The Limits of Surveillance and Financial Market Failure : Lessons From the Euro-Area Crisis

The Euro-area Crisis, Which Erupted Only A Few Years After The Outbreak Of The Global Financial And Economic Crisis, Revealed Weaknesses In Regional As Well As Global Frameworks For Financial And Economic Crisis Prevention. In Fact, Neither Regional Surveillance Within The European Framework Nor Global Surveillance By International Institutions Such As The Imf And The Oecd Was Effective In Preventing Such Large-scale Crises In Developed Countries. Can More Effective Surveillance Be Put In Place To Prevent Their Recurrence? In This Book, First-class Economists With Rich Experience In Economic And Financial Policy-making Address A Broad Range Of Difficult Policy Issues. They Examine The Roles Of Surveillance By International Institutions As Well As Micro- And Macro-prudential Policies, Their Mixes And Their Coordination With Monetary Policies For Achieving Financial Stability While Promoting Better Macroeconomic Performance. Based On This Analysis, The Book Also Examines Economic As Well As Political Forces At Work In Order To Understand The Dynamics Of The Euro-area Crisis That Erupted Only A Few Years After The Outbreak Of The Global Financial And Economic Crisis. It Reveals That The Crisis Was Actually Balance-of-payments Induced, Deriving From Single-currency Tensions As Well As Excessive Sovereign Debt. It Emphases That The Sustainability Of The Euro Area Crucially Depends On Structural Reform In Both Surplus And Deficit Countries Within The Area To Promote Convergence Of Economic Performance. Introduction; Kumiharu Shigehara -- 1. The Limits Of Surveillance And Financial Market Failure; Kumiharu Shigehara -- 2. Global And Regional Surveillance; Andre Icard -- 3. Surveillance Failure Or Systemic Failure?; Lelf Pagrotsky -- 4. The Role Of Surveillance; Val Kromzay -- 5. Beyond Surveillance: Reducing The Risk Of Financial Crises; Paul Atkinson -- 6. How Should Micro-prudential Control Be Strengthened To Prevent Local And Global Financial Market Failure?; Jeffrey Shafer -- 7. Financial Market Failures And Their Remedies; Carol Sirou -- 8. On The Connection Between Monetary Policy And Regulation Of Banking And Financial Markets; Stephen Axilrod -- 9. Macro-prudential Policy And Bank Systemic Risk; Blundell-wignall And Caroline Roulet -- 10. Risk, Reward And Bank Resilience; Charles Goodhart -- 11. Can Europe Get Its Political Act Together? Alternative Scenarios For The Euro Area; William White -- 12. More Effective Management Of The Euro-area; Gunter Baer -- 13. Executive Summary; Robert Price -- 14. Overview Report; Robert Price And Nicholas Vanston. [edited By] Kumiharu Shigehara. Includes Index. This book examines the effectiveness of surveillance by international institutions for financial crisis prevention. It discusses issues relating to designing effective micro- and macro-prudential policies, their mixes and their coordination with monetary policies for achieving financial stability while promoting better macroeconomic performance. The Euro-area crisis, which erupted only a few years after the outbreak of the global financial and economic crisis, revealed weaknesses in regional as well as global frameworks for financial and economic crisis prevention. In fact, neither regional surveillance within the European framework nor global surveillance by international institutions such as the IMF and the OECD was effective in preventing such large-scale crises in developed countries. Can more effective surveillance be put in place to prevent their recurrence? In this book, first-class economists with rich experience in economic and financial policy-making address a broad range of difficult policy issues. They examine the roles of surveillance by international institutions as well as micro- and macro-prudential policies, their mixes and their coordination with monetary policies for achieving financial stability while promoting better macroeconomic performance. Based on this analysis, the book also examines economic as well as political forces at work in order to understand the dynamics of the Euro-area crisis that erupted only a few years after the outbreak of the global financial and economic crisis. It reveals that the crisis was actually balance-of-payments induced, deriving from single-currency tensions as well as excessive sovereign debt. It emphases that the sustainability of the Euro area crucially depends on structural reform in both surplus and deficit countries within the area to promote convergence of economic performance Front Matter....Pages i-xv Front Matter....Pages 1-1 The Limits of Surveillance and Financial Market Failure: Some Fundamental Issues Arising from the Euro-Area Crisis....Pages 3-35 Front Matter....Pages 37-37 Global and Regional Surveillance: Lessons from the Euro-Area Crisis....Pages 39-51 Surveillance Failure or Systemic Failure?....Pages 52-63 The Role of Surveillance: Lessons from the Euro-Area Crisis....Pages 64-73 Front Matter....Pages 75-75 Beyond Surveillance: Reducing the Risk of Financial Crises....Pages 77-87 How Should Microprudential Control Be Strengthened to Prevent Local and Global Financial Market Failure?....Pages 88-92 Financial Market Failures and Their Remedies....Pages 93-96 Front Matter....Pages 97-97 On the Connection between Monetary Policy and the Regulation of Banking and Financial Markets....Pages 99-107 Macroprudential Policy, Capital Controls and Bank Systemic Risk....Pages 108-130 Risk, Reward and Bank Resilience....Pages 131-139 Front Matter....Pages 141-141 Can Europe Get Its Political Act Together? Alternative Scenarios for the Eurozone....Pages 143-162 More Effective Management of the Euro Area....Pages 163-169 Front Matter....Pages 171-171 Executive Summary....Pages 173-179 Overview Report....Pages 180-208 Back Matter....Pages 209-226 Cover 1 Contents 8 List of Tables and Figures 10 Preface and Acknowledgements 11 Notes on Contributors 14 Part I 17 1 The Limits of Surveillance and Financial Market Failure: Some Fundamental Issues Arising from the Euro-Area Crisis 18 Part II 51 2 Global and Regional Surveillance: Lessons from the Euro-Area Crisis 52 3 Surveillance Failure or Systemic Failure? 65 4 The Role of Surveillance: Lessons from the Euro-Area Crisis 77 Part III 87 5 Beyond Surveillance: Reducing the Risk of Financial Crises 88 6 How Should Microprudential Control Be Strengthened to Prevent Local and Global Financial Market Failure? 99 7 Financial Market Failures and Their Remedies 104 Part IV 108 8 On the Connection between Monetary Policy and the Regulation of Banking and Financial Markets 109 9 Macroprudential Policy, Capital Controls and Bank Systemic Risk 118 10 Risk, Reward and Bank Resilience 141 Part V 150 11 Can Europe Get Its Political Act Together? Alternative Scenarios for the Eurozone 151 12 More Effective Management of the Euro Area 171 Part VI 178 13 Executive Summary 179 14 Overview Report 186 Annex 1: Conference Programme 215 Annex 2: Contributors to the Conference 219 Index 222