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St Catharine's Political Economy Seminar Series - Speaker: Anastasia Nesvetailova

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Talk Title: ‘Shadow Banking and Financial Innovation: in Search of a Theory’

Speaker Anastasia Nesvetailova is Professor of International Political Economy at City University London and Director of City Political Economy Research Centre (CITYPERC). Her main research interests lie in the political economy of finance, financial innovation and governance. Theoretically, she works at a nexus of post-Keynesian economic thought and the institutional economics of J.R. Commons and Hyman Minsky. Her publications include two monographs, Fragile Finance: Debt, Speculation and Crisis in the Age of Global Credit (Palgrave, 2007) and Financial Alchemy in Crisis: The Great Liquidity Illusion (Pluto, 2010), as well as a series of academic and media articles on political economy of finance, financial crises and the shadow banking system. In September 2015, Anastasia was appointed as member of the economic advisory panel to Jeremy Corbyn, to work together with an anti-austerity team with the aim of drafting an alternative economic program to post crisis austerity.

Talk Overview: Anastasia Nesvetailova will discuss the emergent views on the origins and the nature of the shadow banking system. The 2007-09 crisis posed an intellectual challenge to finance and economics, and to the practice of financial regulation. The meltdown exposed the field of academic economics as apparently not tuned into diagnosing and anticipating the nature or the scale of the credit crunch. The diagnoses of this problem vary. On the one hand, it is clear to many that financial regulation at national and international levels had been informed by a wrong set of theoretical assumptions. Post-2009, there is a consensus in regulatory and academic circles that the neoclassical micro-prudential approach to financial regulation at national and international levels had become inadequate in the age of deepening connections and systemic risks in the financial system. On the other hand, some scholars have argued that financial regulators, rather than being guided by a firm theoretical framework, simply acted as ‘market makers’ to the private financial institutions, and thus became ‘captured’ in the spiral of regulatory arbitrage, or financial innovation. Perhaps no other element of the financial cycle encapsulates these dilemmas better than the phenomenon of shadow banking. Having first come to light in 2007, the role of the shadow banking system in the financial crisis of 2007-09 underscored the so far under-examined role of endogenous financial process, ‘inside liquidity’ mechanisms in generating financial cycles and systemic risks in finance. Yet paradoxically, while systemic risk has become a central notion on post-crisis regulatory moves and attempts to regulate the shadow banking system, it remains a rather ambiguous notion in financial regulation. Anastasia will inquire into what, if anything, has shifted in the global regulatory maps, in light of the lessons about the shadow banking system. Revisiting key policy reforms aimed at regulating shadow banking, she asks what are the areas of conceptual ambiguity in the post-2009 financial reforms; to what extent they are driven by the objective to resolve the problem of regulatory capture; and to what extent the post-crisis architecture is informed by a new set of theoretical assumptions.

All are welcome. The seminar series is supported by the Cambridge Journal of Economics and the Economics and Policy Group at the Judge Business School.

Please contact the seminar organisers Philip Arestis (pa267@cam.ac.uk) and Michael Kitson (m.kitson@jbs.cam.ac.uk) in the event of a query.

This talk is part of the St Catharine's Political Economy Seminar Series series.

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