Robert Guttmann

Re-regulating finance

22 pages · 4.78 EUR
(October 2011)

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From the introduction:

In the first contribution in the third part of the book, Robert Guttmann makes concrete proposals for "Re-regulating finance". He starts from the conviction that the financial crisis of 2007 ? 08 has revealed the importance of putting restraints on financial institutions to make capitalism less unstable and less unequal. However, another crucial lesson to draw from the global financial crisis, according to Guttmann, is how difficult it is to sustain the effectiveness of any such regulatory restraints: banks have used financial innovation consistently to bypass regulatory restrictions. A further difficulty consists in the fact that we have trans-national financial institutions, while most of our supervisory and regulatory capacity is still bound to the nation-state. Guttmann assesses three important reform initiatives from 2009 ? 10: the so-called Dodd-Frank Wall Street Reform and Consumer Protection Act in the U.S.; the creation of a new regulatory and supervisory infrastructure in the European Union on a supranational level by introducing three new pan-EU bodies; and the compromise of the Basel Committee on Banking Supervision to replace the Basel II system of risk management and capital rules introducing tougher capitalisation rules for banks, limits on their leverage, and better liquidity protections. In Guttmann?s view, these reforms may well mark the beginning of a globally coordinated approach to financial re-regulation which would strengthen the resilience of financial markets, and change the logistics of crisis management. Yet, important challenges remain, such as the creation of a consistent international resolution regime for financial institutions that are 'too big to fail', a consistent approach to taxing finance, and more structural reforms that effectively change the structures, motivations, and practices of finance in such a way so as to render the economic system more stable and equal.