Governance of Global Financial Markets: The Law, the Economics, the Politics by Professor Emilios Avgouleas

Author:Professor Emilios Avgouleas
Language: eng
Format: mobi, pdf
Tags: Law, Corporate Law, Business, Education & Reference
ISBN: 9780521762663
Publisher: Cambridge University Press
Published: 2010-01-01T18:30:00+00:00

Cambridge Books Online

http://ebooks.cambridge.org/

Governance of Global Financial Markets

The Law, the Economics, the Politics

Emilios Avgouleas

Book DOI: http://dx.doi.org/10.1017/CBO9781139019446

Online ISBN: 9781139019446

Hardback ISBN: 9780521762663

Chapter

6 - Regulatory and supervisory reform: US, EU, BCBS pp. 261-347

Chapter DOI: http://dx.doi.org/10.1017/CBO9781139019446.011

Cambridge University Press

6

Regulatory and supervisory reform: US, EU, BCBS

1. Introduction

1.1 Overview

I gave a brief overview of structural reforms taking place at the level of

international i nancial regulation, where sot law bodies are being tied

into a tighter new architecture that has at its centre the Financial Stability

Board and at its apex the G 20, in Chapter 5 . Structural reforms as a

response to the GFC have also taken place in most Western economies.

h

e US Dodd–Frank Act has established a new macro-prudential regu-

lator, the Financial Stability Oversight Council (FSOC). h

e structure of

i nancial supervision has radically changed in the EU as well with the

introduction of the European System of Financial Supervisors.

Even more wide-ranging and far-reaching have been the reforms to the

substantive rules governing the i nancial sector. h

e Dodd–Frank Act

and the EU legislators have brought about sweeping changes as regards

the regulation, supervision and resolution of large banks and other

Systemically Important Financial Institutions (SIFIs), OTC derivatives

trading and ratings production by the Credit Rating Agencies (CRAs).

In addition, the Basel Committee on Banking Supervision (BCBS) has

produced a radically upgraded capital, liquidity and leverage regulatory

framework. I provide in this chapter an analytical discussion of the most

important of these reforms. As the new regulations are rather labyrin-

thic, by way of introduction to them I provide below brief summaries

before moving to more detailed analysis. Furthermore, since the regula-

tion of and resolution of SIFIs, inextricably related to the ‘too-big-to-fail’

problem gives rise to a separate class of problems, IMF, FSB and BCBS

proposals to tackle this problem are discussed in the next chapter. In

the same chapter, I of er an analysis of the Dodd–Frank special resolu-

tion regime for SIFIs and of the EU’s proposals for a pan-European cri-

sis management regime that contain measures which range from early

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262

Regulatory reform for global financial markets

intervention to resolution of banks and certain (systemically important)

investment i rms.

1.2 Summary of reforms

1.2.1 h

e US reforms

h

e Dodd–Frank Act was enacted on 9 July 2010 at er a prolonged period

of public and Congressional debate. 1 h

e i nal Act was in many respects

the culmination of several political compromises 2 and has since become

the subject of serious criticism from both sides of the increasingly polar-

ized political landscape in the US. h

e main goal of the Act is to address

the risks that relate to eventual failure of ‘too-big-to-fail institutions’

(SIFIs) and the risks relating to i nancial innovation and the shadow

banking sector. It also tries to create a strict framework for consumer

protection, including the establishment of the Consumer Financial

Protection Bureau (CFPB), in order to avoid a repeat of the sub-prime

mortgage scandal.

With respect to SIFI regulation, the Dodd–Frank Act’s main innov-

ation is the creation of a number of new regulators and establishment of

a new resolution regime that will be dedicated to systemically important

institutions regardless of whether they hold a bank licence or not.

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