International Finance, Transactions, Policy, and Regulation

This textbook provides comprehensive coverage of international finance, considering the subject from legal, regulatory, policy, and transactional perspectives.

The introductory chapter begins with core legal and economic concepts, followed by an overview of major financial market and policy institutions, and the problem of systemic risk, which has increasingly animated financial regulation. Chapter 2 anchors the remainder of the book in the analysis of two financial and economic crises: the 2007-2009 global financial crisis and the COVID-19 pandemic that began in 2020. Many of the regulatory policies and market adaptation episodes discussed in the book responded to the financial crisis, or, more recently, to the post-crisis reforms. The material on the economic and financial fallout from the COVID-19 pandemic and the policy response, updated through early 2022, begins with the U.S. experience, and includes substantial additional coverage of Europe and Asia. Discussion of the pandemic's impact and response highlights major changes in the role of government in the economy and the role of central banks as lenders of last resort.

After the first two chapters, the book is organized in five parts.

Part One deals with the international aspects of banking and securities markets in major financial centers. It covers sweeping reforms in response to the global financial crisis of 2007-2009 and the Eurozone crisis that followed, the push for regulatory relief in the United States and elsewhere in 2017-2020, and market developments against the background of the pandemic and tightening regulation in 2021-2022. Chapters 5 and 6 analyze the latest developments in the European Union’s ambitious institutional redesign program, including the European Banking Union, as well as the United Kingdom’s exit from the European Union, and its implications for the United Kingdom, Europe, and the rest of the world. An overview of the Japanese financial system, updated to reflect post-crisis reforms, concludes Part One.

Part Two considers the infrastructure of global financial markets, including payment, clearing and settlement systems, foreign exchange regimes, and international coordination of capital and liquidity requirements. Capital and liquidity standards, coordinated under the auspices of the Basel Committee on Banking Supervision, are key to government efforts to control systemic risk. Chapter 8 includes in-depth coverage of tightening capital and liquidity regulations after the 2007-2009 crisis, and their gradual relaxation since 2017—a trend that has continued in response to COVID-19. Chapter 10 on payment systems briefly notes the developments in financial sanctions following Russia’s invasion of Ukraine; however, most of the new material on sanctions is in Part Five. In this edition, the discussion of digital payments and crypto currencies is consolidated in a new chapter on financial technology, also in Part Five.

Part Three surveys major market instruments, including securitization and derivatives contracts, and the latest developments in the asset management industry and its regulation. Chapter 16 highlights the differences in U.S. and European approaches to derivatives regulation. The asset management material in Chapter 17 builds on our discussion of securities markets in Part One. Among other topics, this edition examines the market and governance implications of the rise of index funds, and money market fund performance during the COVID-19 pandemic.

Part Four focuses on the emerging markets, and covers project finance, debt crises, and international financial institutions charged with crisis response and development finance. This edition covers a wide range of recent developments, including debt distress in the wake of the COVID-19 shock, the rise of new creditors from Russia and China, new efforts at multilateral coordination of sovereign debt restructuring, crises and defaults in Venezuela and Ukraine, as well as key lessons from Argentina’s past and recent default episodes. Chapter 20 on China includes an updated overview of that country’s financial system, as well as recent changes in the U.S.–China relationship, including the impact of the COVID-19 pandemic and an important trade agreement negotiated on the eve of the pandemic, including financial sector liberalization and safeguards against exchange rate manipulation.

Part Five in this edition deals with a broader range of new challenges to the international financial system. Chapter 21 continues to focus on the financing of terrorism, money laundering, and other illicit financial activities, and includes new material on financial sanctions against Russia and their implications for financial markets and payment systems. A new Chapter 22 is dedicated to financial technology. It surveys the design and operation of cryptocurrencies, crypto as an asset class, stablecoins, and potential approaches to regulation. It also analyzes central bank digital currencies (CBDC), and the design and oversight of decentralized lending activities using digital technology.

Imprint: Foundation Press
Series: University Casebook Series
Publication Date: 12/15/2022