scholarly journals Financial Markets: From the “Tragedy of Commons” to Balanced Regulation

2020 ◽  
Vol 15 (2) ◽  
pp. 173-190
Author(s):  
Anastasia Podrugina ◽  
◽  
Anton Tabakh ◽  
Keyword(s):  
Financial Markets ◽  
Financial Stability ◽  
Banking Sector ◽  
Financial Regulation ◽  
Financial System ◽  
Political Influence ◽  
Regulation System ◽  
Shadow Banking ◽  
Financial Industry ◽  
Tax Legislation

Nowadays the global financial system faces a triple challenge: the threat of a new systemic financial crisis at both global and regional levels; difficulties of constant adaptation of existing financial business and regulatory practices to intensive technological innovations; direct and hidden consequences of excessive political influence on the financial system through sanctions and selectively applied practices for sanction purposes. Improving the quality of financial regulation will require deeper cooperation between regulators of leading economies and a proactive position of the financial industry, as well as the decentralization of financial regulation. However, it is unlikely that this will happen at the global level. Financial stability became a key goal of global financial regulation in the post-crisis period. We consider financial stability as the «tragedy of commons». The article describes the main trends of financial markets regulation after the crisis: transformation of global financial architecture, anti-money laundering and counter-terrorism financing practices (AML/ CT), financial sanctions. The article analyzes the existing failures of modern post-crisis financial regulation: credit crunch, reduction in the effectiveness of monetary policy, regulatory arbitrage, and increased compliance costs (AML/CT legislation, tax legislation, and the sanctions regime). In the future we expect simultaneous trends of harmonization and standardization of requirements in traditional sectors of financial markets (including traditional institutions of the shadow banking sector), but at the same time regulatory arbitrage1 will induce new financial technologies in order to reduce regulatory costs. The crisis triggered by the coronavirus pandemic in 2020 despite its non-financial nature will almost inevitably have a major impact on financial markets and their regulation. Possible steps to eliminate failures in the financial regulation system are proposed, including recommendations for international organizations.

scholarly journals Determinants of Polish financial stability in 2017-2018

2019 ◽  
Vol 30 (2) ◽  
pp. 5-19
Author(s):  
Kinga Górska ◽  
Karolina Krzemińska
Keyword(s):  
Financial Markets ◽  
Financial Stability ◽  
Banking Sector ◽  
Financial System ◽  
National Bank ◽  
The Stability

This article seeks to present the essentials of financial stability and to analyse and evaluate selected determinants of stability Poland’s financial system in the years 2017–2018. The study comprises exemplary ratios or indicators that are used in measuring the stability of a financial system. The proposed analysis is confined to selected groups of stability ratios/indicators that are pertinent to the macroeconomic situation, the situation in financial markets, and the situation of the banking sector. The analysis is based upon the data and statistics provided in the reports of the National Bank of Poland, available by 31st November 2018.

scholarly journals Macroprudential Regulation in Ensuring of the Development of Financial Markets

2020 ◽  
Vol 22 (1) ◽  
pp. 24-30
Author(s):  
Victoria Kovalenko ◽  
◽  
Sergii Sheludko ◽  
Keyword(s):  
Financial Markets ◽  
Systemic Risk ◽  
Financial Stability ◽  
Banking Sector ◽  
Asset Markets ◽  
Price Stability ◽  
Shadow Banking ◽  
Credit System ◽  
Macroprudential Regulation ◽  
Goods And Services

Introduction. The study has confirmed that ensuring of financial markets’ development stability is connected with the development of an effective system for macroprudential regulation. The financial crisis has shown that price stability is not enough to ensure financial stability. The financial and business cycles are not synchronized – therefore risks can arise, especially during periods of “disconnection” between two cycles. Purpose. The aim of the paper is to systematize basic concepts of macroprudential regulation in financial markets, considering international practice of its instruments selection and usage. Results. It is clarified the approaches to a set of macroprudential instruments formation which depends on the country’s economic development and the vulnerability of a financial sector to internal and external shocks. It has been substantiated that monetary regulation is aimed at ensuring price stability in the market for goods and services. It has been proven that it should not be used to address hotbeds of volatility in asset markets. This is a subject for macroprudential regulation, aimed to ensuring the stability of financial markets and containing systemic risk. It has been identified the factors causing the need to implement the strategy of macroprudential regulation in financial markets to ensure their stable development. They include: systemic risk and financial cycles; considering the importance of a growing market’s credit system and measures to address its risks; the need to increase the transparency of the shadow banking sector; problems in regulating the FinTech branch; international financial standards; the growing role of the central periphery in international finance. Conclusions. It has been concluded that a powerful macroprudential political mandate and an adequate set of instruments should be given for central banks to solve the problem of increasing financial risks, especially in situations where monetary regulation is adaptive. It has been substantiated the conclusion about the need to develop supervisory and coordination mechanisms in the financial market and the introduction of end-to-end monitoring of systemic risks as a prerequisite for restoring financial stability.

scholarly journals Overhauling China’s Financial Stability Regulation: Policy Riddles and Regulatory Dilemmas

2017 ◽  
Vol 4 (1) ◽  
pp. 1-57 ◽  
Author(s):  
Emilios AVGOULEAS ◽  
Duoqi XU
Keyword(s):  
Financial Stability ◽  
Banking Sector ◽  
Financial Regulation ◽  
Banking System ◽  
Big Bang ◽  
Shadow Banking ◽  
Financial Repression ◽  
Leverage Ratio ◽  
Regulation Policy ◽  
Shadow Banking System

AbstractChina faces a number of important financial-stability risks. A persistent feature of the Chinese banking sector is the rapid formation of non-performing loans (NPLs) during each business cycle. Moreover, lending restrictions and interest-rate caps (“financial repression”) have, in part, given rise to an ever-expanding shadow-banking sector. The article highlights five cardinal sins within the Chinese financial system: (1) bad lending practices by the regulated sector, (2) lax governance, (3) a shadow-banking system that is dominated by short-term claims with no liquidity backstop, (4) stark lack of transparency in the shadow sector, and (5) very high levels of interconnectedness between the shadow and the regulated sector. The article suggests that some of these problems will be alleviated through a regulatory big bang that would abolish the current silo approach to financial regulation streamlining financial stability and conduct/consumer-protection supervision. Furthermore, we recommend the introduction of a binding and all-encompassing leverage ratio that will require banks to hold much higher capital buffers as a means to boost bank resilience, reduce NPLs, and battle interconnectedness with the shadow sector.

scholarly journals Banks, Financial Markets and International Consumption Risk Sharing

2012 ◽  
Vol 13 (3) ◽  
pp. 331-351 ◽  
Author(s):  
Markus Leibrecht ◽  
Johann Scharler
Keyword(s):  
Financial Markets ◽  
Risk Sharing ◽  
Banking Sector ◽  
Financial System ◽  
International Diversification ◽  
Oecd Countries ◽  
Idiosyncratic Risk ◽  
Per Se ◽  
Consumption Risk

Abstract In this article, we explore how characteristics of the domestic financial system influence the international allocation of consumption risk in a sample of OECD countries. Our results show that the extent of risk sharing achieved does not depend on the overall development of the domestic financial system per se. Rather, it depends on how the financial system is organized. Countries characterized by developed financial markets are less exposed to idiosyncratic risk, whereas the development of the banking sector contributes little to the international diversification of consumption risk.

scholarly journals Macroprudential policy debate, concepts and the Brazilian context

2018 ◽  
Vol 4 (1) ◽  
pp. 35
Author(s):  
Míriam Oliveira Silva Portugues ◽  
Viviane Luporini ◽  
Luis Antonio Licha
Keyword(s):  
Financial Stability ◽  
Banking System ◽  
Financial System ◽  
International Standards ◽  
Capital Inflows ◽  
Shadow Banking ◽  
Policy Debate ◽  
Macroprudential Policy ◽  
Intrinsic Nature ◽  
Economics Literature

<div class="page" title="Page 1"><div class="layoutArea"><div class="column"><p><span>The economics literature related to the financial system seeks to define the concepts of financial stability, systemic risk and macroprudential instruments for the purpose of drafting a policy that essentially "leans against the wind", that is, a policy that monitors macroeconomic vulnerabilities and combats system instability. Such a policy should cover all financial institutions involved in credit intermediation (not just banks) and consider the pro-cyclical and intrinsic nature of risk in the financial system, and account for the spillovers effects of policies in other countries, that is, the global context. This article summarizes the main concepts related to macroprudential policy discussed in the economics literature after the crisis the 2008 financial crisis. In addition, we describe macroprudential policy in the context of the Brazilian financial system, specifically major policies implemented in the banking regulatory environment related to Basel III and non-bank regulations related to shadow banks. After the 2008 crisis, Brazil was one of the precursors countries in operating macroprudential instruments to curb excessive credit growth and strong capital inflows. The Brazilian financial system has a broad regulatory perimeter, adhering to international standards and covering the Shadow banking system. This system has a weak connection with the banking system and is small relative to the financial assets of the national and global systems. </span></p></div></div></div>

EU Law (MiFID II) and effective regulation: a step towards financial stability?

2019 ◽  
Vol 26 (6) ◽  
pp. 833-848
Author(s):  
Mariia Domina Repiquet
Keyword(s):  
Financial Markets ◽  
Financial Stability ◽  
Financial Regulation ◽  
Duty Of Care ◽  
Eu Law ◽  
Systemic Risks ◽  
Two Sides ◽  
The Eu

This article examines to what extent EU law is effective in preserving global financial stability and, therefore, preventing financial crisis. A difference between macro- and micro-approaches to financial regulation is explained. Whilst the former is concerned with the minimization of systemic risks and maintaining of the financial stability, the latter is focused on the effective regulation of all financial markets’ players, whatever the size of their portfolios. These approaches are the two sides of the same coin, that is limiting the possibility that future financial crises will occur. This paper argues that the effective regulation of investment firms, especially their duty of care, helps to preserve overall financial stability. The choice of the MiFID II as a case study is explained by its appreciation as one of the biggest achievements of EU policymakers in the context of financial law so far. How does a duty to ‘know your customer’ affect global financial stability within the EU? What is the role of soft law in preserving the financial system? These are the questions that this paper seeks to answer.

scholarly journals Financial Stability – Comparative Analysis: Montenegro, Serbia and the Netherlands

2015 ◽  
Vol 4 (1) ◽  
pp. 63-93 ◽  
Author(s):  
Milena Vučinić
Keyword(s):  
Comparative Analysis ◽  
The Netherlands ◽  
Financial Stability ◽  
Global Economy ◽  
Banking Sector ◽  
Global Financial Crisis ◽  
Financial System ◽  
System Stability ◽  
Major Influence ◽  
The Global Financial Crisis

Abstract The global financial crisis has had far-reaching effects on financial systems and economies all over the world, thus putting the importance of safeguarding financial stability in the focus of interest of the global economy. This paper presents the importance of safeguarding financial stability and building a strong financial system with developed early identification and successful management of risks, i.e. a system resilient to shocks and capable of overcoming them. The paper focus is on the issue of financial stability of Montenegro, given through comparative analysis of the financial stability safeguarding frameworks in the Netherlands and the Republic of Serbia. The paper aims to present the regulatory institutional framework for safeguarding financial stability, and the measures that the countries take in order to achieve stability of their macroeconomic environment and financial system. The comparison of the characteristics and the approach to safeguarding the banking sector is particularly emphasised due to its major influence on the financial system stability.

scholarly journals Post-liberalisation Efficiency and Productivity of the Banking Sector in Pakistan

2001 ◽  
Vol 40 (4II) ◽  
pp. 605-632 ◽  
Author(s):  
Syed Fawad Ali Rizvi
Keyword(s):  
Economic Growth ◽  
Financial Markets ◽  
Banking Sector ◽  
Peer Group ◽  
Financial System ◽  
Empirical Literature ◽  
Key Factors ◽  
Group Efficiency ◽  
Cross Country ◽  
Efficiency And Productivity

It has been long debated in economic literature whether financial markets play a significant role in economic growth and development. [For review see Gertler (1988) and Levine (1997)]. Findings of some recent empirical literature show that well-functioning financial system plays an instrumental role in economic growth, and the causality runs from finance to growth [for cross country evidences see King and Levine (1993, 1993a); Levine and Zervos (1998); Levine, Loayza and Beck (1999); Beck, Levine, and Loayza (1999)]. This, in turn, has led to a search for the key factors that determine the better functioning financial markets. Within the banking sector, efficiency is the core concern of both academics and bank officials. A number of studies have sought to measure the efficiency of financial institutions, to identify the factors that contribute to efficiency of financial system, and to recommend the ways to attain the peer group efficiency levels [Berg (1993); Leaven (1999); Berger and Mester (1997); Miller and Noulas (1996)].

scholarly journals From illiquid financial instrument to market distress – selected institutional circumstances of the credit crisis

Equilibrium ◽  
2009 ◽  
Vol 2 (1) ◽  
pp. 29-38 ◽  
Author(s):  
Anna Krześniak
Keyword(s):  
Financial Markets ◽  
Financial Stability ◽  
Critical Role ◽  
Financial System ◽  
Liquidity Risk ◽  
Price Volatility ◽  
Counterparty Risk ◽  
Credit Crisis ◽  
Financial Instrument ◽  
Underlying Mechanisms

The recently observed credit crunch is yet another market disruption confirming the critical role of liquidity in the financial system. It is however the first time that illiquidity of a single financial instrument has led to illiquidity of a significant part of the financial system. Although the credit crisis had limited effect on the Polish economy, thorough understanding of the underlying mechanisms is necessary to properly monitor the financial stability in the future, as the Polish financial system gets more integrated into the global one. The article discusses selected mechanisms of the crisis and concentrates on the characteristics of the financial markets that led to the sudden spill-over of the turbulence in the global financial markets. The paper highlights the two types of risk, which were underestimated in the past, but played a major role in instigating and magnifying the recent crisis. The first one is the liquidity risk, which may undermine the reliability of the mark-to-market valuation and produce extreme price volatility once the confidence in such valuations is eroded. The second one is the counterparty risk which results from concentration of market turnover in the period of rapidly growing volumes of derivatives traded in the market. The article leads to the conclusion that the lack of transparency and liquidity on the credit risk markets triggered the severe financial crisis in the global financial market. The analysis of the liquidity risk and the counterparty risk illustrates that some institutions became crucial for the functioning not only domestic but also global markets.

scholarly journals FINANCIAL STABILITY AND INCOME GROWTH IN EMERGING MARKETS

2020 ◽  
Vol 23 (2) ◽  
pp. 201-220
Author(s):  
Bashir T. Mande ◽  
Afees Salisu ◽  
Adeola N. Jimoh ◽  
Fola Dosumu ◽  
Girei H. Adamu
Keyword(s):  
Stock Market ◽  
Emerging Markets ◽  
Financial Stability ◽  
Banking Sector ◽  
Financial System ◽  
Market Volatility ◽  
Income Growth ◽  
Stock Market Volatility ◽  
The Individual ◽  
The Impact

In this paper, we examine the extent to which financial stability matters for income growth in emerging markets. Using dynamic panel estimation techniques, we explore both the stock market and banking sector dimensions of the financial system to show that both stock market volatility and non-performing loans are detrimental to income growth in these markets. We, however, find the magnitude of the impact to be relatively more pronounced when the underlying source of instability in the financial system is stock market volatility. Overall, we find the impact of financial stability on income growth to be more statistically relevant when measured using the individual indicators of financial instability as compared to their composite indicator.

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