Zusammenfassung
The introductory quotes in combination with the below figure illustrate the relevance of financial stability policy in economic policy making in the 21st century very pointedly: Financial instability in the form of crisis is a very rare ‘black swan’-type of event, but when it occurs it has a devastating effect on financial systems and economies at large. Because of this very rare and usually delayed occurrence of crises, financial stability policy also is subject to a very own political economy dynamic.
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Notes
- 1.
Interestingly they link this with the policy choices of capital mobility, the regulatory choice for the financial safety net as well as the implicit insurance against exchange risk that derives from an ex ante credible policy of pegging the exchange rate, leading financial and non-financial firms to accumulate excessive foreign currency exposures.
- 2.
For a good overview of the different research fields subsumed as political economy see Weingast and Wittman (2006).
- 3.
To the extent that banking regulation itself is a political phenomenon only, this research also has elements of the third category of political economy, i.e. as a methodology applied, as it employs an analytical model to the identification of the regulatory and supervisory utility function.
- 4.
Complementary relationships exist when the returns to one of the institutions to the economy increase with the existence of the other one.
- 5.
With the development of international financial markets and the integration of the funds from surplus countries (such as OPEC countries), the scale and velocity of financial transactions grew tremendously to a level in the 1970s, where financial flows were 25 times larger than trade flows (Gilpin, 2001).
- 6.
Central banks have in fact in many cases across the world become independent and are adopting an inflation-targeting approach based on certain rules, which specify what the central bank’s preferences should look like (usually in some contrast to society’s and the government’s utility function).
- 7.
Because, indeed, as a review of the varying approaches to central bank independence in different countries by Eijffinger and Haan (1996) shows, countries deal very differently with the policy objectives, policy targets, and responsibility elements of central banks. While the Bundesbank had the support of government policy as a subordinate objective to price stability, the Reserve Bank of New Zealand had price stability as its sole objective. Also, they find that in the different measures of central bank independence (CBI) there is a large variation in the legal and non-legal independence afforded the central banks. Interestingly, the variation across countries is stable over time and there is relatively little change in the national arrangements of the central bank and no real trend towards independence between 1950 and 1989 – despite the clear social welfare implications of economic theory (Bernhard et al., 2002). With respect to the performance of independent central banks, the empirical evidence reviewed overwhelmingly finds that central-bank independence is negatively correlated with inflation, implying that indeed the theoretical proposition from economics holds in reality as well. Thus, the perplexing finding to be resolved remains the variation of CBI, monetary rules, and exchange rate choices across countries in the post-Bretton Woods era, despite a clear ‘best practice’ according to economic theory.
- 8.
While the largest industrial economies (the United States, Germany, Japan, and Britain) and the medium-sized developed countries (for example, Canada, Switzerland, Australia, New Zealand) opted for floating their exchange rates, European nations opted for a pegged exchange rate under the “Snake” and later for currency union in European Monetary Union (EMU). Austria and Sweden outside of that system also maintained tight pegs to the deutsche mark.
- 9.
For a an early and influential example of this approach to monetary affairs see Torben Iversen’s (1998) analysis of the interaction of the monetary regime with national wage bargaining institutions.
- 10.
This argument largely rests on the the observation that the public sector-owned German Landesbanken (LBs) seeked higher yielding investments, such as securitized loans, to make up for their loss to cheap wholesale funding (having financed themselves with government guaranteed bond issues until 2005). This undermines the assumed functioning and legitimacy of an entire pillar of the German banking system.
- 11.
The motivation for such a stricter approach to regulation has been given by leading policy-makers through two arguments, as Zimmermann shows: Firstly, the German government has tried to use regulation “in defense of German capitalism” at large, trying to reform its economy and industrial core with the help of financial markets and private equity to break out of the network-based and less competitive patterns of the “Deutschland AG” (Höpner & Krempel, 2004). Secondly, the German finance ministry in particular has been stressing the importance of a competitive financial sector and ‘Finanzplatz Deutschland’ for its own sake (Lütz, 2003). Very importantly, Soskice uses these results to examine the preferences of central banks for three features in their utility and preference function: Firstly, the target of low inflation as an official mandate, secondly, the high weight attached to inflation deviations vis-à-vis unemployment, and, thirdly, an asymmetric response function, in which the central bank does not respond to inflation falling below its target. Applying that analogy to banking regulation should form part of the first analysis of how banking regulators’ utility functions serve to fulfill their mandate.
- 12.
Epstein (2005) defines financialization as the “increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of the domestic and international economies” (2005; p.3).
- 13.
For a largely hegemonic and power-based approach see Kapstein (1992); For a rational choice account of regulatory policy as resulting from changes to the incentive structure, and changes in the information set see Simmons and Elkins (2004); For an blending of coercion and competition theory see Simmons (2001);
- 14.
For an overview of the abundance of global and international networks and structures see Davies and Green (2008); for an overview of the European multi-level governance see (Quaglia, 2007, 2010);
- 15.
This criticism is also already advanced by Kentaro (2003).
- 16.
Already over a century ago Walter Bagehot introduced the benchmark on how central banks should do this to minimize the problems of moral hazard and protect public financial means as best possible in such situations (Bagehot, 1897). His recommendations as summarized in Prati and Schinasi (1999; p.20) included that central banks “1) lend only to illiquid institutions that are solvent, 2) let insolvent institutions fail, 3) lend speedily, 4) lend only for the short-term, 5) charge penalty interest rates, 6) require good collateral, and 7) announce these conditions well in advance of a crisis”.
- 17.
Also in bank lending corruption in lending does not decrease with an increase power of supervisors – official power is instead positively correlated with corruption in lending. Again, firms in countries with private monitoring exhibit lower levels of corruption in lending. As a result, a balancing of regulation with private market monitoring is recommended as the authors constitute that there is no trade-off between reliance of official supervision and private sector monitoring imposing market discipline.
- 18.
The actor-centered institutionalist account provides a framework that “conceptualizes policy processes driven by the interaction of individual and corporate actors endowed with certain capabilities and specific cognitive and normative orientations, within a given institutional setting and within a given external situation” (Scharpf, 1997, p.37). Whilst actors are thus one key focus of this approach, actor constellations, interactions, and the institutions that shape all of the above are key as well to determining policy choices and economic outcomes.
- 19.
For a discussion of the various institutional asymmetries in the fiscal and wage setting context across countries see Enderlein (2004); for the manifestation in a ‘one size fits none’-policy of the ECB see Enderlein (2005).
- 20.
A similar argument is also made by Enderlein (forthcoming) in “Lost in transaction: German banking and the financial market crisis” focusing in particular on the incomplete transition of the German financial system.
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Scherf, G. (2014). Introduction. In: Financial Stability Policy in the Euro Zone. Springer Gabler, Wiesbaden. https://doi.org/10.1007/978-3-658-00983-0_2
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