Comments on Andrew Sheng “Strengthing the Asian financial system: To look forward, look back”, May 6th, 2011, http://www.eastasiaforum.org/2011/05/06/to-look-forward-look-back/
A couple of questions:
Firstly, if the global standard was not able to avoid financial crisis at an almost global scale in which Asia weathered pretty well, what is the point for Asia standard to reach that global standard? Is that for the superficial purpose to look good only?
Secondly, do we really need a global central bank? Look at the euro zone crisis one will probably not feel any need for it.
Showing posts with label financial regulation. Show all posts
Showing posts with label financial regulation. Show all posts
2011-01-21
Asia financial reforms
Comments on Andrew Sheng "Asia must reform financial institutions in its own image" 13/01/2011, http://www.eastasiaforum.org/2011/01/13/asia-must-reform-financial-institutions-in-its-own-image/#comments
A few comments on the post.
Firstly, the following statement may not be correct: ‘In terms of the global architecture, the dollar and the euro will remain as global reserve currencies within the next two decades at the very minimum.’
Twenty years are a very long time. The underlying reason Shen used for that statement ignores the international dynamics and the rapid shifting in world economic weight and trade. The current lack of consensus on an Asian currency or currencies is likely to be very temporary.
Secondly, the idea of using a Tobin tax for fx transactions should at least be complemented with a tax refund mechanism for non-speculative transactions after they can be proved to be, to reduce the undue impact on market efficiency of such a tax
Thirdly, the ‘too big to fail’ dilemma should not be that hard to address. Shareholders and bank and financial executives must be held to account, no matter how big a bank or financial firm is. They must be made to pay for their mismanagement and / or neglect of duties. Moral hazard issue should never be allowed. The worst outcome for a country can only be nationalisation temporarily to prevent any financial fall out. If that does occur, it would wipe out all shareholders’ value, and allow both the authorities and shareholders to prosecute company executives for their neglect of duties and or mismanagement.
A few comments on the post.
Firstly, the following statement may not be correct: ‘In terms of the global architecture, the dollar and the euro will remain as global reserve currencies within the next two decades at the very minimum.’
Twenty years are a very long time. The underlying reason Shen used for that statement ignores the international dynamics and the rapid shifting in world economic weight and trade. The current lack of consensus on an Asian currency or currencies is likely to be very temporary.
Secondly, the idea of using a Tobin tax for fx transactions should at least be complemented with a tax refund mechanism for non-speculative transactions after they can be proved to be, to reduce the undue impact on market efficiency of such a tax
Thirdly, the ‘too big to fail’ dilemma should not be that hard to address. Shareholders and bank and financial executives must be held to account, no matter how big a bank or financial firm is. They must be made to pay for their mismanagement and / or neglect of duties. Moral hazard issue should never be allowed. The worst outcome for a country can only be nationalisation temporarily to prevent any financial fall out. If that does occur, it would wipe out all shareholders’ value, and allow both the authorities and shareholders to prosecute company executives for their neglect of duties and or mismanagement.
2010-05-04
Establishing an effective and complete international financial system
Comments on Masahiro Kawai and Michael Pomerleano of ADBI “International financial stability architecture for the 21st century”, 4/05/2010, http://www.eastasiaforum.org/2010/05/04/international-financial-stability-architecture-for-the-21st-century/
While there are both merits and difficulties to have an international body to play a supervision role in international financial stability, an extremely important issue has often been neglected, that is the governance of individual countries and a mechanism that will deter poor governance by individual authorities.
This has clearly some resemblance to the moral hazard issue where individual authorities do not have enough incentive to work hard and prevent financial instability.
Instead of only having an international body of supervision like general policing, there should be a “law” that can be used to prosecute authorities for their negligence, and a “court” where prosecutions can be conducted.
Imagine that there is a whole international system of financial/economic governance that includes policing, prosecution and sentencing of financial culprits represented by individual authorities, would not it be much easier to minimise the occurrence or at least the severity and frequency of financial crises of “international” nature?
There is WTO for trade matters, though not very effective. There is international criminal court prosecute international or war criminals.
The question is: why is there no such a system for financial and economic matters beyond trade, given that financial crises can cause much greater damages to other nations?
It seems now it is high time for the creation of such a system. Otherwise the international community will not have the most effective tools to deter financial crises from occurring.
While there are both merits and difficulties to have an international body to play a supervision role in international financial stability, an extremely important issue has often been neglected, that is the governance of individual countries and a mechanism that will deter poor governance by individual authorities.
This has clearly some resemblance to the moral hazard issue where individual authorities do not have enough incentive to work hard and prevent financial instability.
Instead of only having an international body of supervision like general policing, there should be a “law” that can be used to prosecute authorities for their negligence, and a “court” where prosecutions can be conducted.
Imagine that there is a whole international system of financial/economic governance that includes policing, prosecution and sentencing of financial culprits represented by individual authorities, would not it be much easier to minimise the occurrence or at least the severity and frequency of financial crises of “international” nature?
There is WTO for trade matters, though not very effective. There is international criminal court prosecute international or war criminals.
The question is: why is there no such a system for financial and economic matters beyond trade, given that financial crises can cause much greater damages to other nations?
It seems now it is high time for the creation of such a system. Otherwise the international community will not have the most effective tools to deter financial crises from occurring.
2010-03-28
Different rules for finance and banking
Comments on Stephen Grenville “A post-GFC international framework for finance and banking”, 22/03/2010, http://www.eastasiaforum.org/2010/03/22/a-post-gfc-international-framework-for-finance-and-banking/
There may be a need for different set of rules to be applied to different types of banks and financial institutions.
For predominantly domestic banks, that the rules may be more relaxed and each country's authority can deal with them as they see fit, because there is not much international ramifications if a domestic bank failed.
For international banks, that is, they have extensive international operations, the rules should be international by nature, or subject to each and every countries rules where they operate.
So, overreacting and introducing unnecessarily harsh rules can be very harmful. They will certainly raise capital costs in many countries unnecessarily.
The point made by Grenville that most Asian banks including Australian banks worked well during the global financial suggests that not many changes will be necessarily needed for those countries.
There may be a need for different set of rules to be applied to different types of banks and financial institutions.
For predominantly domestic banks, that the rules may be more relaxed and each country's authority can deal with them as they see fit, because there is not much international ramifications if a domestic bank failed.
For international banks, that is, they have extensive international operations, the rules should be international by nature, or subject to each and every countries rules where they operate.
So, overreacting and introducing unnecessarily harsh rules can be very harmful. They will certainly raise capital costs in many countries unnecessarily.
The point made by Grenville that most Asian banks including Australian banks worked well during the global financial suggests that not many changes will be necessarily needed for those countries.
2010-03-12
Finance 001
Comments on Timo Henckel “Australia lifts its bank guarantees”, 11/03/2010, http://www.eastasiaforum.org/2010/03/11/australia-lifts-its-bank-guarantees/
I am not sure I haven't missed an important point in banking guarantees.
Why should a guarantee necessarily be related to the moral hazard issue?
Can't it be done in way that does its promised guarantee, but also severely punish the culprits, at least to the degree that deters moral hazard behaviours by the banks or financial institutions?
Why don't economists or policy makers see the possibility of a better approach than the conventional thinking of and approach to guarantees and improve such a policy?
For example, if a government guarantee for some sort is actually being used, then the government can make the agents involved pay a reasonable price up to the point of completely wiping out all its shareholders and creditors value, as well as potential prosecution of the relevant persons with responsibilities.
In that way, let’s say the normal types of bank depositors are protected and hence can avoid unnecessary bank runs, but the bank in question will have to pay a big price.
Is that too difficult to devise or design, or what?
I am not specialised in finance, but should that be called Finance 001?
I am not sure I haven't missed an important point in banking guarantees.
Why should a guarantee necessarily be related to the moral hazard issue?
Can't it be done in way that does its promised guarantee, but also severely punish the culprits, at least to the degree that deters moral hazard behaviours by the banks or financial institutions?
Why don't economists or policy makers see the possibility of a better approach than the conventional thinking of and approach to guarantees and improve such a policy?
For example, if a government guarantee for some sort is actually being used, then the government can make the agents involved pay a reasonable price up to the point of completely wiping out all its shareholders and creditors value, as well as potential prosecution of the relevant persons with responsibilities.
In that way, let’s say the normal types of bank depositors are protected and hence can avoid unnecessary bank runs, but the bank in question will have to pay a big price.
Is that too difficult to devise or design, or what?
I am not specialised in finance, but should that be called Finance 001?
2009-12-10
If not broken, then don't try to fix it!
Comments on David Llewellyn-Smith “THE DISTILLERY: Full of holes”, 10/12/2009, http://www.businessspectator.com.au/bs.nsf/Article/THE-DISTILLERY-pd20091210-YKTQ3?OpenDocument&src=sph
The column's view on banking regulation is plainly silly. Did the financial crisis have a serious adverse impact on Australian banks as that had on the banks in either the US or UK for example?
If not, then why aren't Australian bank little different from the other banks?
Why do people want to impose unnecessary costs on banking and finance and reduce efficiency without real benefits?
Isn’t it a simple case of “if not broken why fix it?”
Are you a follower of the PM Rudd, just wanting a big government and increase regulations for the sake of regulations?
You got to be kidding and fooling yourselves!
The column's view on banking regulation is plainly silly. Did the financial crisis have a serious adverse impact on Australian banks as that had on the banks in either the US or UK for example?
If not, then why aren't Australian bank little different from the other banks?
Why do people want to impose unnecessary costs on banking and finance and reduce efficiency without real benefits?
Isn’t it a simple case of “if not broken why fix it?”
Are you a follower of the PM Rudd, just wanting a big government and increase regulations for the sake of regulations?
You got to be kidding and fooling yourselves!
2009-09-25
G20 - helpful or unhelpful?
Comments on Uri Dadush “Four challenges in Pittsburgh for the G20”, 24/09/2009 http://www.eastasiaforum.org/2009/09/24/four-challenges-in-pittsburgh-for-the-g20/
Among the three important examples which go beyond the current crisis, the third one is likely to be the most difficult one. It is not a significant issue for quite a number of countries in the group that means there may not be enough incentive to have that on the agenda.
In a post crisis environment, it may be easier to achieve the second and the first ones.
There is enough momentum for the first one out of the UN summit meeting this week.
In terms of withdrawal of stimulus, the group is now more unhelpful than being helpful, because it should send a clear signal that while in many countries it is still too early to withdraw measures, the condition in some countries are such that their government should decide when and how to withdraw from stimulus, otherwise there will be a serious chance that they may do it too late that will accelerate inflation.
The group already has an adverse effect on some countries, say Australia. The Australian government is using the group to play domestic politics and delay withdrawal.
In terms of how to prevent future similar crisis, it is important not to over regulate the banking and finance industry to achieve financing efficiency and lower costs of capital. There may be some minimum international regulations / guidelines, and leave the rest to each country to make sure their banks are safe and efficient.
The worst thing is to have a group of unaccountable international bureaucrats to impose a set of excessive regulations in the wake of the crisis in the name of preventing another crisis that will significantly increase the costs of finance everywhere.
Banks in Australia have done through the crisis with little problems. In such a case, is there a need to tighten the regulations? The answer is definitely no. But the danger is that the Rudd government will do it nevertheless to fight the so called “neo-liberalism”, or “market fundamentalism”.
That will be a tragedy for Australia with higher interest rates than necessary.
Among the three important examples which go beyond the current crisis, the third one is likely to be the most difficult one. It is not a significant issue for quite a number of countries in the group that means there may not be enough incentive to have that on the agenda.
In a post crisis environment, it may be easier to achieve the second and the first ones.
There is enough momentum for the first one out of the UN summit meeting this week.
In terms of withdrawal of stimulus, the group is now more unhelpful than being helpful, because it should send a clear signal that while in many countries it is still too early to withdraw measures, the condition in some countries are such that their government should decide when and how to withdraw from stimulus, otherwise there will be a serious chance that they may do it too late that will accelerate inflation.
The group already has an adverse effect on some countries, say Australia. The Australian government is using the group to play domestic politics and delay withdrawal.
In terms of how to prevent future similar crisis, it is important not to over regulate the banking and finance industry to achieve financing efficiency and lower costs of capital. There may be some minimum international regulations / guidelines, and leave the rest to each country to make sure their banks are safe and efficient.
The worst thing is to have a group of unaccountable international bureaucrats to impose a set of excessive regulations in the wake of the crisis in the name of preventing another crisis that will significantly increase the costs of finance everywhere.
Banks in Australia have done through the crisis with little problems. In such a case, is there a need to tighten the regulations? The answer is definitely no. But the danger is that the Rudd government will do it nevertheless to fight the so called “neo-liberalism”, or “market fundamentalism”.
That will be a tragedy for Australia with higher interest rates than necessary.
2009-09-24
A proper role for RMBS with transparency
Comments on Alan Wood “We need securitisation”, 24/09/2009, http://www.theaustralian.news.com.au/story/0,25197,26116016-7583,00.html
There will be a role for residential mortgage backed securities (RMBS) when the storm of the round financial crisis has subsided and the financial market return to some normality.
The question for the relevant industries involved is what disclosures they have to make in terms of the underlying quality or risks of any such securities. Only in that way potential investors can be well informed and make the most proper decisions.
For the government, the question is if it has to buy some or all of such securities at bad times with the taxpayers bearing the risks, what should it do in good times to protect taxpayers who bailed out those security holders?
There should be some symmetry between risks to taxpayers and benefits to them. How the taxpayers can recoup enough benefits from good times to prepare for bad times? Or would the government commit itself not to bail out again in the future?
Another point is from regulation point of view, what the government should do to reduce the risks of any RMBS to potential investors, or at least to make the risks very transparent?
There will be a role for residential mortgage backed securities (RMBS) when the storm of the round financial crisis has subsided and the financial market return to some normality.
The question for the relevant industries involved is what disclosures they have to make in terms of the underlying quality or risks of any such securities. Only in that way potential investors can be well informed and make the most proper decisions.
For the government, the question is if it has to buy some or all of such securities at bad times with the taxpayers bearing the risks, what should it do in good times to protect taxpayers who bailed out those security holders?
There should be some symmetry between risks to taxpayers and benefits to them. How the taxpayers can recoup enough benefits from good times to prepare for bad times? Or would the government commit itself not to bail out again in the future?
Another point is from regulation point of view, what the government should do to reduce the risks of any RMBS to potential investors, or at least to make the risks very transparent?
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