Re-Define Book, The Financial Crisis - Causes and Cures

(Download the Book by Clicking Here)

Conservative bankers may sound like an oxymoron now, but there was indeed a time and age when bankers were known for their prudence. Within a matter of decades, bankers went from being considered ‘pillars of society’ to being widely reviled.

Developing an Effective Crisis Management Framework for the Eurozone

(An excerpt from a forthcoming paper for the European Parliament)

Background

While the discussion of the Eurozone crisis has focused primarily on issues in the sovereign debt market, it is instructive to remember at the outset that this crisis is not primarily a sovereign crisis but one that originated in the private financial sector. As often happens in credit crises, private sector debt is taken on to public balance sheets which makes them fragile and can, as in this case, result in serious dislocations of the sovereign debt market.

EU do it: The time is ripe for a financial transaction tax

Published: 12 July 2010 on Euractiv.com as an Op-Ed

As EU citizens lose faith in their leaders' resolve to make the financial sector pay for the damage it has caused, the case for implementing a financial transaction tax (FTT) ''could not be stronger,'' argues ex-investment banker Sony Kapoor, managing director of think-tank Re-Defineand an advisor to several G20 governments and the European Parliament, in an op-ed for EurActiv.

This commentary, sent exclusively to EurActiv by Sony Kapoor, is based on published op-eds in Le Monde, Financial Times Deutschland and De Volksrant.

''Dear Ms. Merkel and Mr. Sarkozy,

While the US has embarked on a significant overhaul of its financial system and China has been growing at a blistering pace, the EU is lagging behind both on financial reform and on kick-starting growth. We have been too busy fighting fires partly of our own making.

 EU, heal thyself

Sony Kapoor

Managing Director, Re-Define

At a time when the EU most needs to stand together in its response to the crisis, member states have taken to bickering and quarrelling in public. This does not inspire hope for the deeper, fundamental changes to economic governance mechanisms that are urgently required. Without these, the future of both the euro zone and the EU does not look bright.

The EU’s collective response to the crisis exposed serious problems not just with the crisis management apparatus in the Union but also the deficiencies of economic governance during ‘peacetime’. These in turn are the result of not just an absence of technical and legal co-ordination mechanisms but also a lack of political will and leadership.

A FIT proposal

The world has woken up to an urgent fiscal challenge. Budget cuts will soon start to bite at home in Europe, while funding for international development and tackling climate change has already been cut. Meanwhile, the financial system that got us into this fiscal mess remains largely unreformed, with proposed changes largely neglecting the issue of systemic risks posed by financial markets in favour of ‘quick fix’ changes to the banking system. Even less has been done to align finance with the real economy.

Implementing a series of Financial Instrument Taxes (FITs) offers a highly flexible toolkit to help achieve progress on all three fronts. These are similar to, but broader than, the widely-discussed financial transaction taxes (FTTs), and can be tailored to the idiosyncrasies of particular markets. For example, more liquid markets in stocks, futures and certain derivatives will be taxed on a per transaction basis, whereas illiquid securitized products, mortgages and OTC derivatives would be taxed on issuance.

Re-Define launched its new Book "The Financial Crisis - Causes and Cures" in Brussels at the end of April. This will be widely circulated and made available free of Charge in the last week of June as part of our public service mission. It will also be downloadable from the Re-Define website.

We are also publishing New Papers on Bank Levies, Financial Transaction Taxes, Tackling Compensation in the Financial Sector, the Development Footprint of Financial System Reform and Climate Finance in the next two weeks.

Please also see our recently published paper on 'Tackling the Triple Crises of Finance, Tax and Climate' commissioned by the European Parliament (available in our publications section).

And Watch this Space!

Our new paper for the European Parliament highlights how old approaches to international governance are increasingly out of date in the day and age of increasing globalization. We now live in a world that is highly interconnected, is full of externalities and is increasingly fast paced. (Available for download in our publications section)

The ever faster and larger cross-border flows of commerce, people, and information technologies has reduced the idiosyncratic risks by allowing us access to an increasing array of options for example for investments or suppliers. At the same time, the higher degree of interconnectedness that this has brought about means that the risk of system wide failure – the dominoes all falling together - has increased significantly as demonstrated by the recent world wide collapse in cross border finance and trade.

Existing international governance structures to pursue shared global goals and manage externalities were designed at a time when systemic risk, externalities and the pace of change was much slower. These institutions and their approach to global governance now look increasingly out of touch. There is an urgent need to plug this governance gap that grows by the day.

Read the blog for a summary of this new Policy Brief by Sony Kapoor. Download the paper from the link below

Financial Transaction Taxes: Tools for Progressive Taxation and Improving Market Behaviour

Ex-Lehman banker says EU should crack down on big banks

Instead of addressing fundamental issues like the role of finance, politicians seem stuck in assuaging public anger, argues Sony Kapoor, manager of the international think-tank Re-Define, in an interview with EurActiv.

Anna Gibson, Research Associate, Re-Define

Development actors have long argued for an overarching international mechanism that would resolve sovereign debt crises in a fair, transparent, and consistent manner. Such a mechanism would assist poor countries that often suffocate under unsustainable levels of (sometimes odious) debt, lacking the political power and legal rights to negotiate with their creditors in an impartial and efficient forum. It would make handling sovereign debt problems less messy, more predictable, and the burden sharing simpler and fairer. It would also provide incentives to curtail irresponsible lending policies on behalf of creditors.