Study On International Financial Stability Legal Mechanism

The history of the development of the international financial markets is a history offinancial crisis, which is also a history about the change of the financial legal system.Throughout history, we can see that crises raised disaster, but also brought about thechanges. The international financial crisis in2008triggered by U.S. subprime mortgagecrisis has fully exposed the inherent flaws of the existing international financial system,and also highlights the extreme importance of maintaining financial stability in thecontext of globalization. In this context, to construct a reasonable and effectiveinternational financial stability legal mechanism also becomes important to reconstructthe international financial order after the crisis. The establishment of the FinancialStability Board is an important outcome of the G20for the purpose of promoting thereform of the international financial system, and it provides a new foundation for theconstruction of the international financial stability legal mechanism. At present,international financial stability legal mechanism, with Financial Stability Board as itscore, is gradually emerging. In this context, from the perspective of the internationalfinancial legal change, it no doubt has important theoretical and practical significance toresearch systematically the issues involved in the construction of the internationalfinancial stability legal mechanism. Based on this, this thesis is divided into five chaptersto explore the international financial stability legal mechanism and the construction ofthe system:Chapter one do some theoretical analyses about the connotations, necessity andorganizational foundation of the international financial stability legal mechanism. Theglobal financial crisis triggered by the U.S. subprime mortgage crisis in2007brought theglobal economy an unprecedented impact, which caused deep consideration of theexisting international financial system. Although the subprime crisis occurred for variousreasons, the lack of the international financial stability legal mechanisms is undoubtedlyan important reason. The financial system does not have the interior stability and it mustrely on a set of exterior mechanisms to maintain the financial stability. Under the modernmarket economy, the legal mechanism is an effective way to resolve the interior andexterior instability of the international financial system and maintain global financial stability. It is an indispensable and important component part of the new round ofinternational financial system reform and the reconstruction of the international financialorder to establish the international financial stability legal mechanisms in the post-crisisera. The international financial stability legal mechanism is a series of legal systems andworking mechanisms to pursue and maintain the overall stability of the global financialsystem. It has the nature of organization, coordination, systematicness and predictability.Crises raised disaster, but also brought the change, and hence prompt that major countriesand regions in the world surpass the traditional and lagged framework of internationalcooperation, deal with the crisis by a new way of collective supervision and regulation,and build the organizational platform to maintain the global financial stability. Theoperation of the international financial stability legal mechanism can be summarized asfollows: under the guide of The G20summit, with the Financial Stability Board as itscore, under the support of the IMF’s Financial Sector Assesment Progam, with variousprofessional international financial institutions’ active participation and the mutuallycoordinated network governance structure.Chapter two focus on the study of the Financial Stability Board, the.keyorganizational platform of the international financial stability legal mechanism. WithFSB as the core, this section tries to construct the framework of the future internationalfinancial stability legal mechanism, and discuss the global financial system vulnerabilityassessment mechanism. The U.S. subprime mortgage crisis has created unprecedentedfinancial disaster, but also led to major changes in the international financial system. It issaid that the Financial Stability Forum is the product of the Asian financial crisis, while itis the U.S. subprime mortgage crisis that make the Financial Stability Forum bereconstructed to a new international financial institutions-the Financial Stability Board.The establishment of the Financial Stability Board is a major strategic measure taken bythe present international community to respond to this unprecedented global financialcrisis, and a innovative legal practice led by G20to form a global financial stability legalmechanisms. As the unique functional international institutions focusing on theinternational financial stability under the current international financial system, FinancialStability Board provides an important condition for enhancement effectively the voice ofthe emerging market countries, the organizational guarantee for carrying out systemicallythe work on international financial stability, a collaborative platform for strengtheningeffectively the cooperation of the international financial regulation, and a mechanism to ensure that international financial regulatory standards are consistently implemented. Areasonable and effective international financial stability legal mechanism should includeat least the following four aspects: the global financial system vulnerability assessmentmechanism, the international financial regulatory cooperation mechanism, theinternational financial standards implementation coordination mechanism, thecross-border risk emergency management mechanism. For the global financial systemVulnerability assessment mechanism, the current main practice is the Financial StabilityBoard/International Monetary Fund early warning exercise, whose main output is toprovide a confidential description of risk and vulnerability for the International Monetaryand Financial Committee.Chapter three is devoted to the international financial regulatory cooperationmechanism. From the sense of dynamic, international cooperation in financialsupervision mainly refers to the action to collaborative intervene, manage and regulatefinancial operation, improve its operating efficiency and maintain the internationalfinancial stability by the mutual coordination and cooperation among internationaleconomic organizations, international financial institutions and economies of relevantauthorities. Financial globalization theory, international economic policy coordinationtheory and crisis management theory provide the necessity to establish the internationalfinancial regulation cooperation mechanism from different perspectives. By examiningthe practice of the international financial regulation cooperation from the perspective ofthe international financial crisis occurring in2008, we can find out that the currentinternational cooperation in financial regulation is lagged, incomprehensive, non-fair andhas non-rational co-operation standards. Taking the financial regulatory reform programby G20summit as the guidance, motivated by dealing with the international financialcrisis, and aimed at maintaining international financial stability and constructing strong,sustainable and balanced growth framework, the international community launched aseries of effective reform initiatives about the international financial regulationcooperation, including enhancing the fairness of the international financial regulationcooperation, establishing the international financial regulatory reform monitoringmechanism, re-defining the scope of international financial regulation, and promoting theimprovement of the international financial regulation standard system. Among them, it isthe most groundbreaking that G20Summit authorized the Financial Stability Board,working collaboratively with the international standard-setting bodies, to monitor the process of financial reform of the international community and promote institutionalarrangements, which has greatly enriched the existing content of the internationalfinancial regulatory cooperation mechanism, and ensured the efficiency of internationalcooperation in financial regulation.Chapter four mainly study on the international financial standards implementationcoordination mechanisms. The international financial standards are the output of theinternational financial cooperation and coordination, as well as one of the main sourcesof international financial law. International financial standards have the nature of soft law,whose existence has its inevitability. As the rapidly changing of international financialenvironment, soft law of international financial standards is an effective way to promoteinternational cooperation and reduce the policy risks, but it also hinder theimplementation, embodied in the sovereignty obstacles, clarity of the standards andlegitimacy problem of the standards. To ensure the effective globally consistentimplementation of international financial standards, the following elements are needed:First, the international financial standards should be legal. Second, the internationalfinancial standards needed to be adhered must be clear. Finally, there should be a set ofinstitutional arrangements to ensure the implementation of the international financialstandards. Standard compilation of the Financial Stability Board effectively integrate thefinancial standards dispersing in various financial sectors in the international financialsystem, and the twelve core standards in policy areas which FSB published have beendeemed as the main referenced criteria for the IMF and World Bank Financial SectorAssessment Program, and indentify the standards needed to be adhered. In January2010, the Financial Stability Board published FSB Framework for StrengtheningAdherence to International Standards, which established a global three-step standardsimplementation coordination framework consisting of lead by example, peer review andpromotion of standards. In March2010, the Financial Stability Board further clarifyspecific institutional arrangements for promoting the implementation of standards and thetools available, including publishing the non-cooperative jurisdictions list, releasing theprogress reports, suspending the membership, sending an advisory letters to financialinstitutions, etc. It can be said that the international financial crisis in2008led to the"hard law" of international financial standards, and the international financial standardsimplementation coordination mechanisms, with Financial Stability Board as its maincoordinating body, has been emerging. The cross-border risk emergency management mechanism is analyzed in the lastchapter. The cross-border risk emergency management is the cross-border riskmanagement cooperation to deal with the financial crisis. The theoretical basis of thecross-border risk emergency management is systemic risk theory, macro prudentialsupervision theory, asymmetric information theory, Prisoner’s Dilemma in game theory,etc. The motivations lie in the need of the governing the current financial crisis, solvingthe problem of "too big to fail", protecting the interests of financial consumers, as well asthe empirical analysis based on the resolution about the bankrupt of the Icelandic bank.Currently the focus of the international community for cross-border risk emergencymanagement is to address a series of issues caused by the systemically importantfinancial institutions. In April2009, the Financial Stability Board issued the Principlesfor Cross-border Cooperation on Crisis Management, which taken a crucial step towardthe construction of the cross-border risk emergency management mechanism. Theseprinciples divided cross-border crisis management into two stages of pre-crisispreparedness and crisis management and intervention, and developed the associateguiding principles. In2010, G20leaders approve the Policy Measures to AddressSystemically Important Financial Institutions and reach consensus on its implementationprocess. The Financial Stability Board released Key Attributes of Effective ResolutionRegimes for Financial Institutions, which indentified the key elements needed in aneffective financial institutions resolution framework. Based on the three documentsabove, the international community has launched a series of actions in succession whichconstantly filled up the contents of the cross-border risk. emergency management Theexisting cross-border risk emergency management mechanism provide the internationalcommunity with a international financial stability network including both prevention andresponse, and ensure that the international community can jointly deal with any systemicrisk with a cooperative attitude and a collaborative approach, therefore it effectivelyresolve the conflict between a single domestic resolution and the increasing globalizedfinancial risks.