International Finance Regulation: The Quest for Financial Stability

238 Pages·2014·3.871 MB·English

by  Georges Ugeux

International
Finance
RReegguullaattiioonn
Founded in 1807, John Wiley & Sons is the oldest independent publishing com-
pany in the United States. With offi ces in North America, Europe, Australia,
and Asia, Wiley is globally committed to developing and marketing print and
electronic products and services for our customers’ professional and personal
knowledge and understanding.
The Wiley Finance series contains books written specifi cally for fi nance
and investment professionals as well as sophisticated individual investors and
their fi nancial advisors. Book topics range from portfolio management to
e-commerce, risk management, fi nancial engineering, valuation, and fi nancial
instrument analysis, as well as much more.
For a list of available titles, visit our web site at www.WileyFinance.com.
International
Finance
RReegguullaattiioonn
The Quest for Financial Stability
GEORGES UGEUX
Cover image: ©iStock.com/barbol88
Cover design: Wiley
Copyright © 2014 by Georges Ugeux. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted
in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or
otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright
Act, without either the prior written permission of the Publisher, or authorization through
payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222
Rosewood Drive, Danvers, MA 01923, [phone], fax [phone], or on the Web
at www.copyright.com. Requests to the Publisher for permission should be addressed to the
Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030,
[phone], fax [phone], or online at www.wiley.com/go/permissions.
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their
best efforts in preparing this book, they make no representations or warranties with respect
to the accuracy or completeness of the contents of this book and specifi cally disclaim any
implied warranties of merchantability or fi tness for a particular purpose. No warranty may
be created or extended by sales representatives or written sales materials. The advice and
strategies contained herein may not be suitable for your situation. You should consult with a
professional where appropriate. Neither the publisher nor author shall be liable for any loss
of profi t or any other commercial damages, including but not limited to special, incidental,
consequential, or other damages.
For general information on our other products and services or for technical support, please
contact our Customer Care Department within the United States at [phone], outside
the United States at [phone] or fax [phone].
Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some
material included with standard print versions of this book may not be included in e-books or
in print-on-demand. If this book refers to media such as a CD or DVD that is not included in
the version you purchased, you may download this material at http://booksupport.wiley.com.
For more information about Wiley products, visit www.wiley.com.
Library of Congress Cataloging-in-Publication Data:
Ugeux, Georges.
International fi nance regulation : the quest for fi nancial stability / Georges Ugeux.
pages cm. — (Wiley fi nance)
Includes bibliographical references and index.
ISBN 978-1-118-82959-2 (Hardcover) — ISBN 978-1-118-82962-2 (ePDF) —
ISBN 978-1-118-82961-5 (ePub) 1. International fi nance. 2. International fi nance—Law
and legislation. 3. Banks and banking. I. Title.
HG3881.U34 2014
332′.042—dc23
2014003248
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
To Moritz Erhardt—who died of a seizure after 72 hours without
sleep in investment banking—as well as those whose personal,
professional, and fi nancial well-being has been destroyed by the
selfi shness of the leadership of the fi nancial services indust ry.
With the hope that this book will contribute to make
fi nance a better world.

CCoonntteennttss
Preface xiii
Is Finance in a Stage of Permanent Crisis? xiv
Global Markets Are Interconnected xvi
Regulating Finance in a World in Crisis xviii
A Web of Institutional Complexity xix
Will Global Financial Regulation Become Lex America? xx
Applying Global Regulatory Convergence xxii
Regulator and Regulated: The Infernal Couple xxiii
Finance Cannot Be Left Unregulated xxiii
Five Years after Lehman, Regulation
Could Not Change the Culture xxiv
A Culture of Outlaws xxv
I Will Never Give Up xxvi
Notes xxvii
CHAPTER 1
The Multiple Objectives of Financial Regulation 1
Stop (Ab)using Taxpayer Money 2
Protect Retail and Small Investors and Depositors 3
Ensure Transparency of Markets and Institutions 5
Implement a Truly Risk-Adjusted Remuneration System 6
Protect Deposits from Trading 7
Notes 8
CHAPTER 2
A Quarter Century of Banking Crises and the
Evolution of Financial Institutions 11
Banking Crises Are Not Exactly a Recent Phenomenon 12
The Two Main Emerging-Market Crises 13
Subprime Crisis 14
Lehman Crisis 16
European Sovereign Debt Crisis 17
vii
viii CONTENTS
European Banking Crisis 17
LIBOR Manipulation 19
Will the Foreign Exchange Market Be Next? 21
Notes 23
CHAPTER 3
The Lessons of the Recent Financial Crises:
The Explosion of Balance Sheets 27
Structural Overbanking of Europe 28
Lack of Transparency of the Derivative Markets 33
Emergence of the Credit Default Swap (CDS) Market 34
The Regulatory Landscape Is Not Global but Largely National 35
Notes 35
CHAPTER 4
Global Financial Regulation: The Institutional Complexities 37
Group of 20 (G20) 39
Financial Stability Board (FSB) 41
Bank for International Settlements (BIS)
and the Basel Committee (BCBS) 42
International Monetary Fund (IMF) 43
International Organization of Securities Commissions (IOSCO) 45
International Accounting Standard Board (IASB) 46
International Association of Insurance Supervisors (IAIS) 47
Notes 50
CHAPTER 5
Capital Adequacy, Liquidity, and Leverage Ratios:
Sailing toward the Basel III Rules 53
Part I: Capital Adequacy 55
Part II: Liquidity 59
Part III: Leverage 62
Notes 66
CHAPTER 6
Assessing Likely Impacts of Regulation on the Real Economy 69
Notes 73
CHAPTER 7
Regulating the Derivatives Market 75
Origin of the Derivatives Market 77
Size of the Derivatives Markets 78