Topics in International Financial Regulation and Policy (Fall 2015)
Since the global financial crisis there has been a seemingly never-ending avalanche of regulatory change affecting financial institutions and financial markets. Much of the change was undoubtedly necessary since the financial crisis revealed huge gaps and shortcomings in the regulatory architecture. Indeed, some people would argue not nearly enough has changed. Yet others would claim that the changes have gone too far or even created new risks.
The first wave of change was all about prudential regulation – capital , liquidity, resolution, risk management, etc. This is what initiatives like Basel 3, Dodd-Frank, CRD IV and Vickers are primarily about. Yet there’s also been a second wave focused more on issues of conduct, encompassing a broad range of issues from consumer protection, trading behaviour, and financial crime.
The impact on banks and banking has been enormous. Levels of capital are several times what they were before the crisis. Banks have paid fines for conduct transgressions amounting to several hundred billion dollars. The task of managing banks has become immensely more complex, given the plethora of overlapping regulatory requirements and the constant flux in the rules. The availability and pricing of financial services continues to change, with less liquid trade markets and growing concern about financial exclusions.
Some regulatory initiatives span both domains – for example, on compensation and executive liability.
Banks are undoubtedly safer than before the crisis. But are they now so safe, that they can no longer perform their economic function? Will the risk simply pop up elsewhere, say in shadow banking? What is the opportunity costs of making “financial innovation” a negative? Or are such costs offset by the benefits of reducing the risk of another financial crisis?
Banks are also making much more effort on conduct than ever before, investing heavily in systems, training and culture change. Will this be effective in promoting fairer, cleaner banking, encouraging greater financial inclusion, deterring financial crime and enhancing the integrity of markets? Or will the result be reduced access to financial services, substantially higher costs and thinner, more volatile markets?
And what about the impact on global capital flows and emerging markets? Have we “balkanised” finance whilst business continues to globalise? Have we imposed on the developing world a set of expensive regulatory initiatives, inappropriate to their situation?
This study group will explore specific issues within this somewhat chaotic arena, with an emphasis on live policy issues, particularly those with an international dimension and an impact on emerging markets.
The first session took place on October 13 and focused on a specific proposal to help tackle tax evasion, financial crime and corruption, which is to eliminate high denomination notes, such as the euro500 note and the $100 bill. Such notes no longer play a significant role in the functioning of the economy, but are the preferred mechanism of payment and value storage for criminals, are pervasively used for tax evasion, and are ubiquitous in corruption. So it seems odd that central banks continue to print such notes in ever increasing numbers. This session explored the arguments for and against the proposal.
The next sessions take place on:
- October 27, 4.00-5.30pm, CBG Conference Room - Belfer 503.
TITLE: Bank Capital in the Post Crisis Era - A Banker's Perspective
To enroll: Advance registration is not required.
- November 10, 2.40-4.00pm, CBG Conference Room – Belfer 503
TITLE: Financial Inclusion, Financial Exclusion - the Role of Technology and Regulation
Further sessions will be arranged in due course.
Peter Sands
Peter Sands was Group Chief Executive of Standard Chartered Bank from November 2006 to June 2015. He joined the Board of Standard Chartered PLC as Group Finance Director in May 2002, responsible for Finance, Strategy, Risk and Technology and Operations. Prior to this, Sands was Director and Senior Partner at worldwide consultants McKinsey & Co. Before joining McKinsey, he worked for the United Kingdom’s Foreign and Commonwealth Office. Sands is the lead non-executive board member of the Department of Health in the United Kingdom and the co-chair of the India UK CEO Forum. He holds a number of board memberships including the World Economic Forum and Lingnan University and is Governor of the National Institute of Economic and Social Research. He graduated from Oxford University and holds and MPA from vlog (1988), where he was a Harkness Fellow. As a senior fellow, Sands’ research will explore a variety of topics related to banks and financial markets. His faculty sponsor is Richard Zeckhauser, Frank Plumpton Ramsey Professor of Political Economy. Email:peter_sands@hks.harvard.edu
M-RCBG Senior Fellow Peter Sands.