Thursday, 4 December 2014
Financial globalization—where next?
Alexandra Zeitz (Global Economic Governance Programme, University of Oxford)
PEFM hosts Charles Collyns, Managing Director and Chief Economist, Institute of International Finance
Could financial globalization be heading into reverse? Before the 2008 financial crisis, financial integration was steadily and rapidly advancing, drawing emerging markets more tightly into a network of cross-border financial flows. In the aftermath of the crisis, flows have reduced and dramatically changed their composition.
How much is a natural reaction to the crisis? And how much an unintended consequence of increasing financial regulation? What are the consequences for emerging markets? In a PEFM seminar on Monday, November 17 Charles Collyns, Managing Director and Chief Economist at the Institute of International Finance (IIF), offered his views from within the financial industry on the prospects for financial globalization.
The striking cutback in cross-border financial flows (from approximately $9 trillion in 2007 to about $2.5 trillion in 2013) mostly reflects the steep decline in international bank flows. Much of this is due to a collapse in short-term inter-bank lending, which had built up excessively in the lead-up to the crisis. By contrast, foreign direct investment and portfolio flows have remained largely steady globally.
Could financial globalization be heading into reverse? Before the 2008 financial crisis, financial integration was steadily and rapidly advancing, drawing emerging markets more tightly into a network of cross-border financial flows. In the aftermath of the crisis, flows have reduced and dramatically changed their composition.
How much is a natural reaction to the crisis? And how much an unintended consequence of increasing financial regulation? What are the consequences for emerging markets? In a PEFM seminar on Monday, November 17 Charles Collyns, Managing Director and Chief Economist at the Institute of International Finance (IIF), offered his views from within the financial industry on the prospects for financial globalization.
The striking cutback in cross-border financial flows (from approximately $9 trillion in 2007 to about $2.5 trillion in 2013) mostly reflects the steep decline in international bank flows. Much of this is due to a collapse in short-term inter-bank lending, which had built up excessively in the lead-up to the crisis. By contrast, foreign direct investment and portfolio flows have remained largely steady globally.
Thursday, 6 November 2014
Rebuilding trust in financial services
Alexandra Zeitz (Global Economic Governance Programme,
University of Oxford)
PEFM hosts Nicholas
Morris and David Vines, introducing their 2014 book Capital Failure
Has finance has lost its sense of moral opprobrium, the ethical compass of the profession? So argued Nicholas Morris and David Vines in their October 27 PEFM presentation introducing their 2014 book Capital Failure: Rebuilding Trust in Financial Services, also offering proposals of how to encourage trustworthy behaviour.
Analyses of the 2008 financial crisis, whether by regulators or industry insiders, have predominantly treated the crisis as a consequence of market failures. Morris and Vines, however, argue that at the root of these market failures are problems of trust. Crucially, they claim that regulations alone will not be sufficient to restrict risky behaviour, since imbalances in information and expertise mean regulators will be repeatedly outwitted and outstripped.
Monday, 27 October 2014
Sustainable finance: Restoring confidence and stability in the financial system
Alexandra Zeitz (Global Economic Governance Programme, University of Oxford)
The corporation, as an institution, is in crisis. So argued Colin Mayer, Peter Moores Professor of Management and the Saïd Business School, in his October 20 presentation at the PEFM seminar.
Mayer attributed the crisis of the corporation to its governance structure. He argued against the prevailing view that the greatest concern with respect to corporate governance is the ‘agency problem,’ i.e. the fact that shareholders exercise insufficient control over corporations.
Instead, argued Mayer, the problem of the corporation lies precisely in the fact that short-term shareholders are able to hijack the corporation, distracting from the commitments the corporation might have to other stakeholders, including consumers and employees. Shareholders might even reward the corporation for infractions where these seem to provide short-term benefits that outweigh reputational costs or fines; Mayer cited the case of Barclay's share price increasing by 60% during the six months after the LIBOR scandal broke.
The corporation, as an institution, is in crisis. So argued Colin Mayer, Peter Moores Professor of Management and the Saïd Business School, in his October 20 presentation at the PEFM seminar.
Mayer attributed the crisis of the corporation to its governance structure. He argued against the prevailing view that the greatest concern with respect to corporate governance is the ‘agency problem,’ i.e. the fact that shareholders exercise insufficient control over corporations.
Instead, argued Mayer, the problem of the corporation lies precisely in the fact that short-term shareholders are able to hijack the corporation, distracting from the commitments the corporation might have to other stakeholders, including consumers and employees. Shareholders might even reward the corporation for infractions where these seem to provide short-term benefits that outweigh reputational costs or fines; Mayer cited the case of Barclay's share price increasing by 60% during the six months after the LIBOR scandal broke.
Wednesday, 25 June 2014
Banking Union: Will the ECB’s assessment do the trick?
Jack Seddon (St John's College, Oxford)
It is often noted that Europe's banking union is incomplete, involving a single supervisor but without an adequate single resolution mechanism or central deposit insurance arrangement. However, what, exactly, that “half union” is and how, precisely, the union is taking shape is usually described only in the vaguest terms. This was not the case in Nicolas Veron's (Senior Fellow at Bruegel; Visiting Fellow at the Peterson Institute, Washington DC) exploration of the question Max Watson invited him to PEFM to explore: namely, "Banking Union: Will the ECB's Assessment do the trick?" It is difficult in this short blog to give expression to the mastery with which Veron talked through the complex details of the banking union, its strengths and weaknesses, its present scope and the likely developments downstream. However, it would be an abdication of responsibility not to attempt to give some sense of the fundamental and fascinating trends Veron observed.
It is often noted that Europe's banking union is incomplete, involving a single supervisor but without an adequate single resolution mechanism or central deposit insurance arrangement. However, what, exactly, that “half union” is and how, precisely, the union is taking shape is usually described only in the vaguest terms. This was not the case in Nicolas Veron's (Senior Fellow at Bruegel; Visiting Fellow at the Peterson Institute, Washington DC) exploration of the question Max Watson invited him to PEFM to explore: namely, "Banking Union: Will the ECB's Assessment do the trick?" It is difficult in this short blog to give expression to the mastery with which Veron talked through the complex details of the banking union, its strengths and weaknesses, its present scope and the likely developments downstream. However, it would be an abdication of responsibility not to attempt to give some sense of the fundamental and fascinating trends Veron observed.
Monday, 19 May 2014
Governing global risks: The evolution of policy capacity in the financial sector
Jack Seddon (St John's College, Oxford)
Professor Louis Pauly gave a presentation to PEFM based on a paper entitled, “Governing Global Risks: The Evolution of Policy Capacity the Financial Sector.” He challenged his audience to think about the emergence of a "transnational prevention state" (transnational prevention arrangements across borders that translate into effective policy capacity). The paper is part of a work in progress for a book with Edgar Grande.
Professor Pauly argued that this policy capacity is already emerging and developing to deal with global risks and uncertainties. It involves three sets of objectives and three arenas of risk politics. The first arena is the technocratic one focused on risk measurement, assessment, and monitoring. The locus of action here may be seen as shifting from formal international organizations to "clubs", like those now engaged in the so-called Basel Process (Basel Committee, IOSCO, IAIS, and FSB). The second arena involves compensation and crisis prevention, where inter-state collaboration and public-private partnerships are most evident. The third arena involves emergency management and resolution, where ad hoc collaboration (at most) among key finance ministries and central banks is at the moment the dominant trend.
Professor Louis Pauly gave a presentation to PEFM based on a paper entitled, “Governing Global Risks: The Evolution of Policy Capacity the Financial Sector.” He challenged his audience to think about the emergence of a "transnational prevention state" (transnational prevention arrangements across borders that translate into effective policy capacity). The paper is part of a work in progress for a book with Edgar Grande.
Professor Pauly argued that this policy capacity is already emerging and developing to deal with global risks and uncertainties. It involves three sets of objectives and three arenas of risk politics. The first arena is the technocratic one focused on risk measurement, assessment, and monitoring. The locus of action here may be seen as shifting from formal international organizations to "clubs", like those now engaged in the so-called Basel Process (Basel Committee, IOSCO, IAIS, and FSB). The second arena involves compensation and crisis prevention, where inter-state collaboration and public-private partnerships are most evident. The third arena involves emergency management and resolution, where ad hoc collaboration (at most) among key finance ministries and central banks is at the moment the dominant trend.
Monday, 12 May 2014
IMF and bank creditors: Who's in charge when a country can't pay?" and "Stabilising an unstable world: Is there a better future for international finance?
Jack Seddon (St John's College, Oxford)
Dr. James Boughton, the former official historian of the International Monetary Fund and current CIGI Senior Fellow, shared his experience with PEFM through two presentations addressing the following topics: first, "IMF and bank creditors: Who's in charge when a country can't pay?"; and, second, "Stabilising an unstable world: Is there a better future for international finance?"
Addressing the question of who's in charge, Dr. Boughton provided a fascinating account of an "un-holy" trinity – to paraphrase Cohen's apt portrayal of the Mundell-Flemming trilemma – that have competed to shape the international community's responses to countries facing payments problems. The trinity comprises the IMF, the US Treasury and other bilateral official bodies and international banks and bond holders. While these players share a common interest in wanting to see the country in trouble recover and repay its debts, Dr. Boughton eruditely showed how their particular preferences will differ. In particular, he showed how bilateral creditors must respond to strategic and political considerations that will not concern the private sector, while the IMF is beholden to its mission and various stakeholders in sometimes unobvious ways.
Dr. James Boughton, the former official historian of the International Monetary Fund and current CIGI Senior Fellow, shared his experience with PEFM through two presentations addressing the following topics: first, "IMF and bank creditors: Who's in charge when a country can't pay?"; and, second, "Stabilising an unstable world: Is there a better future for international finance?"
Addressing the question of who's in charge, Dr. Boughton provided a fascinating account of an "un-holy" trinity – to paraphrase Cohen's apt portrayal of the Mundell-Flemming trilemma – that have competed to shape the international community's responses to countries facing payments problems. The trinity comprises the IMF, the US Treasury and other bilateral official bodies and international banks and bond holders. While these players share a common interest in wanting to see the country in trouble recover and repay its debts, Dr. Boughton eruditely showed how their particular preferences will differ. In particular, he showed how bilateral creditors must respond to strategic and political considerations that will not concern the private sector, while the IMF is beholden to its mission and various stakeholders in sometimes unobvious ways.
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