CHAPTER ONE Introduction 1
A. International Financial Transactions 1
1. Definitions 1
2. Regulation 6
B. The Major Financial Markets Compared 12
C. How Globalized Are Financial Markets？ 18
D. Costs and Benefits of the Internationalization of Finance 21
E. The Problem of Systemic Risk 24
1. Connectedness： The Chain Reaction Problem 24
2. Contagion 26
3. The Extent of Overall Systemic Risk 27
4. Systemic Risk Beyond the Banks：The Story of Long-Term Capital Management 29
F. The Global Financial Crisis 34
1. Causes of the Crisis 35
2. Description of the Crisis： Measuring Severity 36
3. The U.S. Policy Response 42
4. Emergency Authority of the Federal Reserve 80
5. The International Response 82
G. The Road Map 84
PART ONE INTERNATIONAL ASPECTS OF MAJOR DOMESTIC MARKETS 85
CHAPTER TWO International Aspects of U.S.Capital Markets 86
A. Overview： Securities and Securities Markets 87
1. Securities 87
2. Securities Markets 88
3. Market Actors and Transactions 91
B. The U.S. Securities Law Framework 93
1. General Approach： Registration and Disclosure 93
2. Exemptions from Registration and Reporting 96
3. Liability for Deficient Disclosure 108
4. Framework Applied： Transactions and Alternatives 114
C. Enforcement of U.S. Securities Laws 124
1. Public Enforcement 124
2. Private Enforcement 132
3. Comparing the United States and the United Kingdom 140
D. Regulation and Market Competitiveness 142
1. Bonding 143
2. Cross-Listing and Liquidity 143
3. Emerging Market Competition 145
4. Offshore and Private Alternatives 146
5. Delisting 147
6. Listing Premium Studies 148
7. Trend Implications 149
E. Corporate Governance 151
1. The Sarbanes-Oxley Act of 2002 151
2. Market Structure and Corporate Governance 178
F. International Coordination of Disclosure and Accounting Standards 201
1. Disclosure 201
2. Accounting 202
G. Regulation of Securities Firms 216
1. SEC， Capital Adequacy and Regulatory Competition 216
2. Self-Regulatory Organizations （SROs） 218
3. Investment Banking Practices 219
Conclusions 230
CHAPTER THREE International Aspects of U.S.Banking Markets 232
A. Domestic and International Banking Markets 233
B. Basic Features of U.S. Bank Regulation 237
1. Safety and Soundness （Prudential） Regulation 237
2. Deposit Insurance and Lender of Last Resort 238
3. Limits on Activities and Affiliations 242
4. Dual Banking System 251
5. Other Regulations 253
C. Foreign Banks in the United States： Host Regulation 256
1. Subsidiaries 257
2. Branches 259
3. Activities and Affiliation Restrictions on Foreign Banks 263
4. The Daiwa Scandal： A Case Study in Host Regulation 266
D. Home Regulation， Transnational Banking， and International Coordination 269
1. Concern with the Operation of U.S. Banks Abroad 269
2. The BCCI Affair 269
3. International Response to BCCI： The Basel Concordat and Its Progeny 272
4. U.S. Response to BCCI： FBSEA 275
E. Bank Failure and Resolution 278
1. Bank Resolution Framework in the United States 278
2. The Dodd-Frank Resolution Reforms 281
3. Failures of Cross-Border Banking Organizations 283
F. The Structure of Regulation and Supervision 287
1. Systematic Risk， Macroprudential Regulation， and Institutional Design 287
2. U.S. Institutions for Regulation and Supervision 291
G. Trade in Financial Services： The GATS 302
1. Structure of the GATS 302
2. General Obligations： MFN and Transparency 303
3. Specific Commitments： Market Access and National Treatment 303
4. Special Provision for Financial Services：Understanding on Commitments in Financial Services 303
5. Annex on Financial Services 303
6. The Doha Round 304
Conclusions 305
CHAPTER FOUR The European Union： The Single Market in Financial Services 306
A. Introduction 307
B. Securities Markets 309
1. Disclosure 314
2. Provision of Services 328
3. UCITS 334
4. Securitization and Credit Rating Agencies 336
5. Derivatives 341
6. Corporate Governance 342
7. The Structure of E.U. Securities Regulation 345
C. Banking Markets 348
1. The Second Banking Directive 352
2. Conglomerates 366
3. State Subsidies and Merger Restrictions 368
4. Impact of Banking Policy 372
5. Deposit Insurance 373
6. Bailouts and the Credit Crisis 375
Conclusions 376
CHAPTER FIVE Europe’s Economic and Monetary Union 378
A. The Design of the European Monetary Union 378
1. The Maastricht Treaty 379
2. The Pros and Cons of Monetary Union 382
B. The Transition： Getting to Stage 3 387
1. Convergence 387
2. The Shift om Multiple Currencies to One 387
C. Euro Transition 390
1. From 1999 to 2002： EMI’s Schedule 390
D. The Euro Today 392
1. The Greek Crisis 392
2. The Response to the Greek Crisis 393
3. Restructuring Greece’s Debt 398
4. The Ireland Crisis 399
5. The “Pact For The Euro” 401
6. PIIGS After The “Pact” 403
7. Lender of Last Resort 404
8. Impact on Financial Markets 409
9. Fiscal and Monetary Policy and the Stability Pact 412
10. Continuity of Contract 418
11. U.K. Entry into EMU 420
E. Will the Euro Survive？ 421
1. Reestablishing National Currencies 422
2. Continuity of Contract 423
Conclusions 425
CHAPTER SIX Japanese Financial Markets 427
A. Banking Markets 429
1. Structure of Japanese Banking Today 429
2. Non-performing Loans 432
3. Capital Adequacy 438
4. Corporate Restructuring 441
5. Restructuring Japanese Banks 443
6. Deposit Insurance 451
7. Postal Savings System 451
8. The Regulators 453
B. Capital Markets 455
1. The Big Bang in Capital Markets 456
2. Licensing Requirements for Foreign Securities Firms 458
3. The Financial Services Agreement （FSA） of 1995：Liberalization of Cross-Border Capital Flows 459
4. Rules for Issuance of Foreign Securities in Japan 462
5. Stock Exchanges and the Bond Markets 463
6. Government Intervention in Capital Markets 464
7. Disclosure Practices 466
8. Corporate Governance and Corporate Control 466
9. Financial Instruments and Exchange Act of 2006 （FIEA） 471
10. Regulators and Enforcement 473
Conclusions 478
PART TWO INFRASTRUCTURE OF FINANCIAL MARKETS 480
CHAPTER SEVEN Capital Adequacv 481
A. Background of the Basel Accord and Definition of Capital 482
1. Overview 484
2. Definition of Capital 486
B. Credit Risk under Basel Ⅰ 491
1. Risk-weighting 491
2. Off-Balance Sheet （OBS） Items 495
3. The Effect of the Credit Risk Rules 497
C. The New Basel Accord （Basel Ⅱ） 498
1. The Standardized Approach 499
2. The Internal Ratings-Based Approach 501
D. Current Issues of Capital Adequacy： Basel Ⅱ， Basel Ⅲ and Beyond 511
1. How Much Capital？ 511
2. Basel ⅡI Capital and Liquidity Reforms 512
3. Bank Holding Company Capital 522
4. Accounting and Capital 522
5. Cyclicality 523
E. Market Discipline Alternative 525
1. Subordinated Debt 525
2. Spreads on Credit Default Swaps 527
3. Stress Tests 528
F. Market Risk 531
1. Associated with Securities Operations 531
2. The Basel Committee Approach 532
G. Operational Risk 539
H. Home Hosting Problems 541
Conclusions 543
CHAPTER EIGHT Foreign Exchange Regimes 545
A. Basic Types of Exchange Rate Systems 545
1. Fixed Rate Systems： The Gold Standard 547
2. Fixed Rate Systems： The Bretton Woods Dollar Standard 549
3. Floating Rate Regimes—An Overview 551
B. Types of Existing Exchange Rate Systems 552
1. Exchange Arrangements with No Separate Legal Tender 552
2. Currency Board Arrangements 553
3. Conventional Fixed Peg Arrangements 554
4. Pegged Exchange Rates within Bands 555
5. Crawling Pegs 558
6. Exchange Rates within Crawling Bands 559
7. Managed Floating with No Preannounced Path for the Exchange Rate 559
8. Independent Floating 560
9. Overall Trends 560
10. The Debate about the Non-system 560
C. Sovereign Wealth Funds 565
1. Types and Sizes 565
2. Investments in Banks 569
3. Host Country Review Procedures： National Security 571
4. Policy Concerns Apart From National Security 572
5. Voluntary Codes of Conduct 574
D. Capital Controls and Foreign Exchange Regimes 575
E. Foreign Exchange Markets 578
1. The Spot Foreign Exchange Market 579
2. The Forward Market 580
3. The 1997 International Foreign Exchange Master Agreement （IFEMA） 580
Conclusions 589
CHAPTER NINE The Pavment System 590
A. The Use of the U.S. Payment System for International Transactions 590
1. In-house and Correspondent Transfers 591
2. Fedwire 595
3. CHIPS 598
B. Fedwire and CHIPS： Risk Reduction Measures 603
1. Fedwire 603
2. CHIPS 609
3. Gross Versus Net Settlement 612
C. Herstatt Risk 614
D. Some Aspects of the International Payment System 619
1. Off-shore Dollar Payment Systems 619
2. European Union 621
3. International Standards 624
4. Global Trends 626
Conclusions 626
CHAPTER TEN Clearance and Settlement 627
A. The Basic Elements 627
1. Overview 627
2. Clearance and Settlement in the United States：The DTCC 630
3. Multilateral Netting 637
4. Group of Thirty Standards 639
5. The Second Generation Group of Thirty Standards 642
B. International Dimensions 648
1. Linkages 649
2. ICSDs 651
C. Future Arrangements 666
D. Capital Requirements and Prudential Supervision 671
Conclusions 672
PART THREE INSTRUMENTS AND OFFSHORE MARKETS 674
CHAPTER ELEVEN Euromarkets 675
A. Introduction to the Eurocurrency Market 675
B. Syndicated Eurodollar Loans： An Overview 678
C. The Allocation of Risk Among the Parties to a Eurocredit Based on Sample Agreement 680
1. The Basic Terms of the Loan 681
2. Allocation of Risk Among Managers， Agents， and Participating Banks 689
D. Eurobonds 691
1. The Market 691
2. The Effect of Regulation 693
3. Issuing Procedures 694
4. Taxation 698
5. Global Bonds 702
Conclusions 703
CHAPTER TWELVE Asset Securitization and the Financial Crisis 704
A. Introduction 704
B. Key Issues in Structuring an Offering 707
1. Securitizable Assets 709
2. The Special Purpose Vehicle 709
3. The Form of the SPV 710
4. Bankruptcy Remoteness 713
5. Collateralized Debt Obligations （CDOs） 714
6. Accounting Treatment 718
7. Taxation 718
8. Credit， Liquidity， and Other Enhancements 719
9. Investors and the Types of Asset Backed Securities （ABSs） 722
10. Ratings 724
C. The Development of National ABS Markets in Germany and Europe 725
1. Pfandbriefe 725
2. Other Types of Securitizations 726
D. Capital Adequacy Rules for ABS 728
1. Operational Requirements 729
2. Standardized Approach 730
3. IRB Approach 731
E. Reform of the Securitization Process 733
1. The Credit Ratings Agencies 733
2. Disclosure 745
3. Incentives 748
4. Accounting Reforms 755
5. Structural Reforms： The Volcker Rules 772
F. Housing Markets： Relief for Borrowers and Consumer Protection 772
1. Housing Markets Problem 773
2. The Bush Administration and the American Securitization Forum （ASF） Plan 774
3. Legal Protection for Mortgage Modifications 776
4. Federal Incentives for Loan Modifications 779
5. The FDIC Approach 780
6. The HAMP Plan 781
7. Other Plans 783
8. Mortgage Brokers and State Foreclosure Laws 785
9. Bankruptcy Reform 786
G. Unfair and Deceptive Practices 787
H. Liability for the Past 789
Conclusions 790
CHAPTER THIRTEEN Stock Market Competition 792
A. U.S. Market 793
1. Overview of U.S. Market 793
B. Foreign Markets 820
1. London Stock Exchange 820
2. Tokyo Stock Exchange 823
C. Alliances and Mergers 826
1. European Mergers 827
2. Cross-Atlantic Mergers 830
Conclusions 833
CHAPTER FOURTEEN Futures and Options 835
A. Introduction 835
B. Futures， Options， and Markets： An Introduction 836
1. Futures 836
2. Options 837
3. The Markets 841
4. Protecting the Exchange： Margin Rules 845
C. Futures and Options Exchanges： Competition and Regulation 848
1. Competition in Contracts 849
2. International Competitiveness 849
3. Exchange Mergers 850
4. Role of Domestic Regulation 851
5. Volatility Concern 853
6. Clearing and Settlement 854
D. Cross-Border Electronic Access to Futures Exchanges 855
E. A Case Study in the Regulation of Futures and Options Markets： The Barings Case 858
1. The Barings Group 858
2. The Scam 860
3. The Regulatory Role of SIMEX 864
4. The Role of the Bank of England as Lead Regulator 867
5. International Efforts to Avoid Another Barings Crisis 868
F. National Regulatory Responses 871
Conclusions 872
CHAPTER FIFTEEN Swaps 873
A. Swap Transactions and Markets 873
1. Swap Transactions： The Basics 873
2. Why Do End-users Use Swaps 876
3. Overall Markets 879
B. Credit and Market Risks 880
1. The Nature of the Risks 880
2. Documentation 888
C. Credit Derivatives 890
1. Types of Transactions 894
2. Price Transparency 897
3. Restructuring and Settlement Issues 900
4. Clearing and Settlement and Exchange Trading 909
D. Operational Risk and OTC Regulation 929
E. Capital Requirements 930
1. The Basel Accord： Credit Risk 930
2. Basel Accord： Market Risk Amendments 935
3. Credit Derivatives 936
4. Basel Ⅲ 937
F. Enforceability Issues 938
1. Liability of Derivatives Dealers 938
2. Bankruptcy 955
G. Industry Initiatives 963
Conclusions 965
CHAPTER SIXTEEN Mutual and Hedge Funds 967
A. United States Regulation of Offshore Mutual Funds 969
1. Mutual Funds Registered under the 1940 Act 969
B. Current Issues in U.S. Mutual Fund Regulation 979
1. Trading Violations 979
2. Other Issues 984
3. Mutual Money Market Funds and the Credit Crisis 993
C. Hedge Funds 1000
1. Registration Exemptions 1004
2. The Investment Advisers Act of 1940 and Registration Requirements 1011
3 Reform Legislation 1013
4. European Hedge Fund Regulation 1020
5. Shareholder Rights 1021
D. Tax Considerations 1025
1. Why Foreigners Do Not Invest in U.S. Funds 1025
2. Why U.S. Investors Will Not Invest in Foreign Funds 1025
3. Hedge Funds Avoid PFIC 1027
4. Other Tax Issues 1027
Conclusions 1028
PART FOUR EMERGING MARKETS 1030
CHAPTER SEVENTEEN Proiect Finance 1031
A. Introduction 1031
B. The Philippines’ Need for Power 1033
C. Project Finance in General 1034
1. Foreign Direct Investment in the Philippines 1034
2. Projects and Project Finance 1034
D. The Pagbilao Power Project 1035
1. The Players 1035
2. Construction 1037
3. Operations 1040
E. Financing Pagbilao 1042
1. The Overall Structure 1042
2. Bank Capital Requirements 1044
3. Official Export Credit： U.S. Export-Import Bank 1045
4. Important Arrangements among the Parties 1050
F. Subsequent Developments 1057
1. The Asian Crisis Impact on Project Finance 1057
2. Privatization of Napocor 1058
3. Renegotiation 1058
4. Environmental Problems 1059
5. Provincial Threats 1059
Conclusions 1059
CHAPTER EIGHTEEN Privatization and Institutional Investors 1060
A. Introduction 1060
B. Privatization in the 1980s and 1990s 1061
1. What is Privatization？ 1061
2. Types of Privatization 1061
C. Telmex as a State-owned Enterprise 1062
D. Investment in Mexico 1064
1. The Mexican Stock Exchange 1064
2. Foreign Investment 1064
E. The Transfer of Control over Telmex to the Consortium 1065
1. The Reason for Privatizing Telmex 1065
2. The Winning Bidders 1065
3. The New Capital Structure 1066
4. The Modified Concession 1067
F. The Offer of Telmex Shares in World Markets 1071
1. The Evolution of the Telmex Capital Structure 1071
2. The American Depositary Receipts 1072
G. Demand for the Telmex Offer 1073
H. The December 1994 Peso Crisis 1073
1. Telmex and the Crisis 1073
2. Telmex and the WTO 1075
Conclusions 1077
CHAPTER NINETEEN Emerging Market Debt 1078
A. Introduction 1078
B. The Debt Problem 1080
1. Overall Characteristics 1080
2. Debt Crises 1982-1990 1083
3. Debt Crisis Management Post-1990： Bailouts，Restructurings， and Defaults 1095
4. Argentina： A Major Sustained Default 1110
5. Brazil： Mexico 1984 Redux？ 1121
6. Emerging Market Debt after 2005 1122
C. Reform of the Debt Resolution Process 1123
1. The Sovereign Debt Problem： Lessons from the Last Three Decades 1123
2. Key Areas of Reform 1131
Conclusions 1165
CHAPTER TWENTY Financial System Reforms in Developing and Emerging Markets 1167
A. An International Banking Standard 1167
1. Domestic Standards 1167
2. Cross-border Standards 1170
B. The International Financial Architecture Approach 1171
1. BIS Core Principles 1171
2. IMF Financial Sector Assessment Program （FSAP） 1175
3. Market Discipline 1176
4. Financial Stability Board （FSB） 1177
5. Joint Forum 1178
C. Regional Integration 1178
D. Capital Controls 1179
1. Chilean Experience 1180
2. Malaysian Experience 1182
3. Overall Assessments 1182
Conclusions 1184
CHAPTER TWENTY-ONE Chinese Financial Markets 1186
A. Overview of the Chinese Financial System 1189
1. Characteristics of China’s Financial System 1190
2. The Chinese Economic Reforms 1191
3. The Chinese Legal System 1192
B. Foreign Exchange and Capital Controls 1194
1. Overview 1194
2. Problems with Fundamental Convertability 1196
3. Incremental Liberalization 1197
C. Chinese Domestic Banking Regulation 1199
1. Chinese Banking Overview 1199
2. Bank Reform in China 1204
3. Banking Regulation 1209
4. Cross-border and International Banking Regulation in China 1216
D. Chinese Securities Markets 1221
1. Overview of the Chinese Securities Markets 1221
2. Hong Kong Securities Markets 1223
3. Mainland Chinese Securities Markets 1229
E. Emerging Issues in Chinese Finance 1239
1. China Investment Corporation 1239
2. Corporate Governance in China 1240
3. U.S.-China Strategic Economic Dialogue 1241
Conclusions 1241
PART FIVE FIGHTING TERRORISM 1243
CHAPTER TWENTY-TWO Controlling the Financing of Terrorism， Terrorism Insurance， and Financial Terrorism 1244
A. Money Laundering and Anti-Terrorism 1244
1. Nature of the Problem 1244
2. The United States Response 1248
3. International Initiatives 1263
4. Additional Measures 1267
B. Freezing Terrorist Assets 1270
1. The LAFB Litigation 1270
2. The Ineffectiveness of Unilateral Freezes 1293
3. Terrorist Asset Freezes Post-9/11 1293
C. Reinsurance Crisis 1295
D. Attacking the Financial System 1301
E. Costs and Benefits 1301
Conclusions 1302
INDEX 1305