nep-ifn New Economics Papers
on International Finance
Issue of 2016‒06‒09
two papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Cross-Border Resolution of Global Banks By Ester Faia, Goethe Universität Frankfurt and CEPR; Beatrice Weder di Mauro, Gutenberg Universität Mainz and CEPR
  2. Motivations for capital controls and their effectiveness. By Pandey, Radhika; Pasricha, Gurnain K.; Patnaik, Ila; Shah, Ajay

  1. By: Ester Faia, Goethe Universität Frankfurt and CEPR; Beatrice Weder di Mauro, Gutenberg Universität Mainz and CEPR
    Abstract: Most recent regulations establish that resolution of global banking groups shall be done according to bail-in procedures and following a Single Point of Entry (SPE) as opposed to a Multiple Point of Entry (MPE) approach. The latter requires parent holding of global groups to put up front the equity capital needed to absorb losses possibly emerging in foreign subsidiaries. No model rationalized so far such resolution regime. We build a model of optimal design of resolution regimes and compare three regimes: SPE with cooperative authorities, SPE with non-cooperative authorities and MPE (ringfencing). We find that the costs for bondholders of bail-inable instruments are generally higher under non cooperative regimes and ring-fencing. We also find that in those cases banks have ex ante incentives to reduce their exposure in foreign assets. We also examine recent case studies that help us rationalize the model results.
    JEL: G18 F3
    Date: 2015–09
  2. By: Pandey, Radhika (National Institute of Public Finance and Policy); Pasricha, Gurnain K. (International Economic Analysis Department, Bank of Canada); Patnaik, Ila (National Institute of Public Finance and Policy); Shah, Ajay (National Institute of Public Finance and Policy)
    Abstract: We assess the motivations for changing capital controls and their effectiveness in India, a country where there is a comprehensive capital control system covering all crossborder transactions. We focus on foreign borrowing by firms, where systemic risk concerns could potentially play a role. A novel fine-grained data set of capital control actions is constructed. We find that capital control actions are potentially motivated by exchange rate considerations, but not by systemic risk issues. A quasi-experimental design reveals that the actions appear to have no impact either on the exchange rate or on variables connected with systemic risk.
    Keywords: Capital controls ; Capital flows ; Exchange rate ; Foreign borrowing
    JEL: F38 G15 G18
    Date: 2016–04

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