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Rethinking the Role of Regulation in the Aftermath of the Global Financial Crisis: The Case of the UK

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  • David Slattery

    ()
    (School of Management, Cranfield University, UK)

  • Joseph G. Nellis

    ()
    (School of Management, Cranfield University, UK)

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    Abstract

    Following the global financial crisis, many countries have embarked on fundamental reviews of their regulatory systems in an attempt to identify the causes of the near collapse in financial systems and to pave the way for a new approach to regulation. The focus of this paper concerns the intellectual assumptions on which previous regulatory approaches have largely been built, both in the UK and in a number of other countries. We examine the analysis provided by the UK’s Turner Review (2009) which follows the “market failure†approach to regulation and we contrast this with the alternative “state failure†approach. Both approaches only offer partial and polarised views into the causes of the crisis. We offer a synthesis and argue that a new conceptual approach to the management of financial markets is required. The essence of this new approach is the recognition that the state and regulation are not external to the market. While this paper largely relates to the UK, it provides potentially important lessons for many other countries.

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    Bibliographic Info

    Article provided by Savez ekonomista Vojvodine, Novi Sad, Serbia in its journal Panoeconomicus.

    Volume (Year): 58 (2011)
    Issue (Month): 3 (September)
    Pages: 407-423

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    Handle: RePEc:voj:journl:v:58:y:2011:i:3:p:407-423

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    Web page: http://www.panoeconomicus.rs/

    Related research

    Keywords: Regulation; Global financial crisis; Market failure; State failures;

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    References

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    1. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    2. Richard A. Posner, 1971. "Taxation by Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 22-50, Spring.
    3. Thomas I. Palley, 2007. "Financialization: What It Is and Why It Matters," Working Papers wp153, Political Economy Research Institute, University of Massachusetts at Amherst.
    4. Kosta Josifidis & Alpar Lošonc & Novica Supić, 2010. "Neoliberalism: Befall or Respite?," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 57(1), pages 101-117, March.
    5. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
    6. Libecap, Gary D., 1994. "Contrived Competition: Regulation and Deregulation in America. By Richard H. K. Vietor. Cambridge, MA: The Belknap Press of Harvard University Press, 1994. Pp. 439. $35.00," The Journal of Economic History, Cambridge University Press, vol. 54(04), pages 960-962, December.
    7. Becker, Gary S, 1983. "A Theory of Competition among Pressure Groups for Political Influence," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 371-400, August.
    8. Frankfurter, George M. & McGoun, Elton G., 1999. "Ideology and the theory of financial economics," Journal of Economic Behavior & Organization, Elsevier, vol. 39(2), pages 159-177, June.
    9. Jones, David, 2000. "Emerging problems with the Basel Capital Accord: Regulatory capital arbitrage and related issues," Journal of Banking & Finance, Elsevier, vol. 24(1-2), pages 35-58, January.
    10. Leontief, Wassily, 1971. "Theoretical Assumptions and Nonobserved Facts," American Economic Review, American Economic Association, vol. 61(1), pages 1-7, March.
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