nep-reg New Economics Papers
on Regulation
Issue of 2009‒08‒16
nine papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Treatment of Double Default Effects within the Granularity Adjustment for Basel II By Sebastian Ebert; Eva Lütkebohmert
  2. What explains the low profitability of Chinese Banks? By Alicia García-Herrero; Sergio Gavilá; Daniel Santabárbara
  3. The responsive approach by the Basel Committee (on Banking Supervision) to regulation: Meta risk regulation, the Internal Ratings Based Approaches and the Advanced Measurement Approaches. By Ojo, Marianne
  4. Regulation and Investment in Network Industries: Evidence from European Telecoms By Michal Grajek; Lars-Hendrik Röller
  5. Market Shares, Consumer Ignorance and the Reciprocal Termination Charges By Yu-Shan Lo; ;
  6. Mobile Termination and Mobile Penetration By Sjaak Hurkens; Doh-Shin Jeon
  7. Understanding the Efficiency and Effectiveness of the Dispute Resolution System in South Africa:An Analysis of CCMA Data By Haroon Bhorat; Kalie Pauw; Liberty Mncube
  8. Investment and Capital Constraints: Repatriations Under the American Jobs Creation Act By Michael Faulkender; Mitchell Petersen
  9. Partisan Representation in Congress and the Geographic Distribution of Federal Funds By David Albouy

  1. By: Sebastian Ebert; Eva Lütkebohmert
    Abstract: Within the Internal Ratings-Based (IRB) approach of Basel II it is assumed that idiosyncratic risk has been fully diversi?ed away. The impact of undiversi?ed idiosyncratic risk on portfolio Value-at-Risk can be quanti?ed via a granularity adjustment (GA). We provide an analytic formula for the GA in an extended single- factor CreditRisk+ setting incorporating double default e?ects. It accounts for guarantees and their e?ect of reducing credit risk in the portfolio. Our general GA very well suits for application under Pillar 2 of Basel II as the data inputs are drawn from quantities already required for the calculation of IRB capital charges.
    Keywords: analytic approximation, Basel II, counterparty risk, double default, granularity adjustment, IRB approach, securitization
    JEL: G31 G28
    Date: 2009–07
  2. By: Alicia García-Herrero; Sergio Gavilá; Daniel Santabárbara
    Abstract: This paper analyzes empirically what explains the low profitability of Chinese banks for the period 1997-2004. We find that better capitalized banks tend to be more profitable. The same is true for banks with a relatively larger share of deposits and for more X-efficient banks. In addition, a less concentrated banking system increases banks profitability, which basically reflects that the four state-owned commercial banks –China’s largest banks- have been the main drag for system’s profitability. We find the same negative influence for China’s development banks (so called Policy Banks), which are fully state-owned. Instead, more market oriented banks, such as joint-stock commercial banks, tend to be more profitable, which again points to the influence of government intervention in explaining bank performance in China. These findings should not come as a surprise for a banking system which has long been functioning as a mechanism for transferring huge savings to meet public policy goals.
    Keywords: China; Bank profitability; Bank reform
    JEL: G21 G28
    Date: 2009–04
  3. By: Ojo, Marianne
    Abstract: The use of complex and sophisticated financial instruments, such as derivatives, in the modern financial environment, has triggered the emergence of new forms of risks. As well as the need to manage such types of risks, this paper investigates developments which have instigated the Basel Committee in developing advanced risk management techniques such as the Internal Ratings Based (IRB) approaches and the Advanced Measurement Approaches (AMA). Developments since the inception of the 1988 Basel Capital Accord have not only led to growing realisation that new forms of risks have emerged, but that previously existing and managed forms require further redress. Basel II has evolved to a form of meta regulation – a type of regulation which involves the risk management of internal risk within firms. This paper attempts to illustrate the extent to which the Basel II Capital Accord has responded to global and financial developments and concludes on the basis of available research evidence, that given the difficulties attributed to the constantly evolving nature of risk and the need for regulators to remain one step ahead, that Basel II, to an extent, has been responsive in meeting with regulatory demands. However, the existence of unregulated instruments such as hedge funds still implies that, despite its advancements and achievements, the Basel Committee still faces uphill challenges in its efforts to address and regulate risks.
    Keywords: Basel; Committee; bank; regulation; AMA; IRB; risk
    JEL: K2
    Date: 2009–08
  4. By: Michal Grajek (ESMT European School of Management and Technology); Lars-Hendrik Röller (ESMT European School of Management and Technology)
    Abstract: We provide evidence of an inherent trade-off between access regulation and investment incentives in telecommunications by using a comprehensive data set covering 70+ fixed-line operators in 20 countries over 10 years. Our econometric model accommodates: different investment incentives for incumbents and entrants; a strategic interaction of entrants’ and incumbents’ investments; and endogenous regulation. We find access regulation to negatively affect both total industry and individual carrier investment. Thus promoting market entry by means of regulated access undermines incentives to invest in facilities-based competition. Moreover, we find evidence of a regulatory commitment problem: higher incumbents’ investments encourage provision of regulated access.
    Keywords: telecommunications, access regulation, unbundling, investment
    JEL: C51 L59 L96
    Date: 2009–06–15
  5. By: Yu-Shan Lo; ;
    Abstract: The aim of this paper is to study different regulatory effects on termination charges and social welfare. We employ a framework with a fixed network and two mobile networks competing in a market to study the following regulatory regimes: collusive and social welfaremaximising reciprocity, uniform termination charge, asymmetric regulation, and direct calling price. We incorporate the idea of partial consumer ignorance when calling to a mobile user and allow the network operator to discriminate between on-net and off-net calls by setting differential calling prices. Compared to the uniform termination charge and asymmetric regulation, it is shown in this paper that the regulator can improve social welfare, without too much intervention, by imposing reciprocity on termination charges. We also find that with stronger consumer ignorance the regulator is more capable of improving social welfare. Further we show that, depending upon the extent of consumer ignorance, direct regulation of calling prices may be a welfare-improving alternative over regulation of termination charges.
    Keywords: Telecommunications; Consumer ignorance; Termination Charges, Regulation
    JEL: L13 L50 L96
  6. By: Sjaak Hurkens; Doh-Shin Jeon
    Abstract: In this paper, we study how access pricing affects network competition when subscription demand is elastic and each network uses non-linear prices and can apply termination-based price discrimination. In the case of a fixed per minute termination charge, we find that a reduction of the termination charge below cost has two opposing effects: it softens competition but helps to internalize network externalities. The former reduces mobile penetration while the latter boosts it. We find that firms always prefer termination charge below cost for either motive while the regulator prefers termination below cost only when this boosts penetration. Next, we consider the retail benchmarking approach (Jeon and Hurkens, 2008) that determines termination charges as a function of retail prices and show that this approach allows the regulator to increase penetration without distorting call volumes.
    Keywords: Mobile Penetration, Termination Charge, Access Pricing, Networks, Interconnection, Regulation, Telecommunications
    JEL: D4 K23 L51 L96
    Date: 2009–07
  7. By: Haroon Bhorat; Kalie Pauw; Liberty Mncube (Development Policy Research Unit; Director and Professor)
    Abstract: This paper, while broadly located within reforming the labour market policy debate, is specifically focused on one aspect of the labour regulatory regime, namely the dispute resolution system. Hence, we attempt to understand the efficiency and effectiveness of the country’s institutionalised dispute resolution body, the Commission for Conciliation, Mediation and Arbitration (CCMA). A better and more informed understanding of the nature of dispute resolution and its determinants, it would seem, remains central to any detailed debate regarding labour market institutions in particular and labour market regulation in general. Ultimately then, the study intends to empirically verify the patterns of dispute referral, settlement and determination regionally, sectorally and historically. It should be noted at the outset that this paper, possibly for the first time for South Africa, provides a detailed economic and econometric analysis and interpretation of dispute resolution in the post-apartheid period.
    Keywords: South Africa: labour regulation, Labour Regulatory Environment, Dispute resolution, CCMA
    JEL: A1
    Date: 2009–05
  8. By: Michael Faulkender; Mitchell Petersen
    Abstract: The American Jobs Creation Act (AJCA) significantly lowered the tax cost at which US firms could access their unrepatriated foreign earnings. We use this temporary shock to the cost of financing investment and its variation across firms, to examine the role of financial constraints in the firm’s investment decisions. Controlling for the ability to repatriate foreign earnings in a more tax efficient way under the AJCA, we find that for a majority of firms there was little change in domestic investment – the policy objective of the law. We do find, however, that for a subset of firms which are financially constrained, that a majority of the repatriated funds were invested in approved domestic investment. We find little change in financial policy (e.g. leverage and equity payouts) once we control for the ability to repatriate funds under the AJCA. These findings point out the importance of understanding finance theory when designing optimally targeted tax incentives.
    JEL: G31 G32 G38 K34
    Date: 2009–08
  9. By: David Albouy
    Abstract: In a two-party legislature, districts represented by the majority party may receive greater spending if legislators in the majority have greater proposal power or disproportionately form coalitions with each other. The type of spending received may depend on the party-identity of its legislators if parties differ in ideology. Estimates from the United States -- using fixed-effect and regression-discontinuity designs -- indicate that states represented by members of Congress in the majority receive greater federal grants, especially in transportation. States represented by Republicans receive more defense spending than those represented by Democrats; the latter receive more spending for education and urban development.
    JEL: H5 H77
    Date: 2009–08

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