation (efficiency, dispersion of risk, etc) can turn into factors of grave financial disruption. The growth of securitised credit intermediation increased systemic risk in a way that was inherent rather than just a matter of bad execution. 22 Therefore re-regulation of securitised credit is needed, focusing on more simplicity, transparency, and real diversification of risk. Off-balance sheet transactions have been a major source of opacity, concealing risks and liabilities and generating grave systemic instability. All transactions should be incorporated in the bank balance sheets, displaying all the risks undertaken by financial companies. The recent crisis has offered useful insights into market failures in the functioning of the globalised financial system. Serious principal-agent problems have characterised the behaviour of banking executives. The emphasis on quarterly reporting skews their investment behaviour heavily toward short-term high-return investments, accumulating sizeable future risks for their company and the system at large. Risk management considerations should be closely integrated into remuneration decisions. Bankers bonuses should be assessed in a multi-annual framework, spread over the cycle, or even held in escrow for a certain period, to ensure that profitability is sustainable. The systemic implications of excessive banking bonuses justify regulatory authorities imposing remuneration caps. Excessive leverage has been a major factor in the recent crisis. Maximum gross leverage ratios and new capital and liquidity requirements should be designed to constrain commercial banks’ roles (“utility banking”) in risky investment banking activities. Moreover, the current system operates in a procyclical manner, amplifying the effects of expansion as much as those of crises. In fair weather conditions, the evaluation of the risks is too optimistic, the assessment of asset values runs high, and the resulting exuberance leads actors to undertake even higher risks. When a sharp downturn occurs, the reverse happens, asset valuations fall steeply, market actors are led to panic sales and the effects of the crisis are magnified. The “mark to market” system exacerbates procyclicality. 40 After the crisis: A new socio-economic settlement for the EU
For all its virtues, the Basel II framework has a tendency to function procyclically. The Basel II capital adequacy requirements should be raised by a ratio linked to the growth of the value of each bank’s assets. Thus, at times of expansion the capital adequacy bar would be raised, moderating excess lending, and building up capital reserves during boom time in the event of a downturn. 23 Countercyclical regulation should be most constraining at the height of the bubble, breaking away from policies of regulatory laxity and neglect that led to the crisis. Regulatory supervision must extend to include the “shadow” financial system (major investment banks, private equity and hedge funds, and sovereign wealth funds operating in Europe). The recent crisis demonstrated that a major source of instability in the US was the lack of any regulation in the derivatives industry. As a principle, there should be comprehensive regulatory coverage across the entire financial system, covering all leveraged institutions over a certain size, in order to prevent regulatory arbitrage. Regulatory initiatives would be incomplete if they failed to tackle systematic patterns of tax evasion that distort actors’ incentives and market competition. Following the G20, global government coordination should target offshore companies based in tax havens, a scandalous source of tax evasion and financial corruption, especially since taxpayers money has been invested in the banking system bailout. Offshore centers contribute to draining fiscal revenues and unfairly shifting the tax burden onto the majority of working tax payers and productive enterprises. Europe should lead the efforts of global-level intergovernmental tax cooperation, which should heavily sanction governments and authorities that insist on free-riding by retaining offshore centres. At an EU level, the effort to tackle tax-havens should lead to closer tax coordination. Indeed, the financial and economic crisis in general makes tax harmonisation a highly relevant issue. Finally, private rating agencies have been heavily implicated in underrating the high risks of toxic investments that led to the subprime bubble and subsequent meltdown, and have also been implicated in serious conflicts of interest. As the role of rating agencies has vital implications for systemic stability and the public interest, it is important to ensure fully transparent methodologies and evaluation systems. The EC has already adopted legislation requiring all credit ratings agencies active in Europe to register with EU regulators and observe demanding rules of conduct. Regulatory Chapter 2 – George Pagoulatos 41
Page 1 and 2: Authors Iain Begg | Gabriel Glöckl
Page 4 and 5: Published in 2009 by Policy Network
Page 6 and 7: 4 After the crisis: A new socio-eco
Page 8 and 9: 6 After the crisis: A new socio-eco
Page 10 and 11: Simona Milio is associate director
Page 12 and 13: Chapter 10 Simona Milio ...........
Page 14 and 15: Before the crash: the EU as a parti
Page 16 and 17: liberalisation. The City of London
Page 18 and 19: of the Financial Services Action Pl
Page 20 and 21: confidence and world trade, to whic
Page 22 and 23: following the ECJ’s controversial
Page 24 and 25: signals are in place to promote a n
Page 26 and 27: need to be constructed to create ac
Page 28 and 29: or indeed re-impose, what they rega
Page 30 and 31: Markets with rules The overall conc
Page 32 and 33: 30 After the crisis: A new socio-ec
Page 34 and 35: Target financial stability The EMU
Page 36 and 37: Belgium, the Netherlands and Luxemb
Page 38 and 39: mortgage banks and the insurance se
Page 40 and 41: financial market rules. The ESFS au
Page 44 and 45: initiatives vis-à-vis ratings agen
Page 48 and 49: Even if membership in a monetary un
Page 50 and 51: emained relatively contained to spe
Page 52 and 53: The second channel of functional sp
Page 54 and 55: But even so, the depth and intensit
Page 56 and 57: governance in the EU and the euro a
Page 58 and 59: in the EU show, authorities at the
Page 60 and 61: factors will remain prevalent and b
Page 62 and 63: centralised decision-maker. Similar
Page 66 and 67: (GNI), the interests of the member
Page 68 and 69: terms only very slowly and as a per
Page 70 and 71: policy proposal asks itself what th
Page 72 and 73: ensure that a ceiling is put on the
Page 74 and 75: Reform of EU expenditure Spending 4
Page 76 and 77: The medium-term financial framework
Page 78 and 79: unanimity. The need to obtain the c
Page 80 and 81: therefore, was weakening the Europe
Page 82 and 83: for the signing of the strict and d
Page 84 and 85: Since then, member states have name
Page 86 and 87: in the world monetary system. It al
Page 88 and 89: a Treaty that not only ignores trad
Page 92 and 93:
Firstly, they should include policy
Page 94 and 95:
emanate from demographic trends. Ho
Page 96 and 97:
Furthermore, the Lisbon agenda may
Page 98 and 99:
Strengthening, if not really crafti
Page 100 and 101:
incentives in the welfare schemes a
Page 102 and 103:
security, yet at a lower cost than
Page 104 and 105:
102 After the crisis: A new socio-e
Page 106 and 107:
asis only in the 1990s, and over th
Page 108 and 109:
in an increasingly global age the
Page 110 and 111:
So what kind of social role for the
Page 112 and 113:
effective common policies in areas
Page 114 and 115:
help by ensuring a thorough audit a
Page 116 and 117:
irrespectively of benefit and costs
Page 118 and 119:
to the European Innovation Scoreboa
Page 120 and 121:
flexible labour regulation than cou
Page 122 and 123:
to cope with change is germane to a
Page 124 and 125:
average job tenure figures in the E
Page 126 and 127:
(74), and road vehicles (78). On th
Page 128 and 129:
Towards a less dogmatic approach Wh
Page 130 and 131:
Page 132 and 133:
will be reinforced rather than cont
Page 134 and 135:
Where do we come from? The EU agend
Page 136 and 137:
However, so far the flexicurity app
Page 138 and 139:
existing practices of wage subsidie
Page 140 and 141:
minimum wage tend to have higher pr
Page 142 and 143:
commitment for employment”, 18 un
Page 144 and 145:
provisions for minority protection,
Page 146 and 147:
eflected in the objective of the Li
Page 148 and 149:
instruments have been criticised fo
Page 150 and 151:
However, the countries’ planning
Page 152 and 153:
Page 154 and 155:
ich developed country pre-occupatio
Page 156 and 157:
emerging markets (indeed the rules
Page 158 and 159:
Energy and carbon use depend on fou
Page 160 and 161:
concentrate on the size of the cake
Page 162 and 163:
esurgence of long-term unemployment
Page 164 and 165:
Page 166 and 167:
22 Financial Services Authority (FS
Page 168 and 169:
7 This idea is not new. The 1970 We
Page 170 and 171:
33 Arpaia, Alfonso, Declan Costello
Page 172 and 173:
9 See Garabiol-Furet, M.-D. (2006)
Page 174 and 175:
Chapter 11 1 Victor, D.G. (2006)
show all

Authors Iain Begg | Gabriel GlÃ¶ckler | Anke Hassel ... - The Europaeum

Create successful ePaper yourself

Delete template?

Save as template?