The deficient government regulation of banks, hedge funds and special-purpose entities is one of the most important reasons for the outbreak and spread of the international financial crisis that started in 2007. Liability limitations, as manifest in the low equity requirements established by the regulating authorities, imply the cutting off of potential losses of the banks. This fed the banks’ appetite for risk. Profits were privatised but losses were carried by the taxpayers and creditors, in other words socialised.
The banking system can only gain new stability if the liability principle is given more weight. The prerequisite is considerably stricter equity requirements. Whereas the short-term rescue of the banks from their acute crisis did not require a considerable amount of international harmonisation, for a long-term system of regulation for the banking sector international harmonisation is imperative in order to prevent a creeping competition of laxity. To achieve this, the countries of the world must submit to a Basel III accord that defines the details of banking regulation with regard to minimal standards for the quality of bank products and that strengthens the responsibility of the banks by way of an increase in the regulatory equity requirements.
Relevant Issues: Financial Market Crisis, German State Banks
Refereed scientific monographs
Casino Capitalism. How the Financial Crisis Came about and What Needs to Be Done Now, Oxford University Press, Oxford 2010, 400 pages, second edition (Paperback) 2012. Korean edition, Ecopia, Korea, 2010, 421 pages. (Revised and updated translation of Kasino-Kapitalismus). To Amazon.
The New Systems Competition, Yrjö Jahnsson Lectures, Basil Blackwell: Oxford 2003, 228 pages. One hardback, one paperback edition. To Amazon.
Reprints
Risk Taking, Limited Liability, and the Banking Crisis, Selected Reprints, Ifo Institute: Munich 2009, 200 pages.
Articles in refereed journals
"Risk Taking, Limited Liability and the Competition of Bank Regulators", Finanzarchiv 59 (3), 2003, pp. 305-329; (Download, 4.6 MB); CESifo Working Paper No. 603, 2001; NBER Working Paper No. 8669, 2001.
"The New Systems Competition", Perspektiven der Wirtschaftspolitik 5, 2004, pp. 23-38; (Download, 130 KB). German version: "Der neue Systemwettbewerb", Perspektiven der Wirtschaftspolitik 3, 2002, pp. 391- 407; (Download, 154 KB); CESifo Working Paper No. 623, December 2001; NBER Working Paper No. 8747, January 2002.
„The Selection Principle and Market Failure in Systems Competition“, Journal of Public Economics 66, 1997, S. 247-274; (Download, 1.28 MB); CESifo Working Paper Nr. 103, 1996; NBER Working Paper Nr. 5411, März 1999.
Academic comments
"Asymmetric Information, Bank Failures, and the Rationale for Harmonizing Banking Regulation. A Rejoinder on Comments of Ernst Baltensperger and Peter Spencer“, Finanzarchiv 59, 2003, pp. 340-346 (Download, 1.6 MB).
Policy Contributions in Journals and Academic Volumes
"What can be learned from the banking crisis", VOX, www.voxeu.org, December 17th, 2008.
"Whither Systems Competition?", CESifo Forum 2, 2001, No. 3, p. 2 (Download, 25 KB).
Short Policy Contributions and Newspaper Articles
"The European Banking Union?", (ref. Project Syndicate June 2012), Les Echos (Mali), Caijing Magazine (China), China Daily Online (China), The Japan Times (Japan), The Korea Herald (Korea, South), Poslovni Dnevnik (Croatia), Ekonom (Czech Republic), Vilaggazdasag (Hungary), Utrinski Vesnik (Macedonia), Wyborcza.Biz (Poland), Expreso (Ecuador), Al Jarida (Kuwait), Al Eqtisadiah (Saudi Arabia), Alrroya Aleqtissadiya (United Arab Emirates), De Tijd (Belgium), L'echo (Belgium), Il Sole - 24 Ore (Italy), Het Financieele Dagblad (Netherlands), Jornal De Negocios (Portugal), Finanz Und Wirtschaft (Switzerland), L'agefi (Switzerland), The Guardian (United Kingdom), The New Economy (United Kingdom).
"Plugging the Leaks" (ref. Project Syndicate October 2008), Ekonom (Czech Republic), Aripaev (Estonia), Danas (Serbia), Tyzden (Slovakia), The Japan Times (Japan), The Korea Herald (Korea, South), Business World (Philippines), Al Tijara (Bahrain), Bahrain Tribune (Bahrain), The Daily Star (Lebanon), L'Orient le Jour (Lebanon), Al Raya (Qatar), Al Jarida (Kuwait), Al Eqtisadiah (Saudi Arabia), Financial Week (USA).
"Lemon Banking" (ref. Project Syndicate April 2008), Börsen-Zeitung (Germany), L'Echo (Belgium), Dnevnik (Bulgaria), Poslovni Dnevnik (Croatia), Aripaev (Estonia), Taloussanomat (Finland), Vilaggazdasag (Hungary), Tageblatt (Luxembourg), Logos Press (Moldova), Het Financieele Dagblad (Netherlands), Diario Economico (Portugal), Tyzden (Slovakia), Expansion (Spain), L'Agefi (Switzerland), La Prensa (Panama), Al Tijaria (Bahrain), Al Jarida (Kuwait), Al Raya (Qatar), Diario Las Americas (USA), The International Economy (USA), Les Echos (Mali), The Australian Financial Review (Australia), The Independent (Bangladesh), The Financial Express (India), Jakarta Post (Indonesia), The Japan Times (Japan), The Korea Herald (Korea, South), Business World (Philippines).
"New regulations needed to curb bad banking", The Japan Times, April 30th, 2008.
Ifo Viewpoints
Ifo Viewpoint No. 153: Outright Monetary Infractions, Feb 11, 2014.
Ifo Viewpoint No. 144: The Collateral Damage of Europe's Rescue, Mar 5, 2013.
Ifo Viewpoint No. 143: The eurozone’s banking union is deeply flawed, Feb 15, 2013.
Ifo Viewpoint No. 140: Guarantees for Europe's Ailing Banks, Dec 3, 2012.
Ifo Viewpoint No. 118: Basel III: Stricter and fairer, Oct 21, 2010.
Ifo Viewpoint No. 105: Bad Banks and Bad Ideas, Jun 10, 2009.
Ifo Viewpoint No. 104: Stuffing the Goose Strategy, Apr 1, 2009.
Ifo Viewpoint No. 100: What Can be Learned from the Banking Crisis, Nov 4, 2008.
Ifo Viewpoint No. 99: Plugging the Leaks: What Caused the Banking Crisis, Oct 28, 2008.
Ifo Viewpoint No. 94: Lemon Banking, May 19, 2008.
Ifo Viewpoint No. 28: Whither Systems Competition?, Oct 3, 2001.