Before the 2008-2009 global financial crisis, law was a necessary tool for financial markets. English financial law represents “the entire body of legal rules that govern and regulate financial markets, financial assets and financial transactions under the law of England and Wales”. It is classified as “a sub-species of English commercial law, which is heavily influenced by English common law”. According to Ellinger et al., « in order to safeguard the stability of the banking system, a degree of regulation and supervision needs to be imposed on banks themselves ». In this context, the United Kingdom passed the Financial Services and Markets Act 2000, which authorized the Financial Services Authorities to become « a super-regulator , having responsibility for the regulation and supervision of the whole financial services sector ». However, this regulatory system was not suited for adressing the difficulties the banks were going into during the global financial crisis of 2008-2009. After the crisis, law and regulation's role shifted to provide more protection for financial stability and for the prevention of any misconducts. The Banking Act 2009 was going to fill the gap in « dealing with pre-insolvency 'stabilization' and with banking insolvency and administration ». And a year later, the Financial Services Act 2010 was given the role of « strengthening the powers of the FSA and giving it a 'financial stability' objective. In this paper, we are going to critically discuss the different views on the role of law and finance before and after the financial crises areas.
Table of Contents
1. Introduction
2. Development
2.1 Law and Finance
2.2 Law and Economics
2.3 Regulating the international economic system
2.4 After tthe 2008-2009 Crisis
3. Conclusion
Objectives and Topics
This paper examines the critical role of law and legal institutions in maintaining financial stability and market integrity, specifically analyzing how regulatory frameworks have evolved in response to global financial crises.
- The intersection of legal, political, and economic systems in financial markets.
- The importance of property rights and the rule of law for economic prosperity.
- The historical development of international financial regulation from Bretton Woods to Basel III.
- The effectiveness of regulatory responses to the 2008-2009 global financial crisis.
- The challenges of international cooperation and the "prisoner's dilemma" in financial oversight.
Excerpt from the Book
Regulating the international economic system
The victorious states of World War II met in 1944 in Bretton Woods, New Hampshire, to discuss the regulatory frawework for the international economic system, which was to be called the Bretton Woods System. The World Bank, International Trade Organization, and the International Monetary Fund were formed, and helped bring stability over the next decades through « the fixed exchange rate system required strict capital controls, which meant that financial markets at the time were largely un integrated , (...) which allowed most advanced economies experienced steady growth while inflation and interest rates remained low and steady. Describing this financial era, Turk argues that it was « a relatively halcyon time when finance was not yet global in character, and as a result, required little international regulatory attention beyond the IMF’s role in coordinating exchange rates » (Turk 2014, pp.66-67).7 However, the system was not to last because of the unilateral decision of the US in the 1970s to end the US dollar convertibility to gold, and thereby making this US dollar, the reserve currency.
Meanwhile, financial crises took place in the emerging economies of Mexico and East Asia. While law plays an essential role in economic policy, there is a need for a strong legal system in place before implementing rigorous economic policy. Analyzing the Asian financial crises , Walker (2000, pp.58-60) notes that the weak legal and regulatory frameworks, i.e. “the inappropriate sequencing of financial deregulation and liberalization, and the lack of prudential supervision of the financial system, were the important factors contributing to the Asian financial crisis.” He emphasized the importance of sequencing, i.e. that “capital markets need supervisory and regulatory structures in place before broad-based financial deregulation and liberalization are introduced.” In other words, “a developing and maturing legal system can reduce the likelihood of a financial crisis”, because a well-developed legal and regulatory framework would bring confidence and stability for a market economy to thrive.
Summary of Chapters
1. Introduction: Provides an overview of the role of English financial law and the shift in regulatory focus following the 2008-2009 global financial crisis.
2. Development: Analyzes the theoretical links between law, economics, and institutional frameworks, and traces the history of international financial regulation.
2.1 Law and Finance: Explores the necessity of a sound legal and regulatory framework to ensure market trust and contract enforcement.
2.2 Law and Economics: Discusses the economic foundations of law, specifically focusing on wealth maximization and incentive structures.
2.3 Regulating the international economic system: Details the history of the Bretton Woods system and the subsequent challenges of regulating global finance during emerging market crises.
2.4 After tthe 2008-2009 Crisis: Critically evaluates the implementation of the Basel III framework and the ongoing difficulties in international financial cooperation.
3. Conclusion: Summarizes the enduring importance of law in financial stability and the necessity for ongoing improvements in regulatory frameworks.
Keywords
Financial Law, Financial Stability, Regulatory Framework, Global Financial Crisis, Basel Accords, Rule of Law, Property Rights, Economics, International Financial Architecture, Banking Regulation, Institutional Framework, Capital Adequacy, Market Integrity, Financial Supervision, Economic Policy.
Frequently Asked Questions
What is the fundamental subject of this work?
The paper discusses the vital relationship between law and finance, emphasizing how legal systems provide the necessary stability and trust for global financial markets to function effectively.
What are the central themes of this research?
The core themes include the impact of legal frameworks on economic prosperity, the historical evolution of international financial regulation, and the challenges states face in coordinating global financial standards.
What is the primary objective of this study?
The objective is to critically analyze the role of law in financial systems both before and after major financial crises, evaluating the effectiveness of various regulatory measures.
Which scientific methodology is utilized?
The paper employs a qualitative, analytical approach, synthesizing existing literature, legal theories, and historical economic data to draw conclusions about the relationship between regulation and financial market stability.
What topics are covered in the main body?
The body covers the theoretical foundations of law and economics, the history of international regulation (from Bretton Woods to Basel III), and the impact of the 2008-2009 global financial crisis.
Which keywords characterize this work?
Key terms include Financial Law, Financial Stability, Regulatory Framework, Basel Accords, Rule of Law, and International Financial Architecture.
How does the author define the role of "rational states" in international law?
The author, referencing Turk (2014), defines rational states as the ultimate actors who craft international rules to capture joint gains and address international externalities.
What is the significance of the "prisoner's dilemma" in this context?
The prisoner's dilemma is used to explain why states often choose non-cooperative strategies, such as lax implementation of regulations, to gain a short-term competitive advantage in the global market.
- Citar trabajo
- Jennie Robinson (Autor), 2015, The Role and Character of Law in Financial Markets, Múnich, GRIN Verlag, https://www.grin.com/document/432707
