La crise financière de 2007: analyse des origines et impacts macroéconomiques sur les ...

374 Pages·2013·3.13 MB·French

by  Shazia Ghani

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La crise financière de 2007
Analyse des origines et impacts macroéconomiques sur les
économies émergentes.
Quels sont les leçons et les défis de régulation financière ?

Global Financial Crisis of 2007
Analysis of Origin & Assessment of Contagion to Emerging Economies
Lessons & Challenges for Financial Regulation

Présentée par

Shazia GHANI

Thèse dirigée par

Faruk ÜLGEN

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ACKNOWLEDGEMENTS

It is a pleasure to thank the many people who made this thesis possible.

I am profoundly indebted to my supervisor Mr ULGEN Faruk for his sound advice, his great
patience, and hour‘s long attentiveness over the last three and half years for being a model of
excellence in my research area. His experiences and academic support has constituted an
invaluable asset for my learning process. Without his sustenance and encouragement I would
not have been able to complete this thesis.

I am deeply grateful to the honourable jury/committee members for their helpful comments
and their encouraging reports.

I would like to express my deepest gratitude for the financial support from the Higher
Education Commission of the Government of Pakistan for the completion of my PhD from
France. Uninterrupted flow of funds despite all the economic constraints of the country
permitted me to complete this thesis.

I would like to thank Mr Michel TROMMETTER (Director of the Ecole Doctorale Sciences
Economiques) for providing me the financial support to attend the Cournot International
Doctoral Days organised by the University of Strasbourg, France. Ecole Doctorale also
financed my participation in the International Summer School organised by the University of
the Cracow and the National Bank of Poland. I am also grateful to the ―Conseil régional
Rhône Alpes‖ for funding my four months stay at the Hyman Minsky Department of
Economics, University of Bergamo, Italy.

I would like to say thanks to Professor Annalisa CHRISTINI from the University of Bergamo,
Italy for extending me an invitation to visit the Hyman Minsky Department of Economics as a
visiting PhD student and providing me the chance to attend the various seminars and lectures
by the prominent professors like Jan TOPOROWSKI of the SOAS University, London and
Alain PARGUEZ on Modern Monetary Theory. I would also like to thanks to Professor
Riccardo BELLOFIORE of the University of Bergamo, Italy for suggesting me valuable
references and discussions to improve the structure of my dissertation.

I would like to say my thanks to Professor Roxana BOBULESCU for introducing me the
Grenoble Ecole de Management. Undoubtedly, this teaching experience go a long way to
immaculate my concepts. I would like to say thanks to ―The Association des doctorants de
Grenoble en économie‖ who twice provided the forum to present my work. I appreciate the
positive feedback and valuable comments of participants at the 2nd JDEG 2012.

I dedicate this work to my parents. So far any accomplishment in my life, I will always be
thankful to my parents whose constant struggle, sacrifices and strength opened me the doors
of the impossible and allowed me to do the best I can. I thank my parents for their trust;
nevertheless, I will never be able to thank them enough for their love and support.

GRENOBLE
March 2013

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SUMMARY

GENERAL INTRODUCTION

CHAPTER 1

RISE OF FRAGILE FINANCE, RECURRENT FINANCIAL CRISIS AND
ECONOMIC THEORY
Section 1: The Rise of Fragile Finance and Recurrent Financial Crisis
Section 2: Financial Crisis and the Macroeconomic Theory
Section 3: Efficient Market Hypothesis versus Financial Instability Hypothesis: Policy
Implication of Two Paradigms

CHAPTER 2
ANATOMY OF THE GLOBAL FINANCIAL CRISIS (GFC) of 2007

Section 1: Historical Overview of Some past Episodes of Financial Crisis
Section 2: Anatomy of the 2007 Global Financial Crisis
Section 3: Important Lessons from the Global Financial Crisis of 2007

CHAPTER 3
FRAGILE FINANCE GOES GLOBAL: SOME EMEs CASES

Section 1: Financial Liberalisation, Financial Crisis and EMEs
Section 2: Case Studies of Resilient Group Emerging Economies
Section 3: Case Studies of Non-Resilient Group Emerging Economies

CHAPTER 4
REGULATORY CHALLENGES AND REFORMS AFTER THE GFC of
2007

Section 1: Fundamental Goals and Principles of Regulations
Section 2: Critical Assessment of the Introduced Regulatory Reforms
Section 3: Macroprudential Approach to Financial Regulation

GENERAL CONCLUSION

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TABLE OF CONTENTS
LIST OF ABBREVIATION ................................................................................................................. 9
LIST OF FIGURES ............................................................................................................................ 11
LIST OF TABLES .............................................................................................................................. 11
LIST OF ANNEXURES ..................................................................................................................... 11
RESUME ............................................................................................................................................. 12
ABSTRACT ........................................................................................................................................ 13
GENERAL INTRODUCTION .......................................................................................................... 14
CHAPTER 1: RISE OF FRAGILE FINANCE, RECURRENT FINANCIAL CRISIS AND
ECONOMIC THEORY ...................................................................................................................... 29
Section 1: Fragile Finance and Recurrent Financial Crisis ................................................................................ 33
1.1. Fragile Finance and Financial Crisis ............................................................................................................ 34
1.2. Main factors behind Instability/Fragility/ Recurrent Financial crisis ......................................................... 35
1.2.1. De-Regulation of Financial Markets ................................................................................................... 35
1.2.2. Financial Innovation ........................................................................................................................... 38
1.2.3. Financial Globalisation (Financial Markets Liberalisation) ................................................................. 41
1.3. Post–World War II Financial Settings ......................................................................................................... 42
1.4. Ascendance of “Money Manager Capitalism “and Financialization as Global System .............................. 45
Section 2: Financial Crisis and the Macroeconomic Theory ............................................................................ 48
2.1. Review of Theoretical Approaches about Financial Crisis/Financial Fragility ............................................ 49
2.2. An Orthodox Theory/Approach of Financial Crisis..................................................................................... 50
2.2.1. The Monetarist Approach towards Financial Crisis ............................................................................ 52
2.2.2. Asymmetric Information, Moral Hazard and Random Selection ........................................................ 56
2.3. The Heterodox Approach (Debt and Financial Fragility View) of Financial Crisis ...................................... 57
2.3.1. Irving Fisher (Debt-Deflation) ............................................................................................................. 58
2.3.2. Minsky’s Interpretation of “Euphoric Economy”: Evolution of Financial Structure from Hedge to
Speculative and Ponzi ................................................................................................................................... 60
2.3.3. Kindleberger (from Displacements to Financial Distress) .................................................................. 62
2.4. Comparative Analysis and Relative Superiority of the Heterodox Approach ............................................ 64
Section 3: Efficient Market Hypothesis (EMH) versus Financial Instability Hypothesis (FIH): Policy Implications
of Two Paradigms ........................................................................................................................................... 69
3.1. Efficient Market Hypothesis (EMH) ........................................................................................................... 69
3.2. Financial Instability Hypothesis (FIH) ......................................................................................................... 71
3.2.1. Institutional Dimension of the FIH ..................................................................................................... 75
3.2.2. Historical Facets of Minskyian Analysis .............................................................................................. 78
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3.3. Policy Implications of Two Paradigms ....................................................................................................... 79
3.3.1. Mainstream Policy Perspectives ......................................................................................................... 80
3.3.2. Non-Mainstream Policy Perspectives ................................................................................................. 84
3.3.2.1. Minsky on Policy and Reforms .................................................................................................... 85
3.3.2.2. Minsky’s “Thwarting Systems” .................................................................................................... 86
3.3.2.3. Chapter 13 of “Stabilizing an unstable economy” A complete Reform Design ........................... 87
3.3.2.4. Big Government and Big Central Bank ........................................................................................ 88
3.3.2.5. Minsky on the Capital Development of the Economy ................................................................ 92
Conclusion ...................................................................................................................................................... 94
CHAPTER 2: ANATOMY OF THE GLOBAL FINANCIAL CRISIS OF 2007 ......................... 95
Section 1: Historical Overview of Some past Episodes of Financial Crisis ........................................................ 98
1.1. Analysis of Major Crisis Episodes from the United States ......................................................................... 99
1.1.1. The Banker’s Panic of 1907 .............................................................................................................. 100
1.1.2. Banking Panics and the Great Depression of 1929-33 ..................................................................... 101
1.1.3. Savings and Loan Crisis of 1980s ...................................................................................................... 102
1.1.4. Continental Illinois Failure of 1984 (the famous “Too-Big-To-Fail” case)......................................... 103
1.1.5. Long-Term Capital Management (LTCM) Collapse of 1998 .............................................................. 104
1.2. Financial Crisis Episodes from Emerging Market Economies ................................................................... 106
1.2.1. The Latin American Debt Crisis of 1982 ........................................................................................... 107
1.2.2. Asian Currency Crisis of 1997-98 ...................................................................................................... 107
1.2.3. Country Specific Episodes of Financial Crisis .................................................................................... 108
Section 2: Anatomy of the Global Financial Crisis of 2007 ............................................................................ 110
2.1. Deciphering the Origin of the Global Financial Crisis of 2007 ................................................................. 112
2.1.1. A Macroeconomic Explanation of the Crisis ..................................................................................... 114
2.1.2. Neoliberal Growth Paradigm and Role of Economic Policy .............................................................. 115
2.1.3. From “Great Moderation” to Great Recession ................................................................................. 118
2.2. Monetary Policy Related Failures ............................................................................................................ 120
2.2.1. Monetary Policy Stance of the Federal Reserve and Low Interest Rates ......................................... 120
2.2.2. The Housing Bubble .......................................................................................................................... 123
2.2.3. United States Trade Deficits and Global Current Account Imbalances ............................................ 127
2.3. Financial Market Related Failures ............................................................................................................ 130
2.3.1. The -Too -Big -Too -Fail Doctrine and Distorted Market Incentives ................................................. 130
2.3.2. Opacity of the Financial Institutions and Instruments ..................................................................... 131
2.3.3. Buildup of Excess Leverage in Financial Institutions ........................................................................ 132
2.4. Regulatory and Supervisory Failures ....................................................................................................... 134
2.4.1. Presence of the “Shadow Banking System” ..................................................................................... 135
2.4.2. Regulatory Loopholes Encouraged Excessive Risk-Taking ................................................................ 136
2.4.3. Unprecedented and Unchecked Systemic Risk ................................................................................ 138
2.4.4. Inadequate Financial Governance .................................................................................................... 142
2.4.5. Complexity of the Financial Innovation ............................................................................................ 143
2.4.6. Myopic Risk Management Practices of Financial Institutions .......................................................... 144
Section 3: Lessons from the GFC OF 2007 .................................................................................................... 145
3.1. Some Theory Oriented Lessons ............................................................................................................... 146
3.2. What Have We Learned About Market Efficiency ................................................................................... 149
3.3. Some Policy Oriented Lessons ................................................................................................................. 150
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Conclusion .................................................................................................................................................... 154
CHAPTER 3: FRAGILE FINANCE GOES GLOBAL .................................................................. 156
Section 1: Financial Liberalisation, Financial Crisis and EMEs ....................................................................... 159
1.1. Specific Dynamics of Financial Crisis in EMEs .......................................................................................... 159
1.2. An Appraisal of Financial Liberalisation/Deregulation Policies in EMEs .................................................. 161
1.2.1. Nexus of the Financial Liberalisation and Financial Crisis in EMEs ................................................... 164
1.2.2. Approaches towards Financial Liberalisation, Sequencing and Order ............................................. 167
1.3. Transmission of the GFC to EMEs ............................................................................................................ 177
1.3.1. The Financial Channel ....................................................................................................................... 177
1.3.2. The Commodity and Real Activity Channel ...................................................................................... 180
Section 2: Case Studies of Resilient Group EMEs .......................................................................................... 182
2.1. THAILAND ................................................................................................................................................ 182
2.1.1. Impact of the 2007 GFC on Thailand ................................................................................................ 183
2.1.2. Thailand’s Experience with Asian Currency Crisis of 1997 ............................................................... 184
2.1.3. Financial and Economic Reforms in Thailand after the 1997 Crisis .................................................. 185
2.2. CHILE ........................................................................................................................................................ 189
2.2.1. Impact of the GFC of 2007 on Chile .................................................................................................. 189
2.2.2. 1981-84 Banking Crisis in Chile ......................................................................................................... 192
2.2.3. Financial Reforms and Market Liberalisation Polices of Chile .......................................................... 194
2.2.4-Regulatory and Supervisory Measures for the Financial Sector ....................................................... 195
Section 3: Case Studies of Non-Resilient Group EMEs .................................................................................. 197
3.1. MEXICO .................................................................................................................................................... 198
3.1.1. Impact of the 2007 GFC on Mexico .................................................................................................. 199
3.1.2. The Mexican Currency and the Banking Crisis of 1994-95 ............................................................... 202
3.1.3. Government and Central Banks Policies to Respond Banking Crisis ................................................ 203
3.1.4. Analysis of Mexico’s Financial Liberalisation/Deregulation Policies ................................................ 204
3.2. TURKEY ..................................................................................................................................................... 208
3.2.1. Impact of the 2007 GFC .................................................................................................................... 209
3.2.2. A Brief analysis of Turkeys Liberalisation and De-regulation Reforms ............................................. 211
3.2.3. Turkish Experience with the 2000-01 Crisis...................................................................................... 212
3.2.4. Analysis of Regulatory Reforms in Turkey ........................................................................................ 215
3.3. Some Policy Implications ......................................................................................................................... 217
3.3.1. Analysis of Resilience and Policies for the Crisis Prevention ............................................................ 218
3.3.2. Specific Challenges for the EMEs after the GFC ............................................................................... 222
Conclusion .................................................................................................................................................... 223
CHAPTER 4: REGULATORY CHALLENGES AND REFORMS AFTER THE 2007 GFC .. 225
Section 1: Fundamental Goals and Principles of Regulation ......................................................................... 228
1.1. The Policy Goals of Financial Regulation ................................................................................................. 228
1.1.1. Safety and Soundness of Financial Institutions ................................................................................ 229
1.1.2. Mitigation of Systemic Risk .............................................................................................................. 229
1.1.3. Fairness and Efficiency of the Markets ............................................................................................. 230
1.1.4. Protection of Customers and Investors ............................................................................................ 230
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1.2. Key Principles of Regulations ................................................................................................................... 231
1.2.1. Striking the Right Balance between Innovations and Regulation .................................................... 232
1.2.2. Dealing with Systemic Risks .............................................................................................................. 232
1.2.3. Higher Capital Requirements ........................................................................................................... 234
1.2.4. Countercyclical Provisioning ............................................................................................................. 234
1.2.5. Dealing with Liquidity Risk and Leverage ......................................................................................... 235
1.2.6. Proper Resolution Mechanism for Failing Financial Institutions ...................................................... 236
1.2.7. Macroprudential Approach to Regulation ........................................................................................ 237
1.2.8. Some Miscellaneous Measures ........................................................................................................ 238
1.3. Regulation for EMEs................................................................................................................................. 239
Section 2: Critical Assessment of the Introduced Regulatory Reforms .......................................................... 242
2.1. The Dodd–Frank Wall Street Reform and Consumer Protection Act (2010) ........................................... 242
2.1.1. Measures for Systemic Safety .......................................................................................................... 243
2.1.2. Volcker Rule ...................................................................................................................................... 244
2.1.3. Collins Amendment .......................................................................................................................... 244
2.1.4. Consumer Financial Protection Bureau (CFPB) ................................................................................ 244
2.2. Basel III: A Global Regulatory Framework for More Resilient Banking Systems ...................................... 245
2.2.1. Enhanced Capital Requirements ...................................................................................................... 245
2.2.2. The Leverage Ratio and Better Risk Coverage .................................................................................. 245
2.2.3. Capital Cushions ............................................................................................................................... 246
2.2.4. Minimum Global Liquidity Standards ............................................................................................... 246
2.3. Analysis and Critical Assessment of the Reforms .................................................................................... 247
2.4. Implications of International Regulatory Reforms for EMEs ................................................................... 252
2.4.1. Implications of Basel III Regulatory Reforms for EMEs..................................................................... 253
2.4.2. Impact of Extra-Territorial Financial Legislation on EMEs ................................................................ 258
2.4.2.1. Swap Dealer Registration under the Dodd-Frank Act ............................................................... 258
2.4.2.2. European Markets Infrastructure Regulation ........................................................................... 259
Section 3: Macroprudential Approach to Financial Regulation .................................................................... 260
3.1. Propositions (Proposals) about Macroprudential Policy ......................................................................... 261
3.2. History and Concept of Macroprudential Approach................................................................................ 263
3.3. Comparison between Micro and Macro Approaches .............................................................................. 265
3.4. Rationale and Objectives of the Macroprudential Approach .................................................................. 266
3.4.1. Nature of Financial Instability........................................................................................................... 268
3.4.2. Better Balance between Market and Regulatory Discipline ............................................................. 269
3.4.3. Structural Evolution of the Financial System .................................................................................... 270
3.5. Macroprudential Tools/Instruments and Their Effectiveness ................................................................. 272
3.6. Macroprudential Regulation and Supervision for EMEs .......................................................................... 275
Conclusion .................................................................................................................................................... 283
GENERAL CONCLUSION .............................................................................................................. 285
BIBLIOGRAPHY ............................................................................................................................. 291
ANNEXURES ................................................................................................................................... 325
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RESUME FRANÇAIS ...................................................................................................................... 340

LIST OF ABBREVIATION

 ABS: Asset Backed Securities
 AIG: American International Group
 AEs: Advanced Economies
 ARMs: Adjustable Rate Mortgages
 BAAC: Bank for Agriculture and Agricultural Co-Operatives (of Thailand)
 BRSA: Banking Regulation and Supervision Agency (of Turkey)
 BCBS: Basel Committee on Banking Supervision
 BOA: Bank of England
 BOP: Balance-of-Payments
 BIS: Bank of international settlements
 BNM: Bank Negara Malaysia
 CPI: Consumer price Inflation
 CRA: Credit Rating Agencies
 CRE: Commercial Real Estate
 CDS: Credit Default Swaps
 CDO: Collateralized Debt Obligation
 CINB: Continental Illinois National Bank
 CBRT: Central Bank of the Republic of Turkey
 ERM : European Exchange Rate Mechanism
 EMEs : Emerging Market Economies
 EU: European Union
 FSA: Financial Services Authority
 FSB: Financial Stability Board
 FSF: Financial Stability Forum
 FSLIC: Federal Savings and Loan Insurance Corporation
 FSOC: Financial Stability Oversight Council
 FDIC: Federal Deposit Insurance Corporation
 FHLBB: Federal Home Loan Bank Board
 FED: The Federal Reserve System (Central banking system of USA)
 FX: Foreign Exchange
 FIH: Financial Instability Hypothesis
 FSA: Financial Services Authority
 FDIC: Federal Deposit Insurance Corporation
 FOMC: Federal Open Market Committee (of Fed reserve USA)
 FSMP: Financial Sector Master Plan
 GDIs: Government‘s Debt Instruments
 GDP: Gross Domestic Product
 GFC: Global Financial Crisis
 GSEs: Government-Sponsored Enterprises
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 GLB: The Gramm–Leach–Bliley Act
 GMAC: General Motors Acceptance Corporation
 GNI; Gross National Income
 G20:The Group of 20 Nations
 G30:Consultative Group on International Economic financial issues
 HELOC: Home Equity Line Of Credit
 IMF: International Monetary Fund
 IAS: International Accounting Standards
 IOSCO :International Organization of Securities Commissions
 KLSE: Kuala Lumpur Stock Exchange
 LOLR: Lender of Last resort
 LTCM: Long-Term Capital Management
 LCFI: Large Complex Financial Institution
 MBS: Mortgage-Backed Securities
 MOSF: Ministry of Strategy and Finance (of South Korea)
 NMC: National Monetary Commission
 OBS: Off-Balance Sheet
 OECD: Organization for Economic Cooperation and Development
 OTC: Over the Counter
 OTS: Office of Thrift Supervision
 PIMCO: Pacific Investment Management Company
 RBI: The Reserve Bank of India
 SEC: Securities and Exchange Commission
 SDIF: Savings Deposit Insurance Fund of Turkey
 S & Ls: Savings and Loans
 SOEs: State Owned Enterprises
 SPVs: Special Purpose Vehicles
 TBTF: Too Big To Fail
 TARP :Troubled Asset Relief Program
 U.S: United States
 USA: United States of America
 UK :United Kingdom
 UNCTAD; United Nations Conference on Trade and Development
 VAR: Value-At-Risk
 WB: World Bank
 WEO: World Economic Outlook

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