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on Regulation |
| By: | Ojo, Marianne |
| Abstract: | This paper not only considers the regulatory challenges faced by regulators, but also the potential of responsive regulation and particularly meta regulation to address these challenges. It explores developments which have necessitated a change from the traditional form of regulation, that is, command and control regulation to more responsive hybrids of regulation. Even though traditional regulation has its advantages, its inability to address the demands of changing business environments has resulted in the adoption of more flexible forms of regulation such as risk based regulation and responsive regulation. Whilst the potential of responsive regulation is considered, the complexities and challenges faced by the regulator in identifying and assessing risk, solutions aimed at countering problems of risk regulation, along with the problems arising from different perceptions of risk will be addressed only briefly. |
| Keywords: | Self regulation; co regulation; enforced self regulation; meta regulation; responsive regulation; risk |
| JEL: | K2 |
| Date: | 2009–03–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:14170&r=reg |
| By: | Jan Kregel |
| Abstract: | United States financial regulation has traditionally made functional and institutional regulation roughly equivalent. However, the gradual shift away from Glass-Steagall and the introduction of the Financial Modernization Act (FMA) generated a disorderly mix of functions and products across institutions, creating regulatory gaps that contributed to the recent crisis. An analysis of this history suggests that a return to regulation by function or product would strengthen regulation. The FMA also made a choice in favor of financial holding companies over universal banks, but without recognizing that both types of structure require specific regulatory regimes. The paper reviews the specific regime that has been used by Germany in regulating its universal banks and suggests that a similar regime adapted to holding companies should be developed. |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_557&r=reg |
| By: | de Walque, Gregory; Pierrard, Olivier; Rouabah, Abdelaziz |
| Abstract: | We develop a dynamic stochastic general equilibrium model with an heterogeneous banking sector. We introduce endogenous default probabilities for both firms and banks, and allow for bank regulation and liquidity injection into the interbank market. Our aim is to understand the interactions between the banking sector and the rest of the economy, as well as the importance of supervisory and monetary authorities to restore financial stability. The model is calibrated against real US data and used for simulations. We show that Basel regulation reduces the steady state but improves the resilience of the economy to shocks, and that moving from Basel I to Basel II is procyclical. We also show that liquidity injections relieve financial instability but have ambiguous effects on output fluctuations. |
| Keywords: | banking sector; central bank; default risk; DSGE; supervision |
| JEL: | E13 E20 G21 G28 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:7202&r=reg |
| By: | Silvia Sgherri; Bertrand Gruss |
| Abstract: | The ongoing financial turmoil has triggered a lively debate on ways of containing systemic risk and lessening the likelihood of boom-and-bust episodes in credit markets. Particularly, it has been argued that banking regulation might attenuate procyclicality in lending standards by affecting the behavior of banks’ capital buffers. This paper uses a two-country DSGE model with financial frictions to illustrate how procyclicality in borrowing limits reinforces the “overreaction†of asset prices to shocks described by Aiyagari and Gertler (1999), and to quantify the stabilization gains from policies aimed at smoothing cyclical swings in credit conditions. Results suggest that, in financially constrained economies, the ensuing volatility reduction in equity prices, investment, and external imbalances would be sizable. In the presence of cross-border spillovers, gains would be even higher. |
| Keywords: | Business cycles , Borrowing , External shocks , Spillovers , Credit ceilings , Capital markets , Asset prices , Financial risk , Economic models , |
| Date: | 2009–03–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:09/35&r=reg |
| By: | Henrik Andersen (Norges Bank (Central Bank of Norway)) |
| Abstract: | While the new capital adequacy framework, Basel II, aims to make the banks’ capital requirements more sensitive to the underlying risk of the assets, it may also introduce an additional source of procyclicality in the banking sector. A growing share of the literature has assessed the potential cyclicality of Basel II. However, only parts of the banks’ assets have been considered. In addition, the cyclicality of the capital positions is usually left out of the calculations. This paper applies the stress testing framework of Norges Bank to analyse the cyclicality of capital positions and the cyclicality of Basel II capital requirements for the entire bank portfolio of Norwegian banks. We find a substantial increase in the calculated Basel II capital requirements in a recession scenario for the Norwegian economy. We also find a negative co-movement between capital positions and Basel II capital requirements. Hence, our analysis demonstrates that Basel II may introduce an additional source of procyclicality. |
| Keywords: | Basel II, procyclicality, capital positions |
| JEL: | E32 G21 G28 G33 |
| Date: | 2009–03–13 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2009_04&r=reg |
| By: | Antonio Estache; Martin A. Rossi |
| Abstract: | We explore the relation between the establishment of a regulatory agency and the performance of the electricity sector. We exploit a dataset comprising firmlevel information on a representative sample of 220 electric utilities from 51 development countries for the period 1985 to 2005. Our results indicate that regulatory agencies are associated with more efficient firms and with higher social welfare. |
| Keywords: | Regulatory agency, performance, electricity, private ownership. |
| JEL: | D21 D24 L51 L94 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2009_010&r=reg |
| By: | Davenport, Scott; Chadha, R; Gale, R |
| Abstract: | This paper forms part of a project titled ‘Facilitating Efficient Agricultural Markets in India: An Assessment of Competition and Regulatory Reform Requirements funded by the Australian Centre for International Agricultural Research (ACIAR). The project follows from previous research which found that India’s border reforms need to be complemented by ‘behind-the-border’ domestic reforms if government policy objectives of improved productivity, higher rural employment and incomes and enhanced food security are to be met. The project is being undertaken by Indian and Australian collaborators with expertise in agricultural policy development. Stage 1 of the project is designed to develop a common understanding among those collaborators of contemporary market based policy development principles and the extent to which they have been adopted in other developing countries. The BRICs economies of Brazil, Russia, India and China, as well as South Africa, were chosen for this purpose. A comparative overview of agricultural policy developments in these economies is underway drawing observations about policy reform impacts on agricultural production and the extent to which policy reforms have been consistent with competition policy and microeconomic reform principles applied in developed economies, such as Australia. The extent to which trade practices law has emerged in developing economies as an alternative to direct regulation is also considered. Preliminary findings are reported to facilitate broader discussion and encourage input from interested parties. Stage 2 of the project, commencing later in 2009, will involve the application of competition policy principles to the marketing regulations of a selection of agricultural industries in India. Consideration will be given to clarifying regulatory objectives, assessing their consistency with accepted forms of ‘market failure’ and assessing whether regulatory measures address those policy objectives in a manner least restrictive on competition. As well as facilitating efficient policy reform within India’s agricultural sector, the project aims to enhance the development of market based agricultural policy frameworks and the policy development skills of Indian and Australian policy makers. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aare09:48154&r=reg |
| By: | McAleer, M.; Jimenez-Marin, J-. A.; Perez-Amaral, T. (Erasmus Econometric Institute) |
| Abstract: | Under the Basel II Accord, banks and other Authorized Deposit-taking Institutions (ADIs) have to communicate their daily risk estimates to the monetary authorities at the beginning of the trading day, using a variety of Value-at-Risk (VaR) models to measure risk. Sometimes the risk estimates communicated using these models are too high, thereby leading to large capital requirements and high capital costs. At other times, the risk estimates are too low, leading to excessive violations, so that realised losses are above the estimated risk. In this paper we propose a learning strategy that complements existing methods for calculating VaR and lowers daily capital requirements, while restricting the number of endogenous violations within the Basel II Accord penalty limits. We suggest a decision rule that responds to violations in a discrete and instantaneous manner, while adapting more slowly in periods of no violations. We apply the proposed strategy to Standard & Poor’s 500 Index and show there can be substantial savings in daily capital charges, while restricting the number of violations to within the Basel II penalty limits. |
| Keywords: | daily capital charges;endogenous violations;frequency of violations;optimizing strategy;risk forecasts;value-at-risk |
| Date: | 2008–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:eureir:1765013986&r=reg |
| By: | Yingqi Wei; Caroline Elliott |
| Abstract: | The paper examines the impact of regulatory intervention on store card interest rates, for a panel of UK store cards. The analysis is timely given the public attention that high store card interest rates have attracted in the UK, and the enquiries by the Office of Fair Trading and the Competition Commission into the industry. Panel data Tobit estimation methods are used in conjunction with intervention analysis so that the impact of the investigations on store card interest rates can be examined. Results suggest that there is a significant negative impact on store card interest rates of approximately 4%. The impact of macroeconomic factors and credit card interest rates on store card interest rates are also taken into account, results indicating that store cards and credit cards should be considered as competing sources of credit. |
| Keywords: | Store card industry; competition policy; panel data; Tobit estimation |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:lan:wpaper:005954&r=reg |
| By: | Doole, Graeme; Pannell, David J. |
| Abstract: | Environmental policy evaluation is characterised by a paucity of information. Bounded sets may be more appropriate for representing this ambiguity than traditional probability distributions. A formal calibration method for regional policy models, positive mathematical programming, is thus extended to incorporate parameter definition using bounded sets through the novel method of robust non-linear programming. The resulting procedure identifies strong bounds on the range of abatement costs accruing to environmental policy and improves the relevance and value of modelling studies through not limiting conclusions to realisations of specific point estimates or probability distributions. Moreover, it may easily be solved using standard mathematical-programming algorithms. Empirical insights are provided in an application to a New Zealand inland lake threatened by nitrate pollution from dairy farming. Factor substitution could potentially be used to reduce the abatement costs accruing to regulation. However, such behaviour is shown not to be optimal at the parameter values used in this study. Accordingly, large reductions in nitrate leaching and concomitant improvements in water quality potentially bear a substantial cost to producers. |
| Keywords: | Interval analysis, nonpoint pollution, robust optimisation., |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aare09:48036&r=reg |
| By: | Horn, Henrik (Research Institute of Industrial Economics (IFN)); Mavroidis, Petros C. (Columbia Law School) |
| Abstract: | This paper discusses allocation of burden of proof in environmental disputes in the WTO system. Besides laying down the natural principles that (i) the complainant carries the burden to (ii) make a prima facie case that its claim holds, WTO adjudicating bodies have said little of more general nature. The paper therefore examines the case law of relevance to environmental policies, to establish the rules concerning burden of proof that are likely to be applied in such disputes. Evaluating this case law, the paper makes two observations,: First, in cases submitted under the GATTWTO, adjudicating bodies have committed errors regarding the required amount of evidence (the burden of persuasion); and second, such errors, as well as errors concerning the determination of the party to carry the burden of providing this evidence (the burden of production), have been committed in disputes submitted under the TBT/SPS Agreements. These errors largely seem attributable to the general absence of methodology regarding the interpretation of some key substantive provisions featuring in the three Agreements. |
| Keywords: | Burden of Proof; Burden of Production; Burden of Persuasion; WTO; Environment |
| JEL: | F13 Q56 |
| Date: | 2009–03–13 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0793&r=reg |
| By: | Bardsley, Peter; Burfurd, Ingrid |
| Abstract: | Market based instruments are proving increasingly effective in biodiversity procurement and in regulatory schemes to preserve biodiversity. The design of these policy instruments brings together issues in auction design, contract theory, biology, and monitoring technology. Using a mixed adverse selection, moral hazard model, we show that optimal contract design may differ significantly between procurement and regulatory policy environments. |
| Keywords: | biodiversity, procurement, adverse selection, moral hazard, contract theory, |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aare09:48047&r=reg |
| By: | Menezes, Flavio; Quiggin, John; Wagner, Liam |
| Abstract: | The terms ‘grandfather clause’ and ‘grandfathering’ describe elements of a policy program in which existing participants in an activity are protected from the impact of regulations, restrictions or charges applied to new entrants. In this paper, the role of grandfathering in the design of a carbon emissions trading scheme in Australia is assessed. It is argued that adjustment assistance policies such as those adopted in conjunction with previous microeconomic reform programs are preferable to policies based on the free issue of emissions permits. |
| Keywords: | grandfathering, emissions trading, compensation, adjustment assistance., |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aare09:48042&r=reg |