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This chapter examines the predicted economic consequences of the Big Bang reforms for a range of actors in the financial market to identify the perceived ‘winners’ and ‘losers’ from the reforms. It begins by providing an overview of the developments leading up to the reform initiative, focusing on the period from November 1996 through June 1997. It then summarizes the content of the initiative and the accompanying financial reforms. A discussion of expected economic consequences for the financial market in general follows.

The focus of this chapter is on processes—both, those that produced EMU and those that provide financial market governance in the new institutions that EMU has produced—and on the relationship between the key concepts of Europeanization, convergence, and divergence. The substantive argument is that the creation of the Euro‐zone represents the triumph of a particular mode of financial market governance, which both, elevates the management of financial markets to the pinnacle of economic policy‐making, and insulates the development of policy from the institutions of liberal democracy. In doing so, it represents the triumph of the ‘high politics’ tendency in financial market governance and the defeat of the ‘low politics’ tendency.

During the 20th century the City of London survived the impact of two world wars, a worldwide economic collapse, growing restrictions on international trade and finance imposed by governments, and the decline of Britain as an economic and imperial power. All these were major blows to its standing as a financial centre, and after 1945 it did appear that it had finally lost its dominant position in the world to New York. Meanwhile, in addition, its role in Europe was threatened by Zurich. The fact that the City was able to both reclaim its international importance, and repel European competition, was testimony to the inherent strengths it possessed at the beginning of the century, its ability to transform itself in response to opportunities and challenges, and the failure of alternative centres to capitalize on London's weaknesses and so replace it.

Potential conflicts of interest are a fact of life among the financial firms that help direct the flow of capital in the modern market-oriented economy. There are essentially two types of conflicts of interest that face intermediary firms: Type 1 conflicts arise between a firm’s own economic interests and the interests of its clients, usually reflected in the misappropriation of economic gains or mispriced transfers of risk; Type 2 conflicts develop between clients, placing the firm in a position of favoring one at the expense of another-bankers who systematically favor corporate clients over investing clients would be an example of this type of conflict. Both types of conflicts can arise either from interprofessional transactions carried out in wholesale financial markets, or in activities involving retail clients.

This chapter adds to the ‘varieties of capitalism’ literature by demonstrating that economic practices of countries are not converging on a one‐size‐fits‐all neo‐liberal model of capitalism, despite the fact that all have become more market‐oriented. Instead, they continue to be differentiable into not just two varieties of capitalism, conforming to liberal or coordinated market economies, but three, along lines of development from the original three postwar models of capitalism. The chapter contrasts the three varieties of capitalism in terms of interfirm relations, business‐government relations, and management‐labour relations; outlines the differential national pathways of adjustment of the countries conforming to the three varieties; highlights their continuing differences using indicators related to the financial markets and production systems; and considers their comparative advantages and disadvantages. It concludes that while British market capitalism has gone farther in its traditional market‐oriented direction, German managed capitalism is under strain, while French state capitalism has been transformed but has become neither market nor managed capitalist.

This chapter analyzes the sources, magnitude, and means of financing investments in public and private enterprises after the Korean War. The analysis considers the credit policies relative to economic sectors (e.g., industry, mining, trade, and agriculture); industrial sectors (e.g., social overhead capital and manufacturing); the nature of investment (e.g., “entrepreneurial”, capital-, and technological-intensities in industries, the scale of business), and loan terms. This chapter also evaluates the criteria used to allocate loans, as well as the sources of financial resources obtained by the domestic lending institutions. The government interest rate policy is also examined.

This chapter examines the fundamental effects related to the evolving dominance of capital markets. By the end of the 20th century, the proportion of all financial assets held by banks had declined to approximately 30% from 45% in 1980, with the difference transferred to global financial markets that had developed to an extraordinary, completely unprecedented size with market capitalization of stocks and bonds exceeding $72 trillion in 2000. These markets contained powerful forces that could quickly move funds in large quantities around the world to jump into (or out of) a suddenly discovered investment opportunity. These forces were energized by enormous turnover volumes — the value of consolidated world stock trading in 2000 was more than $47 trillion, one and a half times its market capitalization. About half of this trading occurred outside the United States, in stock markets in Europe, Asia, and Latin America.

Trends over the last half century in particular have shown that Paris has been able to exist as a financial centre only when its financial market has been vigorous, which has clearly been a necessary but not always a sufficient condition. The future of the Paris market can be seen in terms of its ability to play a leading role in continental Europe. But this will only be possible through alliances with other markets.

This chapter analyses policy responses to the instability of the international monetary system during the 1970s and how these policies affected the City of London. First, the collapse of the international monetary system through the 1960s and then the increased risk to the financial market in the 1970s accelerated the pace of financial innovation. Second, as currency speculation grew, policymakers were reluctant to relax controls on the flow of capital, and this had important implications for London's competitiveness. The debate between the state, academics, and bankers over the desirability of floating exchange rates is surveyed in this chapter. The era of floating exchange rates and inflation prompted an international and domestic banking crisis in 1974 that drew the Bank of England into more active attempts at prudential supervision.

This chapter examines the ability of the Paris Bourse from the 1950s onwards to maintain a marginal but nevertheless persistent level, the return of the franc to external convertibility, and liberalization of the financial market in the second half of the 1980s. By considering the ebb and flow of the dynamics of the international markets in their effect on capital markets, it is possible to throw some light on the changes within the whole of the French financial system.

This chapter focuses on what would seem at first glance to be the most problematic issue area today in the context of the current financial crisis and recession, what has been called “financialization.” The increasingly tight coupling of global financial markets, new forms of financial innovation, the politics of economic growth, and the process of economic development have led to a politics of regulatory change over the past three decades that was long believed to be stable but has proven deeply fragile. The process of so-called financial deregulation was not only promoted by self-interested capitalists, although they were key players, but also by actors in the real economy seeking new forms of investment, regulators and bureaucrats at home and in transgovernmental networks, a wide range of interest and even value groups, political parties and leaders on both right and left, neoliberal intellectuals of various stripes — not just economists — and, of course, voters and consumers. For example, people wanting to own their own homes but lacking the resources to do so were an essential part of the complex set of causes of the so-called subprime mortgage crisis in the United States, which started the process of unraveling.

This chapter examines the nature, effects, and consequences of the bubble of 1995-2000. The 20th century experienced four exceptional stock market booms in the United States that have been called “bubbles”. Economist Richard Sylla describes these periods (1905, 1928, 1958, 1998) as times when the 10-year moving averages of real rates of return on stocks reached peaks from which they rapidly descended (or crashed) a year to two later. Of these four bubbles, the ones that peaked in 1928 and 1998, leading to crashes in 1929 and 2000, respectively, were the ones of greatest significance. The 2000 crash involved more financial wreckage than earlier crashes. It was followed by scandals that were front-page stories for months, and public interest in the market collapse and its causes and consequences was intense. The causes of the 2000-2002 crash are analyzed.

This chapter assesses the evolution of international standard setting in financial markets by examining the characteristics of the various international bodies, such as the Basel Committee on Banking Supervision and the International Organization of Securities Commissions, that are involved in international standard setting. Topics discussed include international financial institutions, supervisory structures for financial conglomerates, the Financial Action Task Force, and financial crises from the 1990s and onwards.

While globalization has been a major economic, institutional, and ideational force for change, Europeanization has been an even more significant force for European Union member‐states, both as a conduit for global forces and as a shield against them. But however much sovereignty has been undermined by globalization and Europeanization, the resulting losses in national autonomy and control are largely offset by gains in shared supranational authority and control. This chapter considers the changing relations of power and influence between national and supranational authorities as it examines the debates on globalization with regard to the internationalization of financial markets and trade, the ‘statelessness’ of multinationals, and their spillover effects on the welfare state. It then contrasts the impact of globalization with the greater impact of Europeanization on European member‐states while discussing European monetary and market integration and their effects on the welfare state.

This chapter discusses advances in formal economic theory by examining how different positions among economists arise from their different assumptions and models. The discussion focuses on ways in which real world economies differ from the ‘competitive equilibrium’ model that has become the benchmark model. The current benchmark competitive equilibrium framework includes new classical, representative agent, and real business cycle models which assume that all markets (including the labor market) have clear, perfect information, complete markets (including perfect capital and insurance markets), perfect wage and price flexibility, perfect competition, perfect rationality, and no externalities. If these models accurately portrayed reality, the economy would be efficient and there would be no need for government intervention. The assumptions of these models, however, are unrealistic and it is difficult to reconcile the required macro-formulations with what is known about microeconomic behavior (without resorting to ad hoc assumptions about the nature of the stochastic shocks to preferences and technology). The inadequacies of these models are even greater for developing countries where information imperfections are more pervasive and more markets are missing or incomplete (e.g., insurance markets). Accordingly, economic research since the 1990s has focused on identifying the most important limitations of the standard competitive model, particularly those limitations that help to explain the nature of economic volatility.