Developments in financial sector crisis management : a domestic and international perspective

Abstract

This thesis commences its task by bringing to light, comprehensive knowledge about the meaning of financial crises, their roots, theories in their regard, as well as their implications to put the reader in the correct mind-set and understanding of what financial crises management is all about, what it has to concern itself with and how it is to be carried out. In doing so this thesis shall attempt to assess whether first of all, crises can be similar to each other or whether they are each a product of their own time and then, based on the conclusion which it reaches on such matter it will attempt to establish whether there can at least be certain crisis management tools, policies, actions and remedies which can be considered of general application and ultimately whether financial crisis can be prevented or at least anticipated or curtailed upon their inception. In the first chapter a historical and analytical examination of theories linked with financial crisis shall take place in order to identify the basic elements or characteristics, which financial crises are endowed with. Theoretical studies, books and other documentation on financial crisis management will be consulted to examine how these relate to actual mechanisms as well as to examine how any lacunae have been, or may be, catered for by reference to such theoretical models. A discussion on the methods and models which are seen as effective precautionary measures meant to limit the likelihood of crisis situations shall ensue in order to then be able to examine the lessons learnt from actual crises. International, foreign and local institutional, legislative and regulatory measures which have been set up in the context of crisis management shall also be considered. This examination shall not be simply limited to legislation but will also include an evaluation of other regulatory tools such as Memoranda of Understanding, frameworks, guidelines and other 4 documents which have been appositely designed to cater for crisis management within the financial services arena. An examination of the inter-linkages between the various local key players within the context of financial services, (MFSA, Central Bank, Ministry in charge of Finance etc) when addressing perceived possible crisis shall be undertaken so as to explain the roles of each and the co-ordination between them. The examination of the theoretical models on crisis management, shall then be complemented with an examination of actual practices adopted locally as well as abroad (particularly in the US and EU) particularly in the light of the 2008-9 global financial crisis. Pre-crisis practices shall be compared and contrasted with measures adopted to alleviate the actual crisis. The most recent developments in financial sector crisis management will then be discussed and analysed. This study will then enable us to examine and assess what the most important crisis management measures are, how they can be utilised to reverse a crisis situation and whether such measures can be considered as being of universal application usable to curtail any crisis or whether each crisis will require a unique individual response. A number of conclusions will finally be drawn up in order to reach some definitive answer about the main questions which this thesis deals with. Succinctly, what will result will be the recognition that a certain level of preventability of financial crisis and applicability of generic financial crisis management policies or actions can be obtained. While it would be unrealistic and rather too optimistic to say that financial crisis can be completely avoided or managed with ease, appropriate regulation and action designed to follow and complement financial innovation could go a long way to prevent or at least manage financial crisis in such a way so as to considerably decreased or avoid the substantial hardships which might otherwise arise.