174 pages | 11 B/W Illus.
In the wake of the financial crisis, new regulatory measures were introduced which, along with changes in monetary and macroeconomic policy, have transformed the global financial structure. However, this new financial structure displays various fragilities. A new shadow banking system has grown both inside and outside the traditional banks and the divergence between core and periphery countries’ banks has increased further due to both the new regulations and the European Central Bank’s very peculiar interventions.
Following Minsky’s approach, this volume explores the interplay between monetary policy, regulation and institutions in the aftermath of the great financial crisis. Minsky’s insights are used to interpret the recent regulatory changes and consider how they have affected the evolution of banks and financial markets. The unfortunate conclusion is that the changes in financial regulation introduced in various jurisdictions and inspired by the work of the Basel Committee, have not succeeded in thwarting the instability of the economic system. Instead, the mix of policies implemented so far has brought about increased fragility in the financial system. Minksy’s work on financial stability offers alternative solutions which policy-makers need to consider to resolve these issues.
Financial Regulation in the European Union After the Crisis is an important volume for those who study political economy, banking and monetary economics.
Minsky’s institutional analysis of the development of the economy and how financial regulation fits in it.
System’s endogeneous dynamics versus institutions and interventions.
Financial innovation as bricolage.
Minsky on money manager capitalism, finance and thwarting systems.
Recent proposals of change in financial regulation inspired by Minsky.
Is the central bank the only circuit breaker left ?
Basel III: the revised capital requirements, the leverage ratio, and total loss absorbing capacity.
The revised capital requirements. Just a change in the weights?
How the revision in capital requirements should work in practice.
Other macroprudential measures.
The Leverage Ratio
The definition of leverage ratio and how to calculate it.
Too much hope in this new tool?
Total loss absorbing capacity in the EU.
Two additional regulatory metrics: the Liquidity Coverage Ratio and the Net Stable Funding Ratio.
The Liquidity Coverage Ratio.
How to calculate the numerator of the ratio.
How to calculate the denominator of the ratio.
Conclusions about the theoretical underpinnings of the ratio.
Eba’s studies on the application of the BCBS designed liquidity coverage ratio to the European Union banking system.
The Net Stable Funding Ratio.
How to calculate the net stable funding ratio.
The treatment of derivatives in the NSFR and the discussion with industry representatives.
What type of banking does the NSFR favor?
Main consequences of the interaction between new regulatory rules (risk weighted capital requirements, leverage ratio, liquidity ratio, net stable funding ratio) and the new mandatory resolution regime for banks.
The vanishing of the distinction between money, claim and security.
Repo markets and leverage.
Repo, securities lending and derivatives in the banking recovery and resolution directive.
Possible disruptions to the payments system during bank resolution procedures.
The failure to regulate the repo market in the EU.
Consequences of the interaction of regulatory, supervisory and bank resolution laws on the nature of the common currency: the euro as a changing contractual money.
Financial fragility in the European crisis: three episodes.
Financial innovation in Europe after 2007: new and old derivatives
The CDS market and the fall in value of governments bonds during the European Financial Crisis
Dexia’s financial distress and its second bailout in 2011
Regulatory policy and the transmission of the crisis from core to peripheral countries’ banks.
Deleveraging in European banking and financial stability 2010-13.
Deleveraging in European banks.
Changes in banks’ assets and liabilities 2010-13.
Changes in banks’ assets and liabilities in the period 2010-2011.
Changes in assets and liabilities of banks 2012-13.
Changes in regulation in the period 2010-13.
Long term refinancing by the ECB as a thwarting mechanism in the European crisis?
Italy’s banking crisis
The macroeconomics of the crisis
The microeconomics of the crisis
An historical excursus on Italian banks.
The 1993 Banking Act and the return to universal banking.
The return to universal banking: a Minskian reading.
The 2007-8 Banking Crash has induced a major and wide-ranging discussion on the subject of financial (in)stability and a need to revaluate theory and policy. The response of policy-makers to the crisis has been to refocus fiscal and monetary policy on financial stabilisation and reconstruction. However, this has been done with only vague ideas of bank recapitalisation and ‘Keynesian’ reflation aroused by the exigencies of the crisis, rather than the application of any systematic theory or theories of financial instability.
Routledge Critical Studies in Finance and Stability, edited by Jan Toporowski from SOAS, University of London covers a range of issues in the area of finance including instability, systemic failure, financial macroeconomics in the vein of Hyman P. Minsky, Ben Bernanke and Mark Gertler, central bank operations, financial regulation, developing countries and financial crises, new portfolio theory and New International Monetary and Financial Architecture.