Compliance and Regulation Law bilingual Dictionnary

Crisis

by Marie-Anne Frison-Roche

A crisis is an unexpected and destructive dysfunction of an organization. In an ordinary market of goods and services, crises are internal to companies, for example through social conflicts, and may even lead to the disappearance of the firm. But this does not lead to a market crisis because the internal crisis of the company is not communicated to the market. This is why market theories do not need to apprehend the internal functioning of companies which are thus deliberately designated, by reason of this indifference, as "black boxes". Indeed, a corporate bankruptcy in an ordinary market shows the dynamism of the market since it is the weak and inadequate companies that are eliminated for the benefit of the innovative companies, pushing more dynamic third parties to enter the market to take the place, according to the schema of the creative destruction of Schumpeter,which the Law of competition endorses. Thus, the crisis is not only not a problem for the ordinary market but even supposing that we care, it is a sign of good functioning.

This is absolutely different in the case of systemic operation in particular sectors. The best known case is the banking and financial markets. Indeed, if investors begin to lose confidence in intermediaries, mainly in banks by a self-realizing effect, the market begins to collapse, leading investors, backed by fear, to withdraw their assets and realize the total collapse of the market by a domino effect that destroys the whole system. By the globalization of the financial and banking markets, now achieved by the dematerialization of securities and technology, the systemic crisis is global. Banking and financial regulators are therefore primarily responsible for fighting the crisis in order to prevent it, through information, transparency and protection of the investor, secondly to manage it, by supporting the defaulting operators And the sanction of the guilty operators, and thirdly to get out of the crisis, by restoring the confidence of the operators in the markets.

By the globalization of the financial and banking markets, now achieved by the dematerialization of securities and technology, the systemic crisis is global. Banking and financial regulators are therefore primarily responsible for fighting the crisis in order to prevent it, through information, transparency and protection of the investor, secondly to manage it, by supporting the defaulting operators and the sanction of the guilty operators, and thirdly to get out of the crisis, by restoring the confidence of the operators in the markets.

But this prevalence of the crisis in the regulatory system should not be limited to banking and financial markets alone. Indeed, two major phenomena prevent goods and services from being left to the simple and ordinary market system, that is to say, to the simple mere competition law.

Indeed, the competitive market presupposes the infinite nature of the production of goods and services as soon as there is demand on the one hand, and the instantaneous nature of production and trade on the other. First, many goods and services are scarce resources. These include energy resources, which are the primary stakes in the global economy. They are then the necessary object of regulation, since it is not possible, for example, to produce gas or oil. The issue of water is even more important, even though the regulation of water is still in its infancy. In the same way, the instantaneous nature of production and trade does not apply to all agricultural activity, which presupposes the passage of time to produce goods, plants and animals, and which is subject to the vagaries of man's climate which, if allowed to play the law of the market, entails an exact price, but of a very great variability (King's law). Agricultural regulation then intervenes to smooth out prices over time and make possible that economic activity which exists only on annual or multiannual rhythms, to which the ordinary market scheme does not correspond. If an agricultural crisis occurs, such as the crisis in the price of pigs or the crisis in the price of milk, the solution is to avoid competition mechanisms to find a solution either through multi-annual contracts between producer and retailer or by State aids justified by the crisis, or even by means of tariffs.

We see that the crisis is no longer a peripheral and welcome notion in the model but rather the central and permanent concern of the model. It is true that today we have moved from the competitive model to the regulatory model. This is particularly true in Europe, since 2010, Europe has been building banking Europe, the Banking Union based on regulation.

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