G2 - Financial Institutions and ServicesReturn

The application, or to be more precise, the misapplication of securitization in the mortgage market had fatal consequences for the financial sector worldwide. More over securitization techniques enabled single banks to reduce their individual risk while at the same time transferred greater risk to the financial system. Meanwhile a lot was written on the causes for the recent financial crisis. In most cases inadequate ratings provided by the credit rating agencies and different principal agency problems were addressed. I argue that international and national financial supervisors established an inadequate framework for financial regulation and supervision, and among other failures, even supported credit rating agencies to further establish their businesses. Further on, I argue that early warning indicators of systemic risk in the financial sector and signs of the coming turmoil were irresponsibly ignored at the time they were perceived. What turned obvious during and after the recent financial turmoil is that capital regulation failed to reach its main goal - ensuring stability of the financial system. In particular, securitization and related credit risk transfer products were adequately treated neither in Basel I nor in Basel II. With the development of both Basel Accords capital ratios became the center of banking regulation. However, capital ratios are obviously not sufficient as a measure for a systemic financial stability. It is time to ask if the developments in Basel II are the right way of banking regulation and supervision and in particular, if capital ratios can be the centre of banking regulation?

The paper deals with institutional arrangement of financial supervision in the Czech Republic. Financial markets are composed of partial financial segments specialized in individual types of financial instruments and individual customer groups. Financial institutions gradually transform into financial supermarkets. There are several models of institutional arrangement of financial supervision (integrated financial supervision model, sectional financial supervision model, financial supervision within the framework of the central bank, functional model of financial supervision). Creation of financial supermarkets encourages integration of supervisory institutions, generally outside the central bank. In the Czech Republic, several versions of institutional structure of financial market supervision have been discussed in the new millennium. Final decision was implemented precipitately without deeper analysis. The supervision of the all financial market was entrusted to the Czech National Bank with close liaison between execution of monetary policy and supervisory activities. Institutional structure does not automatically guarantee efficient supervision. Efficient supervision is based on an independent and transparent institution, staffed with quality employees and enforcement competences, supporting financial market development.

The international tendency towards the deregulation of restrictions and administrative settlements has suppressed the barriers between national financial markets. The adoption of a common currency and the rapid spread of new technologies lead to intense competition, imposing the acceleration of reformations in the European financial sector. Financial institutions have consequently adjusted their strategies, in order to confront the challenges and exploit the opportunities of new developments. In this work, a review of strategies that have been applied by financial institutions in the most important European markets is presented, as well as the repercussions of those strategies on the structure of the European financial sector. The controversial question is which form of affiliation will allow them to encounter successfully the expected intensity of international financial competition.