Theme: The Effects of the Current Sovereign Debt Crisis on the Banking System
Most financial systems have undergone profound and rapid changes in the developed countries as well as the in developing countries since the 1980s. Several factors explain these changes, especially with the propagation of financial innovations created by private agents and the reforms agreed by the authorities. These reforms have two main objectives: liberalize and modernize the financial systems. Gradually, countries have been equipped with unified capital markets, shifting from the short to long term, with a full range of financial departments communicating with one another at different levels (money, mortgage, banking, stocks, and derivatives). One consequence of these policies was the spectacular development of financial markets, with deep and liquid markets closely interwoven with each other and widely internationalized. The wave of new information technologies and communication has contributed significantly to this process of financial globalization, allowing the movement of financial flows in real time between operators in different markets and across the globe. However, the process of financial globalization, which began in the 1980s, offers a mixed picture: on one hand, the development of open and internationalized financial markets seems to have increased global funding efficiency of the economy. On the other hand, the explosion of financial crises; in both the developed and emerging countries, shows a strong increase of the instability of financial systems. This paper analyzes the inherent instability of these new financial systems and ways to remedy them. It defends the use of macro-prudential regulation with the focus on major financial agents and their interactions.
The ambivalence of modern finance
Gain in Efficiencies
For various reasons, the global development in finance is usually presented as an important...