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- IstEin Financial Regulation Review No. 184 (02 - 15 February 2017)
- IstEin Financial Regulation Review No. 183 (19 January - 01 February 2017)
- IstEin Financial Regulation Review No. 182 (15 December 2016 - 18 January 2017)
- IstEin Financial Regulation Review No. 181 (1 - 14 December 2016)
- IstEin Financial Regulation Review No. 180 (17 - 30 November 2016)
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This paper examines how financial regulation and institutional quality affect the likelihood of a systemic banking crisis. Using an unbalanced panel of 132 countries over the period from1999 to 2011, we find that the inverted U-shaped impact of regulation on the probability of financial crisis is sensitive to the institutional quality and creates a liberalization trap for “happy mediums”: only countries endowed with good institutions can undertake a liberalization process. This effect is larger for European Union (and Eurozone) members than other countries. The policy implication is that heterogeneity in institutional quality generates different preferences making an international agreement on banking regulation hard to achieve, especially in Europe. Our results are consistent with several robustness econometric exercises.
This paper explains how unobserved borrower risk factors and changing economic expectations can interact to create vintage effects and parameter instability in mortgage credit risk models. Authors develop a model of mortgage choice and default behavior that demonstrates how this could have led to underestimation of the risk of high LTV mortgages before the crisis. This analysis offers some guidance for reducing model risk.
The aftermath of the financial crisis has seen the formation of several new banking regulators and an onslaught of new financial regulation. In the area of consumer financial protection bureau these regulations have resuscitated the regulatory approach of prior eras, namely substantive regulation of the prices, terms, and products offered to consumers. But these regulations have also resulted in predictable unintended consequences — higher prices, reduced innovation, and exclusion of many consumers from mainstream financial products. This chapter drawn from the book Reframing Financial Regulation: Enhancing Stability and Protecting Consumers, distinguishes between two types of regulatory approaches, “market-reinforcing” and “market-replacing” consumer finance regulation, and argues that consumer welfare would be improved by a regulatory strategy that makes markets work better instead of displacing them with command-and-control regulation.
The paper seeks to identify strategies of commercial banks in response to higher capital requirements of Basel III reform and its phase-in. It focuses on a sample of nine EU emerging market countries and picks up 5 largest banks in each country assessing their response. The paper finds that all banking sectors raised CAR ratios mainly through retained earnings. In countries where the banking sector struggled with profitability, banks have resorted to issuance of new equity or shrunk the size of their balance sheets to meet the higher capital-adequacy requirements. Worries echoed at the early stage of Basel III compilation, namely that commercial banks would shrink their balance sheet by reducing their lending to meet stricter capital requirements, did materialize only in banks struggling with profitability.
Shadow banking is the creation or transfer – by banks and non-bank intermediaries – of bank-like risks outside the banking system. In Italy the shadow banking system is fully regulated, mostly following the principle of same business-same rules or ‘bank-equivalent regulation’. After an overview of the topic, authors describe the Italian shadow banking system and the related regulatory and supervisory framework in place before the financial crisis and the subsequent enhancements. A quantitative representation of Italian shadow banking is also provided. The paper argues that through a wide and consistent regulatory perimeter, based on the principle of ‘bank-equivalent regulation’, it is possible to setup a well-balanced prudential framework, where both bank and non-bank regulation contribute to reducing systemic risks and regulatory arbitrage.
The European Securities and Markets Authority (ESMA) wrote to the European Commission (EC) to raise its concern over the potential establishment of networks of systematic internalisers (SIs) by investment firms to circumvent certain MiFID II obligations; in particular, the requirements for investment firms operating internal matching systems and executing client orders on a multilateral basis to be authorised as trading venues, and the trading obligation for shares.
See also: press release
The European Insurance and Occupational Pensions Authority (EIOPA) published new sets of Questions and Answers on: Regulation (EU) No 2015-2450 with regard to the templates for the submission of information to the supervisory authorities and Regulation (EU) No 2015-2452 with regard to the procedures, formats and templates of the solvency and financial condition report.
The widespread emergence of intangible technologies in recent decades may have significantly hurt output growth - even when these technologies replaced considerably less productive tangible technologies - because of structurally low interest rates caused by demographic forces. This insight is obtained in a model in which intangible capital cannot attract external finance, firms are credit constrained, and there is substantial dispersion in productivity.
Despite a general consensus on the importance of systemic risk and the need to keep it under control, considerable differences remain between the supervisors and academic discourse. In this perspective, the paper aims to (i) measure the marginal contribution to systemic risk of 26 SIFIs using the Distressed Insurance Premium (DIP) methodology proposed by Huang et al. (2009) and Tarashev and Zhu (2008b); (ii) compare results with those emerging from the SRISK measure reported in the NYU Stern Systemic Risk Rankings and based on the Capital Shortfall of Acharya et al. (2012); (iii) divide SIFIs in risk buckets and compare our results with the buckets established by the Financial Stability Board and the Basel Committee on Banking Supervision.
Economic growth is persistently low following a financial crisis, possibly because of a continuing weak banking system. In a financial crisis bank health is significantly damaged. Post-crisis regulatory changes have aimed at restoring bank health, but measuring bank health by Tobin's Q, authors find that the ill health of banks in the recent U.S. financial crisis and the Euro crisis has persisted, especially compared to other crises in advanced economies. The low bank Q's cannot be explained by the state of the macro-economy. The results seem to suggest that bank regulatory changes have been repressive.
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