- Author
- Year
- 2017
- Title
- The regulator's conundrum. How market reflexivity limits fundamental financial reform
- Journal
- Review of International Political Economy
- Volume | Issue number
- 24 | 3
- Pages (from-to)
- 393-423
- Document type
- Article
- Faculty
- Faculty of Social and Behavioural Sciences (FMG)
- Institute
- Amsterdam Institute for Social Science Research (AISSR)
- Abstract
-
Financial firms’ valuation approaches are key to financial market functioning. The financial crisis exposed fundamental faults in pre-crisis practices and the regulations that bolstered them. Critics pointed to reflexivity: financial markets have no solid anchor outside of market participants’ assessments, which makes them inherently unstable. Reflexivity implies valuation techniques are performative: they shape rather than reflect risks. Critics thus called for root and branch reform: regulators needed to regain control over these valuation practices. In spite of a flurry of changes, progress on the reforms has been limited in precisely those domains where it seemed most necessary. We argue that this lack of progress does not persist in spite of market reflexivity, but because of it. Public prescriptiveness might mandate widespread use of deficient valuation routines, exacerbating their deleterious performative effects and implicating public authorities in future financial crises. In the regulator's conundrum, neither a hands-off approach to valuation approaches, nor an interventionist stance promises to be effective. Empirically, we show how reflexivity has obstructed fundamental reforms in the European Union in three key domains: credit ratings, liquidity regulation, and accounting standards. Market reflexivity itself is, therefore, crucial to understanding the limited regulatory reforms we have witnessed since the crisis.
- URL
- go to publisher's site
- Language
- English
- Note
- Supplementary data available
- Persistent Identifier
- https://hdl.handle.net/11245.1/89e59a85-cfb3-4a02-add3-562448897680
- Downloads
-
12-6-2018_The regula(Final published version)
- Supplementary materials
Disclaimer/Complaints regulations
If you believe that digital publication of certain material infringes any of your rights or (privacy) interests, please let the Library know, stating your reasons. In case of a legitimate complaint, the Library will make the material inaccessible and/or remove it from the website. Please Ask the Library, or send a letter to: Library of the University of Amsterdam, Secretariat, Singel 425, 1012 WP Amsterdam, The Netherlands. You will be contacted as soon as possible.