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
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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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