Table of Contents

Research Handbook on International Banking and Governance

Research Handbook on International Banking and Governance

Elgar original reference

Edited by James R. Barth, Chen Lin and Clas Wihlborg

The contributors – top international scholars from finance, law and business – explore the role of governance, both internal and external, in explaining risk-taking and other aspects of the behavior of financial institutions. Additionally, they discuss market and policy features affecting objectives and quality of governance. The chapters provide in-depth analysis of factors such as: ownership, efficiency and stability; market discipline; compensation and performance; social responsibility; and governance in non-bank financial institutions. Only through this kind of rigorous examination can one hope to implement the financial reforms necessary and sufficient to reduce the likelihood and severity of future crises.

Chapter 21: The Future of Financial Regulation: Reflections from an Emerging Market Perspective

Rakesh Mohan

Subjects: economics and finance, money and banking


Rakesh Mohan* 21.1 INTRODUCTION The world experienced the most severe financial and economic crisis in 2008–2009 since the Great Depression. Although the crisis originated in the subprime mortgage market in the United States, it then spread to Europe and later to the rest of the world. The speed of the contagion that spread across the world was perhaps unprecedented. What started off as a relatively limited crisis in the US housing mortgage sector turned successively into a widespread banking crisis in the United States and Europe, the breakdown of both domestic and international financial markets, and then later into a full-blown global economic crisis. Interestingly, however, although the emerging market economies (EMEs) in Asia and Latin America also suffered severe economic impacts from the crisis, their financial sectors exhibited relative stability. No important financial institutions in these economies were affected in any significant fashion. So this crisis should really be dubbed the North Atlantic financial crisis rather than a global financial crisis. In any case, the fallout from this financial crisis could be an epoch-changing one for  central banks and financial regulatory systems. The crisis occurred after an extended period dubbed the ‘Great Moderation’, a period characterized by high global growth, huge financial sector expansion and low product price inflation, but accompanied by steep growth in monetary aggregates and asset prices, along with volatility in exchange rates. The prevailing monetary policy orthodoxy was inflation targeting or variants thereof, and light-touch financial regulation. The price that the world has paid...

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