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Global Financial Regulation: Convergence or Divergence? Nicolas Véron Senior Fellow, Bruegel (Brussels) Visiting Fellow, Peterson Institute for International Economics (Washington) Asia Europe Economic Forum Brussels, January 22, 2013
A Multipolar Financial World…
Sample: listed banks in FT Global 500 ranking. Source: FT, author’s calculations 2
0%
10%
20%
30%
40%
50%
60%12
/200
012
/200
112
/200
212
/200
312
/200
412
/200
512
/200
612
/200
712
/200
812
/200
912
/201
012
/201
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Share of Aggregate Market Value
Asian Banks
US Banks
European Banks
Rest of World
… Also in Terms of Cross-Border Flows…
Source: Andrew Haldane, “Global Imbalances in Retrospect and Prospect,” speech at the Chatham House Global Financial Forum, 3 November 2010 3
0%
10%
20%
30%
40%
50%
60%
1980 1990 2000 2010 2020e 2030e 2040e 2050e
Total External Assets
Asia ex Japan
Japan
Europe
US
Rest of World
… Even as Cross-border Intermediation Remains Mostly “Western” (and Japanese)
Sample: World’s 50 largest banks by 2011 Assets (from The Banker database).
Source: 2010 annual reports, author’s calculations 4
Asia (Avg)11.37%
US (Avg) 29.52%
Europe (Avg)52.93%
Rest of World (Avg)25.97%
0%10%20%30%40%50%60%70%80%90%
100%
Mits
ubish
i UFJ
(JP)
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Mits
ui (J
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nk o
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na (C
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Reso
na H
oldi
ngs (
JP)
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of C
omm
unic
atio
ns…
ICBC
(CN
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ina
Cons
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tion
Bank
…N
orin
chuk
in B
ank
(JP)
Agric
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ral B
ank
of C
hina
…
Citig
roup
(US)
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S)M
orga
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anle
y (U
S)JP
Mor
gan
Chas
e (U
S)Ba
nk o
f Am
eric
a (U
S)W
ells
Farg
o (U
S)
Stan
dard
Cha
rter
ed (U
K)N
orde
a (S
E)HS
BC (U
K)Cr
edit
Suiss
e (C
H)De
utsc
he B
ank
(DE)
ING
Bank
(NL)
Sant
ande
r (ES
)BN
P Pa
ribas
(FR)
Uni
Cred
it (IT
)BB
VA (E
S)De
xia
(BE)
UBS
(CH)
Barc
lays
(UK)
Soci
ete
Gen
eral
e (F
R)Cr
edit
Agric
ole
(FR)
Dans
ke B
ank
(DK)
Roya
l Ban
k of
Sco
tland
(UK)
Rabo
bank
(NL)
Com
mer
zban
k (D
E)In
tesa
San
paol
o (IT
)DZ
BAN
K (D
E)AB
N A
MRO
(NL)
Cred
it M
utue
l (FR
)BP
CE (F
R)Ll
oyds
Ban
king
Gro
up (U
K)LB
BW (D
E)
Scot
iaba
nk (C
A)Ro
yal B
ank
of C
anad
a (C
A)To
ront
o-Do
min
ion
(CA)
ANZ
(AU
)N
at. A
ustr
alia
Ban
k (A
U)
Com
mon
wea
lth B
ank
(AU
)W
estp
ac (A
U)
Banc
o do
Bra
sil (B
R)
Share of Revenue Outside of Home Country, 2010
Global Bodies: “Institutional Mismatch”
Sample: FSB and its 10 members with a global (supraregional) constituency. Source: websites / reports as of September 2012
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Institution Nationality of Non-Exec. Chair
Nationality of Chief Executive
BIS French Spanish Basel Committee British Australian CGFS American German CPSS British German Financial Stab. Board Canadian Norwegian IAIS Australian Japanese IASB French Dutch IMF - French IOSCO Japanese British OECD - Mexican World Bank - American
Global Financial Policy Framework
First G20 Summits (Washington, London, Pittsburgh) – Strong involvement of principals
– “London-Pittsburgh Doctrine”: financial regulation is [for the most part] a global agenda “Global Problems Need Global Solutions”
– Significant breakthroughs Basel III, derivatives clearing, rating agencies, resolution regimes
Current Status – Partial divergence of priorities (European crisis)
– Weak coordination on high-profile political initiatives e.g. Volcker / Vickers / Liikanen / Moscovici
– Mostly delegation to FSB on more “technical” issues and implementation monitoring: e.g. Basel Committee; IASB (?)
– Limited progress on cross-border supervision/resolution
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Financial Regionalism?
Financial policy integration in Europe – European Supervisory Authorities 2011 (EBA, ESMA, EIOPA)
– Single Supervisory Mechanism 2013-14 (hosted by ECB)
– “Single [regulatory] rulebook” + “single [supervisory] handbook”
– Question mark: UK vs. rest of EU
Asian initiatives – Chiang-Mai Initiative (M) / creation of AMRO (2011)
– ASEAN rhetoric on financial regulatory harmonization
Financial regulation in regional trade negotiations? – Trans Pacific Partnership / Transatlantic discussion?
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Financial Deglobalization?
Financial infrastructure fragmentation? – Tangible (e.g. clearing houses) and intangible (e.g. CRAs, auditors)
Ring-fencing of global financial intermediaries – Impact on financial stability depends on stress scenarios
– No consensus on growth impact
Financial disintegration? – Eurozone crisis
– no clear global trend
Source: Milesi-Ferretti update on Lane & Milesi-Ferretti 2007 JIE 8
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
Cross-Border Capital Flows as % of Global GDP
High-Growth Firms: A Comparison
FT Global 500 companies in each age category, based on the end-Sep. 2007 ranking.
Source: ‘The Demographics of Global Corporate Champions’, Bruegel Working Paper, July 2008 9
Different Challenges
United States – Focus on financial stability
– While keeping / strengthening financial development
Europe: multiple challenges – Financial development: non-bank finance, high-growth firms
– Financial stability: TBTF, banking concentration at national level
– Ongoing crisis management / future of Eurozone
Large emerging economies – Focus on financial development
– While keeping financial stability memories of late-1990s Asian crisis
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Implications for Asia(ns)
Domestic financial reform / liberalisation – in most “large” countries including China and India
Interest in effective global financial governance – “West” can no longer be relied upon to maintain open global order
– Regional alternatives unlikely
– Liu Minkang article Oct 2010
Need to correct “institutional mismatch” – Political obstacles in both “West” and “Asia”
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Thank You For Your Attention
Nicolas Véron +32 473 815 372 (Europe) / +1 202 550 0614 (U.S.)
[email protected] / [email protected]
Bruegel: www.bruegel.org Peterson Institute: www.piie.com