De-globalising bank regulation

Authors

  • Mario Tonveronachi

DOI:

https://doi.org/10.13133/2037-3643/11366

Keywords:

global banking, financial regulation, de-globalisation, Minsky

Abstract

The recent crisis has promoted a rethinking of financial globalisation, a revision that has also partially interested some official circles. National supervisors have often reacted to the crises of cross-border banks by ring fencing local interests. Some proposals (e.g. the Vickers Report and the Fed’s subsidiarisation of US establishments of foreign banks) de facto imply a partial de-globalisation of both banks and their supervision. Orthodox regulators and large banks point, on the contrary, to deepen globalisation by means of more homogeneous international standards for prudential regulation and bank resolution. After all, that was the original message of the G20. The champions of globalisation argue that the new rules on prudential regulation and bank resolution will make bank crises less frequent and serious, while shielding public finances if they occur. Much of the current debate focuses on whether the new rules, especially for bank capitalisation, are strict enough to deliver financial stability. The present paper objects to focusing regulation and supervision solely on stability, to linking stability only to prudential rules and to enhancing the international harmonisation of those rules. The criticism, based on a simple exercise, looks at the structural heterogeneities that characterise both the banking systems and the growth trajectories of some developed economies. Homogenous rules, if effective, would produce inflationary or deflationary strains. If banks must serve economic growth, regulation should found financial stability mainly on structural measures, and supervision should be transformed into one of the policy tools flexibly looking after local conditions.

 

 

JEL codes: E44, G15, G28

 

References

ADMATI A. et al. (2010), “Healthy Banking System Is the Goal, not Profitable Banks”, Financial Times, Letters, November 9.

ADMATI A. and HELLWIG M. (2013), The Bankers’ New Clothes, Princeton (NJ): Princeton University Press.

ADRIAN T. and ASHCRAFT A. (2012), “Shadow Banking: A Review of the Literature”, Staff Report, n. 580, New York (NY): Federal Reserve Bank of New York.

BAILEY A. (2013), “Regulating International Banks”, speech given at the British Bankers Association, 17 October, London.

EUROPEAN COUNCIL (2013), Proposal for a Directive Establishing a Framework for the Recovery and Resolution of Credit Institutions and Investment Firms, Brussels, 28 June, available at http://register.consilium.europa.eu/pdf/en/13/st11/st11148-re01.en13.pdf.

FINANCIAL STABILITY BOARD (2011), Key Attributes of Effective Resolution Regimes for Financial Institutions, October, Basel.

FINANCIAL STABILITY BOARD (2012), Recovery and Resolution Planning: Making the Key Attributes Requirements Operational. Consultative Document, November, Basel.

G20 (2009), “Leaders’ Statement”, The Pittsburgh Summit, 24-25 September, Pittsburgh (PA).

KEYNES J.M. (2013), Essays in Persuasion, The Collected Writings of J.M. Keynes, vol. 4, Cambridge: Cambridge University Press.

KEYNES J.M. (1933), “National Self-Sufficiency”, The New Statesman and Nation, 8 and 15 July.

KEYNES J.M. (2013), “National Self-Sufficiency”, The Collected Writings of J.M. Keynes, vol. 21, Cambridge: Cambridge University Press, pp. 233-246.

HM TREASURY (2013), Financial Services (Banking Reform) Bill, 9 May.

INDEPENDENT COMMISSION ON BANKING (2011), Final Report, September.

MINSKY H. (1986), Stabilizing an Unstable Economy, New Haven (CT): Yale University Press.

MONTANARO E. and TONVERONACHI M. (2012), “Financial Re-Regulation at a Crossroads: How the European Experience Strengthens the Case for a Radical Reform Built on Minsky’s Approach”, PSL Quarterly Review, vol. 65 n. 263, pp. 335-383.

RONCAGLIA A. (2012), “Keynesian Uncertainty and the Shaky Foundations of Statistical Risk Assessment Models”, PSL Quarterly Review, vol. 65 n. 263, pp. 437-454.

TARULLO D. (2012), “Regulation of Foreign Banking Organizations”, Yale School of Management Leaders Forum, 28 November 2012, New Haven (CT).

THE ECONOMIST (2013), “Gentlemen, start your audits”, 5 October.

TONVERONACHI M. (2010), “Financial Innovation and System Design”, PSL Quarterly Review, vol. 63 n. 253, pp. 131-144.

TONVERONACHI M. (2010), “Empowering Supervisors with More Principles and Discretion to Implement Them Will not Reduce the Dangers of the Prudential Approach to Financial Regulation”, PSL Quarterly Review, vol. 63 n. 255, pp. 363-378.

Downloads

How to Cite

Tonveronachi, M. (2014). De-globalising bank regulation. PSL Quarterly Review, 66(267). https://doi.org/10.13133/2037-3643/11366

Issue

Section

Articles