Global Players – Global Markets
Edited by John-ren Chen
Chapter 11: International Institutions and Financial Market Stability
11. International institutions and ﬁnancial market stability Klaus Liebscher INTRODUCTION Today’s liberalised and universal character of ﬁnancial markets and capital ﬂows has made it impossible for even the strongest national states to handle the governance of global ﬁnance on their own. Thus various networks of intergovernmental consultation and cooperation have developed in parallel with the accelerated globalisation of ﬁnance during recent decades. Ensuring ﬁnancial market stability can, therefore, be regarded as a global public good. This rests on the simple observation that banks and other ﬁnancial institutions operate in many different jurisdictions, very often without due cognisance of the consequences they may create. This requires that international agreements, cooperation and coordination ensure international public control, so that negative externalities such as systemic risk or the possible negative impact on economic growth due to ﬁnancial instability are prevented as far as possible. In addition, international cooperation helps to ensure that a regulatory ‘level playing-ﬁeld’ exists such that the possibility of regulatory arbitrage is avoided. International ﬁnancial integration and its governance thus implies that central banks and other national authorities have to develop policies that foster ﬁnancial stability not only on a domestic but also on an international level. Let me give you an example to underline my point by referring to the tragic events of 9/11. Without cooperation between the Eurosystem of Central Banks, the Federal Reserve and other international central banks, we might, indeed, have had a very negative impact upon the international ﬁnancial system and even worse repercussions...
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