Institutional Structure of Financial Regulation: Theories and International Experiences

281 Pages·2015·2.434 MB·English

by  Robin Hui Huang, Dirk Schoenmaker

Institutional Structure of Financial
Regulation
In light of on- going global financial crises, the institutional structure of
financial regulation is currently a subject of significant academic and prac-
tical interest. The financial crisis has called into question the adequacy of
financial regulation at the national and supranational levels, and has insti-
gated financial regulatory reforms in major markets overseas. This has
included the enactment of the Dodd–Frank Act in the US, and the pro-
gramme to split the Financial Services Authority in the UK.
This book examines the institutional structure reform of financial regu-
lation from a comparative perspective, exploring both fundamental the-
ories and international experiences. The book explores the three main
institutional structures of financial regulation in the world; the sectors-
based model, adopted in the US, Mainland China and Hong Kong; the
twin- peaks model with Australia and the Netherlands as its pioneers; and
the single- regulator model as represented by the former Financial Services
Authority in the UK and the Financial Services Agency in Japan.
The book contains contributions from renowned experts in the field of
financial regulation, and will be of interest to students and researchers of
banking and finance law, and comparative economics.
Robin Hui Huang is Assistant Dean (External Affairs – Asia) as well as
Director of the Centre for Financial Regulation and Economic Develop-
ment at the Faculty of Law, Chinese University of Hong Kong.
Dirk Schoenmaker is Dean of the Duisenberg School of Finance. He is also
a professor of Finance, Banking and Insurance at the VU University
Amsterdam and a member of the Advisory Scientific Committee of the
European Systemic Risk Board at the ECB.
A fascinating examination of the structure of financial regulation around
the world with detailed studies of how the United States and key jurisdic-
tions in Asia and Europe have reformed their financial regulatory agencies
and the allocation of supervisory authority in the wake of the Global Finan-
cial Crisis. Contributors to the volume include many of the world’s fore-
most experts on financial regulation, and together they offer an unusually
rich and well-informed overview of the theory and practice of modern fin-
ancial regulatory design.
Howell E. Jackson, James S. Reid, Jr., Professor of Law,
Harvard Law School, USA
A high-powered group of leading experts on financial regulation have
come together to provide a wide-ranging and thorough analysis and cri-
tique of regulatory practices in the main countries of the world. Highly
recommended.
Charles A. E. Goodhart, Emeritus Professor of Banking and Finance, Financial
Markets Group, London School of Economics and Political Science, UK
There are very few books on the Institutional Structure of Financial Regu-
lation, the order of which can affect the outcome of supervision. This is a
book that should be compulsory reading by policy makers and supervisors
alike on the lessons from theory and practice.
Andrew Sheng, President of the Fung Global Institute, Hong Kong, advisor to the
China Banking Regulatory Commission, former Chairman of the Securities and
Futures Commission of Hong Kong, former Deputy Chief Executive of the Hong
Kong Monetary Authority
Routledge Research in Finance and Banking Law
Available:
European Prudential Banking Regulation and Supervision
The Legal Dimension
Larisa Dragomir
International Secured Transactions Law
Facilitation of Credit and International Conventions and Instruments
Orkun Akseli
The Legal and Regulatory Aspects of Islamic Banking
A Comparative Look at the United Kingdom and Malaysia
Abdul Karim Aldohni
Banking Secrecy and Offshore Financial Centres
Money Laundering and Offshore Banking
Mary Alice Young
Fiduciary Law and Responsible Investing
In Nature’s Trust
Benjamin J. Richardson
Redefining the Market–State Relationship
Responses to the Financial Crisis and the Future of Regulation
Ioannis Glinavos
Forthcoming:
Competition Law and Financial Services
David Harrison
Institutional Structure of Financial Regulation
Theories and International Experiences
Edited by Robin Hui Huang and Dirk Schoenmaker
This page intentionally left blank
Institutional Structure of
Financial Regulation
Theories and international experiences
Edited by
Robin Hui Huang and Dirk Schoenmaker
First published 2015
by Routledge
2 Park Square, Milton Park, Abingdon Oxon, OX14 4RN
and by Routledge
711 Third Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2015 Selection of editorial material: Robin Hui Huang and
Dirk Schoenmaker. Individual Chapters: the contributors
The right of Robin Hui Huang and Dirk Schoenmaker to be
identified as editors of this work has been asserted by them in
accordance with sections 77 and 78 of the Copyright, Designs and
Patents Act 1988.
All rights reserved. No part of this book may be reprinted or
reproduced or utilized in any form or by any electronic, mechanical,
or other means, now known or hereafter invented, including
photocopying and recording, or in any information storage or
retrieval system, without permission in writing from the publishers.
Trademark notice: Product or corporate names may be trademarks or
registered trademarks, and are used only for identification and
explanation without intent to infringe.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging- in-Publication Data
Institutional structure of financial regulation : international
perspectives and local issues in Hong Kong and Mainland China /
edited by Robin Hui Huang, Dirk Schoenmaker.
pages cm -- (Routledge research in finance and banking law)
Includes bibliographical references and index.
ISBN 978-0-415-72687-0 (hardback) -- ISBN 978-1-315-84969-0
(ebk) 1. Financial institutions--Law and legislation. 2. Financial
institutions--Government policy. 3. Banks and banking,
International--Standards. I. Hui Huang, Robin, author editor of
compilation. II. Schoenmaker, Dirk, author editor of compilation.
K1066.I56 2014
346'.08--dc23 2013048794
ISBN: 978-0-415-72687-0 (hbk)
ISBN: 978-1-315-84969-0 (ebk)
Typeset in Baskerville
by Wearset Ltd, Boldon, Tyne and Wear
Contents
List of figures xi
List of tables xii
Notes on contributors xiii
Acknowledgements xvii
Introduction 1
1 Background 1
2 Content 2
PART I
Fundamental theories 7
1 Regulatory reform after the financial crisis: Twin Peaks
revisited 9
MICHAEL W. TAYLOR
1.1 Introduction 9
1.2 (Why) does institutional structure matter? 11
1.3 The case for Twin Peaks 14
1.4 The Twin Peaks structure 18
1.5 Four lessons from the financial crisis 20
1.6 Conclusion 27
2 Financial stability and proper business conduct: can
supervisory structure help to achieve these objectives? 29
DIRK SCHOENMAKER AND JEROEN KREMERS
2.1 Introduction 29
2.2 Supervisory objectives and structure 30
2.3 Conduct of business: a focused approach 35
2.4 Financial stability: strong role for central bank 36
viii Contents
2.5 Emerging Twin Peaks structure in Europe 37
2.6 Conclusion 37
3 Rules, discretion and macro- prudential policy 40
ITAI AGUR AND SUNIL SHARMA
3.1 Introduction 40
3.2 Rules- based macro- prudential regulation is difficult 41
3.3 Discretion opens the door to resistance 47
3.4 A strong baseline: reducing the burden on time- varying policy 57
3.5 Conclusion 60
4 Helping hand or grabbing hand? Supervisory architecture,
financial structure and market view 66
DONATO MASCIANDARO AND MARC QUINTYN
4.1 Introduction 66
4.2 Do markets matter in designing financial supervision
architectures? Helping hand view versus grabbing hand view 69
4.3 Does the market factor matter? 73
4.4 Case study: the market view in Italy 79
4.5 Conclusion 88
PART II
International experiences 101
5 Implementing Twin Peaks: lessons from Australia 103
JEFF CARMICHAEL
5.1 Introduction 103
5.2 Background to Australia’s Twin Peaks model 103
5.3 Managing the transition 105
5.4 Harmonizing the approach to regulation 107
5.5 Defining the regulatory boundaries 107
5.6 Inter- agency coordination 108
5.7 Conclusion 108
6 The break- up of the Financial Services Authority in the UK 109
EILIS FERRAN
6.1 Introduction 109
6.2 Did the FSA have to go? An examination of the case for
abolition 113
Contents ix
6.3 Why it matters that the case for abolition of the FSA cannot be
convincingly established 123
6.4 Summary 136
7 One step forward, two steps back? The institutional
structure of US financial services regulation after the crisis
of 2008 137
SAULE T. OMAROVA
7.1 Introduction 137
7.2 A product of history: an overview of the US financial regulatory
structure before 2010 138
7.3 What is to be done? Themes in the debate on reforming the US
financial regulatory structure 141
7.4 The Dodd–Frank Act of 2010: key changes in the US financial
regulatory structure 150
7.5 What to expect? Uncertain prospects and certain challenges 162
7.6 Conclusion 164
8 Evolving supervisory and regulatory approaches of Japan
in the post- crisis era 166
MAMIKO YOKOI- ARAI AND TETSUO MORISHITA
8.1 Introduction 166
8.2 The genesis of the institutional structure of financial
supervision 168
8.3 Evolving supervisory approaches 177
8.4 Conclusion 186
9 Financial regulatory structure in Hong Kong: looking
forward 190
DOUGLAS W. ARNER AND EVAN GIBSON
9.1 Introduction 190
9.2 Historical financial development 191
9.3 Regulatory structural themes 197
9.4 Financial regulatory structure 200
9.5 Global Financial Crisis: Hong Kong 210
9.6 International organizations 213
9.7 G20/FSB financial regulatory reforms 213
9.8 Financial regulatory structure: options 224
9.9 Conclusion 226