OVERVIEW

 

 

Financial markets are of fundamental importance in modern economies. Financial markets provide a number of essential services without which modern business, commerce and government would be impossible. These include savings (or deposit), loan (or credit), payment, investment and insurance functions. All of this is necessary to allow government, business, commerce, households and individuals to operate on a daily basis.

 

National and international, financial markets have grown significantly in recent years. The size of the markets in a number of countries now far exceeds their real economies following decades of continuous innovation and expansion. Two separate global markets have been created with an older more traditional underlying trade or mercantile based economy and a new connected but separate and distinct overarching global financial economy. Massive amounts of investment funds are moved around the globe every day to realise the most profitable returns with financial regulation having a significant impact on the choice and structure of the transactions available.   

 

Financial markets can produce substantial gains and profits although they are also susceptible to horrendous loss and collapse. Many of the largest markets, including specifically the banking markets, are inherently unstable and prone to crisis and closure. Properly designed and implemented financial regulation is necessary to ensure that risks are properly managed within financial institutions and that the stability of the markets protected more generally. Attention has also increasingly focused on the need to limit government and public costs in the event of market failure especially following the Global Financial Crisis beginning in summer 2007.

 

A number of different national regulatory models exist across countries. Many of these are based on local historical factors and traditions but also on common international standards in the banking, securities and insurance areas as well as in connection with such matters as payment and settlement systems and international financial crime. A number of important technical and other specialist committees have been set up at the international and European levels to take this work forward. Much of this has also had to be revised and strengthened, or abandoned and replaced, following the recent crises in markets. A number of important lessons continue to be learned following these events with many decisions only recently having been agreed. It is essential that all countries maintain effective supervisory and regulatory systems in all key financial sectors and markets and that domestic and cross-border contagion is avoided.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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The purpose of this course is to examine the nature and operation of financial regulation in modern markets at the international, regional (principally European) and national levels. The main markets are identified and core elements within the financial system explained. The different types of financial risk that arise are noted with the meaning and nature of the terms financial regulation, financial supervision and financial oversight reviewed. The causes behind the Global Financial Crisis are examined and key lessons and reforms necessary considered. The principal international standards that apply in the banking, securities and insurance areas are then reviewed, including, in particular, the work of the Basel Committee on Banking Supervision. The structure and content of the European financial programme are assessed. The nature of financial regulation within the UK and proposed future institutional changes are examined with other key domestic reforms, such as in the US, outlined. Provisional conclusions are drawn with regard to the effectiveness of the emerging international, European and national control frameworks being constructed at this time.