1. 9.Regulation. The Crisis and After 1

2. Regulation since the 80s A Recap:  The outburst of globalization in the 80s and 90s. International trade and communications dramatically increase.  Relevant changes in public regulation: Privatization, Deregulation, Simplification, Liberalization, end of general economic planning. An almost opposite trend compared to the period 30s-70s. 2

3.  However, public regulation remains.  Privatization needs public control on privatized industries.  Deregulations are flanked by forms of re-regulation (for instance, in the sector of air transport).  Simplifications have limited effects on legislation and administrative procedures.  General economic planning disappears, but different forms of sectoral programs and plans develop (e.g., urban and commercial planning, energy, transport and health planning). 3

4.  Liberalizations request new rules (‘asymmetric public measures’): “freer markets, more rules”.  During the last decade of the 20th century antitrust laws are adopted in many countries.  Lex mercatoria coexists with a huge supranational public regulation (see EC law and WTO agreements). A continuity in public regulation is evident. 4

5. The Crisis Causes 1.Pro-free market arguments:  free market works well. The crisis is an accident. It was a flaw of the US Government which supported too much house ownership with excessive mortgages. 2.In reality, the causes are more complex.  Housing: incentives for the purchase of houses; subprime mortgages; lack of payments; failure of mortgages originators; distribution of mortgages and securitisation; failures of distributors and investors. 5

6. Excessive deregulation of financial markets:  Glass-Steagall Act provisions on the separation between investment banks and depositary banks were repealed in 1999.  Weak control on securities and rating agencies. 6

7. New financial products were subject to “shaky” regulations. New financial products were subject to “shaky” regulations. SIFI (Systemic Importance Financial Institutions) were out of control. Being sure not to fail (“too big to fail”), they had an incentive to assume excessive risks. SIFI (Systemic Importance Financial Institutions) were out of control. Being sure not to fail (“too big to fail”), they had an incentive to assume excessive risks.  Excessive deregulation of labor market. Low incomes, weak demand. 7

8. First responses Excessive regulations and public interventions: Rescues Rescues Recapitalizations Recapitalizations Nationalizations Nationalizations Paradoxically more evident in Countries with long- standing free market traditions (UK, Ireland, U.S.) It would have been better to avoid excessive deregulation in order to lessen the impact of the crisis. 8

9. Present remedies 1. As to financial markets regulation  Basel III: new prerequisites for banks’ capital and liquidity assets.  Reduction of incentives that led to excessive financial risks (stock options of bank managers; role of rating agencies).  FSB’s recommendations. Inter alia, new rules on SIFI: no longer public capitals for rescuing these institutions; only private financial support. Strong supervision. 9

10.  The new framework of European Financial Supervision. The three Authorities and the European Systemic Risk Board (2011). ECB direct supervision over the major banks.  U.S. : Troubled Assets Relief Program (2008); Dodd- Frank Act (2010). FED supervision enhanced; a new agency for the protection of securities consumers. 2. As to the overall regulation President Obama’s Executive Order of January 2011. the need for a balanced regulation. Regulation must protect public health, welfare, safety and the environment, while promoting economic growth and competitiveness. The “proper balance” between free market and the public interest”. 10

11. All this must not entail redundant regulation. Enterprises suffer from excessive regulatory and administrative burdens. Heavy regulation is not needed. A better regulation is necessary. A regulation based on quality, transparency, and the balance between economic and social interests. 11

12. Another aspect of the financial crisis The crisis of the States and the public finance. The crisis of sovereign debts. The Greek case. Remedies European Financial Stability Facility: a fund to finance Eurozone States in crisis. European Stability Mechanism after 2013. Enhancement of the Stability and Growth Pact (with infringement procedure for excessive deficit).

13. At international Level: G20 IMF FSB