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Handbook of Safeguarding Global Financial Stability

Book Description

Political and social forces exert pressure on our globalized economy in many forms, from formal and informal policies to financial theories and technical models. Our efforts to shape and direct these forces to preserve financial stability reveal much about the ways we perceive the financial economy.  The Handbook of Safeguarding Global Financial Stability examines our political economy, particularly the ways in which these forces inhabit our institutions, strategies, and tactics. As economies expand and contract, these forces also determine the ways we supervise and regulate. This high-level examination of the global political economy includes articles about specific countries, crises, and international systems as well as broad articles about major concepts and trends..



  • Substantial articles by top scholars sets this volume apart from other information sources
  • Diverse international perspectives result in new opportunities for analysis and research
  • Rapidly developing subjects will interest readers well into the future

Table of Contents

  1. Cover image
  2. Title page
  3. Table of Contents
  4. Copyright
  5. Volume 2
  6. Section Editors for this volume
  7. Preface
  8. Contributors
  9. I: Political Economy of Financial Globalization
    1. Chapter 1. China and Financial Globalization
      1. Introduction
      2. A Brief History of China’s Financial Opening
      3. China’s Current Account and Saving Behavior in Cross-Country Context
      4. Explanations for China’s High Saving
      5. Conclusion
      6. See also
      7. Acknowledgments
      8. Glossary
      9. Further Reading
    2. Chapter 2. Emerging Markets Politics and Financial Institutions
      1. Introduction
      2. Analytical Framework
      3. Testing the Abiad–Mody Results on a Wider Sample
      4. Differing Influences, Across Types of Countries and Types of Reform
      5. Conclusion
      6. Appendix
      7. References
    3. Chapter 3. The Political Economy of Exchange-Rate Policy
      1. Introduction
      2. Economic Explanations of Exchange-Rate Policy: Important but Insufficient
      3. Preferences: The Demand for Exchange-Rate Policy
      4. Institutions and Exchange-Rate Policy
      5. Conclusion
      6. See also
      7. Glossary
      8. Further Reading
    4. Chapter 4. Financial Institutions, International and Politics
      1. Introduction
      2. Intellectual Background
      3. International Financial Institutions: How Much Autonomy?
      4. International Financial Institutions: Effects
      5. Conclusion
      6. See also
      7. Glossary
      8. Further Reading
      9. Relevant Websites
    5. Chapter 5. Political Economy of Foreign Aid, Bilateral
      1. Political Economy of Aid Disbursement
      2. Political Economy of Aid Receipt
      3. Making Good
      4. Conclusion
      5. References
    6. Chapter 6. Interest Group Politics
      1. Political Economy Models of Economic Integration
      2. Interest Groups
      3. Distributional Implications of Financial Globalization
      4. The Political Economy of Financial Globalization in Authoritarian Regimes
      5. MNCs as Actors
      6. Conclusion
      7. See also
      8. Glossary
      9. Further Reading
    7. Chapter 7. International Conflicts
      1. International Conflict
      2. Civil War and Domestic Conflict
      3. Scholarship with Implications for the Study of War and Peace
      4. Conclusion
      5. Further Reading
    8. Chapter 8. The Political Economy of International Monetary Policy Coordination
      1. Introduction
      2. The Potential Gains from International Coordination
      3. The Problem: Exchange Rate Externalities
      4. Exchange Rate Coordination: Motivation and Modalities
      5. Conclusion
      6. See also
      7. Glossary
      8. Further Reading
  10. II: Theoretical Perspectives on Financial Globalization
    1. Chapter 9. Theoretical Perspectives, Overview
      1. Introduction
      2. Net Capital Flows and the Current Account
      3. Gross Capital Flows and the Structure of International Balance Sheets
      4. Capital Flows and Crises
      5. Exchange Rates as Asset Prices
      6. Financial Globalization and the Policy Environment
      7. Conclusions
      8. See also
      9. References
    2. Chapter 10. Capital Mobility and Exchange Rate Regimes
      1. Origins and Representation of the Policy Trilemma
      2. Dynamics of Exchange Rate Regimes in the Modern Era
      3. Capital Mobility in the Modern Era
      4. Evidence on the Policy Trilemma
      5. Other Economic Effects of the Exchange Rate Regime
      6. Conclusion
      7. See also
      8. Glossary
      9. References
    3. Chapter 11. Microstructure of Currency Markets
      1. Introduction
      2. Currency Trading Models
      3. From Micro to Macro
      4. Micro Perspectives on Exchange Rate Puzzles
      5. Conclusion
      6. Glossary
      7. Further Reading
    4. Chapter 12. Intertemporal Approach to the Current Account
      1. Introduction
      2. Intertemporal Theories
      3. Empirical Relevance of the Theory and its Implications
      4. Conclusion
      5. See also
      6. Glossary
      7. Further Reading
    5. Chapter 13. Endogenous Portfolios in International Macro Models
      1. Introduction
      2. A Simple Example Model
      3. General Properties of Approximate Solutions
      4. Mathematical Foundations
      5. Applications
      6. Conclusion
      7. See also
      8. Glossary
      9. References
    6. Chapter 14. Financial Contagion
      1. Introduction
      2. Bank Balance Sheet Adjustments as a Channel of Contagion: The International Financial Multiplier
      3. Financial Contagion Through Interbank Linkages
      4. Bank Runs and Self-Fulfilling International Crises
      5. See also
      6. Glossary
      7. Further Reading
      8. Relevant Websites
    7. Chapter 15. Financial Development and Global Imbalances
      1. Introduction
      2. Financial Globalization and Financial Underdevelopment: Stylized Facts
      3. Explaining Global Imbalances: Financial Globalization with Financial Underdevelopment
      4. Consequences of Global Imbalances
      5. Global Imbalances with Cross-Country Heterogeneity in Growth
      6. Conclusions
      7. References
    8. Chapter 16. Foreign Currency Debt
      1. Introduction
      2. Risks of Foreign Currency Debt
      3. Reasons for Holding Foreign Currency Debt
      4. Development of Local Bond Markets
      5. Conclusion
      6. References
    9. Chapter 17. International Trade and International Capital Flows
      1. Introduction
      2. Conclusion
      3. Glossary
      4. References
    10. Chapter 18. International Macro-Finance
      1. Introduction
      2. The Workhorse Model
      3. Next Steps
      4. See also
      5. References
    11. Chapter 19. Monetary Policy and Capital Mobility
      1. Introduction
      2. Growth in International Capital Mobility and Monetary Policy
      3. Arguments for Improved Monetary Policy Under Increased Capital Mobility
      4. Theoretical Arguments for Reduced Monetary Policy Quality
      5. Empirical Evidence
      6. Conclusion
      7. See also
      8. References
    12. Chapter 20. Theory of Sovereign Debt and Default
      1. Introduction
      2. Why Do Countries Repay Their Debts?
      3. Why Do Countries Borrow So Much?
      4. Policy and Welfare
      5. Conclusion
      6. See also
      7. Further Reading
    13. Chapter 21. Tax Systems and Capital Mobility
      1. Introduction: Implications of Globalization for Tax Systems
      2. National Taxation and International Mobility
      3. International Tax Coordination
      4. Summary and Conclusions
      5. Further Reading
    14. Chapter 22. Trade Costs and Home Bias
      1. Introduction
      2. The Equity and Consumption Home Biases: Facts and Figures
      3. Why Investors Would Hold Different Equity Portfolios?
      4. Home Bias in Equities and the Hedging of Real Exchange Rate Risk
      5. Home Bias in Equities and the Hedging of Nontradable Risk
      6. Trade Costs and Portfolio Home Bias: Alternative Stories
      7. Conclusion
      8. Acknowledgments
      9. References
    15. Chapter 23. Explaining Deviations from Uncovered Interest Rate Parity
      1. Introduction
      2. Risk Premium with Representative Investors
      3. Limited Participation
      4. Deviations from Rational Expectations
      5. Conclusion
      6. References
    16. Chapter 24. Valuation Effects, Capital Flows and International Adjustment
      1. Introduction
      2. Financial Globalization and Valuation Effects
      3. International Portfolio Choice and Adjustment in Theory
      4. Interpretation of the External Accounts
      5. Concluding Remarks
      6. See also
      7. Further Reading
  11. III: Safeguarding Global Financial Stability
    1. Chapter 25. Safeguarding Global Financial Stability, Overview
      1. Financial Stability
      2. Establishing and Maintaining Financial Stability
      3. Crisis Management and Avoidance
      4. Global Approaches
      5. Other Issues
      6. See also
      7. References
    2. Chapter 26. Resolution of Banking Crises
      1. Introduction
      2. The 2007–09 Global Crisis: A Synopsis
      3. Which Countries Had a Systemic Banking Crisis in 2007–09?
      4. Policy Responses in the 2007–09 Crises: What Is New?
      5. How Costly Are the 2007–09 Systemic Banking Crises?
      6. Concluding Remarks
      7. Appendix
      8. Acknowledgment
      9. Glossary
      10. References
    3. Chapter 27. Advantages and Drawbacks of Bonus Payments in the Financial Sector
      1. Introduction
      2. Principal–Agent Theory: Why Bonuses may be Beneficial
      3. Why Ideal Contracts may well be Unavailable
      4. Implications for Contracts in the Financial Sector
      5. Assessing the Case for Profit-Related Pay
      6. Are Financial Sector Bonuses Actually Deserved?
      7. Arguments Against Restricting Financial Sector Bonuses
      8. Some Technical Difficulties
      9. Some Specific Practical Problems with Bonuses
      10. Implementation
      11. Concluding Comments
      12. References
    4. Chapter 28. Central Banks Role in Financial Stability
      1. Introduction
      2. The Broader Monetary and Financial Framework
      3. Financial Stability: National or International?
      4. Financial Stability Framework
      5. Financial Stability Functions of Central Banks
      6. Conclusion
      7. References
    5. Chapter 29. Organization, Supervision and Resolution of Cross-border Banking
      1. Introduction
      2. The Nordea Case
      3. Subsidiary and Branch Organizations in Theory and Practice
      4. Organization of Supervision and Crisis Management: Can National Responsibility Be Effective?
      5. Conclusions: Need for Reform of the Architecture for Supervision and Crisis Management
      6. References
    6. Chapter 30. Dynamic Provisioning to Reduce Procyclicality in Spain
      1. Introduction
      2. The Housing Boom and Bust in Spain
      3. The Introduction of Dynamic Provisions in Spain
      4. Comparison with Other Countries: Peru and Colombia
      5. Conclusions
      6. See also
      7. Glossary
      8. Further Reading
    7. Chapter 31. Varieties of European Crises
      1. Introduction
      2. A Brief Overview of the Varieties of Financial Crises with Illustrations from Europe
      3. The Crises of the European Monetary System 1992–93 and Nordic Banking Crises
      4. Europe in the Global Financial Crisis 2007–09
      5. Concluding Remarks; Lessons from European Crises
      6. See also
      7. References
    8. Chapter 32. The Financial Sector Assessment Program
      1. Origins of the International Monetary Fund/World Bank Financial Sector Assessment Program
      2. The Objectives of the FSAP
      3. The Program’s First Decade: Milestones and Country Participation
      4. Areas of Assessment
      5. Standards Assessments in the FSAP
      6. The Conduct of an Assessment
      7. Further Reading
      8. Relevant Websites
    9. Chapter 33. Financial Sector Forum/Board
      1. Establishment of the Financial Stability Forum
      2. Initial Work
      3. First Decade
      4. From Financial Stability Forum to Financial Stability Board
      5. Recent Developments
      6. Evaluation of Role of FSF
    10. Chapter 34. Financial Stability and Inflation Targeting
      1. Introduction
      2. The Separation of Monetary and Financial Policy
      3. Does Price Stability Promote Financial Stability?
      4. Does Price Stability Guarantee Financial Stability?
      5. Does IT Constrain the Response to Financial Crises?
      6. New Directions Following the 2007–09 Crisis
      7. See also
      8. Further Reading
    11. Chapter 35. Financial Supervision in the EU
      1. Introduction
      2. Prudential Supervision
      3. Conduct of Business
      4. Supervisory Structures
      5. New European Financial Supervisory Framework
      6. Conclusions
      7. References
    12. Chapter 36. Groups: G-5, G-7/8, G-10, G-20, and Others
      1. Introduction
      2. A Short History of ‘G’ Group Cooperation
      3. Existing ‘G’ Group Scholarship
      4. Why Do Governments Participate in ‘G’ Groups?
      5. ‘G’ Group Functions
      6. Conclusions: The G20 and Political Conflict
      7. See also
      8. Glossary
      9. Further Reading
      10. Relevant Websites
    13. Chapter 37. Market Structures and Market Abuse
      1. Introduction
      2. Regulatory Rationale of Market Abuse Laws
      3. Market Developments: Technology and Regulation
      4. Advanced Trading Techniques and Market Abuse
      5. Reforming the EU MAD
      6. Conclusion
      7. Glossary
      8. Further Reading
    14. Chapter 38. Development and Evolution of International Financial Architecture
      1. Introduction
      2. Metallic Standards
      3. What Did Gold Provide?
      4. Interwar
      5. War and Redesign
      6. Bretton Woods
      7. Post-Bretton Woods
      8. Conclusion
      9. See also
      10. Glossary
      11. Further Reading
    15. Chapter 39. On the Role of the Basel Committee, the Basel Rules, and Banks’ Incentives
      1. Introduction
      2. The Evolving Role of the Basel Committee on Banking Supervision
      3. Basel Capital Requirements as Essential but not Sufficient Regulatory Tool
      4. From Basel I to Basel III: What Has Changed?
      5. What are the Unresolved Flaws of Basel Regulations?
      6. Basel Regulation, Incentives, and Role of Pillars 2 and 3
      7. References
    16. Chapter 40. International Monetary Fund
      1. Introduction
      2. The Fund in June 2011
      3. Criticisms of the IMF
      4. Conclusions and Recommendations
      5. See also
      6. Acknowledgments
      7. Further Reading
      8. Relevant Website
    17. Chapter 41. Innovations in Lender of Last Resort Policy in Europe
      1. Introduction
      2. Underlying Conceptual Issues
      3. LoLR in the Euro Area under ‘Normal’ Market Conditions
      4. LoLR in the Euro Area during ‘Exceptional Times’
      5. Concluding Remarks
      6. See also
      7. References
    18. Chapter 42. Micro and Macro Prudential Regulation
      1. What Is Macroprudential Regulation?
      2. Macroprudential Regulation and the Cycle
      3. Valuation and Mark-to-Funding Accounting
      4. Macroprudential Regulation Beyond the Cycle
      5. Host- and Home-Country Regulation
      6. Conclusion
      7. Glossary
      8. References
    19. Chapter 43. Role and Scope of Regulation and Supervision
      1. Key Issues
      2. Instruments in a Regulatory Regime
      3. Reducing the Probability of Failures
      4. Minimizing the Cost of Bank Failures
      5. Summary of the Argument
      6. Further Reading
    20. Chapter 44. Independence and Accountability of Regulatory Agencies
      1. Introduction
      2. Independence and Accountability in Theory
      3. Independence and Accountability in Practice
      4. References
    21. Chapter 45. Institutional Structures of Regulation
      1. Introduction
      2. Institutional Structures of Supervision
      3. The Role of the Central Bank
      4. References
    22. Chapter 46. Organizations of International Co-operation in Standard-Setting and Regulation
      1. International Financial Regulation
      2. International Financial Standards and Standard-Setting Organizations
      3. Policy Direction
      4. Coordination
      5. Key Standards for Sound Financial Systems
      6. Process of Standard Setting
      7. International Standard-Setting Organizations
      8. IFIs and Other Formal International Organizations
      9. International Financial Organizations
      10. Implementation and Monitoring
      11. References
    23. Chapter 47. Prevention of Systemic Crises
      1. How the Financial System should be Structured
      2. How the Financial System should be Regulated
      3. How Prudence can be Encouraged
      4. How Crisis Resolution Tools can Contribute to Prevention
      5. See also
      6. Glossary
      7. Further Reading
    24. Chapter 48. Lines of Defense Against Systemic Crises: Resolution
      1. International Efforts to Promote Effective Resolution Regimes
      2. FSB Policy Measures to Reduce Moral Hazard Risks
      3. A New International Standard for Resolution Regimes
      4. Building Cross-Border Cooperation
      5. Corporate Insolvency
      6. National and Regional Initiatives
      7. Objectives of Resolution
      8. A Special Resolution Regime for Banks and Other Financial Institutions
      9. Resolution Regimes as Key Component of the Financial Safety Net
      10. Features of a Special Resolution Regime: The ‘FSB Key Attributes’
      11. Conclusion
      12. Further Reading
  12. Index