Abstract
Persistent issues with financial regulation preceded and continue after the 2008 global financial crisis. Immediate reactions to restore liquidity and provide fiscal stimulus rescued Western economies. However, they did not address root causes of the crash. We demonstrate that issues such as regulatory capture and moral hazard were recognised in the US banking system as far back as the late nineteenth century, and that ensuing reforms were inadequate and sometimes reversed. Financial innovation and globalisation have led to evolving and complex capital markets, leaving regulation behind. Financial instability helps to foster anti-globalisation, populist, and protectionist movements. This chapter advocates that adequate financial reforms are needed to address persistent issues, restore liberal capitalism, and reduce nationalism.
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- 1.
We contrast liberal capitalism and finance capitalism. The two systems have many features in common (with respect to property rights, free price system, free trade, etc.). However, in finance capitalism, the role and the influence of financial institutions are so disproportionate that they tend to affect and even dominate the interests of other economic sectors and taxpayers.
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- 3.
In 2016, Jacques De Larosière, Managing Director of the International Monetary Fund (IMF) during 1978–1987, explained that the collapse of the Bretton Woods system had had incalculable negative consequences on the world economy. See https://www.odilejacob.fr/catalogue/sciences-humaines/economie-et-finance/cinquante-ans-de-crises-financieres_9782738134028.php
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Authors’ calculations based on nber.org and measuringworth.com
- 5.
It is worth noting that the development of electronic currencies and internet-based trading accelerated financial innovation.
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The FSB is a reformed version of the Financial Stability Forum, but with a more formal charter and a small staff, to organise basic transparency and liquidity standards.
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Davies and Turner are both ex-chairman of the UK’s Financial Services Authority.
- 8.
Müller (2016) describes populists as being critical of elites, “anti-pluralist,” and advocating identity politics. See http://www.upenn.edu/pennpress/book/15615.html
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Hira, A., Gaillard, N., Cohn, T.H. (2019). Persistent Issues with Financial Regulation. In: Hira, A., Gaillard, N., Cohn, T. (eds) The Failure of Financial Regulation. International Political Economy Series. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-05680-3_1
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