International Standards for Derivatives Trading and Clearing

2020 ◽  
pp. 48-70
Author(s):  
Lucia Quaglia
Keyword(s):  
Systemic Risk ◽  
Great Powers ◽  
International Standards ◽  
Securities Market ◽  
Bank Capital ◽  
Financial Industry ◽  
Margin Requirements ◽  
Central Counterparties ◽  
Regulatory Reforms

This chapter discusses the elemental regimes on derivatives trading and clearing. These international standards remained rather ‘thin’ due to the absence of pace-setting jurisdictions and the foot-dragging of some jurisdictions; disagreements amongst regulators; and the push back from the financial industry. Furthermore, exchange and platform trading were not crucial to mitigate systemic risk. Clearing via central counterparties was crucial to mitigate systemic risk. However, other interlinked standards, notably, bank capital and margin requirements, were used to promote central clearing. Precise, stringent, and consistent international standards were not sponsored by the ‘great powers’, which adopted instead domestic regulatory reforms that had considerable extraterritoriality. Securities market regulators gathered in the IOSCO found it difficult to reconcile different views among more than one hundred member jurisdictions. Furthermore, these regulatory reforms—first and foremost centralized trading—were contested by parts of the financial industry because of their distributional implications.

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.

Taking the Lead: Bank Recovery and Resolution Rules

2020 ◽  
pp. 71-90
Author(s):  
Scott James ◽  
Lucia Quaglia
Keyword(s):  
Significant Influence ◽  
International Standards ◽  
Bank Failures ◽  
Bank Capital ◽  
Response Regulators ◽  
Financial Industry ◽  
First Mover Advantage ◽  
The Us ◽  
Alliance Building ◽  
First Mover

As in the case of bank capital, elected officials were quick to respond to voter concerns by substantially expanding regulators’ powers over bank recovery and resolution. In response, regulators developed stringent new rules on loss-absorbing capacity (LAC) and ‘living wills’ for banks. However, the financial industry on the whole did not seek to resist the changes. Nonetheless, UK regulators sought to act as pace-setters in this area at the international and EU levels to manage the cross-border externalities generated by bank failures. They were therefore able to exert significant influence in the formulation of new international standards on resolution and LAC, and over the EU’s new Bank Recovery and Resolution Directive. This was achieved by leveraging their substantial regulatory expertise, alliance-building (with the US), and ‘first-mover advantage’.

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.

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.

Systemic Risk, Bank Capital, and Deposit Insurance Around the World

2014 ◽  
Author(s):  
Denefa Bostandzic ◽  
Matthias Pelster ◽  
Gregor N. F. Weiss
Keyword(s):  
Systemic Risk ◽  
Deposit Insurance ◽  
Bank Capital ◽  
The World

Arena Expansion and the Transnationalization of Business Advocacy

2018 ◽  
Author(s):  
Abraham L. Newman ◽  
Elliot Posner
Keyword(s):  
Internal Structure ◽  
International Finance ◽  
Financial Regulation ◽  
Banking Regulation ◽  
Great Powers ◽  
Soft Law ◽  
Financial Industry ◽  
Individual Industry ◽  
Industry Associations

Chapter 5 shifts the focus from soft law’s effects on great powers to its impact on influential business groups. It argues that by expanding arenas of contestation to the transnational level, soft law transforms business representation as well as individual industry associations. The chapter’s empirical focus is on banking regulation from the 1980s to the 2000s. Much of the literature on transnational banking standards centers on the role of industry associations and, in particular, on the Institute of International Finance. In this chapter, the authors explain the rise of direct industry participation in and influence over Basel-based standard setting. They show that the orientation and priorities of the IIF as well as its membership and internal structure were deeply conditioned by 1980s international soft law. The IIF’s transformation subsequently set off a series of changes to the ecology of financial industry associations and the politics of financial regulation.

scholarly journals INTERNATIONAL STANDARDS FOR BANK CAPITAL REGULATION

2021 ◽  
Vol 1 (36) ◽  
pp. 35-45
Author(s):  
V. Kovalenko ◽  
S. Sheludko ◽  
N. Radova ◽  
F. Murshudli ◽  
K. Gonchar
Keyword(s):  
Financial Crisis ◽  
Economic Crisis ◽  
Financial Stability ◽  
International Standards ◽  
Capital Adequacy ◽  
Capital Regulation ◽  
Bank Capital ◽  
Banking Supervision ◽  
New Paradigm ◽  
Bank Capital Regulation

The paper analyzes the evolution of the introduction of international standards for bank capital regulation. The aim of the research is to study international standards for bank capital regulation and their impact on financial stability and sustainability of domestic banking systems. The 2007—2009 Global Financial Crisis was perhaps the greatest banking and financial crisis since bank failures and the financial panic of the Great Depression in early 1930s. According to academics and professionals, there has been much debate over the last decade as to whether the 2007—2009 banking crisis was primarily a solvency crisis or a liquidity crisis. Capital adequacy of banks today is the main indicator of increasing society’s confidence in banking systems. The flexible and balanced implementation of Basel Committee on Banking Supervision (BCBS) recommendations on the assessment of bank capital adequacy is of particular importance in the context of the deepening economic crisis caused by COVID-19 quarantine restrictions. Regulation of bank capital is primarily settles by the ability to execute basic functions inherent in it. A number of shocks in connection with the crisis require the renewal and search for a new paradigm of regulation, which today is focused on achieving financial stability, overcoming pro-cyclicality, especially in the banking sector. One of the latest developments in the field of bank capital regulation has been the implementation of international banking supervision standards recommended by BCBS, which have been transformed from Basel I, Basel II, Basel III, Basel 3.5 to Basel IV. The new ideology suggests that in times of financial and economic crisis or in anticipation of growing uncertainty in the economy, it is necessary to abandon the idea of bank capital management and the creation of financial reserves to maintain liquidity and stability of financial institutions. These measures will not be able to protect the bank from default and bankruptcy. This ideology has become a new paradigm of effective banking regulation, which can be formulated as an accepted set of three vectors: risk; risk management; risk-oriented supervision.

Ownership, Incentives and Regulation of CCP Risks

2016 ◽  
pp. 272-303
Author(s):  
Louise Carter ◽  
Jennifer Hancock ◽  
Mark Manning
Keyword(s):  
Risk Management ◽  
Financial Market ◽  
International Standards ◽  
Key Factors ◽  
Operating Environment ◽  
Cross Border ◽  
Factors Influencing ◽  
Emerging Trends ◽  
Central Counterparties

This chapter develops a framework to analyse the factors influencing central counterparties' (CCPs') risk controls and the role of regulation. The framework illustrates the importance of sound regulation of CCPs and helps to explain why different CCPs may make different risk management choices. Key factors include ownership, governance and the profile and preferences of participants. International standards for the design and operation of CCPs and other financial market infrastructures (FMIs) are reflected in the Principles for Financial Market Infrastructures (PFMIs). Modelling key elements of these standards, the chapter demonstrates the importance of a flexible regulatory framework that achieves the desired level of stability while allowing the mix of risk controls applied by each CCP to vary according to its particular incentives and operating environment. The chapter goes on to discuss the emerging trends towards competition and interoperability between CCPs and cross-border provision of clearing services, and consider the implications for CCPs' risk management choices.

Introduction

2020 ◽  
pp. 1-14
Author(s):  
Lucia Quaglia
Keyword(s):  
Political Economy ◽  
International Relations ◽  
International Political Economy ◽  
Standard Setting ◽  
International Standards ◽  
International Regime ◽  
International Regulation ◽  
International Standard ◽  
Derivatives Markets ◽  
Regulatory Reforms

This chapter outlines the theoretical and empirical puzzles that inform the book, its objectives, overall argument, and structure. This research sets out to explain the post-crisis international regulation of derivatives markets. In particular, it addresses three interconnected questions. What factors drove international standard-setting concerning derivatives post-crisis? Why did international regime complexity emerge? How was it managed and with what outcomes? The focus of this volume is on international standards, not the domestic implementation of these standards, or other domestic regulatory reforms concerning derivatives. This chapter also outlines the book’s theoretical and empirical contributions to the international relations literature on regime complexity and the international political economy literature on the regulation of finance.

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