Summer in The City: The 1974 international banking crisis in London and its implications for regulatory reform


Speaker


Abstract

 

The relationship between regulators and the regulated in financial services has attracted considerable academic attention, partly because banking systems operate differently from other markets. The systemic macroeconomic importance of national banking systems makes a strong case for prudential supervision by an outside body, but information asymmetry in financial services, and the importance of reputation and private information as key bank assets all complicate the ability to engage in transparent prudential supervision. The potential for regulatory capture is particularly strong between central banks and the banking system because of the close connections that are required to supervise complex financial transactions where highly specialized knowledge is needed for identification and diagnosis of problems.2 In many financial markets a model of self-regulation has therefore developed in response to an assessment that ‘the market knows its business best’.3 A further incentive for selfregulation is the vulnerability of otherwise sound banks to rogue business by a small number of institutions, so it is in the interests of well managed banks to ensure that others operate to the same high standards; systemic vulnerability increases incentives for market leaders to impose discipline. Finally, trust is an important feature to ensure compliance with supervisory regulations since the information necessary for prudential supervision is often market sensitive, and the private information on investment portfolios and strategies is a valuable asset for banks. The relationship between banks and supervisors/regulators is thus complex and prone to lapses.

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My research ranges across a variety of topics in international economic relations.  I am particularly interested in the current policy implications of the history of the development of international financial regulation and the organisation of the international monetary system since 1945.  Additionally, I undertake research on the development of Hong Kong's international financial centre and relations between Hong Kong and Mainland China since 1945.

My current major research project is a comparative study of financial regulation in Hong Kong, New York and London from 1961-1982 to understand the relations between banks and regulators, the constraints on effective banking supervision, the impact of financial regulation and how multilateral institutions such as the International Monetary Fund and the Bank for International Settlements interacted with national regulators.

Additionally, I am exploring why proposals to reform the international monetary system in the 1970s and 1980s, such as the Substitution Account and a rules based system for balance of payments adjustment, were not effective and what this might suggest about the prospects for similar proposals today.

A third set of research questions address the determinants of international currency status and how this changes over time, by examining how the role of sterling in the international monetary system evolved since 1945.  This has implications for current international monetary reform and the future role of the US dollar and the SDR.

 
 
The Business History Seminar has been made possible by financial support from the Erasmus Research Institute of Management (ERIM) and the Vereniging Trustfonds Erasmus Universiteit Rotterdam.
 
Contact information:
Marten Boon
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