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The future of financial markets

Ismail Ertürk, senior lecturer in banking at Alliance MBS, is taking part in a major consultation exercise on the future of financial markets being driven by the Bank of England.

During November the Bank of England is running a series of ‘Open Forum’ debates nationwide, and Ismail is attending an event being held in Manchester. The session aims to promote the Bank’s new approach to regulation of financial markets where communication with the public at large becomes an important tool in addition to the more conventional macro-economic and supervisory policies and practices.

The Bank is inviting representatives from private and public institutions, and the general public, to explore what changes are needed after the financial crisis of 2007 and recent banking scandals in order to make the financial markets serve society better.  It is also looking at how new and existing platforms can be developed to improve access to finance for smaller companies.

Ismail says the initiative forms part of a wider drive across Europe to integrate capital markets through the Capital Market Union (CMU) because the banking system has failed to respond to European Central Bank policies to revive credit flows across European economies.

A recent CMU Green Paper reported that although the EU economy is about the same size as America’s, its equity markets are less than half the size while its debt markets are less than one third the size. In the US, SMEs also raise about five times as much funding from capital markets as in the EU.

Ismail says this “post-crisis activism” by the Bank of England in regulating financial markets expands its role into new territories beyond banking and technical monetary expertise. “The Bank is aiming to co-op the British public through initiatives like the Open Forum to its vision of resilient and socially useful finance. To that end it is going to play a key role in the creation of the CMU.”

However, Ismail says such moves from Bank of England technocrats requires a new governance mechanism for accountability and delivery. “Communication itself is not sufficient for full transparency and accountability when the cognitive depository of central bank action is not open to critical debate and is seen by a considerable number of both academics and practitioners as impaired by orthodox economic thought that was partly responsible for the crisis.”

Ismail’s own recently published research on central banking and the CMU has underlined how post-crisis central bank policies themselves have created new fragilities in global financial markets, and claims the CMU Green Paper’s understanding of financial markets as mechanisms for capital allocation in contemporary economy is faulty and lacks evidence.

Adds Ismail: “Currently I am collaborating with colleagues from other universities in Europe and the UK to present research findings on the CMU to policymakers at the European Commission and the European Parliament.”

Ismail has already taken part in two workshops on the subject earlier this summer, one in Brussels organised by the Foundation for European Progressive Studies, and the other in London hosted by the Institute of Advanced Legal Studies at the University of London.