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International Financial Regulation

International Financial Regulation

Dr Kern Alexander (CFAP)

This project builds on previous research that was led by Professor Eatwell and funded by the Ford Foundation that addressed the analytical and policy issues regarding the establishment of a World Financial Authority. This research, which began as a research project in the ESRC Centre for Business Research, became a CERF research project in 2002. In 2002-2003, the project researchers, Kern Alexander and Jonathan Ward, analysed international governance structures for global financial markets and evaluated the Basel II Capital Accord. The findings were presented at the semi-annual meeting of the International Monetary Fund in April 2003. Professor Eatwell presented further findings at the annual meetings of the International Monetary Fund and World Bank in October 2004.

In 2003-2004, Alexander's research has focused on applying existing models of the principal-agent problem to the particular risks that banks face and their systemic effect on the broader financial system. Specifically, Alexander has examined the role that legal   regulation plays in reducing the principal-agent problem within banking institutions and how this can lead to more efficient pricing of financial risk.  The research and its conclusions have important implications for assessing the governance and decision-making structures of banking and financial institutions.  An important issue regards the role of civil sanctions and liability for senior bank management and directors who fail to comply with banking regulation. These issues are addressed in a published article (Alexander, 2004) and a CERF working   paper (Alexander, 2004) that compares the US and UK systems of corporate governance for banks.

Alexander's research has also addressed the structure of financial regulation and optimal forms of bank insolvency legislation and regulation. Alexander compares the various models used by leading jurisdictions for managing bank insolvencies and concludes that a   universal approach based on the principle of home country control would be most effective in reducing systemic risk and promoting the efficient winding up of insolvent banks. Alexander was invited to present his paper at a seminar of bank regulators and academics at the Bank of Finland in September 2004. This paper will appear as a book chapter in a book containing the papers of the Bank of Finland proceedings. Alexander has also conducted research in the area of extraterritorial US banking regulation and its particular relevance to US anti-money laundering law and how it applies to non-US banks through the correspondent banking and payment systems. He is the author of the United States banking and financial law section for Butterworths Money Laundering Law (July, 2004). He also wrote an extended essay on the economic rationale for why banks hold capital in excess of minimum capital requirements and the implications for financial stability that was published in the Journal of International Banking Regulation (2004).

Future research plans involve empirical and theoretical research regarding the principal-agent problem and how it manifests itself within trans-national financial conglomerates. He also is updating the first edition of his book entitled Market Abuse and Insider Dealing   (Butterworths: London) (expected 2006). This book will analyse the impact of the newly-adopted European Union Market Abuse directive and the regulatory policy implications of its implementation into UK law. He also plans to continue his ongoing research with Dr. Wolf Wagner on the implications of bank capital requirements for financial stability and to conduct an empirical analysis of the level of capital banks hold throughout the European Union and to try to draw some regulatory policy conclusions.