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on Regulation |
| By: | Hart, Oliver; Zingales, Luigi |
| Abstract: | We design a new, implementable capital requirement for large financial institutions (LFIs) that are too big to fail. Our mechanism mimics the operation of margin accounts. To ensure that LFIs do not default on either their deposits or their derivative contracts, we require that they maintain a capital cushion sufficiently great that their own credit default swap price stays below a threshold level. If this level is violated the LFI regulator forces the LFI to issue equity until the CDS price moves back below the threshold. If this does not happen within a predetermined period of time, the regulator intervenes. We show that this mechanism ensures that LFIs are solvent with probability one, while preserving the disciplinary effects of debt. |
| Keywords: | banks; Capital requirement; too big to fail |
| JEL: | G21 G28 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:7298&r=reg |
| By: | Pollock, R. |
| Abstract: | The rapid growth of online search and its centrality to the ecology of the Internet raise many questions for economists to answer: Why is the search engine market so concentrated and will it evolve towards monopoly? What implications does this concentration have for consumers, search engines, and advertisers? Does search require regulation and if so in what form? This paper supplies empirical and theoretical material with which to examine these questions. In particular, we (a) show that the already large levels of concentration are likely to continue (b) identify the consequences, negative and positive, of this outcome (c) discuss the regulatory interventions that policy-makers could use to address these. |
| Keywords: | Search Engine, Regulation, Competition, Antitrust, Technology |
| JEL: | L40 L10 L50 |
| Date: | 2009–05–09 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0921&r=reg |
| By: | Emanuele BACCHIOCCHI; Massimo FLORIO; Marco GAMBARO |
| Abstract: | We study the impact on consumers of privatization and liberalization in the telecommunication sector for 15 EU Countries. Policy reforms are summarized by the OECD regulatory indicators (REGREF), that considers the extent of privatization, vertical disintegration, and market entry. After controlling for other country variables, we first test the impact of ownership and regulatory changes on productivity and consumer prices. In a second step, we consider the Eurobarometer data on consumers’ satisfaction about quality and prices of the telecommunication service. The analysis confirms the importance of market entry regulation in reducing prices and increasing productivity performances, but minimize the role played by privatization per se. The latter and liberalization of the telecommunication market play a role in explaining the consumers’ satisfaction about prices and quality of the service, but country fixed effects are more important. Overall, our findings offer only mixed evidence, and somehow contradict, the hypothesis of welfare dominance of a unique reform paradigm in the telecom industry. |
| Keywords: | Telecom industry liberalization, privatization, impact on European consumers |
| JEL: | L32 L33 L96 |
| Date: | 2008–04–14 |
| URL: | http://d.repec.org/n?u=RePEc:mil:wpdepa:2008-10&r=reg |
| By: | Ojo, Marianne |
| Abstract: | This paper will consider whether the scope of financial regulation should be extended and if so, ways in which this could occur. In order to carry out these tasks, it will not only address problems identified from the recent crises and Basel 2, gaps which exist in some of the responses to these issues, but will also consider what roles other parties such as central banks and external auditors can play in achieving financial objectives. To a certain extent, it will address these issues by making references to proposals which have been put forward from different sources. It will introduce the points of discussion through an overview of global developments which have necessitated the need for a review of financial regulation and through a review of the present regulatory objectives. |
| Keywords: | risk;external;auditor;bank;regulation;financial;objectives |
| JEL: | K2 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:15547&r=reg |
| By: | Fares Triki (Centre d'Economie de la Sorbonne - Paris School of Economics) |
| Abstract: | This paper investigates the relation between liquidity and asset prices. It shows that, when banks balance sheets are marked to market and banks are targeting a financial leverage level - a situation similar to current environment - formation of Leverage Bubble phenomenon and suggests a new regulation rule based on a Dynamic Leverage Ratio (DLR) rule. |
| Keywords: | Financial crises, rational bubbles, dynamic leverage ratio, mark to market accounting, asset pricing, macroprudential regulation, market liquidity. |
| JEL: | G14 G18 G20 G28 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:09039&r=reg |
| By: | Ojo, Marianne |
| Abstract: | Amongst other things, this paper aims to address complexities and challenges faced by regulators in identifying and assessing risk, problems arising from different perceptions of risk, and solutions aimed at countering problems of risk regulation. It will approach these issues through an assessment of explanations put forward to justify the growing importance of risks, well known risk theories such as cultural theory, risk society theory and governmentality theory. In addressing the problems posed as a result of the difficulty in quantifying risks, it will consider a means whereby risks can be quantified reasonably without the consequential effects which result from the dual nature of risk that is, risks emanating from the management of institutional risks. Current attempts by the European Union to regulate risks will also be discussed. This discussion will be facilitated through a consideration of recent developments in the EU which are aimed at addressing risks posed by hedge funds. The results obtained from a consultation process on hedge funds, and which will be discussed in the concluding section of this paper, reveal whether the systemic relevance of hedge funds and prime brokerage regulation need to be reviewed. Questions also addressed during the consultation process, which include whether indirect prudential regulation is inadequate to shield the financial system from hedge funds’ failure and whether prudential authorities have necessary tools to monitor exposures of the core financial system to hedge funds, will also be discussed. |
| Keywords: | risk;regulation;banks;regulators;audit;financial |
| JEL: | K2 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:15544&r=reg |
| By: | Marco GAMBARO |
| Abstract: | Media policies encompass a large array of activities and interventions carried out by governments and institutions to coordinate, promote, address and sometimes to control media industries. In Europe, different media are subject to different degrees and different kind of regulations. While record industry is practically neglected by public authorities, television is strongly considered both in market structure and in firm conduct, entry is strictly regulated and in many countries the set of choices in programming and advertising market are restricted. Book publishing and film production are both supported with specific financing and a lot of attention but the former is much less considered and regulated than the latter. Newspapers attract more policies and more financing than magazines and professional press operate at the edge of public attention. The availability of adequate information is one of the most important conditions for making markets and political systems work efficiently. The power of influencing, enhancing or concealing information on certain events may have relevant consequences for consumers and citizens. There are multidimensional relationships between the quality of information supplied by mass media, the competition in information and good markets, and the making of public policies. Media are undergoing constant change in many countries and the convergence with telecommunication made possible by digitalization has resulted in a number of new offer and significant transformations. While in the past different media were pretty separate industries with own value chains and distribution channels, the convergence process enable new product, new substitution pattern and a different kind of competition. For instance, the informative web site of newspapers, television and search engines appear much more similar than the original media. Regulation and policy follow the same pattern, and need to become more horizontal and media independent. The control of concentration level become a problem since the reference market can be different for each product and the simple cross ownership rules risk to be inadequate. Evolving media landscape pose new problems that national and European institution need to address in order to maintain and promote social and economic functions vital for societies. |
| Keywords: | Information quality, information variety, pluralism, competition, media industries, regulation |
| JEL: | L82 L52 |
| Date: | 2008–07–21 |
| URL: | http://d.repec.org/n?u=RePEc:mil:wpdepa:2008-28&r=reg |
| By: | Carlo Vittorio FIORIO; Massimo FLORIO |
| Abstract: | The research question addressed by this paper is a simple one: are European consumers happy with the electricity supply services after two decades of reforms? We focus on self-assessed consumers’ satisfaction with electricity prices as reported in three waves of Eurobarometer survey, 2000-2002-2004, conditioning on some indicators of public ownership, vertical integration and entry regulation across the EU-15. Our results do not support a systematic association between consumers’ satisfaction and the complete reform package made of privatisation, vertical disintegration and liberalisation. These results, which have been extensively tested for robustness, raise various concerns about the way the reform processes have been undertaken and provides some warnings about possible effects on public support for public utility reforms. |
| Keywords: | Consumers’ satisfaction, electricity, privatisation, vertical disintegration, liberalisation |
| JEL: | L94 L95 L96 L50 |
| Date: | 2008–05–19 |
| URL: | http://d.repec.org/n?u=RePEc:mil:wpdepa:2008-12&r=reg |
| By: | Meredith Fowlie; Stephen P. Holland; Erin T. Mansur |
| Abstract: | A perceived advantage of cap-and-trade programs over more prescriptive environmental regulation is that enhanced compliance flexibility and cost effectiveness can make more stringent emissions reductions politically feasible. However, increased compliance flexibility can also result in an inequitable distribution of pollution. We investigate these issues in the context of Southern California's RECLAIM program. We match facilities in RECLAIM with similar California facilities also located in non-attainment areas. Our results indicate that emissions fell approximately 24 percent, on average, at RECLAIM facilities relative to our counterfactual. Furthermore, we find that observed changes in emissions do not vary significantly with neighborhood demographic characteristics. |
| JEL: | L5 Q52 Q53 R20 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15082&r=reg |
| By: | Lidia CERIANI; Massimo FLORIO |
| Abstract: | Starting from an industry where production is provided by a public monopolist, we look at the effects on the consumers' surplus of a sequence of reforms in network industry. Using a simple comparative statics framework, we find indifference conditions in consumers' surplus between respectively public monopoly, unregulated private monopoly, regulated private monopoly, vertically disintegrated monopoly, duopoly and liberalized market. The results are determined by the relative size of the x-inefficiencies of the public monopolist, allocative inefficiencies of private monopoly, the cost of unbundling and costs related to establishing a competitive market. |
| Keywords: | Privatization, unbundling, liberalization, network industries |
| JEL: | D40 L51 L32 L33 |
| Date: | 2008–07–08 |
| URL: | http://d.repec.org/n?u=RePEc:mil:wpdepa:2008-23&r=reg |
| By: | Anton Korinek (4118F Tydings Hall, University of Maryland, College Park, MD 20742,USA,) |
| Abstract: | The worst financial crises since the Great Depression has forced central bankers and policymakers across Europe and around the globe to take unprecedented policy measures to deal with systemic risk, i.e. the risk that the financial system ceases to perform its function of allocating capital to the most productive use because of financial difficulties among a significant number of financial institutions. This paper develops a parsimonious model of systemic risk in the form of amplification effects whereby adverse developments in financial markets and in the real economy mutually reinforce each other and lead to a feedback cycle of falling asset prices, deteriorating balance sheets and tightening financing conditions. The paper shows that the free market equilibrium in such an environment is generically inefficient because constrained market participants do not internalize that their actions entail amplification effects. Therefore they undervalue the social benefits of liquidity during crises and take on too much systemic risk. We use our framework to shed light on a number of current policy issues. We show that banks face socially insufficient incentives to raise more capital during systemic crises, that bailouts which are anticipated can be ineffective, and that expectational errors are considerably more costly during crises than in normal times. Furthermore we develop an analytical framework for macro-prudential capital adequacy requirements that take into account systemic risk. We also analyze a new channel of financial contagion and explain why private agents will take insufficient precautions against contagion from other sectors in the economy. |
| Keywords: | financial crises, amplification effects, liquidity, systemic risk, systemic externalities, social pricing kernel, macroprudential regulation. |
| JEL: | E31 E32 E24 J51 |
| Date: | 2009–05–14 |
| URL: | http://d.repec.org/n?u=RePEc:onb:oenbwp:155&r=reg |