Does new international regulation help crisis prevention implications for middle income countries
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Does new international regulation help crisis prevention? Implications for Middle Income Countries?. Stephany Griffith-Jones, [email protected] Shari Spiegel and Matthias Thiemann. Overall context. Aims of the financial system Managing risk and avoiding crisis

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Does new international regulation help crisis prevention implications for middle income countries

Does new international regulation help crisis prevention? Implications for Middle Income Countries?

Stephany Griffith-Jones,

[email protected]

Shari Spiegel and

Matthias Thiemann


Overall context
Overall context Implications for Middle Income Countries?

  • Aims of the financial system

  • Managing risk and avoiding crisis

  • Allocating capital to the real economy efficiently

  • Financial system did neither


Some key problems
Some key problems Implications for Middle Income Countries?

  • One problem: OTD-model with its increased leverage and maturity mismatches which increase systemic risk

  • Crisis revealed too low core capital, leverage too high and

  • Both accounting and regulation was pro-cyclical


Basel 3
Basel 3 Implications for Middle Income Countries?

  • Size and qualitio of core capital improved (but is it enough?)

  • Simple leverage ratio 1:30 (problematic)

  • Counter-cyclical regulation

  • Liquidity coverage ratio positive


Implications for middle income countries
Implications for middle income countries Implications for Middle Income Countries?

  • Several elements of Basel 3 positive, such as countercyclical buffers and liquidity ratios; increasing quantity and quality of core capital if needed

  • Too slow and gradual introduction of reforms desirable to accelerate in MIC‘s?


Dodd frank act
Dodd-Frank Act Implications for Middle Income Countries?

  • More rigorous than initially expected, but weakened by lobbying, e.g. Volcker rule and derivatives, further diluted in implementation

  • Positive institutional developments: consumer protection agency (prevents abuse) and systemic risk regulator also in EU (prevents silo-thinking about systemic risk)

  • both relevant for MICs


Policy suggestions mic s may wish to consider
Policy suggestions MIC‘s may wish to consider Implications for Middle Income Countries?

  • Counter-cyclical regulations

  • Prevent large currency and maturity mismatches

  • Possible increase of quantity and quality of core capital

  • Putting all transactions on the balance sheet

  • Forcing derivatives on exchanges

  • Require foreign banks to have subsidiaries and not branches


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