Top PDF Liquidity lost : the governance of the global financial crisis.

Liquidity lost : the governance of the global financial crisis.

Liquidity lost : the governance of the global financial crisis.

The book’s analysis of the governance of the global financial crisis is grounded not in economics and political economy, then, but in the field of cultural economy. Cultural economy is an interdisciplinary academic venture which primarily covers sociology, human geography, anthropology, and business and organizational studies (Amin and Thrift 2004; Bennett, McFall and Pryke 2008; du Gay and Pryke 2002). Gaining momentum over the last decade or so, it is the outcome of diverse responses to the implications of the ‘cultural turn’ in social theory for understandings of economy. It features, but is certainly not limited to, an interest in the efficacy of the theories and methods of science and technology studies (STS) for the study of economy (e.g. Callon 1998; Pinch and Swedberg 2008; Woolgar, Coopmans, and Neyland 2009). Cultural economy has also achieved particular traction through research into financial markets that, reflecting the strong imprint of STS, is often labelled as ‘the social studies of finance’ (SSF) (Kalthoff 2005; Knorr Cetina and Preda 2005, 2012; MacKenzie 2009). Cultural economy and SSF do not provide, however, a ready-made and established set of conceptual tools for thinking anew about the governance of the global financial crisis. The book’s analytical motivations are thus intertwined with a further purpose: to develop the conceptual means by which the management of financial crises can be understood in the terms of SSF and cultural economy.
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The Evolution of Corporate Governance in the Global Financial Crisis : The Case of Russian Industrial Firms

The Evolution of Corporate Governance in the Global Financial Crisis : The Case of Russian Industrial Firms

Our survey results revealed that throughout the period of 2005–2009, the surviving firms enhanced their corporate governance system’s independence from management, mainly by increasing the number of outside directors/auditors as an entire sample group. In this sense, the global financial crisis has improved the quality of corporate governance in the Russian industrial sector. However, the observed changes are sluggish, implying that the 2008 crisis did not drastically accelerate the evolution of corporate governance systems. Furthermore, we found that, in keeping with the alignment hypothesis, in firms that decisively reformed their management and supervisory bodies in response to the 2008 financial shock, the total number of worker representative directors significantly declined, as did their proportion to all board members. On the other hand, we also found that, in firms that substantially reorganized their audit systems to cope with the crisis, the total number of outside auditors and their proportion to all auditors declined, while the proportion of worker representative auditors increased. As a consequence, the overall independence of the audit system was undermined remarkably, corresponding with the expropriation hypothesis. Findings that management behaviors predicted by the two conflicting hypotheses are simultaneously detected within one country—and that their targets are significantly different—deserve special mention.
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Corporate governance in the aftermath of the global financial crisis: Issues and action

Corporate governance in the aftermath of the global financial crisis: Issues and action

Bailing out banks and ensuring that depositors’ savings are safe has been the aim of the UK Government; in the meantime however, the “[...] cherished concept of moral hazard has been left to wither away ”. 90 This is where we witness the reinstatement of moral hazard “[...] as a functioning market discipline in bringing about the reasonable financial discipline that we would all like to see ”. 91 As the report into the failure of Northern Rock recognises, banks and building societies view government’s support to Northern Rock as an indication of the fact that no UK bank will be allowed to fail. 92 Although the existence of the FCA penalties makes disqualification a less significant path, we still need to deal with the problem of coherence in the law. The Government bailout is generally credited with having saved the UK economy, but by doing so it may have also saved irresponsible bankers from being held accountable for
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Global Financial Crisis and Government Intervention: A Case for Effective Regulatory Governance

Global Financial Crisis and Government Intervention: A Case for Effective Regulatory Governance

A central argument in the Keynesian theory of macroeconomics is that the government could counter a recession through fiscal policy by either reducing taxes to spur consumer or investment spending, or directly increasing its own spending, even if this could result in deficit spending. This implies in a period of deep recession, the government can, for example, engage in deficit spending by providing funds to financial institutions if it is deemed that such action could spur lending, increase private spending and investment and thus increase aggregate demand in the economy. The downside of government intervention through injection of funds into the financial system is that not only does it compromise the independence of the financial institutions but also could result in politically motivated forbearance, thereby posing challenges to effective regulatory governance. For example, in the United States, government injection of capital to rescue financial institutions has led to government ownership of substantial shares of many of these institutions at least in the short run. As stated earlier, the lack of independence of the Japanese financial supervision function within the ministry of finance is widely believed to have contributed to financial sector weaknesses. Although there was probably little direct pressure on the ministry of finance to exercise forbearance, the system lacked transparency and was known for widespread implicit government guarantees of banking sector liability (Udaibir, Quintyn & Taylor, 2002). The argument here is that while effective intervention is necessary for the proper functioning of the free market system, such policies should be implemented with caution as ill thought out intervention could be ineffective, and result in higher than socially efficient cost of such intervention.
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Financial Consumer Protection and the Global Financial Crisis

Financial Consumer Protection and the Global Financial Crisis

Some, but not complete, substitution may be possible between financial education and regulation. For example, in rapidly developing financial markets, such as those of developed and emerging market economies, financial education could teach consumers principles of sound and safe financial behavior including basic financial skills. However, it could be less successful in teaching consumers details of financial products, in which case the ongoing financial innovation could leave the consumer with false overconfidence and lead to undesirable financial behavior. The reasons for some regulation and paternalism could be three-fold: (i) financial education will always lag behind the development of financial markets (see also Cole and Shastry, 2007; 2 and Willis, 2008), (ii) the direct (immediate) costs of implementing financial education programs are relatively high compared to regulation, and (iii) the drive for profits (even at higher risks) and weak corporate governance create incentives for the financial industry to exploit even responsibly behaving and capable financial consumers, e.g. through supply- driven innovation and introduction of complex financial products (Barr, 2009; Bernanke, 2008). In its competition for profits and market share, the financial industry (or its segments) could collude on consumers with no incentive to reveal system-wide business misconduct from within the industry. Hence, for all financial markets, no matter how rapidly developing, a combination of financial education and regulation is needed, where the appropriate mix has to be developed with respect to the country specifics.
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Corporate Governance and the Financial Crisis

Corporate Governance and the Financial Crisis

“Non-transparent and ambiguous lending practices put many customers at the risk of over- indebtedness,” said Kemal KozariÄ, governor of the Central Bank of Bosnia and Herzegovina. “The global financial crisis has proven that the principle of responsible finance has not been sufficiently developed with banks and with clients. It has now become evident that the liquidity risk of banks in Bosnia and Herzegovina, for example, is rather low, but that the main problem is the quality of loans. Disseminating responsible principles of finance is considered to be one of the primary responses to the financial crisis.”
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Impact of Corporate Governance Compliance and Financial Crisis on Stock Liquidity: Evidence from Pakistan

Impact of Corporate Governance Compliance and Financial Crisis on Stock Liquidity: Evidence from Pakistan

A financial crisis is also among the factors affecting stock liquidity and this relationship is examined by various researchers (such as, Amihud et al., 1990; Engkuchik & Kaya, 2012; Wong & Fung, 2001). But the researcher felt the need to examine it in Pakistani context because of the following reasons. First, the results of the existing studies are not conclusive, as Amihud et al. (1990) state that the financial crisis affects stock liquidity negatively followed by Wong and Fung (2001). However, on the other hand, Engkuchik and Kaya (2012) argue that stock liquidity moves up during a financial crisis. Second, the global financial crisis of 2007-2009 is documented severe economic shock after the great depression (Akbar et al., 2017), and thus might have a more severe and different impact on stock liquidity. Third, stock liquidity of family-owned firms might fluctuate very differently during the financial crisis due to its ownership structure, and is, therefore, the first study of its kind.
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Understanding the global financial crisis

Understanding the global financial crisis

Financial institutions were able to make quick profits from changes in investor sentiment. Money market funds demand for AAA-rated bonds for reasons beyond the basic economics of payoffs was fuelled by monetary excesses (loose monetary policy reduces risk-free rates and may induce investors to overpay for higher yielding securities perhaps ignoring the magnitude of the risk factor). Furthermore, financial institutions operating outside the regulated banking system built up financial positions by borrowing short-term and lending long-term. They became vulnerable to non-bank runs, that is, they could fail if markets lost confidence and refused to extend or roll over short-term credit as it happened with Bear Stearns.
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Global financial crisis

Global financial crisis

The recession that hit developed countries was characterised with a decline of 12% in industrial production, the largest decline of the last 18 years, which was associated with a considerable growth of unemployment rates. For example, the USA recorded the highest increase of the unemployment rate in 25 years, with 5.1 million jobs lost – mainly in sectors of services, processing industry, and construction. In the first months of 2009, the unemployment rate marked an increase of 7.6%, compared to 4.9 percent one year before. Similar properties of recession were seen also in the EU, where the unemployment rate by the end of 2008 was increased to eight percent, in comparison to 6.8% which was recorded one year earlier. Unemployment rates continued growing also in the first months of 2009, and this trend was expected to continue to 2010. Some estimates have suggested that the unemployment rate by the end of 2010 is expected to get to 9.5 percent in the USA and 10.2 percent in the EU, and that period is expected to record a recovery of the economy at a global scale 34 .
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Global financial crisis, liquidity pressure in stock markets and efficiency of central bank interventions

Global financial crisis, liquidity pressure in stock markets and efficiency of central bank interventions

In this article, we investigate the hypothesis of efficiency of central bank intervention policies within the current global financial crisis. We firstly discuss the major existing interventions of central banks around the world to improve liquidity, restore investor confidence and avoid a global credit crunch. We then evaluate the short-term efficiency of these policies in the context of the UK, the US and the French financial markets using different modelling techniques. On the one hand, the impulse response functions in a Structural Vector Autoregressive (SVAR) model are used to apprehend stock market reactions to central bank policies. On the other hand, since these reactions are likely to be of an asymmetric and nonlinear nature, a two-regime Smooth Transition Regression-Generalized Autoregressive Conditional Heteroscedasticity (STR-GARCH) model is estimated to explore the complexity and nonlinear responses of stock markets to exogenous shifts in monetary policy shocks. As expected, our findings show strong repercussions from interest rate changes on stock markets, indicating that investors keep a close eye on central bank intervention policies to make their trading decisions. The stock markets lead monetary markets, however, when central banks are slow to adjust their benchmark interest rates.
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Understanding Liquidity and Credit Risks in the Financial Crisis

Understanding Liquidity and Credit Risks in the Financial Crisis

One of the most obvious signs of the …nancial crisis was a jump in the rates on uncollateralized loans across banks in Europe and the US. A standard measure of the rates on these uncollateralized loans is the daily submission of borrowing rates by major banks to the British Bankers Association used to form the standard set of London Interbank O¤er Rates (LIBOR). LIBOR rates are referenced in a large number of …nancial contracts in the global economy. There are three main reasons why LIBOR rates can change: i) central banks can change expectations of their policy rate, thereby repricing most short-term loans between banks; ii) banks can require a higher com- pensation for default risk on loans and iii) liquidity in the inter-bank loan market can change in ways unrelated to the open market operations of cen- tral banks. The last two of these reasons are called credit risk and liquidity risk. In order to focus on the roles of credit and liquidity risks, it is common to take out market expectations of future central bank policy rates by sub- tracting the overnight index swap (OIS) 1 rate from the LIBOR rate, leading to the LIBOR-OIS spread. A number of studies emphasize that the LIBOR- OIS spread contains credit risk and liquidity risk premia (e.g., McAndrews et al, 2008, Michaud and Upper, 2008, Sengupta and Tam, 2008 and Hui et al, 2010). 2 Detailed chronicles of the sharp increases in LIBOR-OIS spread
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Global imbalances and the financial crisis

Global imbalances and the financial crisis

Once upon a time, bankers (and other lenders) who made loans to a house purchaser, or other borrower, retained the default risk. Hence, they had an incentive to collect information on the borrowers and to monitor their subsequent behaviour. Banks did not like holding illiquid assets, however. The innovation of securitisation gave bankers the opportunity to sell their mortgages, passing off the risk and obtaining new liquidity with which to make additional loans. Banks no longer had much of an incentive to screen or oversee their borrowers; they made riskier types of loans to less credit-worthy borrowers.
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The global financial crisis dissection

The global financial crisis dissection

The current regulatory framework also assumed that policies aimed at guaranteeing the soundness of individual banks could also guarantee the soundness of the whole banking system (Nugee & Persaud, 2006). It was micro-prudential but not macro-prudential. This proved to be problematic because there were instances in which what was prudent for an individual institution had negative systemic implications. Consider the case of a bank that suffers large losses on some of its loans. The prudent choice for this bank is to reduce its lending activities and cut its assets to a level which is in line with its smaller capital base. If the bank in question is small, the system will have no problem in absorbing this reduction in lending. If, however, the bank in question is large, or the losses affect several banks at the same time, the individual bank‘s attempt to rebuild its capital base will drain liquidity from the system. Less lending by some banks will translate into less funding to other banks, which, if other sources of liquidity are not found, might be forced to cut lending and thus amplify the de-leveraging process and affect investment in fixed capital (UNCTAD, 2009:16).
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Falling into the Liquidity Trap: Notes on the Global Economic Crisis

Falling into the Liquidity Trap: Notes on the Global Economic Crisis

In short, the external disproportionality plagueing the U.S. economy, its current account deficit driven by trade with the Pacific Rim countries and capital inflows from the BRICs, China, and Southeastern Asia, has a com- plex organic relationship to the internal disproportionality represented in the unsustainable reliance on residential construction during the run-up to the Great Recession. But these two imbalances are in themselves incomplete, for the rise of finance capital has transformed the intermediation process over the Great Moderation. Without the financial innovations that permit the securitization of debt and other sources of cash flow, it is hard to see how the particular form the crisis assumed in its initial phases could have arisen, and that story lies outside the self-imposed limits of this paper. Yet having an un- derstanding of the underlying real contradictions that have developed during the Great Moderation makes these financial developments less mysterious.
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Iran and the Global Financial Crisis

Iran and the Global Financial Crisis

Iran was not the only country that adopted this approach, Russia and Arab countries of the Persian Gulf have their currencies pegged to the U.S. dollar as well. However, those countries never experienced such high inflation as Iran has. In addition, they have piled up billions of dollars in their Sovereign Wealth Funds (SWF) from their oil earnings in order to manage their foreign currency fluctuations at the times of economic distress. For instance, Russia and the Emirate of Abu Dhabi (U.A.E.) had accumulated $500 and $900 billion in their funds, respectively. For the past few months Russia has drained some of its reserves to defend the ruble in order to avoid a repeat of the 1998 financial crisis when the ruble crashed, as tumbling oil prices and the war in Georgia caused ruble holders to lose faith in the ruble and therefore to remove billions of dollars from the country. At the same time, it is now abandoning the illogical protection of the ruble and letting the currency devalue to prevent a sudden collapse. In addition, Abu Dhabi maintains enough reserves to supply any currency demand to uphold its currency peg, although the emirate has lost over $100 billion in the ongoing crisis.
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The Global Financial Crisis (GFC), Equity Market Liquidity and Capital Structure: Evidence from Australia

The Global Financial Crisis (GFC), Equity Market Liquidity and Capital Structure: Evidence from Australia

The pecking order theory is based on the information asymmetry argument, which states that insiders possess more private information about a firm’s expected return and investment opportunities than outsiders. Such information asymmetry may cause the firm’s securities to be under- priced (Myers and Majluf 1984). As explained in the pecking order theory, firms prefer to finance new projects by first using internally-generated capital, then using low-risk debt, and finally using equity. One of the main implications of this theory is that a firm’s ability to generate funds internally affects the extent of funds sourced through debt. Therefore the availability of internally-generated funds may diminish a firm’s need to generate funds using external sources. However, Fama and French (2005) indicated that a firm’s financing decisions may violate the central predictions of the pecking order model about how often and under what circumstances firms issue equity. They argued that most firms issue or retire equity each year and these issues are on average large and not typically done by firms under financial stress.
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Asia and Global Financial Governance

Asia and Global Financial Governance

Second, the stigma is based on a selective reading of the Asian crisis and is backward looking. IMF conditionality during 1997–98 contained serious mistakes, but other elements of conditionality—such as the elimination of the overvaluation of currencies and large current account deficits, consolidation of the banking sector, and strengthening of financial regulation—were certainly appropriate. Most of the countries in the region completely avoided financial contagion from the United States and Europe during 2008–09 because they carried out these reforms. It can certainly be argued that European countries and the United States would have been better off if they had done the same. With larger loan amounts and streamlined conditionality in the recent crises, the Fund’s programs have evolved a great deal since 1997–98. The popular reputation of the Fund in Asia does not currently give due account to either consideration.
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Understanding Liquidity and Credit Risks in the Financial Crisis

Understanding Liquidity and Credit Risks in the Financial Crisis

One of the most obvious signs of the …nancial crisis was a jump in the rates on uncollateralized loans across banks in Europe and the US. A standard measure of the rates on these uncollateralized loans is the daily submission of borrowing rates by major banks to the British Bankers Association used to form the standard set of London Interbank O¤er Rates (LIBOR). LIBOR rates are referenced in a large number of …nancial contracts in the global economy. There are three main reasons why LIBOR rates can change: i) central banks can change expectations of their policy rate, thereby repricing most short-term loans between banks; ii) banks can require a higher com- pensation for default risk on loans and iii) liquidity in the inter-bank loan market can change in ways unrelated to the open market operations of cen- tral banks. The last two of these reasons are called credit risk and liquidity risk. In order to focus on the roles of credit and liquidity risks, it is common to take out market expectations of future central bank policy rates by sub- tracting the overnight index swap (OIS) 1 rate from the LIBOR rate, leading to the LIBOR-OIS spread. A number of studies emphasize that the LIBOR- OIS spread contains credit risk and liquidity risk premia (e.g., McAndrews et al, 2008, Michaud and Upper, 2008, Sengupta and Tam, 2008 and Hui et al, 2010). 2 Detailed chronicles of the sharp increases in LIBOR-OIS spread
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The New Politics of Global Tax Governance: Taking Stock a Decade After the Financial Crisis

The New Politics of Global Tax Governance: Taking Stock a Decade After the Financial Crisis

These features of the ‘return of the state’ require us to focus our attention on the changing national-international dynamics and its radical implications for global tax cooperation and attitudes to sovereignty. In Global Tax Governance, neither Eccleston and Smith (2016, p. 178) nor Grinberg (2016, pp. 166–169) believe that recent sovereignty-constraining developments in the area of information exchange to combat tax evasion have extended to the area of corporate tax avoidance, addressed by the OECD and G20 through the project entitled Base Erosion and Profit-Shifting (BEPS). They conclude that corporate tax avoidance presents a much greater challenge because of its open distributional implications and greater threat to legislative sovereignty. However, since the volume was written, BEPS has led to new international institutions with deeper and broader sovereignty-con- straining effects than ever before. In June 2017, 68 jurisdictions signed up to a legally binding multilateral tax instrument (‘MLI’), the first of its kind: previously, multilateral tax cooperation had only soft law status, while hard law was the prov- ince of bilateral treaties. The MLI immediately overrides more than 1000 bilateral treaties to close loopholes and strengthen states’ ability to tax international eco- nomic activity. Importantly, the MLI binds signatories to certain minimum stand- ards extending beyond administration to tax policy, representing a clear pooling of legislative sovereignty. The compliance with these standards is further subject to peer review in the new ‘Inclusive Framework’ at the OECD, a forum encompassing over 100 countries. Still, as a patchwork of national reservations to the MLI illus- trates, the future of tax competition and coordination depends firmly on decisions taken by heterogeneous governments.
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Understanding Liquidity and Credit Risks in the Financial Crisis

Understanding Liquidity and Credit Risks in the Financial Crisis

One of the most obvious signs of the …nancial crisis was a jump in the rates on uncollateralized loans across banks in Europe and the US. A standard measure of the rates on these uncollateralized loans is the daily submission of borrowing rates by major banks to the British Bankers Association used to form the standard set of London Interbank O¤er Rates (LIBOR). LIBOR rates are referenced in a large number of …nancial contracts in the global economy. There are three main reasons why LIBOR rates can change: i) central banks can change expectations of their policy rate, thereby repricing most short-term loans between banks; ii) banks can require a higher com- pensation for default risk on loans and iii) liquidity in the inter-bank loan market can change in ways unrelated to the open market operations of cen- tral banks. The last two of these reasons are called credit risk and liquidity risk. In order to focus on the roles of credit and liquidity risks, it is common to take out market expectations of future central bank policy rates by sub- tracting the overnight index swap (OIS) 1 rate from the LIBOR rate, leading to the LIBOR-OIS spread. A number of studies emphasize that the LIBOR- OIS spread contains credit risk and liquidity risk premia (e.g., McAndrews et al, 2008, Michaud and Upper, 2008, Sengupta and Tam, 2008 and Hui et al, 2010). 2 Detailed chronicles of the sharp increases in LIBOR-OIS spread
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