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Financial Market Regulation and Reforms in Emerging Markets

edited by Masahiro Kawai and Eswar S. Prasad

Publication Year: 2011

The rapid spread and far-reaching impact of the global financial crisis have highlighted the need for strengthening financial systems in advanced economies and emerging markets. Emerging markets face particular challenges in developing their nascent financial systems and making them resilient to domestic and external shocks. Financial reforms are critical to these economies as they pursue programs of high and sustainable growth.

In this timely volume Masahiro Kawai, Eswar Prasad, and their contributors offer a systematic overview of recent developments in —and the latest thinking about —regulatory frameworks in both advanced countries and emerging markets. Their analyses and observations clearly point out the challenges to improving regulation, efficiency of markets, and access to the fi nancial system. Policymakers and financial managers in emerging markets are struggling to learn from the crisis and will need to grapple with some key questions as they restructure and reform their financial markets:

• What lessons does the global financial crisis of 2007–09 offer for the establishment of efficient and flexible regulatory structures?

• How can policymakers develop broader financial markets while managing the associated risks?

• How —or should —they make the formal financial system more accessible to more people?

• How might they best contend with multinational financial institutions?

This book is an important step in getting a better grasp of these issues and making progress toward solutions that strike a balance between promoting financial market development and efficiency on the one hand, and ensuring financial stability on the other.

Published by: Brookings Institution Press

Title Page

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pp. iii-

Copyright

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pp. iv-5

Contents

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pp. v-vi

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Introduction

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pp. vii-xiii

The global financial crisis has necessitated the reconsideration of even basic principles of financial regulation. Meanwhile, the imperative of financial development remains as strong as ever in emerging markets, although the focus...

Part I: Overview

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1. Financial Sector Regulation and Reforms in Emerging Markets: An Overview

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pp. 3-24

The speed and breadth of contagion from the U.S. financial crisis have dramatically demonstrated the degree to which national economies, developed and developing alike, are intertwined. Initially a problem confined to the U.S. housing market, the rapid spillover of the crisis to the rest of the...

Part II: New Perspectives on Financial Regulation

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2. Market Failures and Regulatory Failures: Lessons from Past and Present Financial Crises

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pp. 27-74

The severity of the financial crisis of 2007–09 has forced academics, regulators, and policymakers to rethink the contours of the current financial system. Calls for the greatest regulatory overhaul since the Great Depression have become common. Indeed, many observers, including ourselves, view the...

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3. Evaluating the U.S. Plans for Financial Regulatory Reform

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pp. 75-102

The administration has proposed a series of major changes to U.S. financial regulation to respond to the issues raised by the financial crisis. This chapter describes and evaluates those proposals with a particular eye toward their implications for the regulation of finance in emerging market economies...

Part III: Regulatory Frameworks for Emerging Markets

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4. Emerging Contours of Financial Regulation: Challenges and Dynamics

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pp. 105-137

In 2008–09 the world experienced the most severe financial and economic crisis since the Great Depression. Although the crisis originated in the subprime mortgage market in the United States, it spread to Europe and later to the rest of the world. The speed of the contagion that spread across the world was...

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5. What Regulatory Policies Work for Emerging Markets?

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pp. 138-157

This chapter discusses the banking regulatory and supervisory practices in China with reference to the international standard for banking supervision, namely, the Basel Core Principles for Effective Banking Supervision...

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6. Banking Supervision in Indonesia

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pp. 158-168

The focus of this discussion is on the process of building a strong system of financial supervision and regulation in Indonesia.1 To start with, I believe that the basic principles of risk-focused supervision are highly relevant to emerging economies so as to avoid waste of resources, cost overruns...

Part IV: Financial Market Development and Stability

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7. Who Should Regulate Systemic Stability Risk? The Relevance for Asia

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pp. 171-202

A review of past crises suggests that there were almost always policy mistakes leading to financial vulnerabilities, systemic risks, and eventually financial crises. Often these past crises were slow to unfold. In the case of the United States’ subprime loan crisis, incipient signs of a crisis appeared in the summer...

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8. Financial Development: A Broader Perspective

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pp. 203-225

Although the latest bout of financial turmoil has sparked renewed interest in the desirability of financial development, and the optimal size and structure of the financial system, the debate over the relationship between financial development and economic growth has, of course, been active for many years...

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9. Financial Development in Emerging Markets: The Indian Experience

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pp. 226-262

It is broadly recognized in economic literature that efficient and developed financial markets can lead to increased economic growth by improving the efficiency of allocation and utilization of savings in the economy. Better functioning financial systems ease the external financing constraints that impede...

Part V: Improving Financial Access in Emerging Markets

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10. Universalizing Complete Access to Finance: Key Conceptual Issues

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pp. 265-283

A household’s financial life can be seen as a combination of exposure to time and contingent states. Financial wealth can be seen as a combination of assets that are currently owned and the present value of future income discounted at an appropriate risk-adjusted rate. Financial services must help a...

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11. Financial Inclusion and Financial Stability: Current Policy Issues

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pp. 284-318

The recent financial crisis has shown that financial innovation can have devastating systemic impacts. International standard setters’ and national regulators’ response has been a global concerted effort to overhaul and tighten financial regulations. However, at a time of designing stricter regulations, it is crucial...

Part VI: Cross-Border Regulation

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12. Cross-Border Regulation after the Global Financial Crisis

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pp. 321-364

This chapter is about contagion among financial systems in a world that is global and interconnected. It argues that contagion effects from the recent financial crisis will have direct implications for reshaping the regulatory and supervisory framework...

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13. Addressing Private Sector Currency Mismatches in Emerging Europe

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pp. 365-405

The 2008–09 financial crisis has highlighted the problems associated with currency mismatches on the balance sheets of emerging market borrowers, particularly in emerging Europe. Currency mismatches aggravated the crises in countries with large currency depreciations, such as Hungary and Ukraine...

Contributors

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pp. 407-408

Index

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pp. 409-423


E-ISBN-13: 9780815704904
E-ISBN-10: 0815704909

Page Count: 423
Publication Year: 2011

Research Areas

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Subject Headings

  • Financial services industry -- Management.
  • Financial crises.
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