1. There seems to be a widespread consensus today that some form of regulation of international finance is needed in order to take full advantage of the potentially huge benefits of open markets for capital while at the same limiting the risk of serious economic breakdown resulting from the inherently volatile character of those markets. It is generally recognised that the dismantling of exchange controls which started in the 1970s together with the development of modern computer and telecommunications technology over the last two decades have created unprecedented opportunities for global investment and international trade in capital: time and space have become virtually irrelevant in global financial markets. On the other hand, experience has shown that the sound operation of financial markets is threatened by instabilities which are far greater than those involved in the trade of goods and services. Financial collapses have a unique capacity for projecting their effects right across the domestic economy, and in the worst cases far beyond that, across the region and even across the world. The root causes for the instability of financial markets lie in the insufficient screening of investments risks by the providers of foreign capital and the local financial intermediaries alike, as well as in the huge potential for speculation created by the liberalisation of foreign exchange markets which can give rise to extreme fluctuations in short-term capital movements.

2. The need for regulating international financial markets can therefore hardly be questioned in principle.

Introduction

Financial market regulation in Germany has been subject to profound changes during the last decade. The far-reaching reform measures, which have resulted so far in the enactment of four Financial Market Promotion Acts, were introduced with the aim of preserving the attractiveness of the domestic capital market in the era of globalisation of investment and finance. Driven by renewed efforts at the European level to create an integrated European capital market, the reforms have sought to bring the German law into line with the relevant EU market directives and to create the institutional framework necessary for an effective market supervision. The recently enacted Law on the establishment of an integrated financial services supervision has created a unified institutional structure in the supervision of the market activities of financial firms by merging the three main regulatory bodies which had previously existed – the Federal Banking Supervisory Office, the Federal Insurance Supervisory Office and the Federal Securities Supervisory Office – into a single body, the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – FFSA). It did not create, however, a unified regulatory framework for the financial services industry as a whole. The substantive law of market regulation still consists of several regulatory regimes which reflect the basic distinction between the banking, insurance and securities sectors. The relevant regulatory concepts are laid down in the Banking Act (Gesetz über das Kreditwesen), the Insurance Supervision Law (Gesetz über die Versicherungsaufsicht) and the Securities Trading Act (Wertpapierhandelsgesetz) respectively.

Most of the contributions included in this volume were originally presented during a workshop held at the ‘Evangelische Akademie Loccum’ in 2001. The editors wish to explicitly acknowledge the financial and logistical support provided by the ‘Evangelische Akademie Loccum’. In particular, we appreciate the contribution of Dr Christoph Hüttig to the conceptual framework of the workshop and the establishment of contacts with Benjamin J. Cohen and Axel Peuker through him. Further papers were added and existing papers were revised subsequently, with final editing being done in 2004. The editors are grateful to the VolkswagenStiftung for its financial support in respect of both the workshop and the preparation of the publication. We also appreciate the editorial assistance provided by Michael Weiss. Due to the long editing process which is the sole responsibility of the editors the final versions of the various contributions differ in respect of timing. Authors have, however, successfully contributed to a meaningful interdisciplinary volume which the editors have sought to draw conclusions upon in their final chapter. This chapter also outlines perspective for further research. Finally, the editors wish to express their gratitude to the publisher and all the assistance provided by Cambridge University Press.