nep-reg New Economics Papers
on Regulation
Issue of 2010‒11‒27
nine papers chosen by
Oleg Eismont
Russian Academy of Sciences

  1. An Analysis of Productivity Changes in the Iranian banking Industry: a Bootstrapped Malmquist Approach By Arjomandi, Amir; Valadkhani, Abbas; Harvie, Charles
  2. Banks’ Efficiency and Productivity Analysis Using the Hicks-Moorsteen Approach: A Case Study of Iran By Arjomandi, Amir; Valadkhani, Abbas
  3. Mapping capital and liquidity requirements to bank lending spreads By Michael R King
  4. Evaluating the New Greek Electricity Market Rules By Sakellaris, Kostis; Perrakis, Kostis; Angelidis, George
  5. An economic model of contagion in interbank lending markets By Dan Ladley
  6. Pricing of bank ATMs in India: Theory & evidence By Panda, Sitakanta
  7. Carbon Capture and Storage: Model Regulatory Framework By OECD
  8. The rise and fall of the ABS market By Mario Cerrato
  9. Too Low to be True: The Use of Minimum Thresholds To Fight Tax Evasion By Tonin, Mirco

  1. By: Arjomandi, Amir (University of Wollongong); Valadkhani, Abbas (University of Wollongong); Harvie, Charles (University of Wollongong)
    Abstract: This study employs various bootstrapped Malmquist indices and efficiency scores to investigate the effects of government regulation on the performance of the Iranian banking industry over the period 2003-2008. An alternative decomposition of the Malmquist index, introduced by Simar and Wilson (1998a), is also applied to decompose technical changes further into pure technical change and changes in scale efficiency. A combination of these approaches facilitates a robust and comprehensive analysis of Iranian banking industry performance. While this approach is more appropriate than the traditional Malmquist approach, for the case of banking efficiency studies, it has not previously been conducted for any developing country’s banking system. The results obtained show that although, in general, the regulatory changes had different effects on individual banks, the efficiency and productivity of the overall industry declined after regulation. We also find that productivity had positive growth before regulation mainly due to improvements in pure technology, and that government ownership had an adverse impact on the efficiency level of state-owned banks. The bootstrap approach demonstrates that the majority of estimates obtained in this study are statistically significant.
    Keywords: Regulation; Productivity; Banking; Data envelopment analysis; Bootstrap; Malmquist indices
    JEL: C02 C14 C61 G21
    Date: 2010
  2. By: Arjomandi, Amir (University of Wollongong); Valadkhani, Abbas (University of Wollongong)
    Abstract: This study is the first to use the Hicks-Moorsteen TFP index developed by O’Donnell (2008,2009, 2010c) to analyse efficiency and productivity changes in the banking system. The advantage of this approach over the popular Malmquist productivity index is that it is free from any assumptions concerning firm optimising behaviour, the structure of markets, or returns to scale. The effects of Iranian government regulations launched in 2005 on the Iranian banking industry are investigated through an analysis of performance over the period 2003-2008 assuming variable returns to scale. The results obtained show that although the Iranian banking industry has been inefficient over the entire period of the study, the industry’s technical efficiency level - which had improved over the period 2003-2006 - deteriorated considerably after the regulatory changes were introduced. The industry experienced its highest negative efficiency growth in 2006 which was 43% and became more mix inefficient after 2005, with a considerably negative productivity change after 2007. Overall, changes of production possibility set and scale efficiency changes exerted dominant effects on productivity changes.
    Keywords: Regulation, Productivity, Banking, Data envelopment analysis, Malmquist index,Hicks-Moorsteen index
    JEL: G28 O47
    Date: 2010
  3. By: Michael R King
    Abstract: This study outlines a methodology for mapping the increases in capital and liquidity requirements proposed under Basel III to bank lending spreads. The higher cost associated with a one percentage point increase in the capital ratio can be recovered by increasing lending spreads by 15 basis points for a representative bank. This calculation assumes the return on equity (ROE) and the cost of debt are unchanged, with no change in other sources of income and no reduction in operating expenses. If ROE and the cost of debt are assumed to decline, the impact on lending spreads is reduced. To recover the additional cost of meeting the December 2009 proposal for the Net Stable Funding Ratio (NSFR), a representative bank would need to increase lending spreads by 24 basis points. Taking into account the fall in risk-weighted assets from holding more government bonds reduces this cost to 12 basis points or less.
    Keywords: banks, regulation, Basel III, capital, liquidity, lending spreads
    Date: 2010–11
  4. By: Sakellaris, Kostis; Perrakis, Kostis; Angelidis, George
    Abstract: The Greek Regulatory Authority for Energy (RAE), in view of the initiation of the new wholesale electricity market on January 1st 2009 as a Day-Ahead mandatory pool, undertook the design and implementation of a simulator for the market. The simulator consists of several interacting modules representing all key market operations and dynamics including day-ahead scheduling, natural gas system constraints, unplanned variability of loads and available capacity driven either by uncertain stochastic outcomes or deliberate participant schedule deviations, real time dispatch, and financial settlement of day ahead and real-time schedule differences. The modules are integrated into one software package. The intended use of the simulator is to elaborate on and allow RAE to investigate the impact of participant decision strategies on market outcomes. The ultimate purpose is to evaluate the effectiveness of Market Rules, whether existing or contemplated, in providing incentives for competitive behaviour and in discouraging gaming and market manipulation. In this paper the simulator is used to analyze market design aspects and rules concerning the co-optimization of energy and reserves in the Day-Ahead energy market and the efficiency of the imbalance settlement procedure compared to real-time pricing.
    Keywords: Electricity Market Design; Market Simulation; Regulation; Unit Commitment
    JEL: Q48 C61
    Date: 2010–11–08
  5. By: Dan Ladley
    Abstract: This paper considers the stability of a financial system in which heterogenous banks interact through a lending market. We analyse a discrete time model in which households and banks are located on a circular city. Households present banks with risky investment opportunities, which banks fund through deposits and interbank borrowing. In the event of bankruptcy, a bank defaults on its interbank loans potentially resulting in contagion and losses for other banks. Through simulation we examine the vulnerability of the financial system to systemic events, demonstrating the non-linear relationship between market concentration, shock severity and bankruptcies. The role and effect of regulatory actions such as reserve requirements, minimum bank capitalisation and constraints on the size of borrowing relationships, are considered in limiting these effects.
    Keywords: Systemic risk; Interbank lending; Regulation; Network; Heterogeneity
    JEL: G21 C63
    Date: 2010–11
  6. By: Panda, Sitakanta
    Abstract: We analyze the access pricing policy of bank ATMs in India by developing a model given the existence of interchange fees and absence of own bank ATM usage fee and foreign fees in the Indian context. We find that interchange fees incentivize deployment of ATMs over time and at the profit maximizing interchange fee, banks extract the entire consumer surplus under a system of free usage fees. Banks deploy ATMs not to raise the deposit base, but to generate interchange fee revenues. Consumers prefer to join a bank with large ATM networks to avoid making more foreign withdrawals and this induces banks to expand their ATM networks in a bid to raise their deposit market share. These results are consistent with recent events in India.
    Keywords: Banks; ATMs; interchange fees; regulation.
    JEL: L14 L51 L13 G28 G21
    Date: 2010–11
  7. By: OECD
    Abstract: The Model Framework proposes principles for addressing twenty-nine key issues associated with regulating CCS, based on the work of early-movers such as Australia, Europe and the United States, to assist national and regional CCS regulatory framework development. For each issue, an explanation is provided as well as examples of how the issue has been addressed in existing legislation. For CO2 storage issues, base, or “starting point”, model legislative text is also provided, which countries and regions can draw on in developing CCS regulatory frameworks.
    Date: 2010–11
  8. By: Mario Cerrato
    Abstract: The financial crisis has raised some concern about the quality of information available on some traded assets on the securities markets to market participants and regulators. Asset-backed securitization in general got partial blame for the paucity of liquidity on bank balance sheets and the consequent credit crunch. After the Asset-Backed Security (ABS) market fell to near inactivity in 2009, the US federal government's Term Asset-Backed Securities Loan Facility (TALF) provided backing and a boost to the issuance of asset-backed securitization. In this market condition, given the nature of ABS, it is difficult for them not to be relatively illiquid, and this has resulted in unacceptable levels of market risk for most investors. Their liquidity before the crisis was driven by a market in continuous expansion, fed by Special Purpose Vehicle (SPV), Conduits, and other low capitalized term-transformation vehicles. Nowadays, the industry is concerned with the ongoing ABS reforms and how these will be implemented. This article reviews the ABS market in the last decade and the possible consequences of the recent regulatory proposals. It proposes a retention policy and the institution of a new financial body to supervise the quality of the security in an ABS pool, its liquidity, and the model risk implied by the issuer's valuation mode
    Keywords: Asset Backed Security; Government Policy and Regulation
    JEL: G39 G18
    Date: 2010–11
  9. By: Tonin, Mirco
    Abstract: The enforcement of compliance with tax regulation is a complex task. This is particularly the case when the administrative capacity of the tax authority is low, as is often the case in developing and transition countries. In this paper, I first formally model the impact of minimum thresholds by explicitly taking into account the low administrative capacity. The model shows that the introduction of a threshold creates a spike and a "missing middle" in the distribution of declared incomes and highlights under which conditions introducing a threshold is likely to increase net revenues for the tax authority. Then, I draw on some international experiences in fighting tax evasion to identify tools that can be used to reduce underreporting by employed labour, small and medium enterprises, self-employed, and professionals. In particular, I analyze the Italian "Business Sector Analysis" and the Bulgarian "Minimum Social Insurance Thresholds". <BR>Keywords; Tax evasion; miminum threshold; studi di settore <BR>JEL Classification: H26, K35, K42, P37
    Date: 2010–11–01

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