Charles Goodhart - Financial Regulation: Why, How and Where Now?

London and New York

First published 1998
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN

Simultaneously published in the USA and Canada
by Routledge
270 Madison Ave, New York NY 10016

Reprinted 1999, 2000, 2001, 2002, 2003

Transferred to Digital Printing 2005

Routledge is an imprint of the Taylor & Francis Group

1998 Bank of England

Typeset in Times by M Rules, London

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reproduced or utilised in any form or by any electronic,
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invented, including photocopying and recording, or in any
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British Library Cataloguing in Publication Data
A catalogue record for this book is available from the
British Library

Library of Congress Cataloging in Publication Data
Financial regulation: why, how, and where now?/Charles
Goodhart[et al.]; with a foreword by Eddie George.

p. cm.

Includes bibliographical references.
1. Financial services industry Law and legislation.
2. Banking law. I. Goodhart, C A. E. (Charles Albert Eric)

K1066.F565 1998
346.082-dc21 97-50002

ISBN 0-415-18504-1 (hbk)
ISBN 0-415-18505-X (pbk)

Banking problems worldwide, 198096

Pay-off structure indicating risk

Pay-off structure indicating caution

Typical pay structure

Deriving value at risk

Fat-tailed distribution of financial market returns

Non-linear risk and delta-normal VaR

Comparing credit return and market return distributions

Government bond prices: Norway and Sweden

Banks' gross borrowings from the central bank

Banks' net position with the central bank

Deposits to GDP: Argentina and Chile

Interest rates: Argentina and Mexico

Survey of banking problems, 1980 to spring 1996

The impact of bank unsoundness on the real sector

Banking problems for country groupings

Deficiencies in internal governance

Prompt corrective action provisions of the FDICIA

Comparison of value-at-risk techniques

Financial sector liberalisation

The jusen resolution package

Fiscal deficit and long-term debt

Mexico: credit growth in non-intervened banks

Mexico: bank restructuring programmes

The extent of bank restructuring programmes in Mexico and Chile

Costs of regulation

Model for the regulation of the financial system

Regulatory matrix

Regulators of banking, securities and insurance

Regulators of banks

Structure of regulatory institutions

Charles Goodhart is the Norman Sosnow Professor of Banking and Finance at the London School of Economics. Before joining the LSE in 1985, he worked at the Bank of England for seventeen years as a monetary adviser, becoming a Chief Adviser in 1980. In 1997 he was appointed one of the outside independent members of the Bank of England's new Monetary Policy Committee. Earlier he had taught at Cambridge and the LSE. Besides numerous articles, he has written a couple of books on monetary history and a graduate monetary textbook, Money, Information and Uncertainty (2nd edn 1989). He has also published two collections of papers on monetary policy, Monetary Theory and Practice (1984) and The Central Bank and the Financial System (1995), and an institutional study, The Evolution of Central Banks, revised and republished (MIT Press) in 1988.

Philipp Hartmann is an economist in the Stage-III Division of the European Monetary Institute in Frankfurt. His main work is in the areas of banking regulation, in particular capital adequacy requirements and value-at-risk models, and international monetary economics, including foreign exchange market microstructure analysis and international currency competition. He is a Research Affiliate of the Centre for Economic Policy Research (CEPR, London) and has been an academic expert for the Centre for European Policy Studies (CEPS) working party The Transition to the Euro in Brussels. Dr Hartmann also organised (together with Charles Goodhart) the LSE conference Internal Risk Models and Financial Regulation in the City of London in 1996. He is the author of Capital Adequacy and Foreign Exchange Risk Regulation Theoretical Considerations and Recent Developments in Industrial Countries (Kredit und Kapital, 1997) and The Future of the Euro as an International Currency: A Transactions Perspective (CEPS Research Report, 1996). His current research interests include the consequences of financial innovations for regulation and incentive-oriented financial regulation as well as the external consequences and financial market impact of European Monetary Union. He holds a PhD in economics from the Ecole des Hautes Etudes en Sciences Sociales in Paris, an MA in monetary and macroeconomics from the Universit Catholique de Louvain in Belgium and a Diplom in Volkswirtschaftslehre from Mannheim University in Germany.