Conclusion: whither global financial governance after the crisis?

Mügge, Daniel; Blom, Jasper; Underhill, Geoffrey R. D.

doi:10.1017/cbo9780511762680.019

Cited by 2 publications

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“…Indeed, the chief criticism remained, as in precrisis times, the skewed representation in favor of the OECD world. 24 The appointment of the G20 to global financial leadership and the broader representation in the BCBS seemed to address that grievance, 25 even if worries persisted that global financial governance remained exposed to excessive business influence. 26 In contrast, there was no prominent call for an overhaul of the organizational architecture.…”

Section: Debating Global Financial Governancementioning

confidence: 99%

The Flaws of Fragmented Financial Standard Setting

Mügge

Perry

2014

Politics & Society

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In the half decade following the 2007 financial crisis, the reform of global financial governance was driven by two separate policy debates: one on the substantive content of regulations, the other on the organizational architecture of their governance. The separation of the two debates among policymakers has been mirrored in academia, where postcrisis analyses of financial governance have remained detached from reinvigorated discussions about the nature of financial markets. We argue that this separation is deeply flawed. Presenting an analysis of interactions between standards for banking, credit rating, accounting, and derivatives trading, this article demonstrates why the appropriateness of the organizational architecture of global financial governance is necessarily contingent upon one’s understanding of how financial markets work. In particular, if financial markets are not anchored to external “economic fundamentals” but instead exhibit reflexivity, then the reciprocal interactions between different regulatory arenas demand considerably more organizational coordination than presently exists.

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Section: Debating Global Financial Governancementioning

confidence: 99%

The Flaws of Fragmented Financial Standard Setting

Mügge

Perry

2014

Politics & Society

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Theory of Optimum Financial Areas: Retooling the Debate on the Governance of Global Finance

Jones

Underhill

2014

SSRN Journal

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This article examines the institutional preconditions for stable financial integration in a 'theory of optimal financial areas' (OFA). This theory is modelled on the theory of optimal currency areas that has been used to inform the process of monetary integration. Where it differs from optimum currency area (OCA) theory is in focussing on capital mobility and cross-border financial transactions rather than concentrating on exchange rates or macroeconomic adjustment. We contend that OCA theory misdirects both the analysis and the policy response: it is more pertinent to ask what makes for financial stability under conditions of market integration than what makes for stable currencies and smooth macroeconomic adjustment. The article proposes six 'criteria' that should be met in order to stabilize an integrated financial 'market geography'. Three of these criteria relate to the technical substructure of markets, and include a shared risk free asset, centralized sovereign debt management, and common market infrastructures for communication, clearing, settlement and depository. Three further criteria focus on the macro-prudential considerations like shared rules for financial supervision, centralized lender of last resort facilities for private-and public-sector market participants, and common provision for the resolution of failed private-and public-sector borrowers. These criteria are controversial both individually and as an interdependent package. Nevertheless, they are important to mitigate the costly dynamics of financial market disintegration under crisis conditions. We use case studies of the Great Britain, the United States and Canada to show how national governments have stumbled toward a similar set of arrangements to stabilize domestic financial market integration. The more recent experience of the European Union shows this pattern applies across countries as well. We conclude with a research agenda based on these considerations. This article develops a theoretical framework for examining the preconditions for stable financial market integration both within and across national economies. The approach builds upon the contribution of the theory of Optimum Currency Areas (OCA) to our understanding of the geography of money. However, we contend that OCA theory misdiagnoses the problem and therefore leads to a policy framework that fails to provide the conditions for financial stability. KeywordsInstead of setting out the requirements for stable monetary integration, our approach refocuses the analysis on the requirements for the stable integration of financial markets. Specifically, we analyse the institutions that can be used to prevent a costly disintegration of financial markets that have grown together as a result of public policy and private actors. In this way, we use OCA theory as a model to analyse a financial market geography that is different from the geography of money. 2 We use the term 'model' here in the heuristic sense and not in the formal sense. The OCA literature provides the exa...

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Conclusion: whither global financial governance after the crisis?

Cited by 2 publications

References 0 publications

The Flaws of Fragmented Financial Standard Setting

The Flaws of Fragmented Financial Standard Setting

Theory of Optimum Financial Areas: Retooling the Debate on the Governance of Global Finance

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