Financial Crisis Management (PDF)

Essay from the year 2011 in the subject Economics - Finance, grade: Distinction, University of Warwick (School of Law), course: International Banking Regulation, language: English, abstract: The recent financial crisis of 2007-2009 (the crisis) has been dramatised as the worst crisis since the great de- pression in the 1930s. Prompt regulatory response was required in order to contain the spread of fear and stop the mistrust with the ultimate goal to restore the confidence into the financial institutions and markets as well as prevent the collapse of the real economy. Financial crises containment can be defined as the enhancement of "... soundness and stability of the banking ..." which is essential to "...ensure legal certainty and to restore confidence in financial markets" Regulators have a whole set of tools to respond to crises, using an existing regime and or implementing a special resolution regime. Latter has a broad span reaching from capital injections to expropriation. Undoubtedly, the measures raise legal questions regarding their raison d'être and liability of those exercising the measures. Moreover, the measures have individual merits and demerits varying in respect of their costs and perspective of the market participants.
The purpose of this essay is to analyse these responses. Therefore, different measures will be identified and evaluated in light of the Economic and Financial Affairs Council's common principles for action 5 and the Commission Communication of State Aid 6 which have been determined as representative guidelines for policy makers in drafting a response regime. It will be concluded that there is no clear cut answer to which are the most successful measures; nevertheless, there is empirical evidence of which are the most favoured responses by regulators. The measures will be in response to an acute crisis, ie the prevention and resolution of a crisis will not be treated in this essay. In addition, the responses will be limited to the European Union.
The next chapter is dived in 5 parts exploring mechanisms to contain financial crises. It represents a sequence that has been observed in the recent crisis in Europe. Chapter 3 gives an outlook. The last chapter concludes.