Stock Market Crisis Identification as a Factor Ensuring Country’s Economic Security

Abstract

The article reviews the issues of the economic security of the country from the standpoint of identification of financial crises. The essence and content of a financial crisis are given, characteristic traits of a stock market bubble as an integral part of a stock market crisis are singled out. Special emphasis is laid on the study of the existing methods of identification and measurement of bubbles. The authors analyze the modern stock market crises, describe the Russian stock market vulnerability factors. The article evaluates the possibility for the origination of a stock market crisis in Russia on the modern stage resulting in the creation of a multi-factor stock market bubble identification model. The authors justify proposals and recommendations for the elimination of the existing Russian stock market problems aimed at removal of the economic security threats of the country.

Prone to Fail: The Pre-Crisis Financial System

“…From a financial stability perspective, a key concern is that the SEC's supervision of risk-taking by the investment banks focused mainly on the protection of the customers of the investment banks from losses rather than on the solvency of their balance sheets and the attendant systemic risks. 3 For example, a member of the IMF's country examination staff for the United States wrote that the SEC's mission "stresses ex post enforcement over ex ante prudential guidance" (Bhatia 2011). As another illustration, by my count, only one of a list of 545 pre-crisis SEC regulatory enforcement actions reported in Gadinis (2012) was related to the adequacy of capital or liquidity.…”

“…In September 2008, the SEC's Consolidated Supervised Entity program had a total of only 21 employees supervising these five huge firms, or about four staff members per firm (as noted by Schapiro 2010; see also Financial Crisis Inquiry Commission 2011). By comparison, a very rough estimate based on data from staff reports 5 of the Federal Reserve Bank 3 Ohlrogge and Giesecke (2016) write: "[A] key feature of net capital for broker-dealers is its focus on liquidity, rather than solvency as is the case for bank capital. Calculations of net capital for broker-dealers start with a computation of net worth as defined under generally accepted accounting principles (which thus roughly covers assets minus liabilities, but does not deduct equity).…”

Financial Regulation: Still Unsettled a Decade After the Crisis

“…Thus, ironically, the "solution" to concerns about runs from money market funds may end up including de facto taxpayer support. 10…”

“…Because the law made the Secretary of the Treasury the chair of the Council, it was perhaps inevitable that the agenda of the Financial Stability Oversight Council has been significantly weighted toward the sometimes near-term priorities of the presidential administration rather than longer-term financial stability concerns 9. The buffer within which the fund may maintain the stable net asset value before it must "break the buck" and reflect a loss creates an incentive for investors to run so as to be insulated from the initial losses to securities held by the fund 10. The SEC subsequently also adopted a rule requiring certain liquidity risk management practices by asset managers other than money market funds, though the effective date for that rule has now been delayed to late 2018.…”