WHEN T H E BROOKINGS Panel on Economic Activity began in 1970, the world economy roughly accorded with the idea of three distinct economic systems: a capitalist first world, a socialist second world, and a developing third world which aimed for a middle way between the first two. The third world was characterized not only by its low levels of per capita GDP, but also by a distinctive economic system that assigned the state sector the predominant role in industrialization, although not the monopoly on industrial ownership as in the socialist economies. The years between 1970 and 1995, and especially the last decade, have witnessed the most remarkable institutional harmonization and economic integration among nations in world history. While economic integration was increasing throughout the 1970s and 1980s, the extent of integration has come sharply into focus only since the collapse of communism in 1989. In 1995 one dominant global economic system is emerging. The common set of institutions is exemplified by the new World Trade Organization (WTO), which was established by agreement of more than 120 economies, with almost all the rest eager to join as rapidly as possible. Part of the new trade agreement involves a codification of basic principles governing trade in goods and services. Similarly, the International Monetary Fund (IMF) now boasts nearly universal membership, with member countries pledged to basic principles of currency convertibility. Most programs of economic reform now underway in the developing world and in the post-communist world have as their strategic aim the

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Economic Reform and the Process of Global Integration

Econometric policy evaluation: A critique

This paper solves explicitly a simple equilibrium model with liquidity risk. In our liquidityadjusted capital asset pricing model, a security s required return depends on its expected liquidity as well as on the covariances of its own return and liquidity with the market return and liquidity. In addition, a persistent negative shock to a security s liquidity results in low contemporaneous returns and high predicted future returns. The model provides a unified framework for understanding the various channels through which liquidity risk may affect asset prices. Our empirical results shed light on the total and relative economic significance of these channels and provide evidence of flight to liquidity. r 2005 Elsevier B.V. All rights reserved.

Market Liquidity: Asset Pricing with Liquidity Risk

Financial systems are crucial to the allocation of resources in a modern economy. They channel household savings to the corporate sector and allocate investment funds among firms; they allow intertemporal smoothing of consumption by households and expenditures by firms; and they enable households and firms to share risks. These functions are common to the financial systems of most developed economies. Yet the form of these financial systems varies widely. In the United States and the United Kingdom competitive markets dominate the financial landscape, whereas in France, Germany, and Japan banks have traditionally played the most important role. Why do different countries have such different financial systems? Is one system better than all the others? Do different systems merely represent alternative ways of satisfying similar needs? Is the current trend toward market-based systems desirable? Franklin Allen and Douglas Gale argue that the view that market-based systems are best is simplistic. A more nuanced approach is necessary. For example, financial markets may be bad for risk sharing; competition in banking may be inefficient; financial crises can be good as well as bad; and separation of ownership and control can be optimal. Financial institutions are not simply veils, disguising the allocation mechanism without affecting it, but are crucial to overcoming market imperfections. An optimal financial system relies on both financial markets and financial intermediaries.

比较金融系统 = Comparing financial systems

1. Introduction: 1.A Motivation 1.B Objectives and contributions 1.C Key findings: a brief synopsis 1.D Guide to the book 2. Contrasting approaches to bank regulation: 2.A Two approaches to bank regulation: 2.A.1 Public interest approach 2.A.2 Private interest view of regulation 2.B Bank regulation: how 2.C The Basel Committee and regulatory convergence 2.D Conclusion 3. How are banks regulated and supervised around the world?: 3.A Overview 3.B Structure, scope and independence of regulation and supervision 3.C What is a 'bank'? 3.D Entry into banking, capital requirements and supervisory powers 3.E Explicit deposit insurance schemes 3.F Private monitoring and external governance 3.G Does bank ownership type affect the choice of regulations and supervisory practices? 3.H Forces for greater harmonization of regulation and supervision among countries 4. What works best: 4.A Goals and boundaries 4.B Bank regulation and supervision and bank development 4.C Bank supervision, regulation, and stability 4.D Bank supervision, regulation, and bank efficiency 4.E Bank supervision, regulation, and bank lending 4.F Supervision, regulation, and bank governance 4.G Summary of results 5. Choosing bank regulations 5.A Recap and motivation 5.B Motivating example: Mexico and the United States 5.C Conceptual framework 5.D Empirical framework and data 5.E Summary remarks 6. Rethinking bank regulation: 6.A Approach and context 6.B Lessons and implications.

Rethinking Bank Regulation: Till Angels Govern

This paper unpacks the operation of foreign debt bondholder committees before the creation of the British Corporation of Foreign Bondholders (CFB) in 1868. I argue that many ideas about this period need to be revisited. In particular, my evidence (which uses archival work to describe market microstructures) shows the importance of the London Stock Exchange as a Court of Arbitration. I show how the LSE General Purpose Committee set up a system of Collective Action Clauses, requiring majority agreement among bondholders to sanction a restructuring deal and permit market access. I argue that (unlike what research has argued thus far) this created powerful incentives for bondholders to get organized as they did. Previous models and formal analyses need to be recast. The CFB appears to have been an experiment in statutory restructurings rather than one in coordination.

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Collective Action Clauses before they had airplanes: Bondholder committees and the London Stock Exchange in the 19th Century (1827-1868)

This chapter covers the long-term evolution of the primary market for foreign government debt. It discusses the role of financial intermediaries as underwriters and distributors of securities, providers of information, and lending of last resort services since the early nineteenth century, and the evolution of this role. The chapter underscores the role of the prestige of global financial brands in sustaining early foreign debt markets and its weakening in the modern era.

Global Financial Brands and the Underwriting of Foreign Government Debt since 1815

This paper offers a theory of conditionality lending in 19th-century international capital markets. We argue that ownership of reputation signals by prestigious banks rendered them able and willing to monitor government borrowing. Monitoring was a source of rent, and it led bankers to support countries facing liquidity crises in a manner similar to modern descriptions of “relationship” lending to corporate clients by “parent” banks. Prestigious bankers’ ability to implement conditionality loans and monitor countries’ financial policies also enabled them to deal with solvency. We find that, compared with prestigious bankers, bondholders’ committees had neither the tools nor the prestige required for effectively dealing with defaulters. Hence such committees were far less important than previous research has claimed.

Bondholders vs. bond-sellers? Investment banks and conditionality lending in the London market for foreign government debt, 1815-1913

This paper discusses the existence of 'home' biases in the 19th century global capital market, whereby colonies appear to have received a 'disproportionate' amount of capital from their metropolis. Starting from a discussion of the Bulow Rogoff (1989) problem, we argue that imperial links provided a natural institutional framework to make pre-commitment credible by ensuring an adequate degree of willingness to pay. This was not because imperial rule provided coercion or punishment, but rather because it supplied a legal framework that effectively suppressed the " sovereign " nature of colonial debts. We conclude that the greater facility with which capital migrated in the 19th century has much to do with the fact that colonies were more akin to the 'regions' of modern countries.

Home Biases, 19th Century Style

Dans quelle mesure les regles formelles d'une organisation monetaire influencent-elles les comportements, et dans quelle mesure la combinaison de ces comportements definit-elle l'organisation ? Ou encore, est-il possible de qualifier les pratiques des agents et des institutions sans faire reference aux regles du jeu, ou de comprendre ces memes regles sans etre attentif aux pratiques qu'elles generent ou a l'autonomie qu'elles accordent ? Cet essai propose quelques elements de reponse au travers de l'etude des interactions entre la Banque de France et le marche du metal precieux, et de leurs transformations entre 1848 et 1876. La litterature considerable sur les « regles du jeu » du systeme monetaire international au cours du 19e siecle (Bloomfield, 1959) procede en general en identifiant des principes de fonctionnement supposes universels qui auraient regi les relations monetaires entre les nations. Par rapport a cet ideal type, les particularites nationales, liees a des provisions legales, a des specificites techniques, ou a une situation geographique donnee sont alors interpretees au moins comme des curiosites, souvent comme des deviations, plus generalement comme des violations des « regles du jeu ».

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Marc Flandreau

Papers

Collective Action Clauses before they had airplanes: Bondholder committees and the London Stock Exchange in the 19th Century (1827-1868)

Global Financial Brands and the Underwriting of Foreign Government Debt since 1815

Bondholders vs. bond-sellers? Investment banks and conditionality lending in the London market for foreign government debt, 1815-1913

Home Biases, 19th Century Style

Les règles de la pratique. La Banque de France, le marché des métaux précieux et la naissance de l'étalon-or, 1848-1876