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The economic and financial crisis, especially the sovereign debt crisis, discovered many deficiencies and weaknesses in the banking sector in the European Union (EU). The need for special surveillance and supervision of cross-border banking cooperation and termination of the toxic link between sovereign debt and banking sector have accelerated the process of forming and establishing a Banking Union (BU). An integrated financial framework has been established in which the European Central Bank (ECB) through the Single Supervisory Mechanism (SSM) has a key role and the responsibility for the overall supervision of the banking sector of the euro zone. The Single Resolution Mechanism (SRM) and schemes of the Single Deposit Guarantee Mechanism (SDGM) are under the national supervisory authorities while the European Banking Authority (EBA) is responsible for developing the Single Rules. From the new architecture is expected the preservation of the single market and a common currency, breaking “toxic connections” between sovereign debt and banks, mitigation and removal of financial instability and economic growth. The research shows that the BU together with the ECB in a certain sense, also contributes to the normalization of credit and financial conditions in the single mark. Estimates through SSM, conducted by the ECB and the EBA, during, 2014 and 2015 on 107 banks in 21 countries indicate progress toward solvency and resilience of the banking system of the euro area. Despite some initial success the entire project BU seems to have missed on opportunities, resulted in late reactions, and was too complex to be feasible. The political will of national governments to give up sovereignty over its banking sector and transfer competencies to the supranational institutions is a key factor in the success or failure of a BU. It seems so but past experience indicates that there is no political willingness to solve problems. Mainly most of the government avoids cleaning a hidden “skeleton in closets” due to lack of means for recapitalization while some are trying for loans from the ECB to help their banks. The ECB plays a key oversight role at the EU level and has too much power, which can cause risks caused by conflicting goals. The ECB is losing the role of the final refuge of liquidity, which is the main disadvantage of a BU. The SSM is susceptible to criticism due to difficulty in operation because of slow incorporation of European legislation into national law. Slow implementation carries risks of fragmentation of the market, regardless of the responsibility of the ECB. The financial capacity of the temporary agreement with the SRM is insufficient in solving the crisis of more banks while procedural application is complex and time-consuming. Planned backstop with a centralized resource is a resolution that is insufficient for solving the failure of big systemic banks, which are too big to bail. The heterogeneity of the existing Deposit Guarantee Schemes (DGS) and the banking systems of the member states of the euro zone caused controversy in terms of setting of common insurance schemes. The procedures for the recovery and resolution of critical banks are problematic.

This chapter examines the impact of banking competition, bank regulation, and the global financial crisis (GFC) of 2008–2009 on banks’ productivity changes. For the empirical analysis, I apply a semi-parametric two-step approach of Malmquist index estimates and bootstrap regression to a cross-country panel data of 8,451 commercial banks from 82 countries over the period 2004–2012. Empirical results show that (1) banking competition and capital regulation significantly enhance bank productivity, (2) a tighter bank supervision have a positive impact on bank productivity, and (3) bank productivity decreases during the GFC, but starts to increase as the GFC recovers. I also present consistent evidence that commercial banks in countries with better national governance have higher productivity growth before, during and after the GFC.

Purpose: This chapter focuses on the enterprise’s ethics and social responsibility, which are interdependently resulting in an enterprise’s credibility and better performance. The authors provide a comprehensive tool that can help enterprises and humankind to find a better way toward new economic and social conditions, thus society’s transformation, beginning with the enterprise-level innovation of decisions that originate from the (key) stakeholders’ personal level innovation of decisions. The purpose is to show a possible path toward requisitely holistic enterprises’ governance, management and practice.

Method: The authors use a qualitative methodological approach, based on three relations (the law of requisite holism, the law of hierarchy of succession and interdependence, and the law of entropy) and three elements (10 guidelines defining the subjective starting points and objectives, and 10 guidelines on assuring the agreed policy to survive in latter steps of working process) of Dialectical systems theory. This chapter methodologically also follows the ethics of interdependence. Based on the research, the authors propose to use the supplemented credibility strategy as a possible methodological way of introducing enterprise ethics into practice.

Findings: The authors introduce a supplemented model of the strategy of an enterprise’s credibility. The authors propose using this new model to develop an enterprise’s social responsibility and ethics in a broader sense. The authors focus is on financial institutions’ governance and credibility. The main finding of this chapter is that strong regulation of the financial sector contributes positively to all four dimensions in the strategy of an enterprise’s credibility – if it is requisitely holistic rather than one-sided and short-term.

Originality and Significance of Findings: The strategy of an enterprise’s credibility could be used as a practical implementation tool for (key) stakeholders. They can use the strategy of an enterprise’s credibility to innovate its behavior toward appropriate holistic behavior and sustainable development stimulating. This new tool can lead enterprises toward (more) social responsibility, enterprise ethics and credibility. In applying this theory to financial institutions, the authors find that such financial regulation (and supervision) significantly strengthens multiple dimensions of enterprise credibility. In this regard, the authors find it favorable and encourage such regulation in all enterprises engaged in financial services, including non-bank institutions. Besides, to add to more comprehensive social benefits, the authors find it favorable to encourage similar development in other economic sectors, not the opposite, deregulation.

This chapter aims to examine Bank Negara Malaysia’s (BNM) approach in fulfilling its financial consumer protection mandate from unfair contract terms and the statutory framework relevant for consumer protection in the domestic market. This is a qualitative-based research. Using content analysis, this study analyses BNM’s Financial Stability and Payment Systems Report from 2012 to 2016, specifically on the ‘market conduct and consumer empowerment’ to explore BNM’s prudential regulatory, supervisory and consumer protection roles in protecting bank consumers from unfair contract terms. It is found that even if a number of standards and guidelines have been issued by BNM in improving ‘fairness and transparency’, the potential risk facing bank consumers from unfair terms in standard consumer contracts of Islamic banks especially where terms may be unfair or unclear remains unchanged. This study recommends that BNM as the Central Bank and financial regulator of Malaysia promotes self-regulation of the Islamic banks by adopting value-based banking of a consumer-focussed culture in delivering an effective protection for consumers from unfair contract terms and empowering them in their dealings with Islamic banks in Malaysia. This study will be helpful in bringing a policy formulation by BNM in identifying their weak areas and suggesting improvements in pursuing a strong consumer protection agenda from unfair contract terms.

Product intervention power is introduced under the markets in financial instruments regulation (MiFIR) and packaged retail and insurance-based investment products (PRIIPs) Regulation for all EU Member States and gives National Competent Authorities (NCAs), European Securities and Markets Authority (ESMA), and European Banking Authority (EBA) powers to monitor financial products (and services) under their supervision and to “temporarily” prohibit or restrict the marketing, distribution, or sale of certain financial instruments, or to intervene in relation to certain financial activities or practice. This extends the supervisory measures defined in MiFID II to any PRIIPs (including insurance-based investment products “IBI products”) that would not otherwise fall under the scope of MiFID II. Product intervention power is given to the NCAs, and in order to use power, it requires to take the specifics of the individual case into account and a series of conditions, criteria, and factors to fulfill. Moreover, ESMA and the EBA have a type of control function and ability to override national regulators on product. The aim of product intervention powers is to ensure strengthening of investor protection, but given the potential significant impact of this power, calls into question of possibility to delay innovation and slow down product developments on the capital market.

This paper provided an overview of supervisory measures on product intervention, that is, scope of the product intervention power, criteria, factors, and risks which have to be taken into consideration when using this regulator’s tool.

This chapter’s goal is to define the kind of seeds to be planted for moving forward in the safe and stable drive toward a leading central banking role directed at achieving a sustained Islamic banking and finance development within the global financial system. The system witnessed the input of Islamic banking with its fruitful contribution as a feasible banking structure in both implementing agreed reforms and shaping the next steps directed toward crisis prevention and crisis resolution.

The adopted approach is based upon scientific conceptual basis as well as the practical experience related to the central banking role and Islamic banking evolution. This chapter will define the strategic role of Central Banks and highlight the conceptual basis governing the leading role of central banks as well as the practical basis derived from our central banking and Islamic banking experience.

In light of the conceptual and practical basis for enabling an efficient and effective role of Central Banks as a regulatory body in shaping the future of the Islamic Financial System. Legal, institutional and managerial strategic determinants for this role have been defined.

The analytical work of this chapter crystallises in a pioneering initiative the main determining factors governing the role of central banks as the main regulatory body for Islamic banking, and how this role could be effective in affecting the future role to be played by the Islamic banks in the global financial system. Also, to this end, the integrated required role by central banks, public policies, multilateral institutions and Islamic banks are illustrated.

Energy and cooperative hard work and commitment from all players, including the regulators of Islamic banks supported by public policies, international and multilateral institutions and members of the Islamic banking family is thought to be the main determining factor for transforming the Islamic banking family into one that will make the Islamic people and all humanity – through the global financial system – live with more stability, welfare and happiness.

The global financial crisis has magnified the role of Financial Sector Surveillance (FSS) in the International Monetary Fund's activities. This chapter surveys the various steps and initiatives through which the Fund has increasingly deepened its involvement in FSS. Overall, this process can be characterised by a preliminary stage and two main phases. The preliminary stage dates back to the 1980s and early 1990s, and was mainly related to the Fund's research and technical assistance activities within the process of monetary and financial deregulation embraced by several member countries. The first ‘official’ phase of the Fund's involvement in FSS started in the aftermath of the Mexican crisis, and relates to the international call to include financial sector issues among the core areas of Fund surveillance. The second phase focuses on the objectives of bringing the coverage of financial sector issues ‘up-to-par’ with the coverage of other traditional core areas of surveillance, and of integrating financial analysis into the Fund's analytical macroeconomic framework. By urging the Fund to give greater attention to its member countries' financial systems, the international community's response to the global crisis may mark the beginning of a new phase of FSS. The Fund's financial sector surveillance, particularly on advanced economies, is of paramount importance for emerging market and developing countries, as they are vulnerable to spillover effects from crises originated in advanced economies. Emerging market and developing economies, which constitute the majority of the Fund's 187 members, are currently the recipients of over 50 programmes of financial support from the Fund (including those of a precautionary nature), totalling over $250 billion.

Purpose – The global financial crisis of 2007–2009 has highlighted the need for reform of financial regulation in several jurisdictions across the globe, including the United Kingdom and the United States. This chapter argues that the reforms need to be comprehensive and will therefore have to cover several aspects of financial regulation.

Design/methodology/approach – The chapter critically examines some of the areas where reforms are most needed. This involves consideration of the merits and demerits of multi-functional or universal banking. It also involves consideration of the systemic and other problems that arise as a result of the increasingly international nature of banking and other financial services. Moreover, it examines the need for regulators to understand and keep pace with financial innovation. Furthermore, it involves discussion on the need to improve corporate governance and remuneration policies in banks and other financial services providers as well as the need for adequate arrangements for dealing with bank insolvencies and collapses.

Findings – Market fundamentalism and over-reliance on the alleged self-correcting powers of the market have led to excessive deregulation and liberalisation in world financial markets. Financial regulatory reforms will therefore have to be substantial and comprehensive to properly address the problems caused by excessive financial liberalisation.

Originality/value – The chapter examines significant issues that academics, regulators and policy makers should consider when devising or implementing reforms designed to prevent, or reduce the impact of, financial crises in the future.

The world has been gripped by the severest global financial (and economic) crisis since the Great Depression of the 1930s. How did it come about, what is being done to alleviate its consequences and, vitally, what measures should be undertaken to ensure against its recurrence are therefore questions that must be satisfactorily addressed. Preventing ‘financial crises’ from ever happening again is of course completely out of the question, they being inherent to the economic system as we understand it; rather that of those of the ‘severest’ kind. Fortunately, a vast literature has been accumulating on these issues, so the intention here is not to add to it and reinforce the perception that economists will offer more opinions on a single issue than the total membership of any assembled group thereof for the purpose. Hence, this is confined to a consideration of the most convincing explanations. Owing to space limitations, I shall not examine the recommendations for future action in all the mentioned areas but will do so for what is being offered to cater for the capital adequacy and pro-cyclicality since they are of the essence and involve many players.