National laws for global capital markets - A contradiction?: Difference between revisions

National laws for global capital markets - A contradiction? (view source)

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 Another group which influences capital markets is supranational institutions. Keith Griffin sees institutional weaknesses as a origin for economic problems of globalisation: “institutions of global governance were not designed to manage a closely integrated and rapidly expanding global economic system” (Griffin, K.(2003) p.805). Very important are especially the IMF (International Monetary Fund), the World Bank Group and the FATF (Financial Action Task Force on Money Laundering). The FATF has the main tasks to combat the funding of terrorism and money laundering. Hence the FATF issues several recommendations for governments and also a list of countries which do not fulfill standards of preventing money laundering or finance of terrorism. Banks have to supervise financial transactions in correspondence with these countries. The World Bank Group is supposed to evolve its undeveloped members by loan origination and advice. Even if they can allocate financial means, both of the mentioned institutions are not provided with sufficient responsibilities to control capital markets. In distinction to these institutions a main target of the IMF is the stabilization of financial markets. Therefore a rate is entrusted to every member of the IMF which quotes the deposit and the drawdown of loans. The drawdown of loans is linked to special conditions so called structural adjustments. These structural adjustments can be the cutback of government expenditure, aiming lower inflation or the deregulation of the banking sector. So obtaining a loan is depending on economic framework conditions and concessions. The stabilization of financial markets shall be warranted by financial support in case of emergency, especially financial embarrassment (cf. Loheide (2008) p.35 et seq. p.353 et seq.).
-Another result of globalisation on capital markets is the rising quantity of financial instruments. (cf. The Economist (2009) p.18). Besides classic instruments like shares and bonds or loans and receivables many different ways to invest money exist. Above all speculative instruments like swaps, forwards or commodity futures are gaining in importance. These instruments are often used by institutional investors as funds, especially hedge funds, to gain smallest spreads. Despite the narrow profit margins the consequent earnings are very high because of the large sum of money invested. As long as the rate of the underlying assets develops as expected the system works. But a recession can lead to a mood swing and in periods of crisis a panic can paralyze markets. Enormous sums of money are deprived of the affected region and a chain reaction can lead to a collapse of whole economies. (cf. White (1988) p.75ff.). Particularly the capital markets of the developing countries are suffering of the ‘globalisation of currency’. In Southeast Asia sundry capital markets collapsed in the 1990s while those of Europe did not. (cf. Meltzer (1998). So regulation is even more difficult for developing countries. This may be by reason of lacking experience, infrastructure and the dependence of developed countries.
+Another result of globalisation on capital markets is the rising quantity of financial instruments. (cf. The Economist (2009) p.18). Besides classic instruments like shares and bonds or loans and receivables many different ways to invest money exist. Above all speculative instruments like swaps, forwards or commodity futures are gaining in importance. Also the number of possibilities to invest money has extended.  These instruments are often used by institutional investors as funds, especially hedge funds, to gain smallest spreads. Despite the narrow profit margins the consequent earnings are very high because of the large sum of money invested. As long as the rate of the underlying assets develops as expected the system works. But a recession can lead to a mood swing and in periods of crisis a panic can paralyze markets. Enormous sums of money are deprived of the affected region and a chain reaction can lead to a collapse of whole economies. (cf. White (1988) p.75ff.). Particularly the capital markets of the developing countries are suffering of the ‘globalisation of currency’. In Southeast Asia sundry capital markets collapsed in the 1990s while those of Europe did not. (cf. Meltzer (1998). So regulation is even more difficult for developing countries. This may be by reason of lacking experience, infrastructure and the dependence of developed countries.
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