Regulation of Banks and Finance: Theory and Policy after the Credit Crisis PDF
Preview Regulation of Banks and Finance: Theory and Policy after the Credit Crisis
Regulation of Banks and Finance Also by Carlos M. Peláez and Carlos A. Peláez INTERNATIONAL FINANCIAL ARCHITECTURE: G7, IMF, BIS, Debtors and Creditors THE GLOBAL RECESSION RISK: Dollar Devaluation and the World Economy GLOBALIZATION AND THE STATE: Volume I GLOBALIZATION AND THE STATE: Volume II GOVERNMENT INTERVENTION IN GLOBALIZATION: Regulation, Trade and Devaluation Wars FINANCIAL REGULATION AFTER THE GLOBAL RECESSION Regulation of Banks and Finance Theory and Policy after the Credit Crisis Carlos M. Peláez and Carlos A. Peláez Carlos M. Peláez and Carlos A. Peláez 2009 Softcover reprint of the hardcover 1st edition 2009 978-0-230-23903-6 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6-10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2009 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN 978-1-349-31607-6 ISBN 978-0-230-25125-0 (eBook) DOI 10.1057/9780230251250 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress. Transferred to Digital Printing in 2012 To Magnolia and Penelope Contents List of Illustrations x List of Abbreviations xi Acknowledgments xiv Introduction: Scope and Contents 1 1 The Theory of Regulation and Finance 4 Introduction 4 The public interest view 4 The first best 5 Monopoly 9 Externalities 14 Market failures 15 The private interest view 18 Government failure 18 The economic theory of regulation 20 The second best 24 Applied welfare economics 27 Property rights 32 The new institutional economics 33 Asymmetry of information 35 The modified capture theory 36 Finance, efficiency, and growth 37 Summary 44 2 Functions and Regulation of Deposit Banks 45 Introduction 45 Regulation 45 Bank functions 51 Microeconomics of banking 52 Monitoring 55 Liquidity 57 Transformation services 58 Capital requirements 60 Bank fragility 61 vii viii Contents Empirical analysis 66 International capital requirements 69 Deposit insurance 71 Narrow banking 71 Deregulation 72 Fair valuation 77 Government sponsored enterprises 79 Summary 81 3 Deposit Bank Market Power and Central Banking 82 Introduction 82 Banking competition 82 Market structure 83 Entry 88 Market power 95 Concentration and stability 98 Central banking 99 Introduction 99 The transmission of monetary policy 102 Inflation targeting 108 The Lucas Critique and consistency 112 Summary 116 4 Investment Banking, Governance, Mergers, and Compensation 117 Introduction 117 Market structure 117 The Glass-Steagall Act 121 Underwriting 125 Loan syndication 127 Governance 129 Incentive compensation 138 Mergers and acquisitions 143 Bank mergers and competition 143 Corporate law 144 Antitakeover defense 153 Summary 156 5 Securities Regulation 157 Introduction 157 Exit 157 Leveraged buyouts 159 Rules and principles 166 Contents ix Regulation of new issues 168 Insider trading 173 The decision of going public 177 Sarbanes-Oxley 180 Listing 186 Summary 196 6 The Credit/Dollar Crisis and Recession Regulation 197 Introduction 197 The global recession 197 The Great Depression 198 Banks and money 198 Debt deflation theories 200 Financial market frictions 201 The gold standard 205 Nonmonetary factors 209 Wages and employment 212 Growth theory and the New Deal 215 Origins of the credit crisis 217 Monetary and fiscal policy 224 Government ownership and control of banks 227 Regulation 229 Summary 233 Conclusion 234 Notes 237 References 239 Index 271
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