Financial Stability, Economic Growth, and the Role of Law

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Cambridge University Press, Jun 4, 2007 - Law
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Financial crises have become an all too common occurrence over the past twenty years, largely as a result of changes in finance brought about by increasing internationalization and integration. As domestic financial systems and economies have become more interlinked, weaknesses can significantly impact not only individual economies but also markets, financial intermediaries, and economies around the world. This volume addresses the twin objectives of financial development in the context of financial stability and the role of law in supporting both. Financial stability (frequently seen as the avoidance of financial crisis) has become an objective of both the international financial architecture and individual economies and central banks. At the same time, financial development is now seen to play an important role in economic growth. In both financial stability and financial development, law and related institutions have a central role.
 

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Contents

1
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there is an emerging consensus relating to the importance of
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In addition subsequent crises andor international rescues occurred in Russia
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facility These proceeds were intended solely to assist in financing
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that lost their capital and in cases where governments granted
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common in the past decade and in fact likewise in
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2
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With the collapse ofthe SovietBloc like the IMF the World
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1 corruption especially relating to governments
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reflect this recommendation202 At the May 1996 High Level Meeting
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5 An independent corruption enforcement authority should be
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Recommendations 36 to 39 with clear and effective gateways for
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international cooperation between law enforcement authorities and financial
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In relation to financial development to support economic growth three
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activities of banks Principle 2 licensing criteria Principle 3 transfers
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to deal with the onset ofinternational financial crises in emerging
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international capital markets or aspire to do so and including
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and in Chapter Four and promoted disclosure through its programs
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it was crystal clear in that crisis and its aftermath
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This enterprise was prompted by the recognition that financial crises
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Financial stability is therefore both the absence of financial crisis
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This essential structure was affirmed by the G7 Finance Ministers
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fiscal policy transparency and 3 data dissemination The first two
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The broad heading ofinstitutional and market infrastructure includes seven
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1
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3
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Without these a sophisticated market economy cannot exist likewise a
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initial issue may arise as to whether or not such
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codes discussed in Chapter Four as well as the rules
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Disclosure Law77 the most relevant In addition UNIDROIT is currently
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filing and registration requirements and financial disclosure and reporting
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discussed in Chapter Four may assist in supporting fiscal sustainability
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privatizing state industries and retraining administrative and judicial
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include the central bank Reflecting this division the following sections
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As noted earlier although there is now general consensus in
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Data Compilation In addition to the key standards and standard
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regulatory policies47 Sixth a complete standard would require authorities to
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requires a comprehensive analysis and understanding ofthe risks present in
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financial intermediaries especially banks can undermine the entire
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addressed in order to achieve an efficient clearance and settlement
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In addition CCPs and CSDs should have appropriate objectives and
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As of January 2007 the IMF and World Bank had
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52 corporate governance
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In order to investigate the actual value that investors place
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should be able to exercise objective judgement independent of management
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The IASBs overall objectives are to formulate and publish accounting
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IFRS is highlighted by the EUs decision to adopt these
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should review and evaluate banks internal capital adequacy assessments and
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the view that these are not strictly covered by supervision
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An explicit blanket guarantee can take either a formal legal
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712 Other Financial Stability Forum Standards
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These include exchangetraded derivatives39 the internet40 and collective
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addressed by January 2007 the IMF and World Bank had
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ofloyalty minority shareholders mechanisms to contest perceived oppression
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Third there are significant differences among countries and contractual
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of an impending old age crisis153 In the 1994 study
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4 Pension supervisory authorities should be endowed with the investigatory
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2 establishment ofpension plans pension funds and pension fund managing
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participants and foreign competition To date insufficient account has been
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regulations on acquisition of shares
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does not define the concept of prudential carveout or clearly
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This paragraph indeed emphasises the role ofinternational standards in
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an insurance company owns a bank then the banking regulator
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and 83 Integrity standards and any legal protections for financial
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supervision and this is particularly needed in a systemic
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major role in directing the efforts of individual economies and
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of the voting quotas ofthe IMF and World Bank and
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In respect to improvements the report made a number of
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Trade and Development and UNDP United Nations Development Program
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to consider the issues arising with respect to the orderly
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need for sovereign borrowers to make timely changes in their
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financial systems in lender countries55 Sixth a marketled process to
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following the 2002 crisis in Argentina have not been as
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Unfortunately the framework of international financial standards does not
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level discussed in Chapter Five and at the macroeconomic level
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reregulation inherent in the process of market liberalization developed the
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facilitating free trade in goods and services without the need
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Page 18 - Institutions are the rules of the game in a society or, more formally, are the humanly devised constraints that shape human interaction.
Page 15 - International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD) - commonly known as the World Bank - in 1952.
Page 17 - Efficient economic organization is the key to growth; the development of an efficient economic organization in Western Europe accounts for the rise of the West. Efficient organization entails the establishment of institutional arrangements and property rights that create an incentive to channel individual economic effort into activities that bring the private rate of return close to the social rate of...

About the author (2007)

Douglas Arner is an Associate Professor at the Faculty of Law of the University of Hong Kong, specializing in financial law, regulation, and development. He is Director of the Asian Institute of International Financial Law (AIIFL) and director of the LLM (Corporate and Financial Law) Programme at HKU. In addition, he is the Co-Director of the HKU-Duke University Asia-America Institute in Transnational Law. Prior to his appointment at HKU, Dr. Arner was the Sir John Lubbock Support Fund Fellow at the Centre for Commercial Law Studies (CCLS) at Queen Mary, University of London, and Director of Research of the London Institute of International Banking, Finance, and Development Law (a think-tank consultancy). Dr Arner has served as a consultant with, among others, the World Bank, Asian Development Bank, APEC, European Bank for Reconstruction and Development, and Development Bank of Southern Africa. He has lectured, co-organised conferences and seminars, and been involved with financial sector reform projects in over 20 economies in Africa, Asia, Europe, and North America. He is co-author or co-editor of five books, and author or co-author of more than forty studies, articles, and chapters on financial law, regulation and development. His current research focuses on financial development and regional financial integration. Dr Arner holds a BA in literature, economics, and political science from Drury University, a JD (cum laude) from Southern Methodist University, an LLM (with distinction) in banking and finance law from the University of London (Queen Mary College), and a PhD from the University of London.

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