UNIVERSITY  COLLEGE  CORK   

AC4119 – INTERIM ASSIGNMENT  

“The credit crunch of 2008 and the resultant turbulence in securities markets have the  potential to fundamentally alter both the structure and governance of financial markets in a  greater manner than any events since those of the 1930s great depression”.                            In the context of the above statement outline to what extent you believe the recent turmoil  in markets is likely to shape the nature of financial markets in the future.  |  
 

Daniel Spillane  BSc Accounting IV  107375719  Lecturer – David Humphries    14/01/2010   

 

 

In general it has fallen on the tax payer to provide extraordinary support measures to those institutions which are considered as too big to fail. 9. However they failed in managing systemic risk in the shadow banking system.9 trillion estimated in October 2009. 2. 2007) and an average of 2000 banks failing per annum (Lo. indications that the crisis is     AC4119 – Interim Assignment   1  . endowments and foundations. Reduce sovereign vulnerabilities. more resilient and dynamic global system. The IMF Global Financial Stability Report in April 2010 outlined three key issues which the financial system needs to address. The effects of the great depression lead to the Glass-Steagal Act of 1933 and the formation of the Federal Deposit Insurance Corporation (FDIC). 2009) By shadow banking. including through communicating credible medium fiscal consolidation plans.14/01/2011     Daniel Spillane ‐ 107375719  Introduction The 1930s great depression had devastating effects on virtually every country. they provided a sufficient oversight of commercial banks. Similarly UK and Euro zone banks have written off foreign loans to the extent of $203 billion and $442 billion respectably. in many cases is faced with the burden.                                                               1  Although this is a reduction from the $2. it is the public sector that. (Lo. Ensure the ongoing deleveraging process unfolds smoothly. 2009). in the USA unemployment remains high. According to the IMF in their Global Financial Stability Report for April 2009. 1. one means hedge funds. As fiscal balances demise and public debt accumulates it is no surprise that we have seen a rise in sovereign vulnerabilities.9% for the year 2010 up to August (FT. 2009). Due to the systemic importance of such institutions. the total value of banking write downs in those countries worst impacted by the crisis is estimated to be in the region of $2. 3. Global output has dropped in the region of 6-7%. The US saw unemployment as high as 25% (Frank & Bernanke. 2009). On 29/09/2008 the Irish government guaranteed approximately €458 billion ($659 billion) (NTMA). 25/09/2010). Given the extent of write-down’s in private debt. pension funds. The financial crisis of 2007-2008 is likely to become the most far reaching dislocation of global markets in recorded history (Lo. Decisively move forward to complete the regulatory agenda so as to move to a safer. investment banks. 2009). Naturally given the impact the crisis has had on society. These policies served their purpose. a fortnight later on 11/10/2008 Australia announced a bank guarantee of $700 billion (Swan. there is intense pressure for a reform of the financial system and the direction this reform should take is some way clear. the crisis is likely to transcend every major market centre in every major country (Lo.3 trillion.6% in September 2010 with core consumer prices rising a mere 0.1 In the United States $204 billion has been written off residential loans held by banks and $166 billion written off residential mortgage securities.

the time period available for effective reform is a brief one. I will look at some of these as they give an insight as to how financial markets may be shaped in the future. One thing is certain. We are still uncertain as to how complex issues such as the following are to be addressed 1. Systemic risk Regulation of financial institutions The future of the Euro currency Supervision hedge funds Supervision of Over the Counter (OTC) instruments The role of Credit Rating Agencies. The impact politics will have on the application of the three issues outlined by the IMF is likely to be the primary influence on the magnitude of financial reform and the shape of future markets. Some areas restructuring may involve painful decisions in the short run. 3. 2. or rather the ability of self interested lobby groups and the electorate to influence the decision making process.14/01/2011     Daniel Spillane ‐ 107375719  Approaching the three areas above is widely considered to be the best corrective action to crisis. However one cannot underestimate the impact that politicians have. What is still very ambiguous is the magnitude of this reform and how exactly the three areas above are to be addressed. 6.     AC4119 – Interim Assignment   2  . 4. Many economists have put forward ideas and models attempting to make the financial system safer while maintaining its efficiency. 5.

Unlike the Fed which is backed by the Department of the Treasury or the Bank of England which has the support of Her Majesty’s Treasury. this was in place as an attempt to curb the risk of rising inflation during the Celtic Tiger (Valdez. Euro zone countries have a history of bending the rules in an attempt to achieve the outcomes most politically favourable. The ECB needs a credible fiscal back-up if it is to serve its role as a lender of last resort (Valdez. In 1997. one is not exactly sure who supports the ECB. Germany has a history of currency devaluation and hyperinflation. Ireland and Spain. Essentially the credit crisis has moved into its next phase as a result of the credit bubble. 2010. The current Lisbon treaty is incapable of dealing with the legal and political complexities of an institutional crisis mechanism. According to the IMF Global Stability Report what is needed is medium term fiscal consolidation plans which command public support. the EU Stability and Growth Pact ignores different economic conditions. It is not an understatement to state that the Euro zone is facing a crisis. Was it to be an independent fiscal authority with independent tax and borrowing powers. In 1918 a loaf of bread in Germany cost 18 pfennigs. before the introduction of an EMU interest rate. 2009). I would be unsure of the ECB’s desire to take on excessive credit risk akin to what the FED has done in recent months. Perhaps it is this lack of political strength and unity that has contributed to the current crisis. Nowhere is fiscal reform required more than in the peripheral Euro zone economies that have. Ireland had a rate of 6%. 2000).5). Even had it this fiscal backing however. 2000). or perhaps the treasuries of the 27 member states? Had the ECB the power to make fiscal decisions then perhaps investors would regain confidence in the Euro zones ability to deal with sovereign crisis’s. had the primary task of protecting the currency (Valdez. it is not surprising that concerns have been raised regarding their long term funding ability. Such was the political will to adopt a common currency as fast as possible. 2011). The credit crisis at a sovereign level is by no means over and will only have a negative impact on the recovery of public debt. Not much has changed. who prior to the creation of the Euro. According to Valdez. FIG.14/01/2011     Daniel Spillane ‐ 107375719  A reduction in Sovereign Vulnerabilities As mentioned in the introduction. The crisis has exposed the limitations of the monetary union and the European Central Bank (ECB). it may achieve this.      AC4119 – Interim Assignment   3  . This in turn has lead to the short term funding crisis suffered by Ireland in November 2010. by 1923 it was 200. For instance.000 DM2 (Valdez. Had it been introduced earlier then perhaps it may have prevented woes in Greece.5% like a “hole in the head”. The global risk profile has been altered with G7 member’s sovereign debt levels are nearing 60 year highs (IMF. The ECB is modelled on Germanys Bundesbank. One of the major criticisms of the EMU in its formation was its tendency to ignore different financial conditions. both economically and politically. many member countries used ‘creative accounting’ in an attempt to get to the 3% budget deficit GDP ratios required by the union (Valdez. One suspects the ECB may be less willing to adopt the riskier method of the FED. The reasons for this are historic. facing a short term funding crisis.                                                               2  It was the Reichsmark as opposed to the Deutschmark which was currency of Germany in 1923. 2000). Ireland needed the new EMU rate of 2. 2000). However the  reference states DM and at any rate it is a minor point. or are. Portugal still have a lot more debt to sell in 2011 and face a potential funding crunch in April (Wissenbach & Khalip. despite what has been claimed as a ‘successful’ bond issue in January 2010. As sovereignties take on the risks of financial institutions. 1. Similarly. the cost of bank support mechanisms has lead to a decline in fiscal balances and an increase in public debt. Is it a combination for the 17 Euro zone treasuries.

2011). 2010). Similarly in Portugal. According to some EU sources there is the possibility of extending the fund. However if such an institution requires a power shift to Brussels from the member states. The fund currently pledges €440 billion. so as to quell market fears of the EU’s incapability’s to rescue its members. The EU must address its current sovereign vulnerabilities. 2010). however as I have explained above. In Ireland the bailout of November 2010 has been likened to a loss of sovereignty. There are calls to a whole new institution. “We fought hard for our independence and we should not hand it away. as the rest must remain as a capital buffer in order to maintain a topnotch credit rating (Wissenbach & Khalip. then it will require a referendum in Denmark and Ireland. akin to the EFSF but significantly larger. the alternative to a larger EFSF may be more IMF lead bail outs of sovereign states. Many feel the current EFSF is not large enough. some form of institution is required to replace the European Financial Stability Fund (EFSF) which is due to run out in 2013 (Munchau.” said Eamon Gilmore.     AC4119 – Interim Assignment   4  . At the moment ‘there is no “appetite” for another treaty change’. As I mentioned above. however such an extension may require parliamentary approval in Germany. In many respects it is a political anomaly.14/01/2011     Daniel Spillane ‐ 107375719  In the short term. are been used by both the main parties to discredit the other (Wissenbach & Khalip. even an interim solution. Why would there be after the debacle of Lisbon! Similarly if this institution is to provide the ‘bail out’ mechanism Europe requires it may well be deemed unconstitutional by German courts (Munchau. the threat of an IMF bailout and the memories of the IMFs interferences with the country in 1974. 2010). While drastic reform is certainly required it runs the risk of being too late. Bail outs are almost as disastrous politically as they can be economically. but of this only €250 billion is realistically available to lend. 2011). where a presidential election is to be held on 23 January. cumbersome and inefficient. leader of the opposition Labour party (Gardner. such as the creation of a new or even a restructured EFSF faces difficulty at the political level. Europe’s problem is a lack of political unity and a failure to address local economic needs.

We are yet to see the effectiveness of Basle III. More losses still remain to be written down and as a result lower profitability can be expected. By the end of 2009 $1.3 trillion. According to the IMF Global Financial Stability Report Apr 2010 the health of the global banking system is recovering relatively well. financial institutions are still very fragile and the process must not impose further strain on the global economy. while the large investment banks were in the region of 20-33/1 (Shabab.8 trillion to $2. 2009). with a common equity requirement of 2% to 4. There is going to be some opposition to the proposals set out in Basle III. Some countries still remain capital deficient mainly due to commercial real estate. The common equity requirement for banks is to be raised to 7%. although at least part of the cost is going to be passed onto lenders thus leading to a decline in private lending and economic activity. banks are somewhat unwilling to embrace Basle III. In April 2010 the IMF reassessed their estimates for the total amounts of these write downs from $2. The new regulation is significant and it should see a reduction in the leveraging position of financial institutions and thus a better functioning and safer global banking system. but in terms of deleveraging the financial system it seems to address the key issues. Financial institutions in these countries still face challenges in short term funding. banks had leverage ratios of 1217/1. A longer term Net Stable Funding Ratio is designed to address liquidity mismatches. 2010). Which such volumes due.5% and a capital conservation buffer of 2. The deleveraging process should be smooth.5% Introduction of minimum global liquidity standards bolster bank liquidity. this will pose another challenge to the financial system. Alan Greenspan has done very well for himself since retirement. According to the OECD. if it leads to a more secure global banking system. Obviously those in the Bank for International Settlements feel that the small decline in economic activity is worth it. In order to achieve a well functioning banking system. There are other aspects of Basle III and we shall revisit again in this document. however the above are aimed at deleveraging financial institutions and ensuring that they are able to withstand any future market declines. The liquidity coverage ratio is to ensure banks have sufficient high quality liquid assets so as to withstand the stressed funding scenario specified by supervisors. The leverage ratio for Lehmann Brothers for the quarter ending 29/02/2008 was 34. According to the IMF. This is what policy makers need. from 2010 to 2013 there is an expected $5 trillion of bank debt due as a result of a fall off in government support measures. he saw subprime loans rise 451%3 from 2001 to 2005 (Lo. Basle III demands banks to carry more capital and less risky assets.                                                               3  From $624000 to $3440000      AC4119 – Interim Assignment   5  . earning huge fees for speaking. the ongoing deleveraging process of the assets of financial institutions must continue. However as governor of the Fed. The excess credit risk taken on by certain entities is one of the root causes of the current crisis. • • • Raising quality and quantity of capital so as to ensure that banks are better able to absorb losses on a going concern and gone concern basis.14/01/2011     Daniel Spillane ‐ 107375719  Ensure the ongoing deleveraging process unfolds smoothly.9/1 (Lo. Higher and better quality capital requirements will improve the leverage position of banks.5 trillion of bank write downs had been realised. 2010).

3.14/01/2011     Daniel Spillane ‐ 107375719  Decisively moving forward to complete the regulatory agenda so as to move to a safer. there are a flood of reform proposals as to how the systemic risk of financial institutions. 2. The Basle committee is also considering introducing systemic risk based surcharge determined by an institutions contribution to systemic risk. The IMFs defines these firms as those ‘believed to be so large. markets and other instruments should be managed by national authorities. These areas have already been discussed in the previous part of this document with reference to the deleveraging of the financial system. Lo (2009) describes systemic risk as a public good. not only does it incur impairment in all parts of the financial system. It is already clear that reform will 1. New regulatory reform needs to be introduced in a manner that accounts for the current economic and financial conditions. The IMF defines systemic risk as the “large losses to other financial institutions induced by a failure of a particular institution due to its interconnectedness”. Improvement in liquidity management and buffer. 3. With the political will to address the problem. 6. Institutions which are considered too important to fail not only bear a systemic risk but also a moral hazard problem. 2. Financial education 1. we shall discuss the likely impact reform will take in the following areas. The following measures are all being discussed: • • • • Qualitative and quantitative indicators are required to assess the systemic importance of financial institutions at a global level. Make the financial system safer. The final point above highlights the biggest difficulty of imposing systemic risk. Thus there is an onus for government to regulate it using taxes. disclosures. 5. 1. 4. Tougher supervisory standards and restrictions on “Too Important to Fail Institutions”. However the current market turmoil was a combination of issues. then borrowing costs will remain low and this in turn encourages excessive leveraged risk taking. Management of systemic risk Compensation Packages Regulation of Over the Counter (OTC) instruments Supervision hedge funds The role of Credit Rating Agencies. more resilient and dynamic global financial system. How exactly are authorities to determine if an institution is so important that their collapse could have a detrimental effect on the economy? The answer still remains uncertain but the time scope to impose     AC4119 – Interim Assignment   6  . Systemic risk needs to be monitored. It is considered that there should be a mandate so as to oversee systemic risk. If failure looms and creditors consider themselves shielded from any loss. government provisions and securities regulation. Improve the quality of capital. Andrew W. However there is political uncertainty as to how it is going to be applied. it can also have serious adverse effects on economic activity. akin to defence or law enforcement. interconnected or critical to the workings of the wider financial system or economy that their disorderly failure would impose significant costs on third parties’. Management of systemic risk.

although one would question whether it will prohibit institutions becoming too big to fail. Reform is likely to occur at some level. where some firms are considered systemically important and others are not. The sole aim of every worker is to maximise     AC4119 – Interim Assignment   7  . Not only are these institutions important domestically. it is no surprise that the remuneration of those involved has come under scrutiny at a political level. Table A outlines the respective proposals Table A. Guerrera & Masters. They also do not seem to address systemic risk on a global level. However in November 2010. their demise can have devastating effects across the globe. Such an approach would be cumbersome and could lead to a situation where it may be advantageous for a company to be considered systemically important. US Treasury Secretary did say that any institution that will affect the US economy “may have to run with a much more conservative and prudent leverage and funding mix” (Braithwaite. Failure to do so may result in regulatory arbitrage and leave the issue unresolved. The regulatory approach needs to be harmonised on a global level. although Tim Geithner. (IMF Global Stability Report April 2010) US Senate and US House of  Representatives  Long Term Structure of  Funding  Extent of Leverage  Relationship with other firms  Concentration  UKs FSA  Size of institution  Interconnectedness  Market conception of common  exposures  The US approach is firm specific and it does not propose how to combine these factors so as to provide a degree of systemic risk. He claims that the Economic Value Added (EVA) approach. The US House of Representatives and US Senate have put forward criteria to indentify the degree of an institutions systemic risk. It is clear that there is a need to account for systemic risk in the future. G20 leaders called on regulators to draw up a list of 20 institutions considered too big to fail. 2010). embraced by the captains of industry and finance and even the public sector. Mah-Hui Lim (2009) argues that change is required in the style of motivating techniques operating in financial firms. EVA involves rewarding an individual’s performance based on their contribution to profit and nothing else. 2. but as we saw with the collapse of Lehmann Brothers. thus the regulation maybe counterproductive. similarly the UKs Financial Services Authority (FSA) have put forward their own set of proposals. Compensation Packages With banking systems virtually socialised in some countries and the public sector and tax payers faced with the bill for private sector losses.14/01/2011     Daniel Spillane ‐ 107375719  effective reform to treat systemic risk remains small. The FSA argue against stringent cut off points. deserves a large proportion of the blame. Criteria proposed to identify the degree of an institutions systemic risk. Some of these companies are larger now than they were before the credit crisis. The approach is best tackled globally and the approaches of countries such as the US. the UK and Euro zone members must be harmonised.

Regulation of Over The Counter (OTC) instruments OTCs such as Credit Default Swaps (CDS). Perhaps hubris. As for Fuld. one congressman claimed he was “the villain today”. Along with this the voluntary movement will be low. should have had some concern for the future well being of the bank. 3. Mah-Hui Lim’s argument is a convincing one. staff. when used as a financial insurance product are inherently flawed and need to be more tightly regulated. Initial worries regarding the opposing political views in the EU Parliament (Grant. cited in Shabab. Richard Fuld former CEO of Lehmann Brothers was painted by many as the scapegoat for the crisis. One solution is to “beef up” the market infrastructure to be able to oversee the use of such opaque instruments.     AC4119 – Interim Assignment   8  . While the US has dealt with this issue to some degree. A united front on derivatives is required. Thus employees were encouraged to take risks in areas such as securities and derivatives. often conserved for five years. The most widely acknowledged solution is to move OTCs to a Central Counter Party (CCP). 2010) were quelled when the EU financial supervision reform package was passed on 22 September 2010 (ESMA) and the European Securities and Markets Authority (ESMA) formed on the 1 January 2011 (ESMA). which yield a high EVA as opposed to perhaps the more traditional approach of lending. as a CCP for OTCs could put downward pressure on an important revenue stream for financial institutions. Title VII of the act encourages OTCs derivatives to be traded in central clearing houses. OTCs were exempt from regulation in the Commodities Futures Modernisation Act 2000 in the US. signed into law on 21 July 2010 (Thomas. Thus regulatory encouragement of some shape or form is required. though I am not sure whether much reform needs to take place in this area. with other social costs and even the long run welfare of the firm ignored. thus the transition. The long term welfare of the firm was ignored and employees could move on before the result of their actions may come back to haunt them. 2010). 2009). however the problems of valuing the exposure of counter parties seems to have been addressed. were it to take place would be transitional. questions remain as to whether Europe will follow. Thus despite what Man-Hui Lim argues. so as to prevent regulatory arbitrage and market participants “shopping around”. Brussels issued its proposals for dealing with OTC derivatives in September 2010 and they are closer to the US Dodd-Frank Act than many expected.000 shares in the bank (Shabab. In the US the issue of a CCP for OTCs is addressed in the Dodd-Frank Wall Street Reform and Consumer Protection Act. Buyers of CDS protection do not need an “insurable interest” to acquire protection (promoting adverse incentives) and nonbank sellers are not regulated or required to hold loss reserves (false sense of protection) (IMF. The regulation of OTCs is extensive and the approach authorities have taken to mend the gaping holes in regulation is impressive. That said one would imagine temporary reform of such payment schemes will be encouraged on a political level. Lehmann used pay bonuses in stocks. (Fishman 2009. the belief that the worst will never happen as opposed to the compensation schemes is more to blame for the crisis. rationally speaking. it is certainly one of the softer targets for politicians. 2009). he lost near $1 billion with the collapse of Lehmann as he held 10. While it was not one of the major causes of the crisis. Such a CCP would need additional collateral so as to support the trading of OTCs. Whether or not regulators can get to grips with such opaque instruments remain to be seen. 2010).14/01/2011     Daniel Spillane ‐ 107375719  shareholders value.

• • Hedge funds still outperformed the regulated natural fund sector in 2008. 2010). and thus in the national financial system too”. The Times reported “The term hedge fund is a lie. policy makers and market participants were just as liable. However as with OTCs. Risk is not necessarily a bad thing. The reform proposals outlined in the Dodd-Frank Act. In light of the current crisis. which in general require more disclosure to regulators. despite a $1 trillion loss. Controlling counter party risk and thus limiting contagion. • • • Measuring leverage due to the opaqueness of derivative products. Hedge Funds have provided the essential funds to many growth performing projects around the globe. This crisis is not the first time hedge funds have come under scrutiny. state regulators at the G20 summit in Washington acknowledged that regulation of Credit Rating Agencies could no longer be avoided. though they are careful to point out that. Unlike the banking system they were never in risk of collapsing with an average leverage ratio of 3. In light of the LTCM scandal in the 1990s. Supervision of Hedge Funds Similar to OTC derivatives. because the business of these funds is to take risks. must be mimicked in Europe. so as to prevent competition. Shabab (2009) claims Hedge Funds only had a small part to play. not to cover them”. Whether or not hedge funds contributed to the current crisis on a scale that deserves vast reform is open for debate. such as the Cayman Islands (Lo. 2009). These were the words of the President of the Federal Financial Supervisory Authority as early as 2003 (sited in Utzig. they will either cease to exist or move to more regulatory friendly locations. The role of Credit Rating Agencies “Credit Rating Agencies are the biggest uncontrolled power in the global financial system. If they are forced by authorities to disclose such information. 2009) Another issue with regulating hedge funds is that their business model is designed around not having to disclose their investment proceeds and processes. A number of issues relating to hedge funds have concerned authorities for some time. One would be confident they will be. given the progress made by Brussels to adopt similar measures in treating with OTCs. under regulated areas of the financial system are catalysts for future market turmoil. 2010).     AC4119 – Interim Assignment   9  . (Shabab.9/1. Limiting the herding effect and preventing panic under stressful market conditions. A number of models have been proposed however the following issues still remain be treated.14/01/2011     Daniel Spillane ‐ 107375719  4. In November 2008. the Dodd-Frank Act introduces significant regulation of hedge funds (Thomas. Credit Rating agencies do admit they deserve some portion of the blame for the recent turmoil in global financial markets. 5.

The first two have a decent chance of being achieved. Only 14% understood that stocks were on average more likely to generate a greater return over eighteen years than a US government stock (Ferguson. 6. Such fears can be a catalyst for action which may be politically driven as opposed to economically rational. this should address the problem of inflated ratings. although there views may be tainted. such a lack of economic and financial knowledge can have adverse effects on times of economic crises. with many quarters claiming that such institutions were the cause of the crisis. Seeing as investors genuinely want an honest rating. attempting to break the oligopoly positions of Standard and Poors. although it creates a “free rider” problem (Utzig. a lot of people have educated themselves somewhat in areas of financial. Lo (2009) suggests that senior management should require certificates in financial engineering if they are to hold a governing role over a financial institution. although perhaps they could further reduce responsibility by disclosing the models and techniques they use to come up with their ratings. The oligopoly held by the large Credit Rating Agencies is unlikely to be broken up while the “issuer pays” model remains ie. However. A survey conducted by researchers at the University of Buffalo’s School of Management on the financial and economic knowledge of a typical group of high school seniors produced startling results. He also proposes basic economic and financial reasoning and risk management be introduced to children at the age of fourteen of fifteen. The entity who is selling the security pays for its rating.     AC4119 – Interim Assignment   10  . “deleveraging” or “systemic risk” can generate fear among the public. Education Politicians. 2008). regulators and the leaders of business and finance are known for lamenting about the public’s ignorance to financial affairs. The alternative is an “investor pays” approach. On a similar note. naturally because people do not know what’s going on. and with good reason. 2010). An increase in competition.14/01/2011     Daniel Spillane ‐ 107375719  • • • • Better Corporate Governance. Moody and Fitch. one would have to question if some of the leaders of finance have the appropriate educational background in their field. The authour continues to say that the proportion of respondents who could describe the difference between a CDO and CDS would be quite low. 2010). Words such as “hedge funds”. Given the media coverage of the current crisis. Extensive reform of these agencies is likely to occurs. Similarly. but realise it may have an adverse impact on them. that “the use of ratings should never eliminate the need to those making investment decisions to apply their judgement” (sited in Utzig. Such ignorance is indeed worrying in a society where individuals are encouraged to maintain there own finances. especially with new EU Regulation on Credit Rating Agencies. Credit Rating Agencies to take some responsibility for their actions. The European Commission and Parliament is driving the reform process of credit rating agencies in what they see as a failing of the “Anglo-Saxon” financial system. Whether such educational reform will take place remains to be seen. though it is a novel idea. Credit Rating Agencies would adopt the argument of the Larosiere group (2009). Elimination of conflicts of interest between ratings services and financial advice services. To this extent they have a point. as we can see above some tricky obstacles lie in there way.

While on the one hand they attempt to impose stricter regulation. more perilous to conduct. Institutions such as the IMF. Acts such as the Dodd Frank Act are likely to affect almost every area of the financial services system in the US. Barack Obama. Similarly in Europe. in the words of famous word of Margaret Thatcher it’s TINA – There Is No Alternative! In light of the quotation which accompanied this assignment. As all the worlds major powers aim to export their way to recovery tensions are growing. Governments in countries worst impacted by the global crisis have witnessed a demise in public support. if it does not then the future of the currency is in jeopardy. Globalisation. However a lot of these are yet to be imposed by regulators. it is likely to “alter both the structure and governance of financial markets in a greater manner than any events since those of the 1930s”. on a recent trip to India warned his hosts that the debate of globalisation had reopened in the west. All the subjects I have discussed in this document outline what should happen and plausible reasons why political interferences may prevent this. on the other they face a political point’s match at every stumbling point. the new coalition government has vowed to reduce immigration from ten of thousands a year to hundreds. In Britain.     AC4119 – Interim Assignment   11  . The reason is that the innovator has for enemies all those who have done well under the old conditions and lukewarm defenders in those who may do well in the new”. or more uncertain in its success than to take the lead in the introduction of a new order of things. The political outfall from the crisis is still to be determined and views have changed significantly in the past three years. the economic and political mega trend of the past decade is being debated once again. the structure the Euro zone is to take in the coming years will undergo vast change. Thus it is fitting to finish by looking at the words of Niccolo Machiavelli in ‘The Prince’: “…there is nothing more difficult to take in hand. Fed and BIS along with individual economists have proposed reform.14/01/2011     Daniel Spillane ‐ 107375719  Conclusion Financial reform is needed.

 A Garden to Tame. Jan 2009. Masters. Ben S. Ireland fights to retain economic sovereignty. An Introduction to Global Financial Markets. Penguin Books USA. xiii. WRAPUP 4‐Euro zone working on crisis package. Michael (2009). Wolfgang.). 24.php  Ferguson.  http://www. ch. Khalip. 41.10. : A treaty change is necessary but hazardous – FT – London UK – Nov. Accessed on Blackboard – 14/01/2011  Thomas – The Library of Congress. 188. London MacMillan  Business. 2010. Aiming for a united front on derivatives. Bernanke mulls launching QE2 to keep America afloat.esma. 2010   Grant. FT. Siegfried (2010).php  Accessed – 14/01/2011  Rachman. Jan 4 2011. The Ascent of Money: A Financial History of the World.  1. 15  Wissenbach. Global Financial Stability Report Apr 2010: Meeting New Challenges to Stability  and Building a Safer System. Brooke.europa. (2007). Gideon. Bernanke. Reuters – Berlin/Lisbon – 12/01/2011. http://www.. No.php?id=7228.eu/index_new. 2000. The Levy Economics Institute – New York. 44.reuters. Regulatory Reform in the Wake of the Financial Crisis of 2007‐2008. pg 1  National Treasury Management Agency. Financial Times. US.gov/cgi‐ bin/bdquery/z?d111:HR04173:@@@L&summ2=m&#major%20actions  Accessed – 14/01/2011  Utzig. llona. 98.eu/popup2. Jeremy. Niall. Hedge Funds and the Financial Crisis. Old Wine in a New Bottle Subprime Mortgage Crisis‐Causes  and Consequences.  ESMA ‐ http://www. David. http://thomas.13  Frank.loc.esma. 16.com/article/idUSLDE70B0BE20110112?pageNumber=1  Accessed – 14/01/2011  • • • • • • • • • • •       AC4119 – Interim Assignment   12  . Niccollo. pg.13.  pg. Bank Guarantee Scheme & Recapitalisation. pg 13  Shabab. Jan 2010  Valdez. No.   Accessed on blackboard – 14/01/2011  Machiavelli.  Gardner. 12/2/2009. Reference  Mah‐Hui Lim. Tom. FTLONDON UK ‐  25/09/2010. Francesco. 47. 2010. PG11 – Accessed on Blackboard – 14/01/2011  CESR – 3L3 Committees welcome European Parliament landmark vote to reformfinancial  supervision in Europe. : FT – London UK  Nov. Guerrera. Principles of Macroeconomics (3rd ed. Accessed on Blackbaord – 14/01/2011 pg. (2009). Robert H. 72. London (UK)  NOV‐15‐2010. London (UK): Sep 16.16. 22/09/2010. Stephen. (2009). pg. The Prince.ie/IrishEconomy/bankGuaranteeScheme. Andrew W. p.europa.14/01/2011     Daniel Spillane ‐ 107375719  Bibliography • • • • • • • • • Anonymous . Dodd-Frank Wall Street Reform and Consumer Protection Act. Houman B. . Boston:  McGraw‐Hill/Irwin. Lisbon  sell debt. Is Globalisation on the Retreat in 2011? FT. The Financial Crisis and the Regulation of Credit Rating Agencies: A  European Banking Perspective. Accessed on Blackbaord – 14/01/2011  IMF (2010). 77  Lo. 34. New York Law School –  Mercatus on Policy.  66.ntma. Accessed on blackboard – 14/01/2011  Braithwaite.  http://www. Andrei. ABDI Working Paper Series. Accessed on Blackboard –  14/01/2011  Munchau.

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