In Search of Stability: Bank Capital and Liquidity Requirements

2020 ◽  
pp. 52-70
Author(s):  
Scott James ◽  
Lucia Quaglia
Keyword(s):  
Banking Regulation ◽  
Capital Requirements ◽  
Political Support ◽  
Basel Iii ◽  
Bank Capital ◽  
Financial Industry ◽  
Domestic Constraints ◽  
The Uk ◽  
Institutional Architecture ◽  
Crd Iv

Following the financial crisis, UK preferences shifted decisively in favour of trading up bank capital and liquidity requirements. To reassure voters, elected officials intervened in the regulatory process by strengthening the domestic institutional architecture for banking regulation. Financial regulators leveraged this political support to overcome resistance from the financial industry, but also pushed for international/EU harmonization of capital requirements to avoid damaging the UK’s competitiveness. Internationally, UK regulators therefore acted as pace-setters and exerted significant influence over the design of the Basel III Accord. However, at the EU level, the UK was forced to act as a foot-dragger by prolonging negotiations over the Capital Requirements Directive IV (CRD IV) in an attempt to resist Franco-German efforts to water down the rules. But UK negotiators were more successful in leveraging domestic constraints to oppose the Commission’s attempt to impose the ‘maximum’ harmonization of bank capital.

International Standards for Bank Capital Exposures to CCPs and Derivatives

2020 ◽  
pp. 126-151
Author(s):  
Lucia Quaglia
Keyword(s):  
Capital Requirements ◽  
International Standards ◽  
Basel Iii ◽  
Real Economy ◽  
Bank Capital ◽  
Financial Industry ◽  
Leverage Ratio ◽  
The Us ◽  
Credit Valuation Adjustment ◽  
The Uk

The elemental regime on bank capital for derivatives encompassed the credit valuation adjustment (CVA), the leverage ratio, and bank exposures to CCPs. Like for other parts of Basel III, the US and the UK were pace-setters internationally, promoting relatively precise, stringent, and consistent rules. The EU agreed on the need for higher capital requirements, but worried about negative implications for the provision of credit to the real economy. Networks of regulators were instrumental in furthering agreement amongst and within jurisdictions. They also fostered rules consistency through formal and informal coordination tools amongst international standard-setting bodies. The financial industry mobilized in order to reduce the precision and stringency of capital requirements, pointing out the need to consider capital reforms in conjunction with other post-crisis standards, notably, margins.

scholarly journals THE NEW CAPITAL ADEQUACY FRAMEWORK (BASEL III) OPTIONS AND ISSUES IN COMMERCIAL BANKS OF LITHUANIA

Ekonomika ◽  
2015 ◽  
Vol 93 (4) ◽  
pp. 119-134 ◽  
Author(s):  
Filomena Jasevičienė ◽  
Daiva Jurkšaitytė
Keyword(s):  
Banking Regulation ◽  
Capital Requirements ◽  
Capital Adequacy ◽  
System Stability ◽  
Basel Iii ◽  
Management Problem ◽  
Bank Capital ◽  
Factors Influencing ◽  
Capital Adequacy Ratio ◽  
The World

Currently, banking is one of the most regulated activities in the world, because banks are the most important institutional units engaged in financial intermediation and affects not only the whole national economy of the country, but the global financial market as well. One of the key components of banking regulation are requirements expected for the bank capital, which prevent the bank from various unforeseen risks incurring substantial losses and are a sort of guarantee to maintain the financial system stability. For this reason, it is useful to find out what factors affect the capital adequacy ratio, and what measures the banks are going to take in order to meet the new capital requirements. The present research reveals the options of the implementation of the new system and the main problems faced by banks. The paper consists of four main parts: review of theory and literature, the research methodology of the factors influencing the capital adequacy, the study of factors influencing the capital adequacy ratio, and the capital adequacy management problem areas according to the Basel III requirements and conclusions.

The UK and Multi-level Financial Regulation

2020 ◽  
Author(s):  
Scott James ◽  
Lucia Quaglia
Keyword(s):  
Financial Regulation ◽  
Hedge Fund ◽  
Regulatory Reform ◽  
Political Support ◽  
International Standards ◽  
Bank Capital ◽  
The European Union ◽  
Financial Industry ◽  
The Future ◽  
The Uk

The book examines the role of the United Kingdom (UK) in shaping post-crisis financial regulatory reform, and assesses the implications of the UK’s withdrawal from the European Union (EU). It develops a domestic political economy approach to examine how the interaction of three domestic groups—elected officials, financial regulators, and the financial industry—shaped UK preferences, strategy, and influence in international and EU-level regulatory negotiations. The framework is applied to five case studies: bank capital and liquidity requirements; bank recovery and resolution rules; bank structural reforms; hedge fund regulation; and the regulation of over-the-counter derivatives. We conclude by reflecting on the future of UK financial regulation after Brexit. The book argues that UK regulators pursued more stringent regulation when they had strong political support to resist financial industry lobbying. UK regulators promoted international harmonization of rules when this protected the competitiveness of industry or enabled cross-border externalities to be managed more effectively, but were often more resistant to new EU rules when these threatened UK interests. Consequently, the UK was more successful at shaping international standards by leveraging its market power, regulatory capacity, and alliance-building (with the US). But it often met with greater political resistance at the EU level, forcing it to use legal challenges to block reform or secure exemptions. The book concludes that political and regulatory pressure was pivotal in defining the UK’s ‘hard’ Brexit position, and so the future UK–EU relationship in finance will most likely be based on a framework of regulatory equivalence.

The Politics of Regime Complexity in International Derivatives Regulation

2020 ◽  
Author(s):  
Lucia Quaglia
Keyword(s):  
Financial Regulation ◽  
International Political Economy ◽  
Standard Setting ◽  
Capital Requirements ◽  
Bank Capital ◽  
Financial Industry ◽  
International Standard ◽  
Central Counterparties ◽  
Venue Shopping ◽  
Private Actors

This book examines the post-crisis international derivatives regulation by bringing together the international relations literature on regime complexity and the international political economy literature on financial regulation. Specifically, it addresses three interconnected questions. What factors drove international standard-setting on derivatives post-crisis? Why did international regime complexity emerge? How was it managed and with what outcomes? Theoretically, this research innovatively combines a state-centric, a transgovernmental and a business-led explanations. Empirically, it examines all the main sets of standards (or elemental regimes) concerning derivatives, namely: trading, clearing, and reporting derivatives; resilience, recovery, and resolution of central counterparties; bank capital requirements for bank exposures to central counterparties and derivatives; margins for derivatives non-centrally cleared. Regime complexity in derivatives ensued from the multi-dimensionality and the interlinkages of the problems to tackle, especially because it was a new policy area without a focal international standard-setter. Overall, the international cooperation that took place in order to promote regulatory precision, stringency, and consistency in the regime complex on derivatives was remarkable, especially considering the large number of policy actors involved (states, private actors, regulators). The main jurisdictions played an important role in managing regime complexity, but their effectiveness was constrained by limited domestic coordination. Networks of regulators facilitated international standard-setting and contributed to managing regime complexity through formal and informal tools. The financial industry, at times, lobbied in favour of less precise and stringent rules, engaging in international ‘venue shopping’; other times, it promoted regulatory harmonization and consistency.

U. S. Investment Banks in the Context of the Post-Crisis International Banking Regulation Reform

2020 ◽  
Vol 2020 (1) ◽  
pp. 21-40
Author(s):  
Eduard Dzhagityan ◽  
Anastasiya Podrugina ◽  
Sofya Streltsova
Keyword(s):  
Financial Stability ◽  
Banking Regulation ◽  
Capital Requirements ◽  
Capital Adequacy ◽  
Investment Banks ◽  
Basel Iii ◽  
International Banking ◽  
Minimum Capital ◽  
Negative Effect

The article looks into the reasons underlying the outspread of the full-scale mechanism of banking regulation over U. S. investment banks. We analyze the effect of the Basel III standards on stress-resilience of investment banks and examine the role of U. S. investment banks in ensuring financial stability. Based on regression analysis we found that minimum capital adequacy standards of Basel III do not have negative effect on ROE of the U. S. investment banks that are G-SIB category-designate; however, additional capital requirements (Higher Loss Absorbency (HLA) surcharge) that depend on G-SIB’s systemic significance according to their bucket as per Financial Stability Board classification do have significant and negative effect on ROE in the post crisis period. Besides, leverage requirements that also depend on G-SIB’s systemic significance have a statistically significant effect on ROE.

scholarly journals Higher Bank Capital Requirements and Mortgage Pricing: Evidence from the Counter-Cyclical Capital Buffer*

2019 ◽  
Author(s):  
Christoph Basten
Keyword(s):  
Capital Requirements ◽  
Mortgage Lending ◽  
Basel Iii ◽  
Bank Capital ◽  
Mortgage Pricing ◽  
Level Data ◽  
Bank Capital Requirements

Abstract We identify the effects of the Basel III macroprudential tool Counter-Cyclical Capital Buffer on mortgage lending. Using the first dataset on responses from multiple banks to each household, we find no evidence of explicit rationing. But as the CCyB applied only to mortgages, banks with higher mortgage specialization or lower capital cushions raise prices by an extra eight basis points. Bank level data then show that this allows them to slow their mortgage growth and rebuild capital cushions. While market-wide mortgage growth did not slow down significantly, the composition of mortgage suppliers thus moved to previously less exposed banks.

scholarly journals Developing “best practices” for bankers’ pay in line with Basel III.

2011 ◽  
Vol 1 (3) ◽  
pp. 7-16 ◽  
Author(s):  
Peiyi Yu ◽  
Jessica Hong Yang ◽  
Nada Kakabadse
Keyword(s):  
Financial Crisis ◽  
Risk Taking ◽  
Global Financial Crisis ◽  
Capital Requirements ◽  
Capital Adequacy ◽  
Incentive Compensation ◽  
Basel Iii ◽  
Bank Capital ◽  
Bank Executives ◽  
The Global Financial Crisis

This paper proposes hybrid capital securities as a significant part of senior bank executive incentive compensation in light of Basel III, a new global regulatory standard on bank capital adequacy and liquidity agreed by the members of the Basel Committee on Banking Supervision. The committee developed Basel III in a response to the deficiencies in financial regulation brought about by the global financial crisis. Basel III strengthens bank capital requirements and introduces new regulatory requirements on bank liquidity and bank leverage. The hybrid bank capital securities we propose for bank executives’ compensation are preferred shares and subordinated debt that the June 2004 Basel II regulatory framework recognised as other admissible forms of capital. The past two decades have witnessed dramatic increase in performance-related pay in the banking industry. Stakeholders such as shareholders, debtholders and regulators criticise traditional cash and equity-based compensation for encouraging bank executives’ excessive risk taking and short-termism, which has resulted in the failure of risk management in high profile banks during the global financial crisis. Paying compensation in the form of hybrid bank capital securities may align the interests of executives with those of stakeholders and help banks regain their reputation for prudence after years of aggressive risk-taking. Additionally, banks are desperately seeking to raise capital in order to bolster balance sheets damaged by the ongoing credit crisis. Tapping their own senior employees with large incentive compensation packages may be a viable additional source of capital that is politically acceptable in times of large-scale bailouts of the financial sector and economically wise as it aligns the interests of the executives with the need for a stable financial system.

scholarly journals Macroprudential regulation as part of the Mexican policy toolkit

2020 ◽  
Vol 16 (1) ◽  
pp. 1-27
Author(s):  
Carlos Alberto Zarazúa Juárez
Keyword(s):  
Banking System ◽  
Banking Regulation ◽  
Theoretical Framework ◽  
Capital Requirements ◽  
Bank Capital ◽  
Dsge Model ◽  
Macroprudential Regulation ◽  
Debt Level ◽  
Bank Capital Requirements

The objective of this work is to assess the effect of implementing countercyclical macroprudential regulation in Mexico with the objective of verify whether this type of policy is welfare-improving. Using a DSGE model, two kinds of macroprudential rules are tested: countercyclical bank capital requirements and countercyclical loan-to-value ratios. Results suggest that these rules are welfare-improving and avoid the formation of credit bubbles as well as facilitate loans in the presence of macroeconomic crises. Results suggest that the use of countercyclical rules is effective in keeping the debt level according to its long-term equilibrium. This paper presents a theoretical framework to analyze banking regulation for policy purposes and is the first attempt to analyze countercyclical regulation in Mexico using a microfounded model. Results can be used to rationalize the use of macroprudential tools during the COVID‑19 pandemic given the current interventions in the Mexican banking system.

scholarly journals The Impact of CRD IV on Bank Lending

2019 ◽  
Vol 8 (2) ◽  
pp. 203-217
Author(s):  
Matias Huhtilainen
Keyword(s):  
Bank Lending ◽  
Banking Regulation ◽  
Capital Requirements ◽  
Bank Credit ◽  
Bank Profitability ◽  
Consistent Finding ◽  
Loan Supply ◽  
The Impact ◽  
The Relationship ◽  
Crd Iv

This study addresses the post-financial crisis EU banking regulation reform CRD IV. The specific focus is on the relationship between increased capital requirements and the subsequent change in both supply and the price of bank credit. This study employs a twofold data consisting of a panel of Finnish unlisted savings and cooperative banks’ key figures over the period 2002-2018 and a representative survey conducted with personnel of Finnish institutions. In addition to the consistent finding in regards to the effect of bank profitability as well as fairly consistent findings in regards to the effect of bank size and GDP growth, the key finding suggests a slight decrease in loan supply under the CRD IV.

The international transmission of bank capital requirements: Evidence from the UK

2014 ◽  
Vol 113 (3) ◽  
pp. 368-382 ◽  
Author(s):  
Shekhar Aiyar ◽  
Charles W. Calomiris ◽  
John Hooley ◽  
Yevgeniya Korniyenko ◽  
Tomasz Wieladek
Keyword(s):  
Capital Requirements ◽  
Bank Capital ◽  
International Transmission ◽  
The Uk ◽  
Bank Capital Requirements
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