Financial Convergence in Asia C.P. Chandrasekhar and Jayati Ghosh

The recent Asian experience with financial convergence suggests that financial proliferation largely facilitates new lines of business in financial services and affects the real economy more from the demand side through the debt-financed household expenditure it promotes. Thus excessive exposure to retail markets becomes a source of fragility in these countries just as it did in the developed countries. Asia (Download the full text in PDF format) (This article was originally published in the Business Line on 3 September 2012)

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)

The Natural Instability of Financial Markets Jan Kregel

[Working Paper No. 04/2009] This paper gives a detailed exposition of Hyman Minsky’s Financial Instability Hypothesis which takes the US financial system as its reference structure and provides a historical account of financial sector evolution and regulatory changes in the US in the run up to the current crisis. In Minsky’s approach, fragility is inherent in the successful operation of the capitalist economic system, and results from changes in the liquidity preferences of bankers and businessmen for a given degree of maturity mismatching. While financial fragility is independent of financial regulation, regulation may play a role in the rate of…