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on Regulation |
| By: | Larsson, Bo (Dept. of Economics, Stockholm University); Wijkander, Hans (Dept. of Economics, Stockholm University) |
| Abstract: | The financial crisis that erupted 2007-2008 has reinforced demand for regulation of banks. The Basle III accord which is to be implemented January first 2013 encompasses two types of regulations with the goal to enforce more prudence among banks. One is capital adequacy regulation which stipulates a lowest ratio between bank capital and bank assets. The other is constraints on dividends and bonuses payments. Banking on these regulations to raise prudence regarding risk taking among banks may lead to disappointment. Within a dynamic model of a value maximizing bank we find that both regulations lower bank value, also in situations where regulations do not bind. None of the regulations leads to increased optimal ratio between common equity and lending. Capital adequacy regulation reinforces credit squeeze when binding. More frequent dividend payouts leads to higher equilibrium bank capital. |
| Keywords: | Banking; Dynamic Banking; Banking regulation; Capital adequacy; Dividends |
| JEL: | C61 G21 G22 |
| Date: | 2012–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sunrpe:2012_0003&r=reg |
| By: | Rakesh Mohan (Asian Development Bank Institute (ADBI)) |
| Abstract: | In 2008–09 the world experienced the most severe financial and economic crisis since the Great Depression. The global financial crisis is attributed to a variety of factors, such as developments in the subprime mortgage sector, excessive leverage, lax financial regulation and supervision, and global macroeconomic imbalances. At a fundamental level, however, the crisis also reflects the effects of a long period of excessively loose monetary policy in the major advanced economies during the early part of this past decade. The global financial crisis has led to a new wave of thinking on all issues related to both monetary policy and financial regulation. The practice of both monetary policy and financial regulation had tended to become too formula bound and hence predictable. While these new principles are being debated, it is important to realize that in the face of unexpected developments that always arise in the financial sector, there is an important role for the exercise of judgment by both monetary authorities and financial regulators. Whereas considerable progress has been achieved on the principles governing this regulatory overhaul, very significant challenges remain on the implementation issues that will arise as a new regime takes hold globally. |
| Keywords: | financial regulation, Financial supervision, global macroeconomic imbalances, regulatory framework, monetary policy |
| JEL: | G01 G18 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:eab:macroe:23265&r=reg |
| By: | Powell, Andrew (Inter American Development Bank); Maier, Antonia (University of Warwick); Miller, Marcus (University of Warwick) |
| Abstract: | The recent financial crisis has forced a rethink of banking regulation and supervision and the role of nancial innovation. We develop a model where prudent banks may signal their type through high capital ratios. Capital regulation may ensure separation in equilibrium but deposit insurance will tend to increase the level of capital required. If supervision detects risky behaviour ex ante then it is complementary to capital regulation. However, nancial innovation may erode supervisors' ability to detect risk and capital levels should then be higher. But regulators may not be aware their capacities have been undermined. We argue for a four-prong policy response with higher bank capital ratios, enhanced supervision, limits to the use of complex financial instruments and Coco's. Our results may support the institutional arrangements proposed recently in the UK. |
| Keywords: | Bank Regulation; Financial Crises; Information; Signaling. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:cge:warwcg:75&r=reg |
| By: | Shyamala Gopinath (Asian Development Bank Institute (ADBI)) |
| Abstract: | This paper provides an overview of the Reserve Bank of India’s approach to macroprudential regulation and systemic risk management, and reviews lessons drawn from the Indian experience. It emphasizes the need for harmonization of monetary policy and prudential objectives, which may not be possible if banking supervision is separated from central banks. It also notes that supervisors need to have the necessary independence and flexibility to act in a timely manner on the basis of available information. Macroprudential regulation is an inexact science with limitations and needs to be used in conjunction with other policies to be effective. |
| Keywords: | Macroprudential regulation, Reserve Bank of India, systemic risk managemen, banking supervision |
| JEL: | E52 E58 G28 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:eab:macroe:23250&r=reg |
| By: | Askenazy, P.; Cette, G.; Maarek, P. |
| Abstract: | Through panel estimates using OECD country-industry statistics, this paper aims to clarify the determinants of rent creation and the mechanisms of rent sharing, and the role of market regulations in these processes. It uses a panel database of 4,136 observations, comprising industry-level data on 17 OECD countries over the period 1988 to 2007. This dataset merges the STAN database and regulation indicators, both compiled by the OECD. Our approach presents three original features. First, the empirical analysis is carried out in two steps. The first explains the rent creation process. For each country-industry-year observation, the size of rents, measured by the value added price relative to the GDP price, is assumed to depend solely on direct anti-competitive regulations on services and goods. The second step explains the rent sharing process. The second original feature is that three destinations of rents are distinguished for each country-industry-year observation: upstream industries, capital and labour. Finally, the cross-country-industry analysis makes it possible to estimate more complex relations than at the country data level. The main empirical findings are as follows. Regarding the rent creation step, direct anti-competitive regulations are associated with a very significant rise in rent size. Concerning the rent sharing step, the capital share in value added appears to i) increase with rent size, decrease with anti-competitive regulation in upstream sectors and increase with the industry specific output gap; ii) decrease with the national output gap, increase with the national employment rate and decrease with employment protection regulation; iii) increase with the interaction of rent size and the unemployment rate and decrease with the interaction of rent size and employment protection regulations. These results confirm the existence of three destinations for rents (labour remuneration, capital remuneration and upstream industries). They also show that the magnitude of each destination depends on the market power of its beneficiary. All these results are robust to a variety of sensitivity checks. |
| Keywords: | Rents, capital share, prices, market regulations, output gap, unemployment. |
| JEL: | E25 J20 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:369&r=reg |
| By: | Ambito, Julyn S.; Banzon, Melissa Suzette L. |
| Abstract: | The Philippines has often been cited as the global model in managing international labor migration. Despite the complexity of our management infrastructure, however, some gaps still remain. This paper reviews the Philippine legal and administrative framework governing the recruitment, documentation, and deployment of Filipino workers abroad. The study finds that although the provisions of the landmark legislation RA 8042, as amended by RA 9422 and 10022, are laudable, some of the key provisions are not absolute. Furthermore, the study finds the need to further strengthen policy implementation as well as the implementing capacity of government agencies. |
| Keywords: | Philippines, international labor migration, government policy and regulation |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:phd:dpaper:dp_2011-37&r=reg |
| By: | Andrew Atkeson; Christian Hellwig; Guillermo Ordonez |
| Abstract: | We study a market with free entry and exit of firms who can produce high-quality output by making a costly but efficient initial unobservable investment. If no learning about this investment occurs, an extreme "lemons problem" develops, no firm invests, and the market shuts down. Learning introduces reputation incentives such that a fraction of entrants do invest. If the market operates with spot prices, simple regulation can enhance the role of reputation to induce investment, thus mitigating the "lemons problem" and improving welfare. |
| JEL: | D21 D82 L15 L51 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17898&r=reg |
| By: | Kasteng, Jonas |
| Abstract: | The report identifies concerns with the EU anti-dumping instrument, as applied today, regardless of the fact that the investigation procedures and methods might be in line with the current regulation and practice. The report's arguments are based on the recent anti-dumping investigation – and imposition of anti-dumping measures – on imports of ceramic tiles from China, but the observations and conclusions from the analysis are valid for most EU anti-dumping investigations. The report observes that price dumping is evaluated differently depending on whether the product is manufactured in the EU or imported from third countries. What is considered to be price dumping when imported is considered normal competition for a product manufactured in the EU. This is due to the fact that spatial price differentiation within the EU is covered by competition rules, and that competition rules have higher requirements for market share and price undercutting than the anti-dumping legislation. The report, accordingly, advocates that the criteria for imposing anti-dumping duties should be harmonized to the EU competition rules in order to ensure fair competition on the EU market. In the absence of a reformed anti-dumping regulation, the anti-dumping measures will most likely only contribute to a distorted competition where the complaining EU manufacturing industry will be protected to the detriment of the consumers. |
| Keywords: | anti-dumping; dumping; competition; anti-trust; competition law; China; EU; ceramic tiles; fair competition; protectionism; trade defence instruments; trade remedies; European Commission; Union interest test; public interest test; TDI |
| JEL: | F13 F23 L13 L61 H23 H32 |
| Date: | 2012–02–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:37133&r=reg |
| By: | Massier, Philipp; Römer, Daniel |
| Abstract: | In this paper, we study the effectiveness of environmental information disclosure as a regulatory instrument. In particular we analyze its impact when environmental regulation is already advanced. Using German stock market data, we are able to identify the impact of the European Pollutant Emission Register (EPER) on the market value of listed firms using a Multivariate Regression Model (MVRM). First, we show that the publication of EPER data leads to negative abnormal returns of the respective listed firms in Germany. Second, we study drivers of these abnormal returns. Here, we find that the firms' individual level of non-carbon emissions can explain the observed changes in market valuation, while carbon dioxide emissions do not seem to be punished by the market. Moreover, we include information on voluntarily provided environmental reports and find that these reports can serve as a substitute to the obligatory register. |
| Keywords: | information disclosure; EPER; event study; environmental reports |
| JEL: | L51 Q52 G14 |
| Date: | 2012–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:awi:wpaper:0524&r=reg |
| By: | György Surányi |
| Abstract: | The global crisis, which was the worst economic and financial downturn since the Great Depression, revealed the fundamental deficiencies in the global financial system and drastically changed the way we view the world and the global financial system. The crisis challenged long-standing views and ideas, and in response, after the most acute phase of the crisis, joint global efforts were launched to put the system on firm footing again and prevent the next crisis. These efforts can only be successful if we fully understand the root causes of the crisis and learn the right lessons from it. In his E-brief Dr. György Surányi focuses on four topics: regulation, external position, monetary policy and the European debt crisis. |
| Keywords: | Financial sector, Europe, debt crisis, regulation, monetary policy |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:sec:ebrief:1207&r=reg |
| By: | Charles A.E. Goodhart; Anil K Kashyap; Dimitrios P. Tsomocos; Alexandros P. Vardoulakis |
| Abstract: | This paper explores how different types of financial regulation could combat many of the phenomena that were observed in the financial crisis of 2007 to 2009. The primary contribution is the introduction of a model that includes both a banking system and a “shadow banking system” that each help households finance their expenditures. Households sometimes choose to default on their loans, and when they do this triggers forced selling by the shadow banks. Because the forced selling comes when net worth of potential buyers is low, the ensuing price dynamics can be described as a fire sale. The proposed framework can assess five different policy options that officials have advocated for combating defaults, credit crunches and fire sales, namely: limits on loan to value ratios, capital requirements for banks, liquidity coverage ratios for banks, dynamic loan loss provisioning for banks, and margin requirements on repurchase agreements used by shadow banks. The paper aims to develop some general intuition about the interactions between the tools and to determine whether they act as complements and substitutes. |
| JEL: | G38 L51 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17909&r=reg |
| By: | Richard W. Carney (Asian Development Bank Institute (ADBI)) |
| Abstract: | Is the harmonization of financial regulatory regimes possible in East Asia? Focusing on corporate governance, which many see as a critical part of the 1997 Asian financial crisis, and which is also seen as unresponsive to calls for change, this paper argues that such harmonization is possible, but that it will not be according to the “best practices†advocated by the International Monetary Fund, World Bank, Organisation for Economic Co-operation and Development, and other international organizations. At present, actors generally feign compliance with these international rules and standards. But this creates potential long-term problems by allowing distortions to persist and accumulate over time. By identifying the key actors that determine regulatory outcomes, this paper points to an alternative regulatory framework that would be adopted more comprehensively. This alternative framework is a compromise between the “best practices†advocated by international organizations, and the domestic political realities of East Asia. |
| Keywords: | Financial Regulatory Harmonization, East Asia, Corporate Governance Reforms, Corporate governance |
| JEL: | G32 G34 G38 P48 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:eab:financ:23267&r=reg |
| By: | Alexander Behar |
| Abstract: | The withdrawal of the Maize Board in 1996 meant that farmers could no longer rely on its pre-planting price or “voorskot†for price discovery and price risk management. Some have claimed (UNCTAD, 2007) that the South African Futures Exchange (SAFEX) can provide these functions. We test this claim and analyse the implications of it. To do so, we build on an acreage response model developed earlier by Chavas and Holt (1990) by allowing for a futures market as well as accounting for farmer heterogeneity and the relative impact of price risk and yield risk. We first establish farmers’ responsiveness to risk by determining their risk aversion and, more specifically, whether they exhibit decreasing aggregate risk aversion (DARA). We find that farmers are risk averse and display positive wealth effects, which may be due to DARA. We can say little about how farmers have reacted to the price discovery function of expected prices both before and after the withdrawal of the Maize Board. However, we can conclude that farmers have responded less to price risk post-1996, even though prices were more volatile during this period. This supports UNCTAD’s (2007) claim. Combined with the finding of positive wealth effects the policy implication is that an improvement in the financial position of farmers as well as their access to futures markets can help reduce the impact and disutility of risk and, hence, improve their welfare without the need for regulation. |
| JEL: | Q11 Q13 Q18 C33 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:263&r=reg |
| By: | Philippe Choné; Saïd Souam; Arnold Vialfont |
| Abstract: | Competition agencies have the power to close an antitrust case in return for the commitment to end the alleged infringement. We examine how such a procedure affects deterrence and consumer welfare. We first show that it lowers the deterrent effect of competition policy. However, under asymmetric information, commitments may enhance consumer surplus with shortened proceedings and avoidance of trial type-II errors. The variation of consumer harm w.r.t. the firm's gain from the practice determines the optimal usage frequency of this negotiation tool. Finally, we show that trial and commitments may be complements as the latter is not always an answer to a lack of efficiency of the agency. |
| Keywords: | Commitments in antitrust, Plea bargaining, Consumer Surplus |
| JEL: | K21 K42 L41 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2012-9&r=reg |