Shadow Banking in South-East Asia Lim Mah Hui

Significance Shadow banking was responsible for triggering the recent financial crisis in 2007. Since then the growth of shadow banking worldwide, after falling briefly post crisis, has risen to $71 trillion at end of 2012, representing half of global total banking assets and 117% of GDP. Shadow banking is critical because while it represents an alternative source of financing, it also increases systemic risks to the financial system. While regulators have been busy putting in place more regulations for the formal banking sector, not as much has been done for the shadow banking sector. In fact, one main reason for…

Rigging for Profit C.P. Chandrasekhar

In a process that began almost six months back, the world’s leading banks are under scrutiny for rigging a benchmark variable that influences the returns earned by a range of investors. The latter include investors such as pension funds managing the savings of ordinary workers. Agents converting currencies to pay for purchases or invest in assets denominated in currencies other than their own, need to have a relative value (say, Rs.60 to the dollar) to go by. In practice, foreign exchange transactions are undertaken at rates linked to “fixes” that are supposed to reflect the exchange rates at which actual…

Redistributing Regulatory Power C.P. Chandrasekhar

In March this year, two years after its constitution, the Financial Sector Legislative Reforms Commission (FSLRC, chaired by Justice B. N. Srikrishna) submitted its two-volume report. While the Commission’s title seems limited in terms of remit, its report is indeed far-reaching. Exploiting the rather wide and ambiguous terms of reference set for it, the Commission has chosen not to restrict itself to merely recommending amendments to existing legislation and the enactment of marginal new laws to modify the historically evolved legal framework. Such an exercise is indeed necessary to excise redundancies, address conflicting mandates, close gaps and accommodate new features…

Balance of Payments-Consistent Unreported Flows Edsel L. Beja Jr.

[Working Paper No. 01/2010] The paper develops a balance of payments-consistent procedure for estimating unreported flows. Using data between 1990 and 2007, total unreported flows of ten selected Asian countries is estimated at 80% of their 2007 combined GDP. The paper also examines the empirical relationship between the volume of reported and unreported flows. Unreported flows increase with increase in reported flows and economic growth as well as weaknesses in the governance of reported flows and accumulated unreported flows. In contrast, financial depth and governance of the real sector decrease unreported flows. Altogether, the results indicate that unbalanced financial and…

Progressive Program For Economic Recovery & Financial Reconstruction Michael Ash, Radhika Balakrishnan, James Crotty, Edwin Dickens, Gerald Epstein, Thomas Ferguson, Teresa Ghilarducci, Jo-Marie Greisgraber, Stephany Griffith-Jones, Robert Guttmann, Arjun Jayadev, Anush Kapadia, David Kotz, Michael Meerepol, William Milberg, Fred Moseley, Jose Antonio Ocampo, Robert Pollin, Malcolm Sawyer and Martin Wolfson

The global economic crisis is rapidly worsening. Meanwhile the incoming Obama administration is intensively developing plans to ward off economic catastrophe. In this atmosphere of hope laced with tremendous uncertainty, a group of progressive economists met on November 21, 2008 at the New School for Social Research in New York for a discussion, sponsored by the Political Economy Research Institute (PERI) of the University of Massachusetts, Amherst and the New School’s Schwartz Center for Economic Policy Analysis (SCEPA), with financial support from the Ford Foundation. The goal of the meeting was to discuss macroeconomic and financial policies for economic revival…

An Insider View from George Soros C.P. Chandrasekhar

Reports of losses that range between a few hundred million to a few billion dollars due to the ripple effects of the mortgage crisis in the US and elsewhere have now become routine and passé. The almost stoic acceptance of such losses being reported by the world’s leading banks and financial firms makes it appear that they only skim the fat off the huge profits these entities were making, without damaging their viability. The threat of a recession remains, but there appears to be no fear of a financial implosion that could spell a systemic crisis. What is more, international…

Hedge Funds: Reignited debate on regulation Andrew Cornford

Threats to the integrity of financial markets posed by hedge funds begin to be taken seriously by countries exerting the main influence on the international financial regime, only when the threats involve their own markets, rather than the emerging ones. This marginalisation seems likely to remain true in the formulation of any new international initiatives regarding hedge funds. In order to protect their financial system stability, countries with emerging financial markets will thus have to continue to rely on national policy solutions. This presupposes the maintenance of necessary policy space, which in turn requires avoidance of, and resistance to, international…

Reflections on the Production, Management and Measurement of (Primarily Financial) Risk Andrew Cornford

In this article, the author discusses the evolution of prediction and of the control and measurement of risk with the aim of providing a historical perspective on regulation and risk management for today's financial sector. The paper includes concluding observations on the way in which changes in risk management have had effects on financial firms and those who work for them with implications for ethical dimensions of their performance. reflections (Download the full text in PDF format)

Japanese Economic Recovery and the Macroeconomic Policy Mix Sukanya Bose

Japanese macroeconomic policy during the prolonged depression of the 1990s has been the reverse of what Keynes had recommended as the anti-deflationary strategy. The paper explores the three main pillars of macroeconomic policy for the Japanese economy in the recent years: financial policy, fiscal policy and monetary policy. japanese_recovery (Download the full text in PDF format)

Review of the 2004 World Development Report “Making Services Work for Poor People” Tim Kessler

On September 21, 2003, the World Bank unveiled its annual flagship publication, the 2004 World Development Report, entitled "Making Services Work for Poor People." The WDR's main premise is that basic services - primary education, basic health care, water and electricity services -fail to reach the poor because too many governments lack sound and representative institutions of governance. Ironically, the report expresses strong confidence in the ability of these same unaccountable governments to regulate private service provision. In addition to deficient institutions, the WDR attributes failing public services to regressive budgets (that benefit mostly the middle class), petty corruption, and…