Basel III, the Devil and Global Banking by Dimitris N. Chorafas (auth.)

By Dimitris N. Chorafas (auth.)

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Extra info for Basel III, the Devil and Global Banking

Sample text

This is a severe mistake. Today, because banking and technology have merged into a single financial process with unprecedented loss-absorbing capabilities, capital rules that do not account for technological after-effects and failures are very misleading, and may prove to be worse than nothing. Nor are the authorities so quick to solve issues that involved technological challenges. It took five months for regulators to explain what happened with flash crash. 27 Opinion polls following this long-awaited regulatory explanation have shown that investors responded with loss of faith to the way interconnected markets work today, and some extended their criticism to the way markets are regulated.

Trading of forward contracts on rice in Japan in the seventeenth and eighteenth centuries has also been recorded. Originally made as bilateral agreements, a form of today’s over-thecounter (OTC) deals, derivatives trades also benefited from exchanges. What could be regarded as modern derivatives exchanges emerged in Chicago during the second half of the nineteenth century. 19 Commodities trading characterized the great majority of early derivatives. The first currency swaps (a more sophisticated commodity) appeared in the 1960s, but they were mainly used to circumvent British capital controls rather than for wider trading.

When there is instability, sovereigns are obliged to apply restrictions on capital flows and controls, which bring distortions and corruption. Conflicts emerge because foreign and domestic players have different interests and agendas, which means that the three attributes of central banks’ policies listed above are not working in synergy. Effects of the ‘New Economy’ on the financial time machine The reasons why financial markets resemble time machines do not need a great deal of explanation. Deposits, loans and securities are their raw material.

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