15 August 2011

SUERF Study 2011/2: ‘Regulation and Banking after the Crisis’

In this joint study with the Central Bank of Ireland, SUERF focuses on aspects of the post crisis scenarios for the possible future structure of financial systems, business models of banks, risk management implications, and the implications for the future regulatory and supervisory regime.

The Central Bank of Ireland and SUERF organised a joint conference in Dublin on 20th September, 2010, on the general theme of Regulation and Banking after the Crisis. The programme included papers and presentations from the three main constituencies of SUERF: Central Banks (including notably the Governor of the Central Bank of Ireland), academics, and financial practitioners. As always, the papers illuminated some of the different perspectives of the three constituencies.

When constructing the programme, SUERF were conscious that there had been many conferences devoted to the causes of the crisis, the nature and extent of official intervention, and the impact of the crisis. Rather than add yet another conference to this well-trodden topic, and conscious that the crisis could prove to be transformational in many dimensions, they chose to focus on aspects of the post crisis scenarios for the possible future structure of financial systems, business models of banks, risk management implications, and the implications for the future regulatory and supervisory regime. In so doing, it was also designed to be a precursor to the 2011 Colloquium to be held in Brussels in May on the topic 'New Paradigms in Money and Finance?'

Their intention was to focus on three broad strategic issues in the three sessions of the conference:

1. Post Crisis Regulation and Intervention Strategies, with papers from Nigel Jenkinson (BIS), Aerdt Houben (De Nederlandsche Bank), and Pat Farrell (Irish Banking Federation);
2. New Business Models in the Post Crisis Financial System, with papers from Luc Riedweg (Banque de France), David Marques Ibañez (ECB) and Patricia Jackson (Ernst & Young); and
3. Regulation and the Changing Financial Landscape, with papers from Edward J Kane (Boston College), Alistair Milne (CASS Business School) and Jesús Saurina (Banco de España).

The study has been split into the following chapters:

1. Regulation and Banking after the Crisis
2. Banks and the Budget: Lessons from Europe
3. Post Crisis Regulatory Strategy: A Matrix Approach
4. Strengthening the International Framework for Financial Regulation: Some Key Issues and Challenges
5. Risk Identification and Mitigation: Lessons from the Crisis
6. Banking as a Social Contract – The New Regulatory Paradigm
7. A False Sense of Security: Lessons from the Crisis for Bank Management and Regulators
8. Redefining and Containing Systemic Risk
9. The Case for Limited Liability Eurozone Government Debt.

From the Summary and Conclusion section: "The principal message of this paper can be put very simply. By failing as a matter of priority to establish clear, orderly and predictable mechanisms for euro area sovereign debt restructuring, the euro area authorities are playing with fire".

"To conclude, the approach taken by European policymakers, in response to the euro area periphery sovereign debt crisis, has to date been far too narrow. The future of the euro is being put at risk by a failure to explore properly all the possible policy alternatives. It is to be hoped this paper, and the more detailed exploration of the limited liability proposal in Milne (2011), will go some way to persuade policymakers to be more open minded."

Study 2011/2

© SUERF