Chair in International Banking Law and Finance

PhD(LSE), LLM(LSE), LLB(Hons)(Ath.)
View my full research profile

Courses Taught

Practice of Corporate Finance and the Law (LLM)

Regulation of International Finance: the Law the Economics the Politics (LLM) (Course Organiser)

PhD Supervisees

Israel Cedillo Lazcano  'Legislative Challenges Relating to the Evolution of Money'

Shunyu Chi  'An Evaluation of the Transplantation of Takeover Rules from U.K. and U.S. from the Prospective of China'

Chia-Hsing Li  'Optimum Governance of Investment Conduct in the Capital Markets Union-A Legal and Economic Analysis'

Sean Molloy  'The Business of Peace: Exploring the relationship between business, socioeconomic rights, and Transitional Justice?'

Amanda Wyper  'An Evaluation of the Legal issues surrounding the implementation of the Automatic Enrolment Pensions Regime in the UK'

Books and Reports

Emilios Avgouleas, Ross P. Buckley, Douglas W. Arner, Reconceptualising Global Finance and its Regulation, (Cambridge University Press, 2016)
Abstract: The current global financial system may not withstand the next global financial crisis. In order to promote the resilience and stability of our global financial system against future shocks and crises, a fundamental reconceptualisation of financial regulation is necessary. This reconceptualisation must begin with a deep understanding of how today's financial markets, regulatory initiatives and laws operate and interact at the global level. This book undertakes a comprehensive analysis of such diverse areas as regulation of financial stability, modes of supply of financial services, market infrastructure, fractional reserve banking, modes of production of global regulatory standards and of the pressing need to reform financial sector ethics and culture. Based on this analysis, Reconceptualising Global Finance and its Regulation proposes realistic reform initiatives, which will be of primary interest to regulatory and banking legal practitioners, policy makers, scholars, research students and think tanks.

Emilios Avgouleas, Governance of Global Financial Markets: The Law, the Economics, the Politics, (Cambridge University Press, 2012)
Abstract: The recent financial crisis proved that pre-existing arrangements for the governance of global markets were flawed. With reform underway in the USA, the EU and elsewhere, Emilios Avgouleas explores some of the questions associated with building an effective governance system and analyses the evolution of existing structures. By critiquing the soft law structures dominating international financial regulation and examining the roles of financial innovation and the neo-liberal policies in the expansion of global financial markets, he offers a new epistemological reading of the causes of the global financial crisis. Requisite reforms leave serious gaps in cross-border supervision, in the resolution of global financial institutions and in the monitoring of risk originating in the shadow banking sector. To close these gaps and safeguard the stability of the international financial system, an evolutionary governance system is proposed that will also enhance the welfare role of global financial markets.

Emilios Avgouleas, The Regulation of Investment Services in Europe under MiFiD: Implementation and Practice, (Tottel Publishing, 2008)

Emilios Avgouleas, The Mechanics and Regulation of Market Abuse: A Legal and Economic Analysis, (Oxford University Press, 2005)
Abstract: Economic theory implies that financial markets play a prominent role in the efficient allocation of resources in the modern world. Financial markets can fulfil this role if they enjoy the confidence of investors and are free of abuse. The financial frauds associated with the collapse of Enron and the major crises in world leading corporations such as WorldCom, Adelphia, Tyco, and the ‘Wall Street financial scandals’ have shown that fraud, manipulation, and insider dealing retain a catastrophic presence in modern financial markets. Proper deterrence of market abuse is necessary not only for the effective operation of modern financial markets, but also for regaining investor confidence. This book analyses the mechanics and regulation of two of the most harmful market practices in the modern financial world: insider dealing and market manipulation, which together comprise the offence of market abuse. This book examines the United Kingdom and European Union regimes from an interdisciplinary perspective, also making extensive and critical use of United States case law. It emphasises the economic analysis of anti-fraud manipulation regulations and their effects upon market welfare and explores the possible deterrent benefits of civil law remedies.

Articles

E. Avgouleas, D. Xu, 'Overhauling China's financial stability regulation: Policy riddles and regulatory dilemmas', (2017), Asian Journal of Law and Society, Vol 4, pp 1-57
Abstract: China faces a number of important financial-stability risks. A persistent feature of the Chinese banking sector is the rapid formation of non-performing loans (NPLs) during each business cycle. Moreover, lending restrictions and interest-rate caps (financial repression) have, in part, given rise to an ever-expanding shadow-banking sector. The article highlights five cardinal sins within the Chinese financial system: (1) bad lending practices by the regulated sector, (2) lax governance, (3) a shadow-banking system that is dominated by short-Term claims with no liquidity backstop, (4) stark lack of transparency in the shadow sector, and (5) very high levels of interconnectedness between the shadow and the regulated sector. The article suggests that some of these problems will be alleviated through a regulatory big bang that would abolish the current silo approach to financial regulation streamlining financial stability and conduct/consumer-protection supervision. Furthermore, we recommend the introduction of a binding and all-encompassing leverage ratio that will require banks to hold much higher capital buffers as a means to boost bank resilience, reduce NPLs, and battle interconnectedness with the shadow sector. © Cambridge University Press and KoGuan Law School, Shanghai Jiao Tong University.

Aimilios Avgouleas, Douglas Arner, 'The Eurozone debt crisis and the European banking union: “Hard choices”, “intolerable dilemmas” and the question of sovereignty', (2017), International Lawyer, Vol 50.1 (50th Anniversary Edition)
Abstract: The 2008 global financial crisis spread to most of the developed economies, including those of the European Union. Unfortunately, despite decades of effort to build a Single Financial Market, almost all EU jurisdictions lacked proper crisis resolution mechanisms, especially with respect to the cross-border dimensions of a global crisis. This led to a threat of widespread bank failures in EU countries and near collapse of their financial systems. Today, in the aftermath of the Eurozone financial crisis and the recent Brexit vote, the EU is at a critical crossroads. It has to decide whether the road to recovery runs through closer integration of financial policies to follow recent centralization of bank supervision and resolution in the European Banking Union (EBU) or whether to take the path of fragmentation with a gradual return to controlled forms of protectionism in the pursuit of narrow national interest, although the latter is bound to endanger the single market. In many ways the outcome of the British referendum points to that direction. Therefore, the policy dilemmas facing the EU and contemporary institution building within the Eurozone provide a key window into the future of both global and regional financial integration. This article offers a critical evaluation of these dilemmas and explains the wide ranging significance of post-Brexit policy choices in the EU.

Aimilios Avgouleas, Charles Goodhart, 'An anatomy of Bank Bail-ins: Why the Eurozone needs a fiscal backstop for the banking sector', (2016), European Economy - Banks Regulation and the Real Sector, Vol 2016, pp 75-90
Abstract: Bail-ins could prove an effective way to replace the unpopular bail-outs. In the EU the doom-loop between bank and sovereign indebtedness leſt governments with a major conundrum. Thus, the EU resolution regime requires the prior participation of bank creditors in meeting the costs of bank recapitalisation before any form of public contribution is made. But, there is a danger of over-reliance on bail-ins. Bail-in regimes will not remove the need for public injection of funds, unless the risk is idiosyncratic. This suggestion raises concerns for banks in the periphery of the euro-area, which present very high levels of non-performing assets, crippling credit growth and economic recovery. To avoid pushing Eurozone banks with high NPL levels into bail-in centred recapitalisations, we have considered the benefits from and legal obstacles to the possible establishment of a euro-wide fund for NPLs that would enjoy an ESM guarantee. Long-term (capped) profit-loss sharing arrangements could bring the operation of the fund as close to a commercial operation as possible. Cleaning up bank balance sheets from NPLs would free up capital for new lending boosting economic recovery in the periphery of the Eurozone.

Emilios Avgouleas, Charles Goodhart, 'Critical Reflections on Bank Bail-ins ', (2015), Journal of Financial Regulation, Vol 1, pp 3-29
Abstract: Many of the world’s developed economies have introduced, or are planning to introduce, bank bail-in regimes. Both the planned EU resolution regime and the European Stability Mechanism Treaty involve the participation of bank creditors in bearing the costs of bank recapitalization via the bail-in process as one of the (main) mechanisms for restoring a failing bank to health. There is a long list of actual or hypothetical advantages attached to bail-in centred bank recapitalizations. Most importantly the bail-in tool involves replacing the implicit public guarantee, on which fractional reserve banking has operated, with a system of private penalties. The bail-in tool may, indeed, be much superior in the case of idiosyncratic failure. Nonetheless, there is need for a closer examination of the bail-in process, if it is to become a successful substitute to the unpopular bailout approach. This paper discusses some of its key potential shortcomings. It explains why bail-in regimes will fail to eradicate the need for an injection of public funds where there is a threat of systemic collapse, because a number of banks have simultaneously entered into difficulties, or in the event of the failure of a large complex cross-border bank, except in those cases where failure was clearly idiosyncratic.

Emilios Avgouleas, Jay Cullen, 'Market Discipline and EU Corporate Governance Reform in the Banking Sector: Merits, Fallacies, and Cognitive Boundaries', (2014), Journal of Law and Society, Vol 41, pp 28-50
Abstract: Much contemporary analysis has concluded that the recent financial crisis and bank failures were, inter alia, the result of a breakdown in corporate governance regimes and market discipline. Reform of corporate governance structures and remuneration incentives is at the heart of regulatory reform both in the EU, and internationally. New regulations strongly advocate tighter investor monitoring and greater control over executives' remuneration as market based remedies to the woes of the financial sector, which will safeguard future financial stability. Aside from the markets' tendency to be short-termist, which puts an obvious limitation to this remedy, the biggest shortcoming of this approach is that it largely ignores three very important aspects of modern financial markets that cannot be contained through market discipline: (a) the interaction between socio-psychological phenomena, such as irrational exuberance, herding and panic induced contagion, (b) the epistemological properties of financial market innovation, which can result in complex structures that stretch to a breaking point the markets' and individuals' limited capacity to measure the risks involved in opaque institutional structures and markets, (c) inherent inability to predict the uncertain risk correlations that risky products, financial market, interconnectedness, and too-big-to-fail institution behaviour can bring about. Furthermore, even rationally and well-managed financial institutions can be a threat to the stability of the financial system. Therefore, this paper argues that recent EU regulatory reform to corporate governance, as a means to improve financial stability is a large-scale intellectual fallacy. Absent EU-wide structural reform to control risk-taking in large and complex financial institutions, the stability of the EU banking sector will remain compromised. Smaller and less interconnected banks will both improve bank corporate governance and create a safer and more stable financial sector.

Emilios Avgouleas, Jay Cullen, 'Excessive Leverage and Bankers' Pay: Governance and Financial Stability Costs of a Symbiotic Relationship', (2014), Columbia Journal of European Law, Vol 21, pp 1-46

Emilios Avgouleas, 'Rationales and Designs for the Implementation of an Institutional Big Bang in the Governance of Global Finance ', (2013), Seattle University Law Review, Vol 36, pp 321-90
Abstract: The colossal challenges facing International finance pertain to both its governance system and its dual utility and speculative functions, which have become ever more intertwined with the advent of financial innovation. In the aftermath of the Global Financial Crisis (GFC) a number of significant reforms are under way to address the second issue, including additional capital and liquidity requirements for banks, measures to battle interconnectedness in the financial sector, new resolution regimes, which would allow banks to fail more easily, and more strict frameworks for bank supervision and monitoring of systemic risk. Yet limited progress has been made with respect to governance structures, which, thus, will be the main focus of present analysis. In this article I provide an outline of a proposal for a new model of governance for global financial markets in order to address most of the above challenges in a way that would be more effective than the pre-existing regime or the architecture emerging as a result of the GFC.

Emilios Avgouleas, 'Effective Governance of Global Financial Markets: An Evolutionary Plan for Reform', (2013), Global Policy, Vol 4, pp 74-84
Abstract: Two questions remain widely open when it comes to global financial markets. First, what is the raison d’ etre of open global markets? Second, is it possible to foster open global markets without an International governance structure assigned the task of supervising them?Post-crisis regulatory reform presents an acute paradox. While the content of regulation is changing rapidly and in encouraging ways, the reform of governance structures is painfully slow. There is no formal governance structure dealing with cross-border supervision of big financial institutions. In addition, there is no crystalized institutional capacity at the International level dealing with cross-border crises and the resolution of global financial institutions. Other areas of concern are the global supervision of systemic risk, especially of risk originating in the opaque shadow banking markets, and the absence of a reliable finance research watchdog dealing with the production of regulatory standards. This article outlines an International governance framework to deal effectively with these concerns. Adoption of the proposed plan would lead to breaking down the territorial link in the supervision of systemic risk and of certain kinds of financial institution, without causing intolerable loss of sovereignty. In addition, the proposed structure is based on a set of explicit values. These can provide a strong signal to global markets that they ought to shift focus from speculation to development.

Emilios Avgouleas, Charles Goodhart, Dirk Schoenmaker, 'Bank Resolution Plans as a Catalyst for Global Financial Reform ', (2012), Journal of Financial Stability, Vol 9, pp 210-18
Abstract: Bank Resolution Plans (Living Wills) should help with the resolution of systemically important financial institutions (SIFIs) in distress. They should be used to clarify and simplify the legal structure and make it commensurate with the functional business lines of the institution. Living Wills could also prove the right regulatory instrument to achieve two further innovations in the resolution of SIFIs with cross-border presence. First, they could incorporate burden sharing arrangements between countries enabling burden sharing on an institution by institution basis. However, there would remain problems arising from the incompatibility of the laws governing cross-border bank insolvencies. Many countries are currently introducing special laws covering the resolution of SIFIs. This creates a window of opportunity to use Living Wills to introduce a second innovation: a consistent legal regime for the resolution of SIFIs across the G20 countries.

Emilios Avgouleas, 'Niamh Moloney, How to Protect Investors: Lessons from the EC and the UK (Cambridge, Cambridge University Press 2010) ', (2012), European Business Organization Law Review, Vol 13, pp 497-99

Emilios Avgouleas, 'A New Framework for the Global Regulation of Short Sales: Why Prohibition is Inefficient and Disclosure Insufficient', (2010), Stanford Journal of Law, Business & Finance, Vol 15, pp 376-425
Abstract: Short selling has long been regarded as aggressive speculation that destabilizes financial markets, raising concerns about their moral foundations. This view gathered unstoppable force in September 2008 when short sales were seen as the principal cause of precipitous falls in the market price of financial sector stocks. As a result, most developed market regulators declared a ban on short sales in financial sector stocks. This article argues that the best way to regulate short sales is through a dual strategy of disclosure and short trading halts, rather than a prohibition or an uptick rule. The short trading halts should be based on a sophisticated circuit breaker system that is focused on market conditions and preserves the proper function of the price formation mechanism. Disclosure and short trading halts should be complemented by a strict settlement regime, as recommended by the International Organization of Securities Commissions.

Emilios Avgouleas, Stavros Degiannakis, 'Trade Transparency and Trading Volume: The Impact of the Financial Instruments Markets Directive on the Trading Volume of EU Equity Markets', (2009), International Journal of Financial Markets and Derivatives, Vol 1, pp 96-123
Abstract: The EC Directive on financial instruments markets 2004 (MiFID) has introduced a number of order and trade publication obligations imposed on organised exchanges, alternative trading systems (ATS), and the class of broker dealers that execute transactions in shares internally. This article investigates the impact of MiFID's trade transparency rules on the trading volume of EU equity markets in a forward-looking mode. We use data extracted from the closest possible precedent and examine trading volume levels before and after trading in FTSE100 stocks on the London Stock Exchange (LSE) shifted from the quote-driven Stock Exchange Automatic Quotation System (SEAQ) to the order-driven securities electronic trading service (SETS). This change resulted in significantly increased transparency standards. Trading volume is measured on the basis of three criteria: volume-based turnover, value-based turnover and turnover ratio. No evidence is found indicating that higher transparency standards lead per se to higher levels of trading volume. Therefore, the impact of MiFID's transparency rules on trading volume in EU equity markets should become a matter of further study following their implementation.

Emilios Avgouleas, 'The Global Financial Crisis, Behavioural Finance and Financial Regulation: In Search of a New Orthodoxy', (2009), Journal of Corporate Law Studies, Vol 9, pp 23-59
Abstract: The global financial crisis brought the world banking system to the brink of collapse. The continuing operation of financial markets became possible only after the extensive and costly public rescues of some very big banks. It also brought into sharp focus the inadequacies of the contemporary model of financial regulation both at the national and the global level. This article argues that some of the measures endorsed in the G20 Summit for the revamping of national and global financial regulation, such as increased disclosure and a stronger capital base, and others targeting the enhancement of market discipline will prove less effective than anticipated. The reason for that is that they largely ignore the behavioural elements of the crisis. Instead, what is required is a radical rethinking of the contemporary model of national and global financial regulation. This article suggests a set of far-reaching reforms for the overhaul of the regulatory framework governing the licensing and supervision of banking institutions. It also proposes the establishment of a global licensing and supervisory regime for transnational investment funds with systemic importance, eliminating most shadow banking operators. The catastrophic consequences of the crisis and the findings of behavioural finance provide solid support for these proposals.

Emilios Avgouleas, 'The Global Financial Crisis and the Disclosure Paradigm in European Financial Regulation: The Case for Reform', (2009), European Company and Financial Law Review, Vol 6, pp 440-75

Emilios Avgouleas, 'Banking Supervision and the Special Resolution Regime of the Banking Act 2009: The Unfinished Reform', (2009), Capital Markets Law Journal, Vol 4, pp 201-35

Emilios Avgouleas, 'International Financial Regulation, Access to Finance, Systemic Stability, and Development ', (2008), LAWASIA Journal, pp 62-76

Emilios Avgouleas, 'Access to Finance, Microfinance, and International Banking Regulation: A New Approach to Development', (2007), Manchester Journal of International Economic Law, Vol 4, pp 3-51

Emilios Avgouleas, 'EC Securities Regulation, A Single Regime for an Integrated Securities Market: Harmonised We Stand, Harmonised We Fall', (2007), Journal of International Banking Law and Regulation, Vol 22, pp 79-87, 153-64

Emilios Avgouleas, 'Critical Evaluation of the New EC Financial Market Regulation: Peaks and Troughs in the Road Ahead', (2005), Transnational Lawyer, Vol 18, pp 179-228

Emilios Avgouleas, 'The New EC Financial Markets Legislation and the Emerging Regime for Capital Markets ', (2004), Yearbook of European Law, Vol 23, pp 321-61

Emilios Avgouleas, 'The Harmonisation of Rules of Conduct in EU Financial Markets: Economic Analysis, Subsidiarity and Investor Protection', (2000), European Law Journal, Vol 6, pp 72-92
Abstract: The rules that regulate the market conduct of traders and the conduct of the business of investment intermediaries in the context of financial markets have not been comprehensively harmonised in the EU. As a result, cross-border trading in financial products and provision of other financial services is regulated by largely asymmetrical national rules. Host state regulators have remained responsible for the supervision of the compliance of banks and investment firms with national rules of conduct when they engage in the cross-border provision of banking and investment services. However, the advent of both the EMU and global trends in the financial services industry have transformed the market landscape. The regulatory challenges that recent market developments pose require a more efficient supervisory regime and a harmonised regulatory environment. These points were focal in the Commission's recent Communication, entitled 'Action Plan for Financial Markets'. This article examines the current regulatory framework in the area of market conduct and conduct of business in the EU. It argues, with the aid of economic analysis, for the harmonisation of rules of market conduct and for the further harmonisation of conduct of business rules at retail investor level. The harmonisation of conduct of business rules goes beyond the Commission's plans and might raise issues of Community competence. However, such harmonisation is dictated by the challenges of investor protection that changing market conditions create. Also, the transaction costs associated with indirect fragmentation inhibit the growth of cross-border trade in this area.

Emilios Avgouleas, 'Financial Market Regulation and the New Market Landscape ', (2000), International and Comparative Corporate Law Journal, Vol 2, pp 9-118

Emilios Avgouleas, 'Market Accountability and Pre- and Post-trade Transparency: The Case for the Reform of the EU Regulatory Framework: Parts 1 & 2', (1998), The Company Lawyer, Vol 19, pp 162-70; 202-10

Chapters

Emilios Avgouleas, 'Large Systemic Banks and Fractional Reserve Banking, Intractable Dilemmas in Search of Effective Solutions ' in Douglas Arner, Emilios Avgouleas, Ross Buckley (ed.) Reconceptualizing Global Finance and its Regulation (Cambridge University Press 2016) 659-692
Abstract: Banks have been a ubiquitous feature of economic life since at least the18th century. Yet the transformation that banks have undergone in thepast thirty years has made the struggle of making them safe ever harderand more challenging. Arguably, the notion of market discipline aidingfinancial stability in the financial sector is sometimes stretched to abreaking point for three reasons: inherently flawed corporate governanceincentives, the (albeit now fading) possibility of a bailout, andcomplexity. This chapter intends to provide a balanced, all encompassing,and in depth discussion of the social utility of big banks in a fractionalreserve banking system in the post-2008 context utilizing a very widearray of empirical and theoretical works. It will, thus, discuss thedilemmas surrounding the desired demolition of the Too-big-to-fail bank(TBTF) in the post-reform era. To this effect, the chapter will explain that,while well calibrated structural reforms and special resolution regimeswill certainly help to alleviate the TBTF problem in the banking sector,they will not eliminate it.

Emilios Avgouleas, 'Regulating Financial Innovation A Multifaceted Challenge to Financial Stability, Consumer Protection, and Growth' in Niamh Moloney, Eilis Ferran, Jennifer Payne (ed.) The Oxford Handbook of Financial Regulation (Oxford University Press 2015) 659-689
Abstract: The chapter reconceptualizes financial innovation. In this context, it discusses the risks of financial regulation and contemporary regulations addressing those risks. It provides a new framework to regulate financial innovation to foster long-term growth and curb speculation by altering innovators' incentives.

Emilios Avgouleas, Douglas W. Arner, 'The Broken Glass of European Integration Origins and Remedies of the Eurozone Crisis' in C. L. Lim, Bryan Mercurio (ed.) International Economic Law after the Global Crisis (Cambridge University Press 2015) ch 4

Emilios Avgouleas, Douglas W. Arner, Uzma Ashraf, 'Regional Financial Arrangements Lessons from the Eurozone Crisis for East Asia' in Iwan J. Azis, H. S. Shin (ed.) Global Shock, Asian Vulnerability and Financial Reform (Edward Elgar 2014) 377-415

Emilios Avgouleas, 'The Law and Economics of State Intervention in the Anglo-American Banking Sector ' in Peter Jung, Jürgen Schwarze (ed.) Finanzmarktregulierung in der Krise (Mohr Siebeck 2014) 17-63

Emilios Avgouleas, 'Breaking Up Mega-Banks A New Regulatory Model for the Separation of Commercial Banking from Investment Banking' in Panagiotis Delimatsis, Nils Helger (ed.) Financial Services at the Crossroads (Kluwer Law International 2011) 179-210

Emilios Avgouleas, 'Short Sales Regulation in Seasoned Equity Offerings What are the Issues?' in Dan Prentice, Arad Reinsburg (ed.) Corporate Finance Law in the UK and EU (Oxford University Press 2011) 117-38

Emilios Avgouleas, 'The Vexed Issue of Short Sales Regulation and the Global Financial Crisis ' in Kern Alexander, Niamh Maloney (ed.) Law Reform and Financial Markets (Edward Elgar 2011) 71-110

Emilios Avgouleas, 'What Future for Disclosure as a Regulatory Technique Lessons from Behavioural Decision Theory and the Global Financial Crisis' in Iain MacNeil, Justin O'Brien (ed.) The Future of Financial Regulation (Hart Publishing 2010) 211-31

Emilios Avgouleas, 'The Behavioural Aspects of the Global Financial Crisis and Regulatory Reform ' in Robert W. Kolb (ed.) Lessons from the Financial Crisis (John Wiley & Sons, Inc. 2010) 391-400

Emilios Avgouleas, 'International Credit Markets Players, Financing Techniques, Instruments and Regulation' in Hossein Bidgoli (ed.) The Handbook of Technology Management (John Wiley & Sons, Inc. 2009) 675-92

Emilios Avgouleas, 'An Overview of the MiFID Regime for the Regulation of Financial Services and Markets ' in Emilios Avgouleas (ed.) The Regulation of Investment Services in Europe under MiFiD (Tottel Publishing 2008) 1-12

Emilios Avgouleas, 'Reforming Investor Protection Regulation The Impact of Cognitive Biases' in M. Faure, F. Stephen (ed.) Essays in the Law and Economics of Regulation in Honour of Anthony Ogus (Intersentia 2008) 143-66

Working Papers

Aimilios Avgouleas, 'Bank Leverage Ratios and Financial Stability: A Micro- and Macroprudential Perspective ' 2015
Abstract: Bank leverage ratios have made an impressive and largely unopposed return; they are mostly used alongside risk-weighted capital requirements. The reasons for this return are manifold, and they are not limited to the fact that bank equity levels in the wake of the global financial crisis (GFC) were exceptionally thin, necessitating a string of costly bailouts. A number of other factors have been equally important; these include, among others, the world’s revulsion with debt following the GFC and the eurozone crisis, and the universal acceptance of Hyman Minsky’s insights into the nature of the financial system and its role in the real economy. The best examples of the causal link between excessive debt, asset bubbles, and financial instability are the Spanish and Irish banking crises, which resulted from nothing more sophisticated than straightforward real estate loans. Bank leverage ratios are primarily seen as a microprudential measure that intends to increase bank resilience. Yet in today’s environment of excessive liquidity due to very low interest rates and quantitative easing, bank leverage ratios should also be viewed as a key part of the macroprudential framework. In this context, this paper discusses the role of leverage ratios as both microprudential and macroprudential measures. As such, it explains the role of the leverage cycle in causing financial instability and sheds light on the impact of leverage restraints on good bank governance and allocative efficiency.

Emilios Avgouleas, Charles Goodhart, 'A Critical Evaluation of Bail-in as a Bank Recapitalisation Mechanism ' 2014
Abstract: Many of the world’s developed economies have introduced, or are planning to introduce, bank bail-in regimes. Both the planned EU resolution regime and the European Stability Mechanism Treaty involve the participation of bank creditors in bearing the costs of bank recapitalization via the bail-in process as one of the (main) mechanisms for restoring a failing bank to health. There is a long list of actual or hypothetical advantages attached to bail-in centred bank recapitalizations. Most importantly the bail-in tool involves replacing the implicit public guarantee, on which fractional reserve banking has operated, with a system of private penalties. The bail-in tool may, indeed, be much superior in the case of idiosyncratic failure. Nonetheless, there is need for a closer examination of the bail-in process, if it is to become a successful substitute to the unpopular bailout approach. This paper discusses some of its key potential shortcomings. It explains why bail-in regimes will fail to eradicate the need for an injection of public funds where there is a threat of systemic collapse, because a number of banks have simultaneously entered into difficulties, or in the event of the failure of a large complex cross-border bank, except in those cases where failure was clearly idiosyncratic.

Emilios Avgouleas, 'Regulating Financial Innovation: A Multifaceted Challenge to Financial Stability, Consumer Protection, and Growth' 2014
Abstract: The chapter reconceptualizes financial innovation. In this context, it discusses the risks of financial innovation and contemporary regulatory reforms addressing those risks. It provides a critique of contemporary reforms. Finally, it stresses the need for a new framework to regulate financial innovation to foster long-term growth and curb speculation. Regulation ought to focus on altering innovators' incentives through a properly balanced mix of incentives and sanctions.

Emilios Avgouleas, Jay Cullen, 'Excessive Leverage and Bankers’ Pay: Governance and Financial Stability Costs of a Symbiotic Relationship' 2014
Abstract: Debt has traditionally been viewed as an effective corporate governance tool. On the other hand, high leverage levels can lead to rapid expansion of the size of bank assets maximizing, in the short-to-medium term, banks return on equity. In the absence of regulatory controls on leverage, all it takes to assume excessive risks, even for benign bankers, is to imitate competitor business strategies. This form of herding can be motivated by compensation considerations or by career concerns. However, while bankers’ compensation has been a major factor behind bank short-termism, excessive leverage creates serious governance/agency costs even in the absence of compensation incentives. Therefore, a reasonably protective leverage ratio can prove an effective measure in containing rent seeking and smoothing up the leverage cycle to improve bank governance, prevent deep recessions, and safeguard financial stability.

Emilios Avgouleas, Douglas W. Arner, 'The Eurozone Debt Crisis and the European Banking Union: A Cautionary Tale of Failure and Reform' 2013
Abstract: The 2008 global financial crisis spread to most of the developed economies, including those of the European Union. Unfortunately, despite decades of effort to build a Single Financial Market, almost all EU jurisdictions lacked proper crisis resolution mechanisms, especially with respect to the cross-border dimensions of a global crisis. This led to a threat of widespread bank failures inEU countries and near collapse of their financial systems. Today, in the context of the Eurozone financial crisis, the EU is at a critical crossroads. It has to decide whether the road to recovery runs through closer integration of financial policies and of bank supervision and resolution, or whether to take the path of fragmentation with a gradual return to controlled forms of protectionism in the pursuit of narrow national interest, although the latter is bound to endangerthe single market. Therefore, the policy dilemmas facing the EU and contemporary institution building within the Eurozone provide an important window into the future of both global and regional financial integration.

Emilios Avgouleas, 'Rationales and Designs to Implement an Institutional Big Bang in the Governance of Global Finance ' 2012
Abstract: The colossal challenges facing International finance pertain to both its governance system and its dual utility and speculative functions, which have become ever more intertwined with the advent of financial innovation. In the aftermath of the Global Financial Crisis (GFC) a number of significant reforms are under way to address the second issue, including additional capital and liquidity requirements for banks, measures to battle interconnectedness in the financial sector, new resolution regimes, which would allow banks to fail more easily, and more strict frameworks for bank supervision and monitoring of systemic risk. Yet limited progress has been made with respect to governance structures, which, thus, will be the main focus of present analysis. In this article I provide an outline of a proposal for a new model of governance for global financial markets in order to address most of the above challenges in a way that would be more effective than the pre-existing regime or the architecture emerging as a result of the GFC.

Emilios Avgouleas, Jay Cullen, 'Market Discipline and Corporate Governance in the EU Banking Sector: Intellectual Fallacies, Cognitive Boundaries, and Groupthink' 2012
Abstract: Much contemporary analysis has concluded that the recent financial crisis and bank failures were, inter alia, the result of a breakdown in corporate governance regimes and market discipline. Reform of corporate governance structures and remuneration incentives is at the heart of regulatory reform both in the EU, and internationally. New regulations strongly advocate tighter investor monitoring and greater control over executives' remuneration as market based remedies to the woes of the financial sector, which will safeguard future financial stability. Aside from the markets' tendency to be short-termist, which puts an obvious limitation to this remedy, the biggest shortcoming of this approach is that it largely ignores three very important aspects of modern financial markets that cannot be contained through market discipline: (a) the interaction between socio-psychological phenomena, such as irrational exuberance, herding and panic induced contagion, (b) the epistemological properties of financial market innovation, which can result in complex structures that stretch to a breaking point the markets' and individuals' limited capacity to measure the risks involved in opaque institutional structures and markets, (c) inherent inability to predict the uncertain risk correlations that risky products, financial market, interconnectedness, and too-big-to-fail institution behaviour can bring about. Furthermore, even rationally and well-managed financial institutions can be a threat to the stability of the financial system. Therefore, this paper argues that recent EU regulatory reform to corporate governance, as a means to improve financial stability is a large-scale intellectual fallacy. Absent EU-wide structural reform to control risk-taking in large and complex financial institutions, the stability of the EU banking sector will remain compromised. Smaller and less interconnected banks will both improve bank corporate governance and create a safer and more stable financial sector.