Transcript Prof. Miguel Santos Neves, Universade Autonoma de Lisboa, Portugal

International Financial Crisis - quo
vadis?
MIGUEL SANTOS NEVES
Associate Professor University Autónoma Lisboa
Director Network of Strategic and International Studies
International Conference
Euro-Asia Cooperation or Competition
Reflections and Global Perspectives
Berlin Free University
10 October 2015
Structure
1. Financial crisis 2008-2009 : root causes and dynamics
2. Implications of poor financial governance
3. Response to financial crisis : G-20 global initiatives
and major powers;
4. China new activism and redistribution of financial
power.
5. Solutions to minimise risks
6. Conclusions
1. Financial Crisis : root causes and dynamics
(i) Excessive liberalization and deregulation
Elimination of controls of capital movements in the 90s: fuelled
short term speculative capitals
(ii) Regulation failure to address systemic risk
• Regulatory capture
• Conglomerates and “too big to fail” syndrome
• Fragmentation (banking, insurance, financial markets)
inadequate for holistic/cross-pillar approach
• Shadow banking
(iii) Inadequate global financial governance – Bretton Woods crisis
and IMF crisis: lack of preventive approach; “one size fits all”; lack
of instrumental perspective – financial system is not an end in itself
(iv) Cheap money, very low interest rates : FED set interest rate at
1% in 2001 to overcome negative impact of 9/11
(v) Greed and unethical behaviour
(vi) Impact of new technologies: increase in the volume and speed
of financial transactions
2. Implications of poor financial governance
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
High level of speculation, hot money – the “Casino
economy” and rapid transmission of shocks
High level systemic risk in the financial system increases the
vulnerability and propensity to financial crises
Formation of Conglomerates, market hyperpower and
restriction of market competition, generates increasing
inequality.
Financial system centrality at the expense of the real
economy and long term investment
Erosion of the fiscal base of States, weakening their capacity
related to the off-shore phenomenon - BEPS process ;
higher ineqality
Higher global security risks : global terrorism expansion and
financing; growth of TOC and money laundering.
Lack of preventive approach and contingency planning
3. G-20 and post-2009 attempts to improve
governance
(i)
New institutional framework – soft law process: IFIs vs. G-20
(ii) G-20 Global Plan of Recovery and Reform 2008-2009 WashingtonLondon-Pittsburgh; Financial Stability Board (FSB)
(iii) Successes and Failures
Successes:
- Basel III capital requirements for banks tightened
- More responsibility of the financial system : fund resolution of
systematically relevant banks
- More coordination on fighting money laundering : revision of
FATF rules
-
Failures
- Regulation of derivative markets
- Regulation of hedge funds
- Accounting convergence
- Control over shadow banking, which has expanded as a
strategy to circumvent regulation
- IMF reform blocked – 2010 package
- No progress on effective “behavioral supervision” of banks
- Off-shores extinction/regulation
- Little advances of FSB on early warning mechanisms,
contingency planning and preventive action.
- credit shortage for investment and growth, for SMEs
4. China activism and redistribution of financial
power
(i) China’s response to financial crisis and strengthening of
Beijing’s global position – non-revisionism
(ii) Recent new activism challenges the global financial
framework: the significance of AIIB and NDB creation in 2015.
• Supplant (not supplement) IFIs as alternative to the deadlock
in global financial governance reform
• Assert its leadership of the BRICs and G-77.
• Challenge and undermine US and Japan regional finance
dominance and soft power, namely ADB.
• Enhance China’s regional soft power: finance and consolidate
new pheriphery diplomacy strategy, “One belt, one road”
(iii) Increase in the level of complexity of financial reforms and
obstacles to coalitions, conflicting views among great powers as
G-20 initial consensus is breaking.
5. Solutions to minimize risks
• Allow banks to fail without taking economies down with
them (international deposit insurance fund)
• Holistic regulation combining different pillars thus
addressing conglomerate logic and informal shadow
banking challenges
• Break down large financial conglomerates to counteract
concentration and “too big to fail”
• Tackle off-shores and large conglomerates tax evasionimplementing BEPS.
• Tax financial transactions
• New institutions to fight “concentration of wealth and
trickle down” paradigm : support community microcredit schemes ; restore and promote regional banks by
enforcing competition rules.
Conclusions
1. Major reforms to improve global financial
governance have not been implemented and
systemic risk remains high and preventive approach
very weak
2. Initial political consensus in G-20 is breaking down
and China’s new initiatives are a strong sign
3. Euro crisis is partly a result of this lack of progress
and the resistance of powerful financial conglomerates,
with high human, political and social costs for
adjustment countries like Portugal and Greece.
4. There is both divergence and convergence between
Europe and Asia on global financial governance
Heterogeneity of Asia and of Europe: 3 poles US-Japan;
China; EU
Convergence EU and China in balancing US excessive
financial power and US dollar dominated system;
conglomerate approach; China has invested in troubled
EU countries compensating for lack of capital
Divergence
• Global IFIs reform and redistribution of voting rights:
over-representation of EU vs. under-representation of
China
• Trade unbalances and liberalization of financial services
- reciprocity problem
• Financial system as a means (China) or an end in itself
(EU)