Transparency of Financial Regulation

This chapter explores the concept of transparency in financial regulation from the perspective of the public. It looks at the role of risk assessment in transparency and the regulatory environment as well as the importance of pluralism in competition in the financial sector. The chapter first considers the meaning of “transparency of financial regulation” and its relation to simplicity. It then traces the progression of the Basel capital adequacy framework from Basel I to Basel III, along with the sources of lack of transparency in the framework. It also presents data showing the lack of transparency in the Basel Capital Accord and countries’ regulatory responses to the global financial crisis. Differences in the implementation of regulation regarding systemically important financial institutions are outlined. Finally, it discusses recent proposals for the separation or separability of financial activities with the goal of enhancing the transparency of banks’ activities for both market participants and resolution authorities.

Transparency Regulation in Financial Markets – Moving into the Surveillance Age?

European Journal of Risk Regulation ◽

10.1017/s1867299x00006875 ◽

2011 ◽

Vol 2 (3) ◽

pp. 305-321

Author(s):

Iris H-Y Chiu

Keyword(s):

Financial Crisis ◽

Financial Markets ◽

Financial Regulation ◽

Global Financial Crisis ◽

Financial Sector ◽

Regulatory Control ◽

Legal Reforms ◽

Risk Oversight

In the wake of the global financial crisis, the trajectory of legal reforms is likely to turn towards more transparency regulation. This article argues that transparency regulation will take on a new role of surveillance as intelligence and data mining expand in the wholesale financial sector, supporting the creation of designated systemic risk oversight regulators.The role of market discipline, which has been acknowledged to be weak leading up to the financial crisis, is likely to be eclipsed by a more technocratic governance in the financial sector. In this article, however, concerns are raised about the expansion of technocratic surveillance and whether financial sector participants would internalise the discipline of regulatory control. Certain endemic features of the financial sector will pose challenges for financial regulation even in the surveillance age.

Financial Structure and Incentives

National Institute Economic Review ◽

10.1177/002795011222100113 ◽

2012 ◽

Vol 221 ◽

pp. R23-R30

Author(s):

Martin Čihák ◽

Asli Demirgüç-Kunt

Keyword(s):

Financial Markets ◽

Financial Institutions ◽

Risk Taking ◽

Global Financial Crisis ◽

Financial Sector ◽

Financial Systems ◽

Regulatory Approach ◽

Private Incentives ◽

The article connects two streams of recent research on the financial sector. The first is the regulation literature, which emphasises the central role of incentives in the financial sector. It points out that the challenge of financial sector regulation, highlighted by the global financial crisis, is to align private incentives with public interest without taxing or subsidising private risk-taking. The second stream of research relates to financial structures and examines the mix of financial institutions and financial markets in an economy. It finds that, as economies develop, services provided by financial markets become comparatively more important than those provided by banks. The article brings these two streams together, pointing out that — as financial systems develop from bank-based to market-based — a traditional regulatory approach that relies on banking ratios becomes less effective. There is thus a greater need for properly monitoring and addressing the underlying incentive weaknesses in market-based systems.

Disclosure of risk information in the European banking sector

Ekonomia Międzynarodowa ◽

10.18778/2082-4440.16.04 ◽

2016 ◽

pp. 350-366

Author(s):

Emilia Klepczarek

Keyword(s):

Financial Markets ◽

Banking Sector ◽

Global Financial Crisis ◽

The Public ◽

Market Participants ◽

European Banking ◽

Adequate Quantity ◽

Risk Disclosures ◽

Working Out

A debate on the scope of bank information disclosures seems to be essential, especially after the Global Financial Crisis. The adequate quantity of data provided to the public domain is a condition of transparency of the banking sector which should assure the optimization of market participants’ decisions. There is also a tendency to unify global accountancy standards, and they are expected to ensure the same scope of disclosed information for the global financial market. The aim of the study is to investigate if there are any differences with the number of risk disclosures among the banks using GAAP and IFRS accounting standards, and if more stable banking sectors tend to report a wider scope of data. Finding out the nature of the determinants of disclosures is an important aspect in terms of working out the procedures which will increase the transparency and stability of the financial markets.

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

Risk Governance and Control Financial Markets & Institutions ◽

10.22495/rgcv1i3art1 ◽

2011 ◽

Vol 1 (3) ◽

pp. 7-16 ◽

Cited By ~ 1

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 ◽

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.

8. Micro-prudential regulation I

Banking Law and Regulation ◽

10.1093/he/9780198784722.003.0008 ◽

2019 ◽

pp. 329-406

Author(s):

Iris H-Y Chiu ◽

Joanna Wilson

Keyword(s):

Financial Crisis ◽

Risk Taking ◽

Global Financial Crisis ◽

Basel Ii ◽

Capital Adequacy ◽

Basel Iii ◽

Prudential Regulation ◽

Basel Committee ◽

Capital Adequacy Regulation

This chapter studies capital adequacy regulation, which prescribes that banks can only take certain levels of risk that are supported by adequate levels of capital. In this way, capital adequacy rules provide a form of assurance that banks with adequate levels of capital are likely able to withstand losses that may result from their risk-taking. The Basel Committee developed its first set of capital adequacy standards in the Basel I Capital Accord of 1988. It was subsequently overhauled into the Basel II Capital Accord in 2003. After the global financial crisis of 2007–9, the Basel II Accord’s shortcomings were extensively discussed and the Basel Committee introduced a package of reforms in order to plug the gaps in Basel II. The Basel III package is the most extensive suite of micro-prudential regulation reforms seen to date, as they deal with capital adequacy and a range of other micro-prudential standards.

Bank business models, regulation, and the role of financial market participants in the global financial crisis☆

Journal of Banking & Finance ◽

10.1016/j.jbankfin.2016.10.007 ◽

2016 ◽

Vol 72 ◽

pp. S1-S5 ◽

Cited By ~ 4

Author(s):

Andrew Clare ◽

Meryem Duygun ◽

Mohamed Azzim Gulamhussen ◽

Alberto Franco Pozzolo

Keyword(s):

Financial Crisis ◽

Financial Market ◽

Business Models ◽

Global Financial Crisis ◽

Market Participants ◽

Bank Business Models ◽

Optimale Regulierung bleibt eine Herausforderung!

Zeitschrift für Wirtschaftsgeographie ◽

10.1515/zfw.2011.0003 ◽

2011 ◽

Vol 55 (1-2) ◽

Author(s):

Hiltrud Thelen-Pischke

Keyword(s):

Financial Crisis ◽

Financial Institutions ◽

Business Models ◽

Financial Regulation ◽

Basel Ii ◽

Lessons Learned ◽

Regulatory Environment ◽

Basel Iii ◽

Key Factor ◽

Recent Financial Crisis

The challenge of perfect regulation! Comments to the debate on reforms of the financial sector. In the light of the recent financial crisis the question was raised, if there is any chance of regulation at all to help prevent future crises. As lessons learned from the financial crisis regulators have already adopted numerous measures that aim to enhance financial regulation. Most prominent is the reform of the well-known Basel II soon to be Basel III framework. The following paper takes a closer look on the most important measures against the background of the economic aspects of financial intermediation. The overall focus of this paper is the question if the reform of Basel II can improve the regulatory environment. This includes an analysis of how the changes in financial regulation will affect financial institutions. As a result the paper will show that most of the discussed and adopted measures actually lead to greater regulatory effectiveness. Nevertheless, the key factor for more effective financial regulation is a deep knowledge with regard to financial institutions and their business models. Only a thourough understanding of each individual bank and the system as a whole puts the regulator in the position to assess risks which might lead to the next financial crisis and to react appropriately.

Justification of criticism of the international financial institutions

Economic Annals ◽

10.2298/eka1086115d ◽

2010 ◽

Vol 55 (186) ◽

pp. 115-132 ◽

Cited By ~ 2

Author(s):

Dzenan Djonlagic ◽

Amra Kozaric

Keyword(s):

World Bank ◽

Financial Institutions ◽

Global Financial Crisis ◽

International Financial Institutions ◽

Economic Growth And Development ◽

The Public ◽

Strategic Effect ◽

Global Financial System

As more than half a century has passed since the establishment of the international financial institutions (IMF, World Bank), this paper analyzes the opinion that these institutions have not accomplished their mission. They generally admit that they have not succeeded in the activities that they set out to accomplish, a propos of gathering funds for countries faced with economic gaps and helping them to maintain long term economic growth and development. We show that these financial institutions have done nothing to reduce poverty and financial disparities, to increase their own transparency, responsibility and management, especially with the public participation of developing countries, or to create a more effective loans system. In this paper the main goal of research is to explore the arguments pro and contra the strategic effect, policy, and working methodology of the international financial institutions in view of finding a solution to the global financial crisis and global prevalent financial problems, and also to consider the reasons for the justification or otherwise of their being part of the global financial system.

The role of corporate governance in reducing the global financial crisis implications in light of the Central Bank of Jordan

Banks and Bank Systems ◽

10.21511/bbs.15(3).2020.02 ◽

2020 ◽

Vol 15 (3) ◽

pp. 10-19

Author(s):

Fouzan AL Qaisi

Keyword(s):

Financial Crisis ◽

Central Bank ◽

Financial Stability ◽

Global Financial Crisis ◽

Capital Adequacy ◽

Capital Adequacy Ratio ◽

Study Results ◽

Dependent Variables ◽

The study aims to test the role of the measures implemented by the Central Bank of Jordan to reduce the effect of financial crisis on the Jordanian banks, using two independent variables (loans and advances rate, overnight deposit window), which are the actions of the Central Bank of Jordan, and four dependent variables (liquidity ratio, ROA ratio, capital adequacy ratio, non-performing loans ratio), which are financial stability indicators for the banks for six years (2005–2011). To get the study results, these data are measured and analyzed using SPSS (Statistical Package for Social Sciences). It was found that the actions of the Central Bank of Jordan (loans and advances rate, overnight deposit window rate): have a statistically significant impact on the non-performing loans ratio (2005–2011); do not have a statistically significant impact on the capital adequacy ratio (2005–2011); have a statistically significant impact on ROA ratio (2005–2011); do not have a statistically significant impact on the liquidity ratio (2005–2011).

Networks and systemic risk in the financial system

Oxford Review of Economic Policy ◽

10.1093/oxrep/grz023 ◽

2019 ◽

Vol 35 (4) ◽

pp. 586-613 ◽

Cited By ~ 5

Author(s):

Prasanna Gai ◽

Sujit Kapadia

Keyword(s):

Systemic Risk ◽

Stress Testing ◽

Financial Regulation ◽

Global Financial Crisis ◽

Financial System ◽

Network Models ◽

System Risk ◽

Shed Light

Abstract The complex web of exposures and interlinkages across the financial system highlights the relevance of network analysis in understanding systemic risk and guiding the design of financial regulation. This paper discusses how network models—and those based on epidemiological approaches in particular—offer a compelling description of the structure of real-world financial systems and shed light on different contagion mechanisms seen during the global financial crisis. We also review how these insights may inform macroprudential risk assessment and policy in the areas of stress-testing the financial system and the regulation of systemically important institutions. The role of non-bank financial intermediation and social networks in shaping financial system risk is also briefly considered.