Central Counterparties are Too Big for the European Securities and Markets Authority (Alone): Constructive Critique of the 2019 CCP Supervision Regulation

Once seen as the solution to the systemic risk of over-the-counter derivatives, central counterparties (CCPs) have become a source of concern for the financial stability of the European Union (EU). Distress of a single CCP might be transferred to clearing members and others CCPs, thereby endangering EU monetary and fiscal stability. However, the European Market Infrastructure Regulation (EMIR) has left fiscal responsibility as well as day-to-day supervision of EU-based CCPs (EU-CCPs) at the national level, albeit cross-border colleges of authorities can overturn key decisions of national supervisors. The Commission concluded that these supervisory arrangements needed to be reformed because they hamper the development of a single coherent EU approach to CCP supervision. Although the Commission had proposed to centralise EU-CCP supervision in the European Securities and Markets Authority (ESMA), the final 2019 CCP Supervision Regulation seeks to improve EMIR’s ineffective collegial framework by establishing an internal CCP Supervisory Committee within ESMA. Nevertheless, the continuing lack of loss mutualisation would keep on hindering the development of a single approach to EU-CCP supervision. Moreover, the new regulation adds another layer of complexity to the EMIR framework and clashes with the European monetary constitution. If an agreement on loss mutualisation was reached, EU-CCP supervision should be centralised in two EU bodies along objective lines: while the European Central Bank should be tasked with EU-CCP prudential supervision, ESMA should be responsible for EU-CCP conduct of business supervision. This framework would improve EU-CCP supervision and fit in with the current EU governance at once.

Introduction

The ambition of this book is to explore the various dimensions of the transition from a state-led to a market-led financial system from the 1970s onwards. In the late 1970s and 1980s, the phrase ‘deregulation’ became a particularly popular term in regulatory spheres, but what kind of change exactly deregulation was? The nine chapters of the book show that if some rules were indeed revoked, particularly in certain countries, other regulations were introduced, particularly in the field of prudential supervision. The combination of an increased surveillance and of more liberal rules marked the end of the twentieth century and differentiated this period from the late- nineteenth-century laissez-faire approach. Rising public debt, new monetary policies, globalization, and weak economic growth were often the main factors underlying the deregulatory moves in the financial sector.

Padoa-Schioppa as money doctor: Multilayered macro-prudential supervision and European integration

The dominant narrative describes Tommaso Padoa-Schioppa as a rather in-transigent, austerity-biased, market-preserving money doctor. He certainly was a leading actor in macro-prudential financial supervision, both at the national and supranational level. His personal engagement in many and diverse supervisory or-ganizations testifies of his idea that financial regulation and stability are a crucial stabilizing feature in a highly unstable and interdependent world. Guiding expecta-tions among market agents and providing a credible framework of financial rules is key to both stability and growth. This paper explores the connection between his contributions to financial supervision and the issue of an evolving and unfinished (thus particularly fragile) European integration project, challenging the idea that he was a radical market supporter.

Assessment of the Conditions for Concluding Loan Portfolio Purchase and Sale Agreements between Related Parties as a Tool for Prudential Supervision of the National Regulator

The article proposes to use the market value of the loan portfolio as a criterion for compliance with the terms of its purchase and sale agreements, between related parties, the normal market and use it as a tool in the supervision of the national regulator. The developed methodological support for assessing the compliance of the conditions for concluding purchase and sale agreements of loan portfolios, between related parties, normal market conditions is based on the characteristics of the elements, properties and features of valuation as an economic category. The proposed algorithm for assessing the terms of conclusion between related parties of purchase and sale of loan portfolios for their compliance with normal market conditions allows to take into account the essential characteristics of loans and complies with current legislation of Ukraine governing banking. On the example of contingent portfolios of cash and consumer loans, the stages of forecasting cash flows from the payment of outstanding balance of principal, interest, commissions and other payments on debt service, as well as income from the sale of default loans are disclosed.

Research on Construction of Regulatory Sandbox for Safety Supervision on Intelligent Connected Products

In the context of the explosive development of the global intelligent connected industry, the implementation of inclusive and prudential supervision on intelligent connected products may help to maximize the dividends of innovation-driven development strategies. As an innovation of the supervision system by government departments in the process of balancing innovation and risk, regulatory sandbox provides a forward-looking supervision mode. This paper studies and proposes the ideas for construction of China’s regulatory sandbox for safety supervision on intelligent connected products by analyzing the rise, creation and role of regulatory sandbox as well as the challenges faced in the course of safety supervision on intelligent connected products.

BIBLIOMETRIC ANALYSIS OF FINANCIAL CRISIS RESEARCH

The global financial crisis that followed Lehman Brothers’ declaration of bankruptcy in September 2008 critically highlighted the significance of research on systemic risk and macro-prudential supervision. Accordingly, this paper mainly analyzed the relationship between financial crises and the article output in financial crisis research through the application of bibliometrics. The occurrence of a financial crisis leads to changes in the output of articles on crisis and risks. Hence, we focused on bibliographic coupling (e.g., co-authorship, co-occurrence), data classification by risk type in this study (e.g., market risk, credit risk) and citation analysis (e.g., top 1% cited paper). Meanwhile, the analysis indicated the most relevant disciplines in financial crisis research. For example, the number of top 1% cited articles and citations, MARKET RISK documents and citations published the most papers. In other words, the market risk is valued in the financial risk literature.

Shadow Banking and the Four Pillars of Traditional Financial Intermediation

Traditional banking is built on four pillars: SME lending, insured deposit taking, access to lender of last resort, and prudential supervision. This paper unveils the logic of the quadrilogy by showing that it emerges naturally as an equilibrium outcome in a game between banks and the government. A key insight is that regulation and public insurance services (LOLR, deposit insurance) are complementary. The model also shows how prudential regulation must adjust to the emergence of shadow banking, and rationalizes structural remedies to counter bogus liquidity hoarding and financial contagion: ring-fencing between regulated and shadow banking and the sharing of liquidity in centralized platforms.

Value Creation in the Listed Banks: Do Governance Matter?

We assess the relationship between bank governance practice (GCG), efficiency, capital and risk on value creation in a sample of Indonesia commercial banks using the balance panel methodology. Our results suggest that GCG has a positive impact on value creation and performance. We also find that higher interest margin eventually becomes more profitable, better capitalized and that higher capital levels tend to have a neutral or negative effect on value creation. Efficiency levels are positive to value creation. These results are generally confirmed by a series of robustness tests. The findings convey potentially important implications for bank prudential supervision and underline the importance of attaining better governance to support sustainability and financial stability objectives.