Financial Governance After the Great Recession: What Changed and What Didn’t?

Abstract

Finance in general, and banking in particular, are probably the only areas of the economic system where there is widespread agreement on the necessity of formal governance. Most governments reserve for themselves the right to issue debt in the form of coins and currency; in addition private providers of means of payment have failed so frequently to provide a safe and secure means of payment, with disastrous consequences for the operation of the real economy that governments have sought to regulate financial to prevent financial crisis. However, in an open global economy the regulations of national governments have little impact on the operation of global financial markets which are regulated by the governments of developed countries. Thus the regulations determined in developed country markets, in particular the US are of crucial importance to the governance of finance in developing countries. This paper considers the main innovations of developed country governance in the aftermath of the recent crisis, in p ticular capital requirements and macroprudential regulations and suggests that they are in fact not new regulatory provisions, but have been employed for some time with little succeeds and are thus not likely to shield developing countries for the financial instability caused by the failure of governance in developed country markets.

Keywords: financial management, economic system, economic crisis, monetary policy, financial institution, regulation, governance