Global Financial Regulation: The Essential Guide

by Howard Davies, David Green

As international financial markets have become more complex, so has the regulatory system which oversees them. The Basel Committee is just one of a plethora of international bodies and groupings which now set standards for financial activity around the world, in the interests of protecting savers and investors and maintaining financial stability. These groupings, and their decisions, have a major impact on markets in developed and developing countries, and on competition between financial firms. Yet their workings are shrouded in mystery, and their legitimacy is uncertain. Here, for the first time, two men who have worked within the system describe its origins and development in clear and accessible terms. Howard Davies was the first Chairman of the UK's Financial Services Authority, the single regulator for the whole of Britain's financial sector. David Green was Head of International Policy at the FSA, after spending thirty years in the Bank of England, and has been closely associated with the development of the current European regulatory arrangements. Now with a revised and updated introduction, which catalogues the changes made since the credit crisis erupted, this guide to the international system will be invaluable for regulators, financial market practitioners and for students of the global financial system, wherever they are located. The book shows how the system has been challenged by new financial instruments and by new types of institutions such as hedge funds and private equity. Furthermore, the growth in importance of major developing countries, who were excluded for far too long from the key decision-making for a has led to a major overhaul. The guide is essential reading for all those interested in the development of financial markets and the way they are regulated. The revised version is only available in paperback.

Genres: Economics

200 pages, Paperback

First published May 27, 2008

Reviews

[H.S. Bourgi · Rating 3 out of 5]

Davies and Green provide a good overview of the regulatory system governing financial services, albeit much more could have been said about North America, Asia and the Middle East. The text does however introduce the interested reader to the key institutions governing the financial system, as well as provide avenues for further study. The text was a joy to read and met my expectations as an introductory text to understanding a complex global system.

[Adam · Rating 2 out of 5]

The title of this book should actually read "The Global Financial Regulatory Structure." This gets at the heart of the problem with this book. Towards the end, the authors make a distinction between "legislative and structural" reform of global financial regulation. The authors, however, spend no time at all discussing the legislative end to the global financial system. This is a problem not the least because Chapters 4-6 (out of 7) deal with national and regional regulatory systems that are structured around the enforcement of regulatory laws. Even on the global level, there is no discussion in this book about the forms of international financial law that regulate the flows of global finance and economics. The terms legislation and law come up remarkably infrequently and there is no discussion about what those laws are. The issue of democracy is not even considered, regardless of the fact that every case the authors deal with (except for the brief considerations of Islamic Finance and China) are liberal democracies. One would incorrectly come away from this book imagining that the SEC developed and enacted, along with enforcing, American securities.

There is also no attempt to relate national, European-wide, and Global financial systems. They are briefly considered as aspects of the larger global financial system, but there is no description of how they relate to one another and the problems that emerge from those relationships. Besides the lack of consideration of the legal aspects to financial regulation, there is no consideration whatsoever of how global finance affects international development and the role of civil society in global financial regulation. These topics have been discussed widely elsewhere, but are not even referenced by the authors. By focusing too much on the structure of global finance, the reader comes away with a weak understanding of what global financial regulation does and flawed understanding of all of the elements (law, civil society, national governments, etc) that participate in that structure. There is too much consideration of regulatory bodies as autonomous, expert lead agencies.

Such problems are added to a lack of normative direction espoused by the authors. This becomes apparent in their concluding chapter considering possible structural reforms. There reforms tend to call for greater transparency and communication between the plethora of regulatory bodies that exist on a global level. There is no discussion, except in two sentences considering the European Union, that further legislation is necessary. Neither financial nor political norms are stated that would orient what different agencies should talk about or what legislative efforts should be pursued. From this perspective, focusing on the minutia of structural details in other parts of the book clouds the potential for thinking outside of the structural box. This leads the authors to call for weak, minimal reforms (a claim that the authors concede in chapter 7) that would have no force of law or accountability.

Add to this the lack of clarification around important terms and all that is left is a partial catalogue of regulatory agencies and a recounting of the debate surrounding national (not global) financial regulatory structures. For this catalogue, the book becomes worthwhile, but only if one takes note of the failure to contextualize those agencies within a world of national, regional, and global legislation, civil society, and tangible financial outcomes such as international development.