IDEAS home Printed from https://ideas.repec.org/a/sae/smppub/v5y2016i1p63-95.html
   My bibliography  Save this article

Global Crisis, Regulatory Reform and International Policy Coordination

Author

Listed:
  • D. M. Nachane

Abstract

The recent global crisis has brought the following issues to the forefront of macro-policy analysis: (a) procyclicality of bank capital regulation, (b) role of asset bubbles, (c) high social costs of financial failures and (d) high leverage of financial institutions (FIs). It has been realized by the global community that tackling these problems calls for a coordinated approach in which the following agencies will have to play a vital role: National regulatory and supervisory (R&S) authorities International Monetary Fund (IMF) Financial Stability Forum (FSF) International standard setting bodies—Basel Committee on Banking Supervision (BCBS), International Organization of Securities Commissions (IOSCO), etc. Influential groups like G-20 For purposes of this article, we focus on the role of national R&S authorities and find that this role revolves around seven key policy areas, namely (a) making monetary policy respond to asset prices, (b) strengthening and expanding the scope of regulation and supervision, (c) controlling leverage of FIs, (d) dampening procyclicality of capital requirements, (e) reducing costs of financial failures, (f) devising market incentives for prudent behaviour and (g) a shift from micro-prudential to macro-prudential regulation. We examine to what extent the official financial supervisory and regulatory authorities in India have fulfilled this role successfully. JEL Classification : E6, F4, F5

Suggested Citation

  • D. M. Nachane, 2016. "Global Crisis, Regulatory Reform and International Policy Coordination," South Asian Journal of Macroeconomics and Public Finance, , vol. 5(1), pages 63-95, June.
    • Handle: RePEc:sae:smppub:v:5:y:2016:i:1:p:63-95
    DOI: 10.1177/2277978716631700
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/2277978716631700
    Download Restriction: no
    File URL: https://libkey.io/10.1177/2277978716631700?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Akram, Q. Farooq & Eitrheim, Øyvind, 2008. "Flexible inflation targeting and financial stability: Is it enough to stabilize inflation and output?," Journal of Banking & Finance, Elsevier, vol. 32(7), pages 1242-1254, July.
    2. Kalemli-Ozcan, Sebnem & Sorensen, Bent & Yesiltas, Sevcan, 2012. "Leverage across firms, banks, and countries," Journal of International Economics, Elsevier, vol. 88(2), pages 284-298.
    3. Sironi, Andrea, 2003. "Testing for Market Discipline in the European Banking Industry: Evidence from Subordinated Debt Issues," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(3), pages 443-472, June.
    4. Markus K. Brunnermeier & Lasse Heje Pedersen, 2009. "Market Liquidity and Funding Liquidity," The Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2201-2238, June.
    5. Park, Sangkyun & Peristiani, Stavros, 2007. "Are bank shareholders enemies of regulators or a potential source of market discipline?," Journal of Banking & Finance, Elsevier, vol. 31(8), pages 2493-2515, August.
    6. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
    7. Felton, Andrew & Reinhart, Carmen M. (ed.), 2009. "The First Global Financial Crisis of the 21st Century Part II: June–December, 2008," Vox eBooks, Centre for Economic Policy Research, number p199.
    8. Douglas D. Evanoff & Larry D. Wall, 2000. "Subordinated debt and bank capital reform," Working Paper Series WP-00-7, Federal Reserve Bank of Chicago.
    9. Charles A. E. Goodhart, 1995. "Price Stability and Financial Fragility," Palgrave Macmillan Books, in: Kuniho Sawamoto & Zenta Nakajima & Hiroo Taguchi (ed.), Financial Stability in a Changing Environment, chapter 10, pages 439-509, Palgrave Macmillan.
    10. Nigel F.B. Allington & John S.L. McCombie & Maureen Pike, 2011. "The failure of the new macroeconomic consensus: from non-ergodicity to the efficient markets hypothesis and back again," International Journal of Public Policy, Inderscience Enterprises Ltd, vol. 7(1/2/3), pages 4-21.
    11. Dilip M. Nachane, 2014. "Monetary Policy, Financial Stability and Macro-prudential Regulation: An Indian Perspective," India Studies in Business and Economics, in: Ratan Khasnabis & Indrani Chakraborty (ed.), Market, Regulations and Finance, edition 127, chapter 2, pages 17-39, Springer.
    12. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," Annals of Economics and Finance, Society for AEF, vol. 15(2), pages 215-268, November.
    13. Gordy, Michael B. & Howells, Bradley, 2006. "Procyclicality in Basel II: Can we treat the disease without killing the patient?," Journal of Financial Intermediation, Elsevier, vol. 15(3), pages 395-417, July.
    14. Gorton, Gary B., 2010. "Slapped by the Invisible Hand: The Panic of 2007," OUP Catalogue, Oxford University Press, number 9780199734153.
    15. Gary B. Gorton & Nicholas S. Souleles, 2007. "Special Purpose Vehicles and Securitization," NBER Chapters, in: The Risks of Financial Institutions, pages 549-597, National Bureau of Economic Research, Inc.
    16. Brunnermeier, Markus K. & Oehmke, Martin, 2013. "Bubbles, Financial Crises, and Systemic Risk," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1221-1288, Elsevier.
    17. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
    18. Karl Whelan, 2009. "Containing systemic risk," Open Access publications 10197/1672, School of Economics, University College Dublin.
    19. Mr. Fabian Valencia & Mr. Luc Laeven, 2008. "Systemic Banking Crises: A New Database," IMF Working Papers 2008/224, International Monetary Fund.
    20. Philippe Aghion & Peter Howitt & David Mayer-Foulkes, 2005. "The Effect of Financial Development on Convergence: Theory and Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(1), pages 173-222.
    21. Douglas D. Evanoff & Larry D. Wall, 2002. "Subordinated debt and prompt corrective regulatory action," FRB Atlanta Working Paper 2002-18, Federal Reserve Bank of Atlanta.
    22. Kenneth R. French & Martin N. Baily & John Y. Campbell & John H. Cochrane & Douglas W. Diamond & Darrell Duffie & Anil K Kashyap & Frederic S. Mishkin & Raghuram G. Rajan & David S. Scharfstein & Robe, 2010. "The Squam Lake Report: Fixing the Financial System," Economics Books, Princeton University Press, edition 1, number 9261.
    23. Markus K. Brunnermeier, 2009. "Deciphering the Liquidity and Credit Crunch 2007-2008," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 77-100, Winter.
    24. Mankiw, N Gregory, 1989. "Real Business Cycles: A New Keynesian Perspective," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 79-90, Summer.
    25. Jagtiani, Julapa & Lemieux, Catharine, 2001. "Market discipline prior to bank failure," Journal of Economics and Business, Elsevier, vol. 53(2-3), pages 313-324.
    26. Silas Keehn, 1989. "Banking on the balance : powers and the safety net : a proposal," Monograph, Federal Reserve Bank of Chicago, number 1989botbpatsna.
    27. Nier, Erlend & Baumann, Ursel, 2006. "Market discipline, disclosure and moral hazard in banking," Journal of Financial Intermediation, Elsevier, vol. 15(3), pages 332-361, July.
    28. Robert Devlin & Ricardo Ffrench-Davis, 1995. "The great Latin America debt crisis: a decade of asymmetric adjustment," Brazilian Journal of Political Economy, Center of Political Economy, vol. 15(3), pages 418-445.
    29. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867–1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1, June.
    30. Ms. Jodi G Scarlata & Mr. Juan Sole & Alicia Novoa, 2009. "Procyclicality and Fair Value Accounting," IMF Working Papers 2009/039, International Monetary Fund.
    31. Raghuram G. Rajan, 2005. "Has financial development made the world riskier?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 313-369.
    32. Samuel G. Hanson & Anil K. Kashyap & Jeremy C. Stein, 2011. "A Macroprudential Approach to Financial Regulation," Journal of Economic Perspectives, American Economic Association, vol. 25(1), pages 3-28, Winter.
    33. Otmar Issing, 2009. "Asset Prices and Monetary Policy," Cato Journal, Cato Journal, Cato Institute, vol. 29(1), pages 45-51, Winter.
    34. Alan Greenspan, 2004. "Risk and Uncertainty in Monetary Policy," American Economic Review, American Economic Association, vol. 94(2), pages 33-40, May.
    35. Claudio Borio, 2011. "Rediscovering the Macroeconomic Roots of Financial Stability Policy: Journey, Challenges, and a Way Forward," Annual Review of Financial Economics, Annual Reviews, vol. 3(1), pages 87-117, December.
    36. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
    37. C. A. E. Goodhart, 1995. "Price Stability and Financial Fragility (1995)," Palgrave Macmillan Books, in: The Central Bank and the Financial System, chapter 14, pages 263-302, Palgrave Macmillan.
    38. Frederic S. Mishkin, 2007. "Will monetary policy become more of a science?," Finance and Economics Discussion Series 2007-44, Board of Governors of the Federal Reserve System (U.S.).
    39. Robert Devlin & Ricardo Ffrench-Davis, 1995. "The great Latin America debt crisis: a decade of asymmetric adjustment," Brazilian Journal of Political Economy, Center of Political Economy, vol. 15(3), pages 117-142.
    40. Willem H. Buiter, 2008. "Central banks and financial crises," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 495-633.
    41. repec:pri:metric:wp047_2012_brunnermeier_ssrn-id2103814.pdf is not listed on IDEAS
    42. Jose A. Lopez, 2005. "Stress tests: useful complements to financial risk models," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jun24.
    43. Robert Devlin & Ricardo Ffrench-Davis, 1995. "The great Latin America debt crisis," Brazilian Journal of Political Economy, Center of Political Economy, vol. 15(3).
    44. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76(4), pages 678-678.
    45. George Pennacchi, 2010. "A structural model of contingent bank capital," Working Papers (Old Series) 1004, Federal Reserve Bank of Cleveland.
    46. Douglas D. Evanoff & Larry D. Wall, 2000. "Subordinated debt as bank capital: a proposal for regulatory reform," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 25(Q II), pages 40-53.
    47. Demirguc-Kunt, Asli & Huizinga, Harry, 2004. "Market discipline and deposit insurance," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 375-399, March.
    48. Stephanou, Constantinos, 2010. "Rethinking market discipline in banking : lessons from the financial crisis," Policy Research Working Paper Series 5227, The World Bank.
    49. Claudio E. V. Borio & Kostas Tsatsaronis, 2005. "Accounting, prudential regulation and financial stability: elements of a synthesis," BIS Working Papers 180, Bank for International Settlements.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ebrahimi Kahou, Mahdi & Lehar, Alfred, 2017. "Macroprudential policy: A review," Journal of Financial Stability, Elsevier, vol. 29(C), pages 92-105.
    2. Claudio Borio, 2011. "Rediscovering the Macroeconomic Roots of Financial Stability Policy: Journey, Challenges, and a Way Forward," Annual Review of Financial Economics, Annual Reviews, vol. 3(1), pages 87-117, December.
    3. Frederic S. Mishkin, 2011. "Monetary Policy Strategy: Lessons from the Crisis," NBER Working Papers 16755, National Bureau of Economic Research, Inc.
    4. Brunnermeier, Markus K. & Oehmke, Martin, 2013. "Bubbles, Financial Crises, and Systemic Risk," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1221-1288, Elsevier.
    5. Bradley Jones, 2015. "Asset Bubbles: Re-thinking Policy for the Age of Asset Management," IMF Working Papers 2015/027, International Monetary Fund.
    6. Júlia Király, 2020. "Hungary and Other Emerging EU Countries in the Financial Storm," Financial and Monetary Policy Studies, Springer, number 978-3-030-49544-2, February.
    7. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95, October –.
    8. Luc Laeven, 2011. "Banking Crises: A Review," Annual Review of Financial Economics, Annual Reviews, vol. 3(1), pages 17-40, December.
    9. Apanard P. Prabha & Clas Wihlborg & Thomas D. Willett, 2012. "Market Discipline for Financial Institutions and Markets for Information," Chapters, in: James R. Barth & Chen Lin & Clas Wihlborg (ed.), Research Handbook on International Banking and Governance, chapter 13, Edward Elgar Publishing.
    10. Markus K. Brunnermeier & Isabel Schnabel, 2014. "Bubbles and Central Banks: Historical Perspectives," Working Papers 1411, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz, revised 31 Oct 2014.
    11. Beutel, Johannes & List, Sophia & von Schweinitz, Gregor, 2018. "An evaluation of early warning models for systemic banking crises: Does machine learning improve predictions?," Discussion Papers 48/2018, Deutsche Bundesbank.
    12. Moritz Schularick & Alan M. Taylor, 2012. "Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870-2008," American Economic Review, American Economic Association, vol. 102(2), pages 1029-1061, April.
    13. Homburg, Stefan, 2017. "A Study in Monetary Macroeconomics," OUP Catalogue, Oxford University Press, number 9780198807537.
    14. Tyler Muir, 2017. "Financial Crises and Risk Premia," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(2), pages 765-809.
    15. Angela Maddaloni & Jose-Luis Peydro, 2011. "Bank Risk-taking, Securitization, Supervision, and Low Interest Rates: Evidence from the Euro-area and the U.S. Lending Standards," The Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 2121-2165.
    16. Philip E. Strahan, 2013. "Too Big to Fail: Causes, Consequences, and Policy Responses," Annual Review of Financial Economics, Annual Reviews, vol. 5(1), pages 43-61, November.
    17. Mathias Drehmann & Claudio Borio & Kostas Tsatsaronis, 2011. "Anchoring Countercyclical Capital Buffers: The role of Credit Aggregates," International Journal of Central Banking, International Journal of Central Banking, vol. 7(4), pages 189-240, December.
    18. Mittnik, Stefan & Semmler, Willi, 2013. "The real consequences of financial stress," Journal of Economic Dynamics and Control, Elsevier, vol. 37(8), pages 1479-1499.
    19. Committee, Nobel Prize, 2022. "Financial Intermediation and the Economy," Nobel Prize in Economics documents 2022-2, Nobel Prize Committee.
    20. Andrew W. Lo & Mila Getmansky & Peter A. Lee, 2015. "Hedge Funds: A Dynamic Industry in Transition," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 483-577, December.

    More about this item

    Keywords

    Global crisis; policy coordination; monetary policy; macro-prudential stability; IMF Reforms; Role of G20;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F5 - International Economics - - International Relations, National Security, and International Political Economy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:smppub:v:5:y:2016:i:1:p:63-95. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.