Notes
1 Given Keynes's previous stint in the India Office and his experience at the Versailles peace conference, later confirmed at Bretton Woods, it may be safe to assume that he did not include international relations among the vested interests referred to in the passage.
2 In the English idiom, liberalism and liberal political philosophy and constructions are not synonyms.
3 Converting the deus ex machina auctioneer into the vulgata of Adam Smith's invisible hand, the proponents of this approach try to gain respectability by referring to some past leading liberal thinker. As Roncaglia (2005, ch. 5) shows, this requires making violence both in the letter and the spirit of Smith's works. For a criticism of the traditional concept of equilibrium, see Kregel (2011).
4 A recent example is the introduction in the European Union (EU) of independent national fiscal councils whose function is to expose deviations from the market-friendly rules decided by the EU by national governments.
5 The absence of a defined set of principles and rules situates such macrofinancial interventions in the realm of discretionary supervisory action, patching the weaknesses of microprudential regulation, not of proper regulation. As discussed later in the section on an alternative approach to financial regulation, section 4, a truly macroprudential regulation might represent a rupture if stemming from a different approach and, if dominating, not being dominated by the microprudential one.
6 Actually, the BCBS does not appear so sure of its reliability if it inserts in its capital computation “prudential” multipliers.
7 For a discussion on how much of this complexity is “fictitious,” i.e., created by interests internal to the financial system and not to serve the economy, see Kregel (2012b).
8 Supervisors should verify that the internal model utilized for regulatory purposes coincides with the model used for the operational management of risks.
9 Worthy of attention is the work in progress of the newly created European single supervisory mechanism; see Lautenschlager (2016).
10 This point is made by Kregel (2012b), taking as an example Basel Ill’s liquidity requirements. Shan et al. (2016) show that banks, especially large ones, have used credit default swaps not so much to improve their risk management but to lower regulatory capital. A recent BCBS revision of the market risk framework tries to address this type of regulatory arbitrage. This is just one of the many instances of the difficulty, if not impossibility, for regulators in calibrating their risk framework and of the unintended consequences of prudential regulation, in this case for increasing interconnectedness and systemic complexity.
11 The only beneficiaries of supervisory complexity are consultancy firms that are absorbing an increasing share of graduates in banking and finance.
12 Where they exist, national and local limits on the share of deposits may constrain local and regional banks, not global actors.
13 This point was forcefully made by Henry Simons (1948).
14 Goldbach (2015) offers an interesting analysis of the complex interplay of actors and interests affecting the layering of national and transnational rules and policy processes related to the Basel framework, and finally resulting in regulatory gaps. However, he fails to realize that the fundamental regulatory weakness resides in the basic design, with the gaps that he singles out not being different from what, according to the G20, caused the “excesses” that have led to the recent crisis.
15 This de facto ended the preoccupation that the IMF could crowd out private financial activity expressed by the American Bankers Association during the process leading to the US approval of the Bretton Woods agreement; see Morgan (1945).
16 For an in-depth analysis of the post-BW evolution, see Kregel (2008).
17 Admati (2016) contains a review of the literature on some of these issues. Interesting theoretical analyses are presented by Dal Bo and Di Tella (2003) and Dal Bo et al. (2006).
18 Although critical parts of Keynes’s Dublin Lectures were politically motivated by his effort to present a compromise in the then-raging conflict between the United Kingdom and the recently independent Ireland regarding the latter’s policy toward self-sufficiency, his argument for gradually shifting away from full globalization is based on the different world conditions with respect to the “imperialism” of the previous century. The full version of the Lectures is included in Emmett (2013).