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Emerald Group Publishing Limited
Copyright © 2009, Emerald Group Publishing Limited
Article Type: Guest editorial From: Journal of Financial Regulation and Compliance, Volume 17, Issue 3
It is now two years since liquidity started to dry up on the world’s financial markets in the summer of 2007 and the problems facing the world’s financial system became public knowledge. Since then the financial crisis, which has been spreading globally, has become a matter of international concern. Banks have been failing in much of the world and, indeed, some countries have actually come close to bankruptcy and have only managed to avoid this with the assistance of the International Monetary Fund. Many countries had already introduced financial sector safety nets long before the crisis started. These were, generally, designed to comply with what was considered to be international best practice in relation to both banking supervision/regulation and capital adequacy. The view was widely held that these safety nets would be adequate to ensure that any significant financial crisis could be avoided but, as the crisis spread, these have generally been found to be wanting in many respects.
The reaction of many governments has been to protect banks and bank depositors by injecting huge amounts of capital into the banking system and to provide blanket guarantees for bank depositors. For many years it had been considered dangerous, from a moral hazard viewpoint, to take action such as this. Limited protection for depositors through the use of explicit deposit insurance schemes coupled with effective supervision/regulation of the financial sector was thought to be the most prudent approach. However, this approach was quickly abandoned as soon as banks, and other financial institutions, started to get into financial difficulties. Look, for example, at what has happened in the USA and the UK.
At the time of writing the crisis is continuing and may be getting worse in some respects in some places. It is however clear that although the crisis is continuing there is an urgent need for a widening and deepening of the international debate about where we are now, how we got there and where we ought to be going. This issue of the Journal of Financial Regulation and Compliance entitled “Protecting bank depositors and other stakeholders: the crisis and beyond” addresses these issues and contains a wide range of contributions from experts from different subject areas and different countries. It is concerned with many aspects of the crisis and examines what has actually been happening and the responses. It seeks to go further by looking beyond the crisis to consider what needs to be done once there is a return to more normal financial conditions. While much of the focus is on the protection of bank depositors other matters such as bankruptcy reorganisation procedures, effective prudential supervision, cross-border aspects, the introduction of deposit insurance in a transitional economy, the roles of Fannie Mae and Freddie Mac and questions regarding the international financial sector safety net are also addressed.
Andrew CampbellGuest Editor