Research Handbook on International Financial Regulation
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Research Handbook on International Financial Regulation

  • Elgar original reference

Edited by Kern Alexander and Rahul Dhumale

The globalisation of financial markets has attracted much academic and policymaking commentary in recent years, especially with the growing number of banking and financial crises and the current credit crisis that has threatened the stability of the global financial system. This major Research Handbook sets out to address some of the fundamental issues in financial regulation from a comparative and international perspective and to identify some of the main research themes and approaches that combine economic, legal and institutional analysis of financial markets.
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Chapter 19: Goodbye Neo-liberalism? Contested Policy Responses to Uncertain Consequences of the 2007–09 Financial Crisis

Dieter Pesendorfer

Extract

19 Goodbye neo-liberalism? Contested policy responses to uncertain consequences of the 2007–09 financial crisis Dieter Pesendorfer INTRODUCTION Financial markets and, in particular, international financial transactions have gained dominant roles over other markets since their liberalization in the mid-1970s and became driving forces behind phenomena such as neo-liberal globalization and financialization.1 The underlying processes of decoupling finance from the real economy caused quite fundamental changes, including significant transformations in risk perception, risk taking, risk management and regulation. The increased attractiveness of investments on financial markets led to a greater number of market participants and enormous concentrations of capital and a substantial increase in financial innovations.  But financialization also increased systemic risk. Neo-liberal globalization and financialization, blamed by critics for increasing economic pressures on states and firms, destabilizing economies and increasing inequality globally, eventually brought about the 2007 ‘heart attack’2 of the international financial system and are to be seen as the origins of the greatest post-war financial and economic crisis. The short and costly lesson from the 2007–09 financial crisis is that global, liberalized and, in core parts, unregulated markets create financial instability and unacceptable social costs. Financial risk management demands preventive and precautionary action to a much larger extent than politics was willing and able to achieve until recently. Given the very nature of the pre-crisis situation characterized by a lack of (tough) regulation in several core areas, there is an ongoing debate about ‘firewalls’, regulatory policy reforms to avoid future financial systemic crises and adequate risk management,...

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