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on Regulation |
| By: | Singh , Rupinder (BOFIT) |
| Abstract: | A model is presented where the question of bank regulation is developed under a principal-agent scenario in a regime where the regulator has limited resources and banks may have an incentive to act ultra virus the regulatory standards. If banks are subject to random audit, then compliance is achieved through a system of fines determined according to the extent of non-compliance. The model shows that the choice of internal monitoring of risk is driven by each bank’s choice of the wage contract for its compliance officer who works for the ban for a wage. The officer’s incentive for effective monitoring is heightened by the threat of an internal fine from the bank for any contravention of regulations. Moreover, either a fine on the bank or a fine on the compliance officer alone is sufficient to ensure that efficiency is achieved. The model is useful for the bank regulator in a market economy and in transition economies, where the effective constraint on regulatory capacity is addressed using market-based incentives to ensure prudent regulation and effective supervision, and thereby limit the danger of bank failure and contagion. |
| Keywords: | banking; regulation; supervision; enforcement; transition economies |
| JEL: | E50 G00 P20 P30 |
| Date: | 2007–09–13 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2000_002&r=reg |
| By: | Andrei Medvedev (Centre for Competition Policy, University of East Anglia) |
| Abstract: | To prevent possible abuse of market power, an antitrust agency can force merging firms to divest some of their assets. The divested assets can be sold via auction either to existing competitors or to a new entrant. Divestiture of assets extends the range of parameters when a merger satisfies a consumer surplus standard and should be approved. If the agency takes a more active stance toward the selection of a purchaser of the assets (e.g. to exclude an incumbent from the auction), then it could lead to a favourable outcome for consumers and merging firms. |
| Keywords: | Merger regulation, structural remedies, divestiture |
| JEL: | D43 K21 L51 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:ccp:wpaper:wp07-16&r=reg |
| By: | Poul Kjaer |
| Abstract: | This paper analyses the potential legitimacy basis of REACH, the new regulatory system for the EC chemicals market. It is argued that three different potential sources of legitmacy exists: i) the quasi-democratic process within which it was established; ii) proceduralisation; and iii) through an institutional design which is aimed at fostering deliberation. This threefold legitimacy basis reflects the hybrid nature of the regulatory structure of REACH. It is, however, also argued that the underlining feature of all three forms is that they are based on or conditioned by a high level of functional differentiation. Hence, it is argued that the prevalence of functional differentiation serves as a structural condition for the construction of an adequate legitimacy basis for transnational regulatory structures. In addition, functional differentiation must be regarded as a source of legitimacy in its own right. An adequate model of transnational governing and governance in the European context must therefore systematically confront the reality and necessity of functional differentiation. |
| Keywords: | governance; legitimacy; non-majoritarian institutions; regulation; risk regulation |
| Date: | 2007–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:erp:euilaw:p0084&r=reg |
| By: | Ashok Vir Bhatia |
| Abstract: | Given the rapid evolution of the U.S. financial sector and attendant regulatory challenges, this paper explores ways to fine-tune U.S. oversight arrangements. It surveys the financial landscape, separating a highly regulated, multi-business, and (in terms of relative asset holdings) shrinking “core†from a lightly regulated, more specialized, and rapidly expanding “peripheryâ€; explains the U.S. regulatory philosophy and structure, with its focus on core institutions and its jurisdictional complexity; highlights certain new challenges, without presuming to have all the solutions; draws out some broad policy implications, from the “30,000 foot levelâ€; and concludes by tabling and discussing one, specific, reform idea. |
| Keywords: | Financial sector , United States , Bank supervision , Structural adjustment , Working Paper , |
| Date: | 2007–08–02 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:07/195&r=reg |
| By: | Wang, Fan |
| Abstract: | High loan-to-value (LTV) mortgage are residential mortgage loans with LTV ratio greater or equal to 90\%. Lenders are increasingly engaged in risk-based pricing. If properly quantified, the additional credit risk taken when originating high LTV mortgage can be compensated by higher interest rate charged to customers. High LTV mortgage is regulated to meet higher capital requirement and thus have higher funding cost. Current regulation raises regulatory capital requirement of banks on all high LTV mortgage holdings. However, it is not efficient to differentiate the risk between a high LTV first mortgage and a second lien mortgage with the same LTV. In the paper, I show how LTV ratio affects credit risk in mortgage. A structured credit modeling approach is taken to quantify the credit risk of first mortgage and second mortgage. The total risk in a combination of first and second mortgage is shown to be equal to that of a first mortgage with the same aggregate LTV. Default risk is derived implicitly. Optionality of defaultable debt results in an upward sloping credit supply curve in terms of a function of interest rate with respect to LTV. Current regulation in high LTV mortgage creates a funding advantage in seperating a high LTV mortgage into a lower funding cost first mortgage and a higher cost second mortgage. |
| Keywords: | mortgage lending; risk-based pricing; credit risk; regulatory capital |
| JEL: | G21 |
| Date: | 2007–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:4788&r=reg |