Banking Regulation

US state chartered commercial banks are supervised alternately by state and federal regulators. Each regulator supervises a given bank for a fixed time period according to a predetermined rotation schedule. We use unique data to examine differences between federal and state regulators for these banks. Federal regulators are significantly less lenient, downgrading supervisory ratings about twice as frequently as state supervisors. Under federal regulators, banks report higher nonperforming loans, more delinquent loans, higher regulatory capital ratios, and lower ROA. There is a higher frequency of bank failures and problem-bank rates in states with more lenient supervision relative to the federal benchmark. Some states are more lenient than others. Regulatory capture by industry constituents and supervisory staff characteristics can explain some of these differences. These findings suggest that inconsistent oversight can hamper the effectiveness of regulation by delaying corrective actions and by inducing costly variability in operations of regulated entities.

In autumn of 2007 Britain experienced its first bank run of any significance since the reign of Queen Victoria. The run was on a bank called Northern Rock. This was extraordinary, for Britain had been free of such episodes because by early in the third quarter of the 19th century the Bank of England had developed techniques to prevent them. A second extraordinary aspect of the affair was that it was the decision to provide support for the troubled institution that triggered the run. And thirdly, unlike most runs in banking history, it was a run only on that one institution. This paper considers why the traditional techniques for the maintenance of banking stability failed -if they did fail -and then considers how these techniques may need to be changed or supplemented to prevent such problems in the future. The paper starts with a narrative of the events, then turns to banking policy before the event and to the policy responses after it. We suggest both why the decision to provide support triggered the run and why the run was confined to a single institution. That prepares the way for our consideration of what should be done to help prevent the recurrence of such episodes in the future.

Systemic risk from financial intermediaries (FIs) refers to a negative externality problem, which is rife with fallacy of composition-type errors. To 'see' why seemingly rational behaviour at the level of an individual FI contributes to system-wide instability is a non-trivial exercise, which requires holistic visualization and modelling techniques. Paradox of volatility inherent to market price-based measures of systemic risk has made bilateral balance sheet and off balance data between FIs and network analysis essential for systemic risk management. There is both a data and a skills gap in implementing large-scale data-driven multi-agent financial network models that can operationalize macro-prudential policy. Different designs for a Pigou-type systemic risk surcharge are discussed with special reference to the Markose eigen-pair method, which simultaneously determines the degree of instability of the network of financial flows of obligors and also the rank order in the centrality of FIs contributing to it.

Failures in governance, especially in regard to boards of directors, have been blamed for the [2007][2008] financial crisis. The increased public scrutiny regarding the actions and role of the board of directors in banks, following the crisis, inspires to examine whether and to what extent the characteristics of banks' boards influence their performance in the crisis. Using a sample of 72 publicly listed European banks, we find that banks with more independent and busy boards experienced worse stock returns during the crisis.

Asset quality is a key indicator of sound banking. However, it is difficult for banking regulators and investors to assess it in the absence of a common, cross-border scheme to classify assets. Currently no standard is applied universally to categorise loans, the most sizeable asset on banks' balance sheets. As a corollary, definitions of nonperforming loans (NPLs), despite recent steps towards greater harmonisation, continue to vary between jurisdictions. This paper offers a comprehensive analysis of NPLs and considers variations in the treatment of NPLs across countries, accounting regimes, and firms. The paper relies on a multidisciplinary perspective and addresses legal, accounting, economic and strategic aspects of loan loss provisioning (LLP) and NPLs. A harmonised approach to NPL recognition is particularly desirable, in view of the fact that IFRS 9, the new accounting standard on loan loss provisioning, will be mandatory from January 2018. IFRS 9 changes the relationship between NPLs and provisions, by relying on greater judgement to determine provisions. The potential for divergence makes the need for comparable indicators against which to assess asset quality all the greater.

We examine the impact of board structure, CEO power and other bank-specific factors on bank risk-taking for a sample of 72 publicly listed European banks in both stable and crisis periods. Using a simultaneous equations approach, our main findings indicate that the proportion of independent directors, the board size, and Chief Executive Officer (CEO) power affected bank risk-taking negatively during the recent financial crisis. On the contrary, institutional shareholder ownership and the presence of an ex-CEO as Chairman influenced bank risk-taking positively. Additionally, we separately analyse stable and crisis periods and observe that in the pre-crisis period only board independence and institutional ownership keep the same impact on risk while CEO power has no influence and the existence of an ex-CEO as Chairman reduces risk-taking by banks. We conclude that different governance characteristics have different relevance for banks' risk-taking contingent on the economic environment being one of stability or crisis.

As interest-bearing deposits are not permitted by the rules and principles of the Islamic Shari'ah, Islamic banks typically raise deposits in the form of profit-sharing investment accounts. These accounts differ from conventional deposits not merely by virtue of the profit-sharing nature of the returns they offer, but also because the contact between the depositors and the bank is not a debt contract, and the deposits are in consequence not 'capital certain' (that is, the depositors are required to accept negative returns or losses). This latter characteristic leads to serious regulatory problems in jurisdictions where bank deposits are required by legal definition to be 'capital certain'. More generally, the presence of such 'puttable instruments' in the capital structure of Islamic banks leads to complications in assessing their capital adequacy. In addition, the fact that the profit-sharing investment account holders are a type of equity investor without the governance rights of either creditors or shareholders raises a major problem of supervision. This article explains these problems in further detail, and proposes a solution in the form of a structural distinction between the Islamic bank in the narrow sense on the one hand, and the entity that manages the profit-sharing investment accounts on the other hand.

The decision to adopt International Accounting Standards (IAS) in Jamaica with effect from 1 July 2002, makes this paper particularly apposite. 1 This brief analysis aims to provide a concise, yet rigorous, account of the principles underlying the standards, as well as the most significant changes to result in financial reporting and their implications for policy making and financial stability. This predominantly non-mathematical discourse relies on recent publications on the related issues and integrates the theoretical contributions from accounting practitioners. The findings support expectations that the implementation of IAS would result in major changes in the content of financial statements and therefore significantly impact users of financial statement data.

This study assesses the risk-related reporting practices of 190 Portuguese credit institutions based on a content analysis of their individual annual reports for 2006. Risk-related disclosures are found to be deficient in terms of comparability because they use different maturity time bands to report exposures to credit, market and liquidity risks; different VaR and sensitivity analysis assumptions; and different practices for reporting capital structure and adequacy. Relevance, reliability and understandability problems arose too from the mis-alignment of quantitatively-based disclosures and related narratives. We assess the extent to which reforms of risk-related reporting practices in 2007 in International Financial Reporting Standards and the BASEL II Accord address each of the deficiencies identified. We highlight areas in need of further reform and recommend that Portuguese supervisory authorities adopt more effective enforcement mechanisms to broker compliance with minimum mandatory risk disclosure requirements.

Purpose-This study aims to examine the impact of regulation and other micro-and macroeconomic factors on banks' productivity growth. It investigates the impact of different regulatory reforms on banks' performance of total factor productivity (TFP) and its component efficiencies, along with their association with bank-specific variables of profitability and equity, and with macro-level variables of economy and freedom. That is, through analysing the influence of regulatory and supervisory policies related to Basel accords pillars of capital and market discipline through private monitoring; restrictions on bank activities; and economic and financial freedoms on TFP growth and year-end performance in banking. Design/methodology/approach-The authors examine TFP for commercial banks in response to regulatory reforms on an international scale. To estimate the TFP, the authors use a non-parametric frontier technique by calculating the Malmquist output-oriented index, following Delis et al. (2011) and Worthington (1999). The components of the Malmquist index are ratios of distance functions making its estimation a straightforward technique using activity analysis or data envelopment analysis methods. This allows controlling for efficiency changes depending on the reallocation of production frontiers signalling the technical change and the technical efficiency at once. Findings-Results show that high capital requirements enhance productivity growth in North and Latin American banks, but not in European African or Asian banks. Supervisory powers drive bank productivity growth in all regions except Europe and Central Asia. Restrictions on real estate, insurance and securities activities impede productivity change in all income level groups but not in high-income economies. The results also show that market volatility and Z-score drive technological change and scale efficiency growth, but negatively impact pure technical efficiency. Originality/value-This paper contributes to the literature by examining the relationship between the implementation of regulatory standards and the performance of the banking sector following a structural model of the banking firm and the concept of optimisation. An additional contribution of this study is that it examines economies with different levels of income based on the gross national income per capita. The study summarises bank-specific data used to synthesise the banks' productivity (inputs and outputs) and country-specific economic and regulatory compliance data over 19 years (1999-2017). The extent of this data set coverage makes it most recent and most conclusive of variables to provide a significant contribution to the literature on bank regulation and efficiency effect.

We investigate the macro financial determinants of the Great Financial Crisis of 2007-2009 using data on 83 countries from the period 1998-2006. Our results show that the probability of suffering the crisis in 2008 was larger for countries having higher levels of credit deposit ratio whereas it was lower for countries having higher levels of: i) net interest margin, ii) concentration in the banking sector, iii) restrictions to bank activities, iv) private monitoring. Our findings contribute to the ongoing discussion that can help policymakers calibrate new regulation, by achieving a reasonable trade-off between financial stability and economic growth. JEL Classification: G15; G18; G21

The anti-money laundering (AML) provisions of the USA Patriot Act of 2001 significantly expanded the private sector's role in disrupting the financial operations of terrorist groups and criminal organizations. In doing so, the law imposed substantial compliance costs on the financial services industry as a whole. In this study, we investigate whether enforcement of the new AML measures has also caused some commercial banks and thrifts to shoulder heavier compliance-cost burdens than others. Using a dataset comprising banking institutions that hold at least one-third of their total deposits within California counties designated as 'high-risk money laundering and related financial crime areas', the empirical results indicate that AML compliance costs have fallen disproportionately on smaller financial institutions, suggesting that the Patriot Act has produced an intra-industry redistribution of wealth.

Purpose-This study Investigates Shareholders' value adjustment in response to financial institutions (FIs) merger announcements in the immediate event window and in the extended event window. This study also investigates accounting measures performance, comparison of post-merger to pre-merger, including several cash flow measures and not just profitability measures, as the empirical literature review suggests. Finally, the authors examine FIs mergers orientations of diversification and focus create more value for shareholders (in the immediate announcement window and several months afterward) and/or generates better cash flows, profitability and less credit risk. Design/methodology/approach-This study examines FIs merger effect on bidders' shareholder's value and on their observed performance. This examination deploys three techniques simultaneously: a) an event study analysis, to estimate and calculate abnormal returns (ARs) and cumulative abnormal returns (CARs) in the narrow windows of the merger announcement, b) buy and hold event study analysis, to estimate ARs in the wider window of the event, þ50 to þ230 days after the merger announcement and c) an observed performance analysis, of financial and capital efficiency measures before and after the merger announcement; return on equity, liquidity, cost to income ratio, capital to total assets ratio, net loans to total loans, credit risk, loans to deposits ratio, other expenses and total assets, economic value addition, weighted average cost of capital and return on invested capital. Deal criteria of value, mega-deals, strategic orientation (as in Ansoff (1980) growth strategies), acquiring bank size and payment method are set as individually as control variables. Findings-Results show that FIs mergers destroy share value for the bidding firms pursuing a market penetration strategy. Market development and product development strategies enable shareholders' value creation in short and long horizons. Diversification strategies do not influence bidding shareholders' value. Local bank to bank mergers create shareholders' value and enhance liquidity and economic value in the short run. Bank to bank cross border mergers create value for bidders' in the long term but are associated with high costs and higher risks. Originality/value-A significant advancement over the current literature is in assessing mergers, not only for bank bidders but also for the three pillars FIs of the financial sector; banks, real-estate companies and investment companies mergers. It is an improvement over current finance literature because it deploys two different strategies in the analysis. At a univariate level, shareholder value creation and market reaction to merger announcements are examined over short (À5 or þ5 days) and long (þ230 days) windows of the event. Followed by regressing, the resultant CARs and BHARs over financial performance variables at the multivariate level. 1. Introduction Despite the limitations put in recent financial regulations, on diversification and conglomeration through ring-fencing, financial institutions (FIs) are still diversifying and benefiting from regulatory arbitrage and immunity through mergers. Between the great depression in the 1930s and the aftermath of the 2007-2009 financial crisis, there have been waves of financial stress followed by tightening regulations, then innovations to break those out followed by deregulations. The recent financial crisis (2007-2009), has led regulators to prohibit several growth strategies and FIs diversification initiatives. Increasing capital buffers and limiting FIs ability to diversify through ring-fencing were the main tools. However, quite recently, several FIs expressed discontent with the recent regulation because of their profits draining criteria. Hoeing (2018) documents a bill to the US Congress that permits banks to deduct cash held on behalf of clients from the calculation of leverage. Doing so would lower the amount of capital the banks need as buffers and allow them to yield more cash to shareholders in the form of dividends and share buybacks. Such moves are expected to grow further in an attempt to repeal many of the 2012-2015 financial regulations. The renewed debate on optimal bank structure floats two different "diversification hypotheses":

Capital adequacy is considered an essential determinant banks' performance. Banks in Africa have revenue growth opportunities, but fragility and vulnerability to bank failures arising from capital inadequacy and non-performing loans affect their performances. The Basel Committee aims to introduce higher capital requirements is to strengthen the resilience of the banking system; however, the implementation of higher Basel capital requirements may affect the performance of banks. This study examines the potential impact of Basel IV capital requirements (CAR) on the performance of commercial banks from selected African countries. To achieve the set objective, the study simulated Basel IV CAR to create sample representative bank balance sheets using historical data from 2000 to 2018 because Basel IV CAR has not commenced. The study developed a sample-representative of Basel IV CAR and employed static and dynamic panel regression analyses as the estimation techniques. The results suggest that Basel IV CAR portends short-term negative impacts on bank performance while the long-term impact on bank performance is favorable.

Basel III was initiated after the recent global financial crisis to strengthen the regulatory regime for the banking sector. As liquidity problems faced by banks were a key feature of the crisis, Basel III has added liquidity requirement ratios in addition to reinforcing the capital requirements. Specifically, the liquidity coverage ratio (LCR) has been introduced to ensure liquidity in banks in the short term, and a net stable funding ratio (NSFR) is proposed to promote medium-and long-term resilience against liquidity shocks. Islamic banking has been growing rapidly in different parts of the world and forms a significant part of the financial sector in many countries. This paper examines the implications of the new Basel III liquidity requirement ratios for Islamic banks. Given the short history of its development and the restrictions imposed by Shari'ah principles, the Islamic banking sector faces several restrictions that will constrain its adoption of the Basel III liquidity requirements. After presenting the basic principles of Islamic finance, the paper identifies the challenges that Islamic banks will face in meeting their liquidity needs and outlines certain practices in which these are being resolved.

Misreporting of borrowing rates by large banks and the resulting manipulation of London Interbank Offered Rate (LIBOR) has been the subject of headlines news recently. Confronted with charges from regulators, several banks, such as Barclays, UBS (originally Union Bank of Switzerland) and the Royal Bank of Scotland, have paid huge fines and settled the matter to avoid criminal prosecution. The scandal raises serious questions of corporate governance, and this article examines the issue from the governance perspective, using Barclays as a case study. Internal failures occurred at several levels in Barclays' reporting of rates. Misreporting was mainly of two varietiesmisreporting for personal gain and misreporting encouraged by senior managers, ostensibly in the corporate interests. The article argues that corporate governance systems and structures are powerless in dealing with such fraud or lack of judgment. Misreporting for personal benefit was clearly a breach of the fiduciary duty of loyalty of the managers involved. But misreporting, ostensibly to protect corporate interests, is more probably a breach of the emerging fiduciary duty of good faith. The article also points out that the misdeeds occurred in the banks during an era of financial liberalization and permissiveness. In particular, it highlights that the loose structure of interest derivatives and the potential they offered for speculation were important factors in the practices at the banks involved in the LIBOR episode. The article concludes with an analysis of the implications of the LIBOR episode and its consequences for corporate responsibility and accountability as well as public regulation and its efficacy.

The emergence of risk-based capital regulation that is allowing banks to use their internal risk models for regulatory purposes was among the main regulatory developments prior to the financial crisis. During the crisis, it became evident these models underestimated the level of risk. The post-crisis regulatory approach brought a reversal of policy by significantly reducing the scope of risk-based capital regulation and making regulations less risk-sensitive. At first glance, this appears to be a step back toward an antiquated, less sophisticated regulatory regime. This article analyses these two regulatory policy transformations: from less risk-sensitive to risk-based before the crisis and from risk-based to less risk-sensitive subsequently. Its main conclusion is that a mixed regulatory system is superior to either purely non-risk-sensitive or purely risk-based regulation, because a mixed system can help mitigate the negative incentives of both non-risk-sensitive and risk-based re...

China plays a ‘mainstream’ role in global banking negotiations and does not articulate positions that considerably contradict those of the dominant actors (e.g. the US or UK). Still, the Chinese banking sector differs quite considerably from those of Western economies. In order to understand the Chinese stance on international banking regulation, we need to look at the development of domestic regulation in China. An analysis of institutional changes in Chinese banking regulations highlights the importance of various political-economic factions that have different positions on banking regulation. These factions are a core ingredient of the Chinese state-permeated model of capitalism. Moreover, it is impossible to understand the development of this type of capitalism without taking the size of the economy and the timing of its historical insertion into global capitalism into account.

The stress test of the European Central Bank has become one of the primary regulatory tools for the European banking system. In order to make such a regulatory indicator, different national banks need to be commensurated. They need to be made comparable according to a common metric. Despite a substantive literature, little empirical work has been done to further our understanding of the social and political processes through which these indicators are made. We use Actor-Network Theory (ANT) to enrich the existing literature with an in-depth account of how com-mensuration is negotiated. We find that despite a preference for commensuration, regulators allow 'incommensurable' categories to exist due to largely unrecognised regulatory benefits.

This paper investigates the impact of the introduction of transactional Internet banking on performance and risk profile of major credit unions in Australia. Performance was measured using linear programming technique of data envelopment analysis and regressed on relevant explanatory variables using censored normal regression. Accounting data were used to measure risk profile and regressed on relevant explanatory variables employing OLS regression. The results show that transactional Internet banking didn't have a significant impact on any of these. Thus Internet banking hasn't proved to be a performance-enhancing tool in the context of major credit unions in Australia. It neither reduces nor enhances risk profile.

This study aims to investigate whether government ownership of savings banks in Europe has a significant effect on their risk-taking behaviour. The study employs time-varying Zscore to measure risk using yearly accounting and ownership data of 721 savings banks from seven European countries over a period of 16 years from 2000 to 2015, covering the period before, during, and after the global financial crisis. The empirical estimates suggest an overall positive relationship between fully and partly government-owned savings banks and their respective Z-scores. Whereas the same positive relationship was found for the periods before and after the crisis, it could not be confirmed for the crisis period from 2008 to 2010, indicating that financial shocks render government ownership insignificant in explaining the risk behaviour of savings banks. On a country-level analysis, a positive relationship was obtained for France and Sweden, whereas ownership was not significant for the individual samples of the remaining countries. Overall, government ownership is not associated with an increase in savings banks' risk of default for the crisis period, which therefore contradicts the call for more privatisation within the European banking market.

This article focuses on the consequences Brexit will have for cross-border financial services between the EU and the UK after a possible transition period. In light of the uncertain results of Brexit negotiations, we analyse the future regulatory framework for commercial banking and clearing services in two scenarios. In the first scenario, the EU and the UK do not agree on a free trade agreement (FTA) so that market access will depend on unilateral market access provisions (no deal scenario). This would probably cause serious market disruptions because financial services providers on both sides would lose their privileged passporting rights and be treated as third country providers. In order to avoid this, the EU and the UK can enter an FTA (deal scenario). As to this second scenario, the article discusses five models for an FTA regarding financial services ranging from no access to full access and corresponding to divergent degrees of regulatory alignment. The analysis of both scenarios considers the boundaries set by the GATS on an international level. With regard to a possible FTA granting mutual market access for financial services, we develop a margin for modelling an FTA between the legal limitations of the GATS and the legal-political limitations of the EU-EEA market integration.

International actors promoted the transfer of regulatory authority and financial resources from national governments to the European Union in the context of establishing the prerequisites for financial stability in Europe through banking union. It was supplied, however, by a political process that kept significant resources in resolution and deposit insurance largely in national hands. This paper examines the politics behind those decisions, and how the hybrid of European and national competences affects bank regulation and financial stability in the EU. It concludes that the tension between strong EU supervisory powers and weak capacity to deal with insolvent institutions will persist.

Platform-based banking provides opportunities for financial systems to increasing competition, stimulating a FinTech economy, and improving the availability and quality of service to the customers. Platform-based banking is a system that provides a user with a network of financial institution's data through the use of application programming interfaces. With the help of platform banking, it is easy to show how data be created, accessed, and shared. The purpose of this paper is to provide a model of platform banking in commercial banks of Iran by benefiting banking experts. A mixed method was used in the present research including qualitative and quantitative analysis. The qualitative strategy of the present study is based on the grounded theory method, and the quantitative strategy is conducted using the structural equation model based on the Strauss and Corbin model. The main tool for collecting qualitative information was semi-structured interviews, in which the data were coded in three stages: open, axial, and selective coding. In the quantitative phase, the descriptive survey method was used to analyze and explain the proposed model through structural equations and using SmartPLS software. According to the codes which were obtained from the interviews, the 373 final codes were extracted in the form of 51 concepts, 25 sub-categories, and 6 main categories. In the quantitative part of the research, causal relationships between variables and testing the research hypotheses were performed. The findings show that the platform banking model has six components such as economic management and banking process reform, customers experience management, infrastructure engineering, and implementation mechanisms, digital strategic management of customer, and facilitate the achievement of structural productivity and digital governance in the shadow of knowledge partnerships with competing partners. Developing a model of platform banking model depends on the superior management of these components. Also, the research results indicate the confirmation of the conceptual model presented using the structural equation model. All structural model fit indices had acceptable values.

In a bid to understand how the Federal Deposit Insurance Corporation (FDIC) can aid in promoting financial stability, economists have recently called the definition of core deposits into question. Deposit insurance is extended to core deposits because they represent the stable funding base that the banking system relies on for liquidity. The criteria used by the FDIC to determine whether a funding source is insurable are not consistent with any objective criteria available to define core deposits. Herein I assess current FDIC criteria and whether the kinds of deposits currently insured are good candidates for coverage. I find brokered deposits to be particularly ill-suited to insurance. The FDIC could further promote banking-system stability while simultaneously reducing potential costs by ending its extension of insurance to brokered deposits.

Deregulation and financial consolidation have led to the development of financial holding companiesallowing commercial banking, insurance, investment banking, and other financial activities to be conducted under the same corporate umbrella-and the Federal Reserve has been named supervisor of the consolidated enterprise. This Policy Discussion Paper will show that there likely are economies of scope between the Fed' s inherent central-banking responsibilities and those of an umbrella supervisor and that these duel roles benefit both the Fed and functional regulators.

Banks considered too-big-to-fail (TBTF) tend to benefit from funding cost advantages as their debt is considered implicitly guaranteed by public authorities, even if the latter have undertaken substantial effort to limit TBTF. This paper focuses on the changes in related market perceptions in response to bank regulatory and resolution reform announcements as well as actual failure resolution actions. It analyses how premia on risky bank debt have reacted to such events, using data for senior and subordinated debt CDS quotes for 45 European banks from January 2007 to May 2020. The empirical results are consistent with progress being made in reducing the value of implicit bank debt guarantees, especially on subordinated bank liabilities. Some earlier bank failure resolution actions appeared to significantly raise risk premia, although more recent failure resolution cases either had no effect on risk premia or moved them in the opposite direction. Several of these events consisted of n...

This paper analyzes the relationship between change in capital and change in risk for a sample of 23 Lebanese banks between 2009 and 2014. Using the simultaneous equations model, our evidence reveals that banks determine their capital and risk levels simultaneously, with a negative relationship. While banks adjust their capital rapidly, they adjust their risk slowly. Furthermore, undercapitalized banks adjust their capital levels more rapidly than well-capitalized banks, and they increase their capital when they decrease their risk. However, there is no conclusive evidence regarding the role of regulatory pressure in driving risk-taking behavior. Finally, there are no major differences in the relationships between capital and risk regardless of whether banks are listed or not.

As a major electronic alternative to cash, central banks and state administrations often support the development of card payments with regulatory and public policy steps. Hungary was extremely active in this field by executing POS-terminal installation programmes or setting limits to interchange fees a year before the European regulation. Within this study we investigate, how these measures contributed to the recent evolution of Hungary's payment card market. Using the comprehensive dataset of the Central Bank of Hungary, we provide empirical evidence using time-series analysis methods, that both policy steps had a significant positive effect on the domestic card payments scene.

Certain nonrecurring circumstances associated with the passage of the Gramm Leach Bliley (GLB) Act create a unique opportunity for the market to infer bank examination ratings. This natural experiment enables an assessment of the market's views on this, heretofore, private information. We ®nd little evidence that the stock market extracted and/or valued regulatory information from these conversion announcements. Upon implementation of the GLB Act, systematic risk increased for most of our sampleÐboth converting and nonconverting BHCs. We ®nd smaller bond spreads for converting BHCs compared to non-converters. While the expanded bank powers from the GLB Act increases systematic risk exposure to shareholders, bondholder exposure to credit-risk appears to decrease.

This paper is a case study of Egg, a subsidiary of Prudential plc a major UK insurance company.  Egg was set up by Prudential in 1998 as the vehicle that it would use to enter the Internet banking market.  This was an aggressive strategy by the insurer to enter new markets, which was made even more risky by relying almost exclusively on new Internet technologies for its marketing and operations. In summary, although initially successful the strategy was a failure, with Egg being sold off within a decade after losing some £600 million for the insurer. With hindsight, the risks in Egg’s strategy were obvious but this paper does not apportion blame.  Instead the paper attempts to highlight the generic risks in developing complex strategies and makes suggestions to firms and banking regulators as to how such strategic risks may be managed.

It is increasingly becoming important to predict the performance of Islamic banks in order to anticipate a problem before it materializes and negatively affects banks' performance and financial standing. Benefiting from the earlier research on the subject, this study aims to develop a preliminary integrated early warning model for Islamic banks in Malaysia to assess their financial standing by using quarterly data for the 2005 to 2010 period. Factor analysis and three parametric models (discriminant analysis, logit analysis, and probit analysis) are used in this study. Out of 29 variables used in the early stage of study, only 13 were selected as predictor variables in this study. Results show that, overall, classification accuracy is relatively high in the first few quarters before the benchmark quarter (2010 Q3) for all the estimated models. Correct classification rates are high during the first few quarters and decrease subsequently. Based on these results, therefore, it is obvious that the first few quarters before the benchmark quarter are the most important for making a correct prediction. These results show the predictive ability of the integrated model to differentiate healthy and non-healthy Islamic banks, thus reducing the expected cost of bank failure.

An argument for refusing to publicly disclose supervisory ratings of the safety and soundness of banks rests on the claim that such disclosure will reduce supervisory effectiveness. Specifically, some argue that public disclosure of supervisory ratings will reduce the likelihood that bank supervisors take adverse, but deserved, actions against a bank such as a rating downgrade. This argument has not been subject to an empirical investigation. We provide the first test of this claim by examining if and how rating downgrades and upgrades changed when supervisors altered their policies and began disclosing ratings to bank management. If supervisors were more reluctant to alter ratings because of this change in disclosure policy, then it is reasonable to believe that disclosing ratings to the public -the ultimate goal of many proposals -would have as large or a larger effect. After controlling for bank-specific and standard economic factors, we find that more expansive disclosure did not make downgrades less likely. While such results are

This paper analyzes the evolution of the banking system sensitivity to cross-border contagion over the period of 2006-2011. The study is performed on the basis of the BIS data on crossborder exposures and the Bankscope data on Tier 1 capital of 20 banking systems (Turkey, the UK and the US). Since the European sovereign debt crisis took a decisive turn at the end of 2009, markets started looking at its main protagonists -so called PIIGS (Portugal, Ireland, Italy, Greece and Spain) -with a lot of anxiety. However, unexpectedly, the analysis of the data shows that a single failure among PIIGS could be absorbed by the network in 2011. Nevertheless, multiple initial failures (especially combinations including Italy and/or Spain) could be more dangerous. The simulation results reveal that the resilience of banking systems to contagion risks tends to improve over the years. The most systemically important countries are those of the US, the UK, France and Germany. Besides, a shock to the US is capable of destroying the UK banking system already in the first round, whereas the UK would not lead to the failure of the US banking system even after all rounds of contagion. The results also show that the banking systems of the US, Turkey and Finland are completely immune to contagion effects. At the same time, there exist considerable risks for Switzerland and Ireland as their banking systems default also with high recovery rates.

Throughout his long and distinguished career, David Mayes was concerned with a wide range of subjects. This paper focuses on three of them: on monetary and financial history, on monetary stability, and on financial stability. We use the first of these to open up exploration of the second and third. A relationship is often asserted between monetary and financial stability, but how close and how durable is it? Is it one that holds through a long span of history, or is it contingent on a range of factors and therefore comes and goes? To address this, we use here data exclusively from Britain.

It is an unfortunate fact that a sovereign nation defaulting on its debt is now just a matter of 'when'not 'if'. Therefore, it is important to briefly review the case of those sovereigns that have recently defaulted or faced a serious threat of a crisis.

This paper compares the current regulatory capital requirements under the Dodd-Frank Act (DFA) and the 10-percent leverage ratio, as proposed by the U.S. Treasury and the U.S. House of Representatives' Financial CHOICE Act (FCA). We find that the majority of U.S. banks would not qualify for an "off-ramp"option-where regulatory relief is offered to FCA qualifying banks (QBOs)-unless considerable amounts of capital are added, and that large banks are much closer to the proposed leverage threshold and, therefore, are more likely to stand to gain from regulatory relief. The paper identifies an important moral hazard problem that arises due to the QBO optionality, where banks are likely to increase the riskiness of their asset portfolio and qualify for the FCA "off-ramp" relief with unintended effects on financial stability.

The article begins by addressing central definitional and taxonomical issues for crowdlending (also known as peer-to-peer lending) as an evolving species of debt-based crowdfunding within the FinTech industry. It considers the regulatory tension between facilitating growth of the crowdlending industry and the need for regulatory intervention to ensure adequate investor protection. Regulatory lag is evident in uncertainties surrounding the application of existing EU regulatory instruments for credit institutions not written with crowdlending in mind. The regulatory vacuum at EU level enables regulatory arbitrage and a race to the bottom by platform operators. Accordingly the case is made for a proportionate European directive for crowdlending based on a prudential licensing and passporting framework covering matters such as minimum capitalisation, due diligence, disclosure rules, conflicts of interest, client money rules, protection for investors against bad debts and platform collapse, as well protection for the economy as a whole against potential systemic risk.
Keywords: Banking regulation, microfinance, peer-to-peer lending, crowdfunding, FinTech
JEL Classification: G21, G23, G28, K22, O16

This paper is chiefly concerned with the financial regulatory change in the USA following the recent financial scandals. In particular it focuses on the Californian energy crisis in 2000-2003. The paper explores the background to the deregulation in California and its most obvious business result: Enron corporation's actions and results. Drawing from the institutional theory (Di Maggio and Powell 1983) we identify the causes of institutional pressures put on the US government to deregulate its markets in the first instance and then regulate it following the financial scandals that followed. Using Oliver's (1991) strategic responses to institutional pressures theory we trace the actions take by the US government to regulate its financial markets. The only federal (USA national government) result was the Sarbanes-Oxley law which was meant to pro-vide corporate rules for governance. We then explore the implications of this Act and the actions taken specially to deal with Enron scandals. We conclude the paper by raising some

Recent case law on the scope of professional secrecy for the supervisory authorities of the financial sector and on the measure of openness of their files highlights the lack of co-ordination among the silos of supervision and the absence of clear and uniform professional secrecy rules across the financial sector. The introduction of the Single Supervisory Mechanism (SSM) makes this situation more acute: notwithstanding a centralised system of banking supervision, different approaches may exist in respect of access to files, even when based on EU legislation. This contribution addresses the accountability of supervisory authorities and, notably the European Central Bank (ECB), from the perspective of access to supervisory files, as a prelude to possible follow-up proceedings for failing supervision. Recent judgments in the Altmann, Baumeister, Buccioni and UBS Europe cases slowly move the case law on supervisory secrecy towards more openness, long after Hillegom v Hillenius (1984). The judgments make us wonder whether the absence of legislative co-ordination and questionable drafting is being remedied by the judiciary. The variety of legislative provisions and relevant recent case law form the backdrop of our proposal to adopt a Regulation on professional secrecy for supervisory authorities in the financial sector, which would institute a single standard directly applicable across Member States and supervisory authorities.