Safeguarding financial stability : theory and practice / Garry J. Schinasi.

Includes bibliographical references (pages 285-301) and index.

How is finance related to economic processes, and why should it be viewed as a public good requiring policy action? This book provides an answer and also: 1) develops a practical framework for safeguarding financial stability, which encompasses both prevention and resolution of problems, and 2) examines on-going and future challenges to financial stability posed by "globalization," a growing reliance on OTC derivatives and their markets, the capital-market activities of insurers and reinsurers, and others.--Publisher's description.

1. Introduction and Summary -- Part I. Foundations -- 2. Money, Finance, and the Economic System -- 3. Public Policy Aspects of Finance -- 4. Efficiency and Stability -- Part II. Toward a Framework for Financial Stability -- 5. Defining Financial Stability -- 6. Framework for Financial Stability -- 7. Role of Central Banks in Ensuring Financial Stability -- Part III. Benefits and Challenges of Modern Finance -- 8. Challenges Posed by the Globalization of Finance and Risk -- 9. Systemic Challenges Posed by Greater Reliance on Over-the-Counter Derivatives Markets -- 10. Market for Credit Risk Transfer Vehicles: How Well Is It Functioning and What Are the Future Challenges? -- 11. Systemic Implications of the Financial Market Activities of Insurance and Reinsurance Companies -- 12. Ongoing National and Global Challenges -- 1.1. Changes in Key Financial Aggregates -- 1.2. Distribution of Financial Sector Mergers and Acquisitions, 1991-1999 -- 1.3. Cross-Border Transactions in Bonds and Equities -- 1.4. Outstanding International Debt Securities by Nationality of Issuer -- 1.5. Exchange-Traded Derivative Financial Instruments: Notional Principal Amounts Outstanding and Annual Turnover -- 1.6. Market Turbulence and Crises in the 1990s and Early 2000s -- 2.1. Finance as a Temporary Exchange of Services -- 2.2. Relative Values of Services -- 3.1. Typology of Benefits from Goods, Based on Characteristics of the Goods -- 6.1. Source of Risk to Financial Stability -- 6.2. IMF Financial Soundness Indicators: Core and Encouraged -- 6.3. Policy Instruments for Financial Stability -- 8.1. Cross-Border Transactions in Bonds and Equities -- 8.2. International Equity Issues by Selected Industrial and Developing Countries and Regions -- 8.3. Outstanding International Debt Securities by Nationality of Issuer for Selected Industrial and Developing Countries and Regions -- 8.4. Major Industrial Countries: Bank Deposits of Commercial Banks -- 8.5. Major Industrial Countries: Bank Loans of Commercial Banks -- 8.6. Major Industrial Countries: Tradable Securities Holdings of Commercial Banks Assets -- 8.7. Major Industrial Countries: Financial Assets of Institutional Investors -- 9.1. Top 20 Derivatives Dealers in 2004 and Their Corresponding Ranks in 2003 -- 9.2. Global Over-the-Counter Derivatives Markets: Notional Amounts and Gross Market Values of Outstanding Contracts by Counterparty, Remaining Maturity, and Currency -- 11.1. Life Insurance: Premium Growth Rates -- 11.2. Profitability Decomposition of Major Nonlife Insurance Markets -- 1.1. Composition of Key Financial Aggregates in 1970 and 2000 -- 1.2. Growth of Key Financial Assets, 1970-2004 -- 1.3. Financial Sector Mergers and Acquisitions, 1990-1999 -- 2.1. Evolution of Modern Finance -- 4.1. Private Demand and Supply Equal to Social Demand and Supply -- 4.2. Private Marginal Benefit Below Social Marginal Benefit -- 4.3. Private Marginal Cost Below Social Marginal Cost -- 4.4. Stable Disequilibrium -- 6.1. Stylized View of Factors Affecting Financial System Performance -- 6.2. Framework for Maintaining Financial System Stability -- 9.1. Structure of OTC Derivatives Markets, End-December 2003 -- 10.1. Global Credit Derivatives Market Size and Structure -- 10.2. Key Characteristics of Credit Derivatives Markets -- 10.3. Spread Between Credit Derivatives Premium and Underlying Bond Spread -- 11.1. Shares of Total Financial Assets of Institutional Investors and Banks: United States and Japan -- 11.2. Shares of Total Financial Assets of Institutional Investors and Banks: Selected Euro Area Countries and the United Kingdom -- 11.3. Holdings of Financial Securities by Insurance Companies and Banks -- 11.4. Holdings of Securities Relative to Market Size -- 11.5. United States: Corporate and Foreign Bonds -- 11.6. Balance Sheet Assets of Insurance Companies: United States and Japan -- 11.7. Balance Sheet Assets of Insurance Companies: Selected Euro Area Countries and the United Kingdom -- 11.8. Global Insurance Industry Results -- 11.9. Nonlife Insurance: Combined Ratios in the Industrial Countries -- 3.1. Prisoner's Dilemma -- 3.2. Sources of Market Failure in Finance -- 3.3. Samuelson's Store of Value as a "Social Contrivance" Providing a Public Good -- 6.1. Remedial Action: Dutch Housing Market Boom in the 1990s -- 6.2. Crisis Resolution: Terrorist Attacks on September 11, 2001 -- 9.1. Role of OTC Currency Options in the Dollar-Yen Market -- 9.2. Long-Term Capital Management and Turbulence in Global Financial Markets -- 9.3. Role of Derivatives in Crises in Emerging Markets -- 9.4. Sources of Legal Uncertainty in the U.S. Regulatory Environment -- 10.1. Financial Implications of Enron's Bankruptcy.