Global Liquidity and Financial Flows to Developing Countries: New trends in emerging markets and their implications C.P. Chandrasekhar

This paper argues that supply-side factors rather than the financing requirements of developing countries, explain the recent revival and surge in capital flows into developing countries. Financial liberalization and the globalization of finance have also resulted in changes in the financial structure. This in turn has implications for the accumulation of risk in markets where agents tend to herd. Associated with this increasing risk are changes in the business practices and motivations of financial firms that reduce the role of finance in ensuring broad-based economic growth. global_liquidity (Download the full text in PDF format)

Financial and Economic Crisis in Eastern Europe Rainer Kattel

The paper argues that the foreign savings-led strategy followed by Eastern European economies created in 2000s almost a decade long carry trade of easy credit. That, among other things, transformed the domestic financial sector into largely foreign-owned universal banks with weak linkages with the domestic productive sector. While the credit and consumption boom helped gloss over deeper structural problems then, now these economies need to step up their efforts in industrial and innovation policies for paving their way out of the crisis. eastern_europe (Download the full text in PDF format)

Financial Regulation and the Lobbying Activities of the Financial Sector Carlo Panico and Antonio Pinto

The breakdown of the Bretton Woods’ agreements and the oil shocks of the Seventies, the paper argues, changed the management of financial firms. Flexible exchange rates created new opportunities for financial operations while inflation and the decision of the authorities to attribute high priority to it accelerated financial innovation. These phenomena led to a progressive growth of the turnover of the financial sector, which strengthened its weight in the economy and may have favoured the introduction of legislation reducing the ability of the authorities to prevent the rise of systemic risk. financial_regulation (Download the full text in PDF format)

Financial Innovation and System Design Mario Tonveronachi

The most relevant financial innovations have been the result of active policies pursued by public authorities, which have intrinsic to them, a specific financial design based on the freedom to create and absorb financial risks. The excesses that are considered as the main culprits of the current crisis are therefore a part of the physiology and not of the pathology of the wanted financial morphology. As a consequence, no regulatory reform can be effective without radical changes in the system design. A general outline of an alternative approach to regulation is presented. system_design (Download the full text in PDF format)

No Going Back: Why we cannot restore glass-steagall’s segregation of banking and finance Jan Kregel

Recently, a number of authoritative voices have called for a return to the New Deal Glass-Steagall legislation as the most appropriate response to the clear failure of the 1999 Financial Modernization Act to provide stability of the financial system. However, a clear understanding of the 1933 Banking Act, and subsequent regulatory interpretation and legislation suggest that this would be difficult, if not impossible. A new Glass-Steagall Act would have to be substantially different from the original, and some of the internal structural contradictions that led to its demise remedied. going_back (Download the full text in PDF format)