Institutional reform
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Moderator: Francesco Giavazzi (Bocconi and MIT) |
 The Risks of a Crisis in Central and Eastern Europe Are Bigger Than You ThinkMichael Pomerleano (The World Bank ), 24 June 2010This article points out that the eight newest members of the European Union (EU) (Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, and Romania) face very high vulnerabilities. It is known that the Central and Eastern Europe (CEE) countries have severe structural distortions, including external imbalances: lost competitiveness, widening external deficits, and deteriorating public finances. While some of the... Should regulators have the right to decide on their own what risks should be considered?Per Kurowski (The Voice and Noise Foundation and Petropolitan A.C.), 15 June 2010Human and economic development includes an incredible number of different risks of different nature and most perhaps not even known to us. In such circumstances should the financial regulators have the right to decide that the only risk to be considered when determining the capital requirements of a bank should be the risks of default, as perceived by some credit... Sound governance arrangements for international financial stabilityMichael Pomerleano (The World Bank ), 21 April 2010Developing and developed countries alike are inextricably connected in the international financial system. The international financial system is heading into strong headwinds-- a dangerous period in which vulnerabilities will increase in the international financial system. The European Central Bank has recently warned that distortions in the global economy that provided the backdrop to the financial crisis threaten to widen again... The Lehman bankruptcy examiner report: And Then There Were None……..Michael Pomerleano (The World Bank ), 31 March 2010My objective in this article is to explore the broader implications of the new Lehman report issued by the bankruptcy examiner- the Valukas report. I will first briefly review the findings. The Lehman details the massive effort to hide Lehman’s true debt levels – through the so-called “Repo 105” structure. The examiner’s report finds that the CEO and his CFOs... The Basel II concept leads to a false sense of securityMichael Pomerleano (The World Bank ), 5 February 2010The Basel II accord has done more harm than good for stability. In a previous post last month on the failure of financial regulation, I pointed out that Basel II has glaring deficiencies that virtually provide a navigational map to creating off-balance sheet instruments. The regulatory incentives regarding capital requirements in Basel II contributed to the subprime crisis. It gave banks... A failure of public financial sector governance Michael Pomerleano and Andrew ShengMichael Pomerleano (The World Bank ), 26 January 2010A failure of public financial sector governance Michael Pomerleano and Andrew Sheng As the Financial Crisis Inquiry Commission begins looking at the causes of the recent financial crisis, we need to consider that crisis is a failure of governance. Lucian Bebchuk from Harvard Law School has written extensively on the failure of private sector governance: boards that failed to make informed judgments... Unregulable - Why Derivatives May Never be RegulatedAlireza Gharagozlou (New York University School of Law), 6 April 2010In this paper I explore various methods of regulating financial derivative contracts, including (a) regulation by judicially created case law, (b) regulation as gambling, (c) regulation as insurance, (d) regulation as securities, (e) regulation via a clearing house and (f) oversight by a super financial regulator. After discussing the drawbacks of each approach, I conclude that derivatives may be beyond... Local currency bond markets: Will this time be different?Michael Pomerleano (The World Bank ), 5 January 2010As fears of debt disaster swirl around Dubai and Europe, it is useful to take a closer look at local currency bond markets. A recent superb book - This Time is Different: Eight Centuries of Financial Folly, by Carmen M. Reinhart and Kenneth Rogoff - offers a veritable tour de force of local currency markets. Reinhart and Rogoff have done an extraordinary job of putting together statistics covering eight... What international experience tells us about financial stability regulatory reformsMichael Pomerleano (The World Bank ), 21 December 2009The global financial crisis has revealed the “fallacy of composition” in the supervision of the financial system. While financial supervisors deemed each individual institution to be sound, risks were building in the system. Individual countries and the Financial Stability Board seek to develop a regulatory approach to stability at national and global level respectively. Here, I offer criteria for effective... Zero interest rate policy: Treatment may be expensive as the crisisMichael Pomerleano (The World Bank ), 16 October 2009By Andrew Sheng and Michael Pomerleano The national authorities and the international community should be commended for the speed of action taken to stop the spread of the financial crisis. To protect the financial system from the deflation in asset bubbles, the public sector has essentially guaranteed all deposits, rescued systemically important institutions, made large liquidity injections and brought interest... Tobin or not Tobin?Sony Kapoor (www.re-define.org, Re-Define), 10 October 2009We are still in the midst of the financial crisis brought upon us by excesses in the financial sector. The recession this triggered has squeezed tax revenues. This, together with the trillions of dollars spent by governments around the world to rescue the financial sector and stimulate the broader economy has increased the prospects of a fiscal crisis with many... Another crash is all too possibleMichael Pomerleano (The World Bank ), 1 October 2009I was in Chicago last week to participate in the 12th Annual International Banking Conference sponsored by the Federal Reserve Bank of Chicago and the World Bank. The answer to the question posed — have the rules of the global financial game really changed? — is a resounding no. This was my first week back in the US after being away... Risk-weights only confuse the financial marketsPer Kurowski (The Voice and Noise Foundation and Petropolitan A.C.), 12 September 2009Most regulators have yet to realize how much their capital requirements for banks based on vaguely defined risk of default assessments, interfered with the risk allocation mechanism of the market. The market prices risk in interest rates spreads; and cannot therefore really handle that one of its most important participants, the banks, also has to consider the “risk weights”. Immense... Financial Stability Regulator By Masahiro Kawai and Michael PomerleanoMichael Pomerleano (The World Bank ), 14 August 2009In a previous article, we expressed skepticism regarding the capacity of the Financial Stability Board to implement a sound international financial stability regulatory architecture. We concluded that the prospects are far more promising on the domestic front, and this leads to a discussion of creating a financial stability regulator at the national level. The Obama administration proposes that the Federal... A solution to financial instability: Ring-fence Cross-Border Financial InstitutionsMichael Pomerleano (The World Bank ), 7 August 2009A solution to financial instability: Ring-fence Cross-Border Financial Institutions Josef Ackermann, Chief Executive of Deutsche Bank and chairman of the Institute of International Finance, writes in the FT (2009): “There is a danger that changes in the regulatory environment will, by accident or design, lead to a refragmentation of markets. .. Consequently, we should not seek answers... International financial stability architecture for the 21st centuryMichael Pomerleano (The World Bank ), 31 July 2009International financial stability architecture for the 21st century Masahiro Kawai and Michael Pomerleano In response to the crisis the international financial community has established the Financial Stability Board (FSB). The FSB aims to address vulnerabilities and to develop and implement strong regulatory, supervisory and other policies in the interest of financial stability. The FSB mandate is sweeping. It proposes to: assess vulnerabilities... Some Principles for Re-Designing the Financial SystemSony Kapoor (www.re-define.org, Re-Define), 28 July 2009Colossal taxpayer funded bailouts have steered us away from financial hell, at least for the time being. But the financial sector already wants to go back to ‘business as usual’. That way lies more fire and brimstone. Incorporating guiding principles in the design of regulations and bailout packages can help restore public confidence and ensure that we exit the crisis... The deleveraging process is inevitableMichael Pomerleano (The World Bank ), 6 July 2009Martin Wolf’s article- The cautious approach to fixing banks will not work (http://blogs.ft.com/economistsforum/2009/07/the-cautious-approach-to-fix...) - stimulated me to raise a fundamental issue that is preoccupying me as the crisis unfolds and to which I don’t have an answer. The standard orthodox prescription-suggested by Martin, Krugman and others- is to contain the systemic banking sector crisis with a set of comprehensive policy... They’ve left the rotten apple in a fairly good financial regulatory reform barrelPer Kurowski (The Voice and Noise Foundation and Petropolitan A.C.), 20 June 2009Though the proposed US Financial Regulatory Reform often speaks about more stringent capital requirements it still conserves the principle of “risk-based regulatory capital requirements” and by doing so this the “New Foundation” builds upon the most fundamental flaw of the current regulatory system. Regulators have no business in trying to discriminate risks since by doing so they alter the risks and... Five financial reform policies for a crisis-wracked world – a scorecardMichael Pomerleano (The World Bank ), 20 June 2009Reforms typically take place when the urgency of now is evident in the midst of a crisis. That is when vested interests are weak, and policy makers and regulators are no longer complacent. Recently there is a sense that the financial crisis is abating, and that business is returning to normal, and a false sense of stability in taking hold, but it does not... The IMF, the U.S. Subprime Crisis, and Global Financial GovernanceBiagio Bossone (Central Bank of San Marino), 3 February 2009With few notable exceptions, economists worldwide have failed to predict the emergence and gravity of the financial crisis originated in the United States. Such dramatic failure of the economic profession has played out quite vividly in blogs and opinion posts, as well as in national parliamentary testimonies, working papers and conferences in major universities (Bennet 2008). But as the governments of... Message for the G20: SDR Are Your Best AnswerTed Truman (Peterson Institute of International Economics), 6 March 2009When the leaders of the G-20 countries gather in London on April 2, they will have one policy instrument immediately available to address the global economic and financial crisis cooperatively, concretely and credibly. To adopt it, however, they will need to overcome a certain amount of complacency and thinking rooted in the past. But the world will not benefit from... Charles Dickens, China and the Economic CrisisAlireza Gharagozlou (New York University School of Law), 8 February 2009China's accumulation of foreign currency is a hotly debated topic. Secretary of Treasury Geithner recently characterized it as "currency manipulation," a legal term of art which allows the United States to take retaliatory measures. I have written a paper that approaches this practice from a different angle, and recommends a different solution. In this paper, I revisit historic attitudes towards... Why Don't We Hear a lot More About SDRs?Dani Rodrik (Harvard), 4 February 2009This one seems a no-brainer to me. The easiest and quickest way to create global liquidity and enable credit-starved emerging and developing countries to increase their spending is for the IMF to engineer a vast new SDR allocation. It can be done at the stroke of a pen, and it does not require the IMF to negotiate a... The current economic crisis: A solution that “lies buried and obscured in a mass of false theory"Thomas Colignatus (Thomas Cool Consultancy & Econometrics), 16 February 2009When we want that economic policy is effective towards recovery then it must be based upon the right theory. A docter without the proper diagnosis is at risk of giving the wrong treatment. Hapsnap ways, muddling through, unreliable forecasts, international bickering, are a recipe for a prolongued recession. Sound theory is key for recovery. Recovery will be greatly helped when... The deleveraging process is inevitableMichael Pomerleano (The World Bank ), 6 July 2009Martin Wolf’s article- The cautious approach to fixing banks will not work (http://blogs.ft.com/economistsforum/2009/07/the-cautious-approach-to-fix...) - stimulated me to raise a fundamental issue that is preoccupying me as the crisis unfolds and to which I don’t have an answer. The standard orthodox prescription-suggested by Martin, Krugman and others- is to contain the systemic banking sector crisis with a set of comprehensive policy... Reforming the Financial System: Beyond Standardization on “Best Practice” ModelsKatharina Pistor (Columbia Law School), 2 February 2009As the world embarks on yet another attempt to reform the international financial system it is worth recalling what happened the last time; to assess these measures with the benefit of hindsight, and perhaps most importantly, to question the underlying assumptions on which these reform models rested. The East Asian financial crisis of 1997/8, which quickly spread to other emerging markets... Credit growth in the aftermath of a crisisMichael Pomerleano (The World Bank ), 20 May 2009The consequences of the banking crisis will linger for a long time. In a recent seminal paper, The Aftermath of Financial Crises (December 19, 2008) Carmen Reinhart and Kenneth Rogoff find that the outcome of severe financial crises share three characteristics. First, they show that asset market collapses are deep and prolonged. Second, the aftermath of banking crises is associated... A solution to financial instability: Ring-fence Cross-Border Financial InstitutionsMichael Pomerleano (The World Bank ), 7 August 2009A solution to financial instability: Ring-fence Cross-Border Financial Institutions Josef Ackermann, Chief Executive of Deutsche Bank and chairman of the Institute of International Finance, writes in the FT (2009): “There is a danger that changes in the regulatory environment will, by accident or design, lead to a refragmentation of markets. .. Consequently, we should not seek answers... The capital shortage is globalMichael Pomerleano (The World Bank ), 4 May 2009The capital shortage is global Michael Pomerleano and Ying Lin Until recently, the international financial community was focused on the financial crisis in the US, while the European and Asian banking communities indulged in a “Schadenfreude” at the misfortune of the US after years of envying the financial innovations in the US. However, the recent Global Financial Stability Report... The IMF’s global fumble - As the IMF tries to please everyone, it serves no oneMichael Pomerleano (The World Bank ), 26 March 2009To much fanfare, the International Monetary Fund yesterday announced its latest attempt to revamp its lending instruments to better serve the post-financial crisis world. The new “flexible credit lines” are intended to speed bailouts, cut down on conditionality, and improve countries’ payback terms -- in theory, pleasing both donor countries and recipients. “More flexibility in our lending along with streamlined... International financial stability architecture for the 21st centuryMichael Pomerleano (The World Bank ), 31 July 2009International financial stability architecture for the 21st century Masahiro Kawai and Michael Pomerleano In response to the crisis the international financial community has established the Financial Stability Board (FSB). The FSB aims to address vulnerabilities and to develop and implement strong regulatory, supervisory and other policies in the interest of financial stability. The FSB mandate is sweeping. It proposes to: assess vulnerabilities... The “shadow financial system” of government guaranteesMichael Pomerleano (The World Bank ), 18 March 2009We are witnessing the massive use—perhaps even abuse—of guarantees, which suggests that policy makers consider them a “free lunch” that permits them to bypass budgetary scrutiny in the US and other countries. My objective in this article is not to rail against guarantees, but rather to inform about the consequences of their use and to advocate for their transparent and... The world at large would have been better off without any Basel regulationsPer Kurowski (The Voice and Noise Foundation and Petropolitan A.C.), 8 February 2009I refer to the Geneva Reports on the World Economy 11 titled The Fundamental Principles of Financial Regulation. http://www.voxeu.org/reports/Geneva11.pdf It is a good document, though, unfortunately, far from being good enough. It is good because it recommends for instance “to exclude Credit Rating Organizations from the regulatory network altogether” and regards “both the Basel II approach to the use of credit ratings and... Tobin or not Tobin?Sony Kapoor (www.re-define.org, Re-Define), 10 October 2009We are still in the midst of the financial crisis brought upon us by excesses in the financial sector. The recession this triggered has squeezed tax revenues. This, together with the trillions of dollars spent by governments around the world to rescue the financial sector and stimulate the broader economy has increased the prospects of a fiscal crisis with many... Five financial reform policies for a crisis-wracked world – a scorecardMichael Pomerleano (The World Bank ), 20 June 2009Reforms typically take place when the urgency of now is evident in the midst of a crisis. That is when vested interests are weak, and policy makers and regulators are no longer complacent. Recently there is a sense that the financial crisis is abating, and that business is returning to normal, and a false sense of stability in taking hold, but it does not... Financial Stability Regulator By Masahiro Kawai and Michael PomerleanoMichael Pomerleano (The World Bank ), 14 August 2009In a previous article, we expressed skepticism regarding the capacity of the Financial Stability Board to implement a sound international financial stability regulatory architecture. We concluded that the prospects are far more promising on the domestic front, and this leads to a discussion of creating a financial stability regulator at the national level. The Obama administration proposes that the Federal... Zero interest rate policy: Treatment may be expensive as the crisisMichael Pomerleano (The World Bank ), 16 October 2009By Andrew Sheng and Michael Pomerleano The national authorities and the international community should be commended for the speed of action taken to stop the spread of the financial crisis. To protect the financial system from the deflation in asset bubbles, the public sector has essentially guaranteed all deposits, rescued systemically important institutions, made large liquidity injections and brought interest... Another crash is all too possibleMichael Pomerleano (The World Bank ), 1 October 2009I was in Chicago last week to participate in the 12th Annual International Banking Conference sponsored by the Federal Reserve Bank of Chicago and the World Bank. The answer to the question posed — have the rules of the global financial game really changed? — is a resounding no. This was my first week back in the US after being away... The G20's Trade Agenda: A Step Forward but Not Far EnoughCarolyn Deere (Global Economic Governance Programme, University College, Oxford), 3 April 2009The G20 leaders’ communiqué today has provided a vital boost for global trade, but several important trade-related commitments - to developing countries, to sustainable development and to multilateralism - were disappointing or missing. With a further G20 meeting scheduled before the end of the year, leaders must now deepen and expand their trade agenda to address these shortfalls. At the... Commentators for this Debate include Vox Website Administrator (VoxEU.org) Richard Baldwin (Graduate Institute, Geneva) Per Kurowski (The Voice and Noise Foundation and Petropolitan A.C.) Gerald Epstein (University of Massachusetts, Amherst) Michael Pomerleano (The World Bank ) Nicolas Veron (Bruegel) Sergei.Guriev Dani.Rodrik Francesco.Giavazzi joinvoxgcd Biagio Bossone (Central Bank of San Marino) arnold.kling ben.carliner Peter.Draper Carolyn Deere (Global Economic Governance Programme, University College, Oxford) katharina.pistor Ingo.Walter Alireza Gharagozlou (New York University School of Law) Peter.Drysdale John.Williamson Thomas.Colignatus Margarita.Sweeney-Baird Manjesh.Roy Nikolay Nenovsky (Laboratoire d'Economie d'Orléans and ICER) Robert.Hicks Sony Kapoor (www.re-define.org, Re-Define) This crisis has shown that global governance of international finance is not adapted to 21st century realities. How should the International Financial Institutions, such as the IMF and the Financial Stability Forum be reformed? More broadly, what are the best forms and forums for international cooperation? What role should the G20, G7 and other groups play in global economic governance? This is one of 5 themes that make up Vox's Global Crisis Debate. In this initiative, VoxEU.org is partnering with the UK government to collect the views of economists from around the world on what we should do to fix the global economy. The analysis and proposals that appear on Vox's "Global Crisis Debate" page will feed directly into the UK's preparation for the summit of world leaders in London in April. This debate will be featured on the UK government's own web site, http://www.LondonSummit.gov.uk. |
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