E44 - Financial Markets and the MacroeconomyReturn

The article, in general terms, describes the sovereign risk and the risk of excessive concentration of sovereign exposures within the balance sheets of the banks. Based on an analysis focused on the development of this phenomenon within the given period, both in the Czech Republic and in other selected countries, the rate of effectiveness of the Czech central bank's position towards this potential source of financial instability was assessed. Mutual interconnection of the banking sector and the state is percieved as significant and potentially risky. The reasons are related to many interconnections that may adversely affect the stability of one or both sectors, in case of adverse changes, with an overlap into the real economy. The article highlights the main sections of mutual relationships between the state and the banking sector, trying to clarify them. Further, identifies the relevant sources of instability, that are being discussed.

The paper describes the different models of organization of the financial supervision in the financial market and assesses their use. Supervision in the Czech Republic has undergone its own development, thanks to which we have witnessed both sectoral organization of the financial supervision and also its centralization under the Czech National Bank, which currently declares the shift of the model to the functional model with an emphasis on preserving and maintaining financial market stability. The post-crisis period has seen many changes under the EU supervision, reflected in particular on creating new supervisory authorities. Assessing these changes are accompanied by a self-regulatory initiatives of individual financial market participants, with an emphasis on pointing out the individual needs of clients of banks and financial institutions.

The aim of this paper is not only to explain the institutional response to the Global financial crisis, but also to evaluate how effectively the national and supra-national supervisors use entrusted powers. With the emergence of cross-border financial groups, call for supra-national supervisory authorities has strengthened. There are many variants of the institutional responses to the development in economical and financial environment. Particular attention will be paid to the harmonization of regulatory and supervisory policy in the EU, which is characterized by the creation of European system of financial supervision. However, pressure on creation supra-national supervisory authority does not guarantee effective regulation and supervision of cross-border financial groups. More rational structures may support the development of the European financial market, but, fundamentally, more efficient supervision comes from independent and transparent supra-national supervisory body with better-trained staff and more enforcement powers.

Financial crisis is a sharp, brief, ultracyclical deterioration of all or most of a group of financial indicators - illiquidity, financial insolvencies, rate of returns, asset prices, financial institutions failures, and rush out of the real or long-term financial asset into money. Financial crisis solution has two dimensions. The crisis is connected with goverment interventions to stop systematic collapse of the whole financial system. After realization of the bail-out phase, instantly starts second phase, focuses on restoring the public confidence in the financial system includes discussion and practical implementation the institutional response to the financial crisis. This paper surveys the institutional response to the Great Depression, the Great Moderation and the Global Financial Crisis. We can identify these as follows: Glass- Steagall Act, Gramm-Leach-Bliley Act and Dodd-Frank Act. There are many variants of the institutional responses to the development in economical and financial environment. Financial and Law theory indicates a wide variety of institutional responses, suggesting that is no universal ideal approach. But one aspect is clear, that Dodd-Frank Act is noGlass-Steagall Act.

Global financial crisis is a sharp, brief, ultracyclical deterioration of all or most of a group of financial indicators - illiquidity, financial insolvencies, rate of returns, asset prices, financial institutions failures, and rush out of the real or long-term financial asset into money. Current global financial crisis includes credit crisis, liquidity crisis and investment crisis. We can identify these causes as follows: real estate bubble, credit overexpansion, overspeculation, financial panic, regulation-failure, and imperfect institutional arrangement of global financial market.