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There are many alleged culprits for the bank runs of 2008 and their devastating economic fallout. But proprietary information and leverage top our list. Claims of proprietary information forced financial markets to operate on trust, while providing the perfect breeding ground for fraud. And leverage permitted creditors to run at the first whiff of fraud, leveling one financial giant after another. Limited Purpose Banking (LPB), presented here, is a financial reform that sharply curtails proprietary information and eliminates leverage and, thus, the possibility of financial collapse. LPB's adoption is supported by our simple model showing how fraud can destroy finance.

This research explains the politics of financial reforms in Indonesia by applying the theory of veto players. By comparing the periods during and after the International Monetary Fund (IMF) programs, I analyze temporal variations in the effects of the IMF and the number of veto players on financial reforms in Indonesia.

We are in the midst of the worst financial crisis since the Great Depression. This crisis is the latest phase of the evolution of financial markets under the radical financial deregulation process that began in the late 1970s. This evolution has taken the form of cycles in which deregulation accompanied by rapid financial innovation stimulates powerful financial booms that end in crises. Governments respond to crises with bailouts that allow new expansions to begin. As a result, financial markets have become ever larger and financial crises have become more threatening to society, which forces governments to enact ever larger bailouts. This process culminated in the current global financial crisis, which is so deeply rooted that even unprecedented interventions by affected governments have, thus far, failed to contain it. In this paper we analyse the structural flaws in the financial system that helped bring on the current crisis and discuss prospects for financial reform.

Do international organisations generate benchmarks as tools for policy enforcement or policy learning? This article suggests that the latter is possible even in unlikely scenarios. It does this through a case study on the ‘power of numbers’ in the International Monetary Fund's (IMF) Financial Sector Assessment Programme (FSAP). While the IMF is typically viewed as an institution that enforces global standards for economic governance through the imposition of quantitative targets (‘numbers’ for this special issue), I suggest that its use of benchmarking in the generation of financial data can serve as a policy learning tool to enhance independent policymaking. As such, the IMF's programme practices differ from its policy proclamations on the need for universal standards and transparency. Seen through a pragmatist lens, an admittedly optimistic assessment of the IMF's behaviour is that it seeks to generate a policy dialogue for learning with member states. But this aim also has to operate within broader international political and economic constraints. As such this process must yield to broader principal-agent dynamics in the IMF's governance structure, as well as tip its cap to private market actors. This article suggests that we cannot simply view the IMF staff as hostage to their commanders. Rather, the IMF's use of ‘pragmatic numbers’ within FSAPs demonstrates one method by which an institution seeks to foster learning under constraint.

Chinese farmers need loans. It's hard for them to borrow from formal lenders like banks or even the rural credit cooperatives. Thus, to satisfy their financial needs, farmers borrow from informal lenders. While farmers have benefited from the post-Mao reform in many respects, financial reforms of the past three decades have failed to create an effective system in which farmers can borrow from formal lenders. To create an effective and efficient financial system that can meet farmers' needs, it is necessary for informal lenders to play an active role in rural finance. China's rural finances face four key problems: asymmetric information, a lack of collateral, the unique structure of costs and risks, and the nonproductive use of loans. Informal lenders have an advantage in solving these problems. This article proposes the creation of a financial system in which informal lenders play an active role in lending to farmers and formal and informal lenders cooperate with each other. It develops the argument based on the first author's field research in the provinces of Guangdong, Henan, Jilin, Shaanxi, Shandong, and Shanxi.

The degree of an economy's monetization, which has an important implication on economic growth, can be affected by the conduct of monetary policy, financial sector reform, and episodes of financial crises. The paper finds that monetization--measured by the ratio of broad money to nominal GDP-- in low- to middle-income countries is significantly correlated with per-capita GDP, real interest rates, and financial sector reform. It suggests that maintaining an upward momentum in monetization can be an important policy objective, particularly for low-income countries, and that monetary and financial sector policies need to be conducive to enhancing monetization.

It is generally presumed that stronger legal enforcement of lender rights increases credit access for all borrowers because it expands the set of incentive compatible loan contracts. This result relies on an assumption that the supply of credit is infinitely elastic. In contrast, with inelastic supply, stronger enforcement generates general equilibrium effects that may reduce credit access for small borrowers and expand it for wealthy borrowers. In a firm-level panel, we find evidence that an Indian judicial reform that increased banks' ability to recover nonperforming loans had such an adverse distributive impact.

The literature on financial regulation has typically emphasized the role of the powerful financial industry in shaping regulatory outcomes. However, capture theories cannot explain the prominence of financial consumer protection in post-crisis reform agendas. By contrast, this article argues that, despite their collective action disadvantage, a polymorphous network of civil society organizations was able to gain momentum after the financial crisis and to influence the financial reform process. In this policy window, where decision-makers were looking out for an alternative source of expertise, a transnationally connected civil society (TCS) network successfully mobilized to place consumer protection on reform agendas in tandem with public entrepreneurs and on the back of a popular backlash against big finance. This argument will be explored through a comparative study of the impact of transnational pressures on policy-makers in Europe and the US in the immediate aftermath of the crisis. In the conclusion, the article shortly discusses the substance of the financial reforms that have been undertaken.

This paper examines the redistributive effects of financial liberalization, including domestic and external finance reforms, implemented in 64 emerging and low-income countries over the past four decades. To identify these effects, we employ a “doubly robust” estimation approach and generate impulse responses using the local projections method. Our findings reveal that financial reforms significantly reduce income inequality. These results are robust and hold across various specifications and alternative methods. We find that reducing income inequalities through financial reforms depends on several factors, including improved access to financial services, level of public expenditures, and institutional quality. Furthermore, we demonstrate that governments adopting a reform approach that considers sequencing and potential complementarity of measures can significantly reduce income inequality. Taking the business cycle into account, we observe that implementing financial reforms during periods of relatively slower economic growth would be more beneficial for developing countries. Financial reforms have an impact on reducing income inequality by increasing the income of individuals located at the bottom of the distribution while decreasing the income of individuals located at the top of the distribution.