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on Regulation |
| By: | Fiocco, Raffaele; Gilli, Mario |
| Abstract: | We investigate regulation as the outcome of a bargaining process between a regulator and a regulated firm. The regulator is required to monitor the firm’s costs and reveal its information to a political principal (Congress). In this setting, we explore the scope for collusion between the regulator and the firm, which results in the manipulation of the regulator’s report on the firm’s costs to Congress. The firm’s bene.t of collusion arises from the higher price the efficient firm is allowed to charge when the regulator reports that it is inefficient. However, a higher price reduces the gains from trade the parties can share in the bargaining process. As a result of this trade-off, the efficient firm has a stake in collusion only if the regulator’s bargaining power in the regulatory relationship is relatively high. Then, we derive the optimal institutional response to collusion and characterize the conditions under which allowing collusion is desirable. |
| Keywords: | asymmetric information; auditing; bargaining; collusion; regulation. |
| JEL: | D73 D82 L51 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:466&r=reg |
| By: | Jellal, Mohamed |
| Abstract: | In developing countries, empirical evidence suggests that labor unions entail a positive wage gap for unionized workers, in particular in monopolistic and publicly controlled firms. In this paper, we analyze how the presence of a labor union affects the regulation of a monopoly under asymmetric information. Since part of the informational rent left to the monopolistic firm benefits to the syndicate, we prove that the regulator is induced to lower the rent when the union has a large bargaining power. The net consumers' surplus can either increase or decrease with the firm's bargaining power depending on the firm's effciency type |
| Keywords: | Asymmetric information, labor union, monopolistic firm, regulation , incentives |
| JEL: | D42 D82 J51 |
| Date: | 2014–07–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:57207&r=reg |
| By: | Senderski, Marcin |
| Abstract: | The paper features one of the most calling interrelation in today’s pension universe, namely the interplay between regulatory activity and future pensioners’ wealth. The paper attempts to explore this tradeoff, casting a closer glance solely at portfolio-related regulatory measures and investment performance of pension plans. The effort to classify and rank OECD regulatory regimes is made, which is not straightforward given the variety of unique approaches to regulation in this respect. Afterwards, a simple cross-section model is run that displays how the strictness of oversight affects the risk-return profile of pension instruments. The analysis embraces the 2001 to 2012 period, as this the period for which detailed OECD statistics are available. Conclusion and suggestions for further investigation tie up the article. |
| Keywords: | pension funds regulation, pension funds performance, portfolio-related regulation, regulatory impact |
| JEL: | G23 G28 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:56610&r=reg |
| By: | Aldaba, Rafaelita M.; Sy, Geronimo S. |
| Abstract: | As the Philippines move toward the legislation of its comprehensive competition law, one important issue that has emerged is the interaction between the competition agency and sector regulators. Based on a review of different approaches that different countries have adopted, the paper develops a framework for the interplay between regulatory agencies and competition authority in the Philippines. Taking into account the country`s stages of institutional development and market and policy reforms, the paper proposes an approach that would leave competition enforcement exclusively in the hands of the competition authority while technical and economic regulation would be performed by the sector regulator. At the same time, the sector regulator may be given competition law enforcement functions to be performed in coordination with the competition authority. The proposed approach would be based on a cooperation mechanism with sector regulators taking the leading role in economic and technical issues while the competition authority will be the lead in competition issues like abuse of dominance, anticompetitive agreements, cartels and merger review. It is important that the two coordinate and consult with each other to ensure that the policies or remedial measures taken by one would not be against the mandate of the other. The competition functions of the authority such as assuring nondiscriminatory access to essential networks and controlling other forms of anticompetitive conduct and merger review may be shared with sector regulators. |
| Keywords: | Philippines, regulation, competition law and policy |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:phd:dpaper:dp_2014-31&r=reg |
| By: | International Monetary Fund. Monetary and Capital Markets Department |
| Keywords: | Securities markets;Securities regulations;Reports on the Observance of Standards and Codes;Ireland; |
| Date: | 2014–05–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:14/136&r=reg |
| By: | Thierry Tressel; Thierry Verdier |
| Abstract: | We consider a moral hazard economy in banks and production to study how incentives for risk taking are affected by the quality of supervision. We show that low interest rates may generate excessive risk taking. Because of a pecuniary externality, the market equilibrium may not be optimal and there is a need for prudential regulation. We show that the optimal capital ratio depends on the macro-financial cycle, and that, in presence of production externalities, it should be complemented by a constraint on asset allocation. We show that the political process tends to exacerbate excessive risk taking and credit cycles. |
| Keywords: | Bank supervision;Bank capital;Regulatory forbearance;Prudential bank regulations;Political economy;Moral hazard;Banking Regulation, Regulatory Forbearance, Political Economy. |
| Date: | 2014–05–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:14/90&r=reg |
| By: | Strunz, Sebastian; Gawel, Erik; Lehmann, Paul |
| Abstract: | It is often argued that energy policy is too fragmented across EU Member States and should be Europeanized to pave the way towards an efficiently organized European power system, which rest on the internal market for energy and a pan-European super-grid. However, this view neglects i) the factual heterogeneity of European energy policies in terms of harmonization and centralization, ii) economic arguments in favor of decentralization and iii) legal as well as political-economic obstacles against centralization of decision making. In this vain, we point out that a plea for a stronger role of the EU needs to be made with care and differentiation. -- |
| Keywords: | centralization,energy transition,EU climate and energy policy,fiscal federalism,harmonization,political economy |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ufzdps:172014&r=reg |
| By: | Antony Millner (London School of Economics and Political Science); Helene Ollivier (Paris School of Economics); Leo Simon (University of California, Berkeley) |
| Abstract: | We consider a two period model in which an incumbent political party chooses the level of a current policy variable unilaterally, but faces competition from a political opponent in the future. Both parties care about voters' payoffs, but they have different beliefs about how policy choices will map into future economic outcomes. We show that when the incumbent party can endogenously influence whether learning occurs through its policy choices (policy experimentation), future political competition gives it a new incentive to distort its policies – it manipulates them so as to reduce uncertainty and disagreement in the future, thus avoiding the costs of competitive elections with an opponent very different from itself. The model thus demonstrates that all incumbents can find it optimal to ‘over experiment’, relative to a counterfactual in which they are sure to be in power in both periods. We thus identify an incentive for strategic policy manipulation that does not depend on self-serving behavior by political parties, but rather stems from their differing beliefs about the consequences of their actions. |
| Keywords: | Beliefs, Learning, Political Economy. |
| JEL: | D72 D83 H40 P48 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:14050&r=reg |
| By: | Jellal, Mohamed; Souam, Said |
| Abstract: | We analyze a model where an antitrust authority delegates to an audit inspector the mission of gathering the sufficient information to condemn a cartel. The authority has two instruments at her disposal: rewarding the inspector with a proportion of the collected fine or providing him with information which enhances the probability of the success of the prosecution. More precisely, we explore the efficiency consequences of a contest between the audit inspector and the cartel. Both of them bid to win the contest by expending efforts. We show that the race issue depends positively on the financial incentives proposed to the inspector but the impact of an increase of the level of the fine, to be paid once an illegal agreement is detected, is ambiguous. Moreover, we show that the optimal combination of the two instruments consists in two regimes. When the marginal cost of providing the relevant information is relatively high, the antitrust authority equally shares the collected fine and does not provide the inspector with any information. Conversely, when this marginal cost is relatively small, the authority uses the two instruments. She has to provide him with the maximum level of information consistent with winning the contest with certainty. |
| Keywords: | Antitrust Enforcement, Incentives, Collusion, Moral Hazard, Contest |
| JEL: | K2 K21 K42 L4 L44 |
| Date: | 2014–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:57246&r=reg |
| By: | Stijn Claessens; Laura E. Kodres |
| Abstract: | We identify current challenges for creating stable, yet efficient financial systems using lessons from recent and past crises. Reforms need to start from three tenets: adopting a system-wide perspective explicitly aimed at addressing market failures; understanding and incorporating into regulations agents’ incentives so as to align them better with societies’ goals; and acknowledging that risks of crises will always remain, in part due to (unknown) unknowns – be they tipping points, fault lines, or spillovers. Corresponding to these three tenets, specific areas for further reforms are identified. Policy makers need to resist, however, fine-tuning regulations: a “do not harm†approach is often preferable. And as risks will remain, crisis management needs to be made an integral part of system design, not relegated to improvisation after the fact. |
| Keywords: | Financial systems;Fiscal risk;Financial crisis;Fiscal policy;Fiscal reforms;Macroprudential Policy;Monetary policy;Risk management;Financial crises, regulation, systemic risks, macroprudential policies |
| Date: | 2014–03–14 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:14/46&r=reg |
| By: | International Monetary Fund. Monetary and Capital Markets Department |
| Abstract: | EXECUTIVE SUMMARY Despite the global and domestic shocks of 2008–2009, the banking sector remains sound. Salvadoran banks were not directly exposed to the global financial crisis. However, the parent banks of several major Salvadoran banks were hit hard and directed subsidiaries to conserve risk capital. The higher risk aversion and recession in the United States, combined with uncertainty about the 2009 elections, led to a sharp economic downturn, and a decline in both credit demand and supply. Banks nonperforming loans increased and profitability declined. Even so, capitalization remained high. Stress tests indicate most banks are resilient to a severe macroeconomic, sectoral and liquidity shocks. Implementation of the 2004 FSAP update recommendations has been limited (Appendix 1). The supervisory frameworks for banks, insurance, and cross-border cooperation were improved and partial progress was made in strengthening the financial infrastructure, insolvency process, microfinance regulatory framework, and restructuring of state-owned banks. However, important legal provisions to strengthen supervision and safety nets, as well as a corporate insolvency law have not yet been approved. Furthermore, while loan classification and provisioning rules were upgraded, important risk and corporate governance regulations for banks have yet to be issued. The proposed Financial System Supervision and Regulation Law (FSSRL) could improve consolidated supervision and reduce the scope for regulatory arbitrage, but will require careful implementation. The FSSRL would merge the supervisors of banks and insurance, pensions, and securities to create one unified supervisor, with stronger powers. To balance this, the FSSRL would shift regulatory power to the central bank. A sole supervisor and a sole regulator are expected to facilitate consolidated supervision, as well as reduce regulatory gaps and the scope for regulatory arbitrage. However, the merger of supervisors and the institutional split between regulatory and supervisory powers will require a great deal of planning and ongoing cooperation between the supervisor and the regulator to ensure effective supervision. Remaining gaps in banking supervision and the safety net should be addressed. Supervisory practices should include more qualitative judgment and forward-looking risk assessments, and the regulatory perimeter should be reviewed. Key banking regulation (e.g., on corporate governance as well as credit, market, interest and liquidity risks) must be issued and the proposed FSSRL should more comprehensively address shortcomings in legal protection and the remedial action framework. The banking law should also be amended to strengthen the least-cost bank resolution framework as well as the deposit insurance fund. Regulations implementing the central bank’s (limited) powers for emergency liquidity assistance (ELA), as well as the bank resolution process are also needed. Passage of the proposed FSSRL would provide the BCR with more ELA powers, although the authorities should also design and test comprehensive policies for systemic liquidity and banking crisis resolution. |
| Keywords: | Financial system stability assessment;Article IV consultation reports;Financial sector;Banks;Nonbank financial sector;Bank supervision;Basel Core Principles;Bank legislation;Bank soundness;Financial safety nets;Capital markets;Economic indicators;Reports on the Observance of Standards and Codes;El Salvador; |
| Date: | 2014–02–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:14/44&r=reg |
| By: | Lim, Se Hee (Korea Center for International Finance); Reyes, Noel G. (Asian Development Bank) |
| Abstract: | This paper examines the issues surrounding the implementation of global regulatory reforms—spearheaded by the G20 and mainly under the aegis of the Financial Stability Board (FSB)—in Brunei Darussalam, Cambodia, the Lao People’s Democratic Republic (Lao PDR), Myanmar, and Viet Nam (BCLMV). These countries are the five newest members of the Association of Southeast Asian Nations (ASEAN). As such, there has been little consideration of the impact of global regulatory reforms on these countries. This paper contributes to the literature by providing an analysis of the capacity of the BCLMV countries to implement necessary financial regulatory reforms. Further, this analysis supplements ongoing efforts to establish the building blocks for the ASEAN Economic Community (AEC), which is scheduled to be implemented by 2015. Toward this end, the paper addresses six key development issues in the CLMV countries: (i) financial regulatory and supervisory systems, (ii) compliance with capital adequacy and liquidity management guidelines under the Basel reforms, (iii) macroprudential surveillance systems, (iv) transparency and disclosure, and (v) capital flow management. |
| Keywords: | financial regulatory systems; capital adequacy and liquidity management; Basel reforms; macroprudential surveillance; transparency and disclosure; capital flow; noncore liabilities; BCLMV and ASEAN-5 countries; ASEAN Economic Community |
| JEL: | G28 K22 O16 |
| Date: | 2014–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbrei:0134&r=reg |
| By: | Anginer, Deniz; Demirguc-Kunt, Asli |
| Abstract: | This paper distinguishes among various types of capital and examines their effect on system-wide fragility. The analysis finds that higher quality forms of capital reduce the systemic risk contribution of banks, whereas lower quality forms can have a destabilizing impact, particularly during crisis periods. The impact of capital on systemic risk is less pronounced for smaller banks, for banks located in countries with more generous safety nets, and in countries with institutions that allow for better public and private monitoring of financial institutions. The results show that regulatory capital is effective in reducing systemic risk and that regulatory risk weights are correlated with higher future asset volatility, but this relationship is significantly weaker for larger banks. The paper also finds that increased regulatory risk-weights not correlated with future asset volatility increase systemic fragility. Overall, the results are consistent with the theoretical literature that emphasizes capital as a potential buffer in absorbing liquidity, information, and economic shocks reducing contagious defaults. |
| Keywords: | Banks&Banking Reform,Access to Finance,Banking Law,Debt Markets,Financial Intermediation |
| Date: | 2014–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6948&r=reg |
| By: | International Monetary Fund. Monetary and Capital Markets Department |
| Abstract: | Hong Kong Special Administrative Region (HKSAR) has a very high level of compliance with the Basel Core Principles (BCPs) for Effective Banking Supervision. The Hong Kong Monetary Authority (HKMA) complements its high supervisory standards with a sustained commitment to the international regulatory reform agenda where it is an early adopter of many standards. HKMA supervises a major international financial center which was affected, though not significantly so, by the financial crisis. The banking system is characterized by the dominant presence of institutions with foreign ownership, including the systemic banks, which puts a premium on the HKMA’s role as a host supervisory authority. The HKMA is an authoritative supervisor, operating with de facto independence and conducting a close and continuous supervisory approach which places strong weight on clear communication with the industry and the expectation of high standards of corporate governance. Despite safeguards, however, the independence of the HKMA is not as fully protected by law as it could be. Some regulatory tightening is warranted to ensure the HKMA has a full suite of supervisory powers and is using the most appropriate regulatory definitions. |
| Keywords: | Financial system stability assessment;Basel Core Principles;Bank supervision;Insurance;Securities markets;Securities regulations;Reports on the Observance of Standards and Codes;Hong Kong SAR; |
| Date: | 2014–05–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:14/131&r=reg |
| By: | Park, Cyn-Young (Asian Development Bank); Mercado, Jr., Rogelio V. (Institute for International Integration Studies) |
| Abstract: | With increasing financial integration and improving regulatory quality, we expect equity home bias to decline. Drawing on the supportive evidence for such trends in advanced economies, this paper investigates the links between financial integration and regulatory quality; and equity home bias in emerging Asia. To test the significance, a pooled OLS estimation was used. The results show that greater global and regional financial integration and better regulatory quality significantly lower equity home bias against global and regional stocks. The estimates also find that the lag value of the home bias significantly lowers equity home bias against global and regional equities; while bank assets and stock market capitalization increase the said bias against global and regional equities. Interestingly, volatility of foreign exchange rate significantly increases equity home bias against regional stocks, but not for the home bias against global stocks. The results suggest that if ongoing financial regulatory reforms lead to less information asymmetry and lower transaction and information costs in emerging Asia, equity home bias will continue to decline, allowing for greater portfolio diversification and more efficient allocation of capital resources. |
| Keywords: | equity home bias; financial integration; regulatory reforms |
| JEL: | F36 G11 G28 |
| Date: | 2014–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbrei:0133&r=reg |
| By: | International Monetary Fund. Western Hemisphere Dept. |
| Abstract: | In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country. |
| Keywords: | Financial Sector Assessment Program;Basel Core Principles;Bank supervision;Insurance;Securities regulations;Securities markets;Reports on the Observance of Standards and Codes;Canada;risk management, banking supervision, supervisory approach, supervisory framework, legal entity, insurance business, iosco principles, prudential supervision, risk profile, supervisory practice, insurance intermediaries, accounting standards, internal audit, regulatory requirements, money laundering, information exchange, ethical standards, internal controls, international standards, adequate powers, reporting requirements, due diligence requirements, foreign authorities, beneficial ownership, prudential risks, supervisory agencies, terrorist financing, exchange information, ensuring compliance, supervisory standards, assessment criteria, financial intermediaries, licensing process, insurance supervisors, regulatory authorities, market integrity, confidentiality requirements, assessment mission, legal entities, technical capacity, due regard, life insurance, supervisory authorities, collective investment schemes, assessment process, compliance officer, supervisory process |
| Date: | 2014–02–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:14/30&r=reg |