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on Regulation |
| By: | Luc Laeven; Deniz Igan; Stijn Claessens; Giovanni Dell'Ariccia |
| Abstract: | The ongoing global financial crisis is rooted in a combination of factors common to previous financial crises and some new factors. The crisis has brought to light a number of deficiencies in financial regulation and architecture, particularly in the treatment of systemically important financial institutions, the assessments of systemic risks and vulnerabilities, and the resolution of financial institutions. The global nature of the financial crisis has made clear that financially integrated markets, while offering many benefits, can also pose significant risks, with large real economic consequences. Deep reforms are therefore needed to the international financial architecture to safeguard the stability of an increasingly financially integrated world. |
| Keywords: | Asset prices , Bank regulations , Bank supervision , Central bank role , Financial crisis , Financial sector , Fiscal policy , Fiscal reforms , Global Financial Crisis 2008-2009 , International financial system , Intervention , Liquidity management , Price increases , Stabilization measures , |
| Date: | 2010–02–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/44&r=reg |
| By: | Ojo, Marianne |
| Abstract: | As well as addressing the Basel Committee's proposals to strengthen global capital and liquidity regulations, this paper also considers several reasons why information disclosure should be encouraged. These include the fact that imperfect information is considered to be a cause of market failure which “reduces the maximisation potential of regulatory competition”, and also because disclosure requirements would contribute to the reduction of risks which could be generated when granting reduced capital level rewards to banks who may have poor management systems. Furthermore it draws attention to the need for greater measures aimed at consolidating regulation within (and also extending regulation to) the securities markets – given the fact that „the globalisation of financial markets has made it possible for investors and capital seeking companies to switch to lightly regulated or completely unregulated markets.“ |
| Keywords: | capital; liquidity; regulations; bank; Basel II; risks; disclosure |
| JEL: | K2 G2 D8 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21194&r=reg |
| By: | John Boyce |
| Abstract: | This paper considers a dynamic common agency model of natural resource harvest quota regulation in which both conservationists and harvesters vie to influence the regulator's quota allocations as well as the choice of regulator. Conservationists tend to benefit from the adoption of regulation since the regulator will reduce the aggregate harvest quota relative to the unregulated equilibrium. Harvesters, however, only support the adoption of regulation if the regulator places sufficient weight on their welfare. Because harvester's support of regulation is conditional while conservationist's support of regulation is unconditional, harvester's interests tend to be over-represented in the truthful Markov Perfect equilibrium. |
| JEL: | D72 C73 Q28 Q38 |
| Date: | 2010–01–16 |
| URL: | http://d.repec.org/n?u=RePEc:clg:wpaper:2010-03&r=reg |
| By: | Guiseppe Bertola; Lorenza Mola |
| Abstract: | International posting of workers and mobility of self-employed service suppliers lie between outright migration and trade in goods: their regulation, for both distributional and marketcorrecting purposes, is not as difficult to harmonize as that of labour markets, but personal mobility is more visible and socially intrusive than product market interactions. This paper analyzes economic and legal tensions between national regulatory frameworks and international competition in these areas, in both the intra-EU and global contexts, highlighting how interactions between the external and internal roles of the European Commission may foster efficient integration of markets and policies in this and other fields. |
| Keywords: | Economic integration, Trade in services, GATS, European Union, Labour regulation, Services regulation, Harmonization, Posted workers |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:eiq:eileqs:09&r=reg |
| By: | Siegfried Utzig (Asian Development Bank Institute) |
| Abstract: | Credit rating agencies (CRAs) bear some responsibility for the financial crisis that started in 2007 and remains ongoing. This is acknowledged by policymakers, market participants, and by the agencies themselves. It soon became clear that, given the depth of the crisis, CRAs would not be able to satisfy policymakers by eliminating flaws in their rating methods and improving corporate governance. Although the CRAs were more or less unregulated before the outbreak of the financial crisis, after the crisis started, politicians became increasingly vocal in demanding regulation. Initially, these demands were confined to a more binding form of self-regulation. But as the crisis progressed, the calls for state regulation grew ever louder. It became apparent after the November 2008 G-20 summit in Washington that state regulation could no longer be avoided. In Europe, the course had been set in this direction even before then. Since European policymakers saw the crisis as evidence that the Anglo-Saxon approach to the financial markets had failed, they believed they were now strongly placed to have a decisive influence on shaping a new international financial order. It is remarkable to note the shift in European policy from a self-regulatory approach, which was comparatively liberal in international terms, to quite rigorous state regulation of CRAs. Both the European Commission and the European Parliament drew up far-reaching plans. Although European policymakers knew that only globally consistent regulation would be appropriate for a new world financial order, their initial draft legislation was geared more toward stand-alone European regulation. While the final version of the European Union Regulation on Credit Rating Agencies focuses firmly on the European arena, the key point for all market participants is that this is unlikely to have an adverse effect on the global ratings market. It must nevertheless be recognized that the scope of the selected regulatory approach is extremely narrow. Certainly, it has the potential to improve the corporate governance of CRAs and prevent conflicts of interests. But it can do nothing to address the repeated calls for greater competition or for CRAs to be made liable for their ratings. |
| Keywords: | credit rating agencies, financial crisis, financial regulation, European Regulation |
| JEL: | G18 G21 G24 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:eab:financ:2172&r=reg |
| By: | Charlot, Olivier (Université des Antilles et de la Guyane); Malherbet, Franck (University of Cergy-Pontoise) |
| Abstract: | This paper studies the impact of an European-like labor market regulation on the return to schooling, equilibrium unemployment and welfare. We show that firing costs and temporary employment have opposite effects on educational choices. We furthermore demonstrate that a laissez faire economy with no regulation is inefficient as it is characterized by insufficient educational investments leading to excess job destruction and inadequate job creation. By stabilizing employment relationships, firing costs may spur educational investments and therefore lead to welfare and productivity gains, though a first-best policy would be to subsidize education. However, there is little chance for a dual labor market, as is common in many European countries, with heavily regulated long-term contracts and more flexible short-term contracts to raise the incentives to schooling and aggregate welfare. |
| Keywords: | human capital, job destruction, matching frictions, efficiency |
| JEL: | I20 J20 J60 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4799&r=reg |
| By: | Michael G. Plummer (Asian Development Bank Institute) |
| Abstract: | The ongoing global economic crisis has punished Asian economies severely, despite the fact that its origins derive from outside the region. The global economic crisis was transmitted through real and financial channels, underscoring how vulnerable the region is to external shocks. This paper explores the microeconomic origins of the financial crisis and endeavors to ascertain how crises might be mitigated in the future through better regulation, supervision, and institution-building. Moreover, it makes the case for closer economic cooperation in order to internalize key externalities associated with modern global finance. This cooperation, in turn, should take place at the appropriate level, with incentives for cooperation at the global, regional, and subregional levels. It explores the potential for the creation of an Asian Financial Stability Board and deepening other initiatives in Association of Southeast Asian Nations (ASEAN)+3 and ASEAN forums. However, it stresses that the most important financial reforms in Asia will need to take place at the national level. |
| Keywords: | global financial crisis, Asia, microeconomics, financial regulation, financial externalities, ASEAN |
| JEL: | G28 F36 F33 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:eab:financ:2170&r=reg |
| By: | Carlo Cambini; Laura Rondi |
| Abstract: | We examine theoretically and empirically the relationship between access regulation, financial structure and investment decisions in network industries, analyzing if financial variables can be used as a strategic device to influence the regulator’s price setting decisions. Using a panel of 15 EU Public Telecommunication Operators (PTOs) over the period 1994-2005, we first investigate the determinants of regulated prices (both wholesale and retail), firm financial structure and investment, and then test the relationship between leverage, regulated charges and firm’s investment. However, our model suggests that if leverage influences the regulated access charges, then it will also impact competition in the downstream segment. Therefore, we also investigate the impact of the PTO’s leverage on market competition. Our results show that leverage positively affects regulated rates, as well as the PTOs’ investment rate, as predicted by Spiegel and Spulber (1994). Moreover, higher leverage also leads to higher access charges and an increase in leverage is followed by a decrease in the number of competitors and by an increase of the incumbent’s market share. This suggests that the strategic use of debt to discipline the regulator’s lack of commitment within a vertically integrated network industry may somewhat impair or delay competition in the retail segment, but has a favorable counterpart in mitigating the underinvestment problem. |
| Date: | 2009–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:erp:euirsc:p0233&r=reg |
| By: | Michael Pomerleano (Asian Development Bank Institute) |
| Abstract: | The failure to spot emerging systemic risk and prevent the current global financial crisis warrants a reexamination of the approach taken so far to crisis prevention. The paper argues that financial crises can be prevented, as they build up over time due to policy mistakes and eventually erupt in “slow motion.” While one cannot predict the precise timing of crises, one can avert them by identifying and dealing with sources of instability. For this purpose, policymakers need to strengthen top-down macroprudential supervision, complemented by bottom-up microprudential supervision. The paper explores such a strategy and the institutional setting required to implement it at the national level. Given that the recent regulatory reforms that have been undertaken to address systemic risks are inadequate to prevent and combat future crises, the paper argues that national measures to promote financial stability are crucial and that the Westphalian principles governing international financial oversight should be rejected. The paper proposes that while an effective national systemic regulator should be established, strong international cooperation is indispensable for financial stability. |
| Keywords: | systemic risk, global financial crisis, macroprudential supervision, microprudential supervision, regulatory reform, international cooperation |
| JEL: | G21 G28 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:eab:financ:2166&r=reg |
| By: | A. Arrighetti; S. Curatolo |
| Abstract: | The present paper builds on Arrighetti e Curatolo, 2009, 2010 by introducing heterogeneous opportunists into an agent-based simulated world populated by heterogeneous loyal agents playing a repeated coordination game. On average, opportunistic exploitation of economic resources lowers coordination, especially in less endowed contexts. Simulation strategy proposed in the paper compares, keeping constant the aggregate cost of policy, three different kinds of public schemes aimed at reducing the economic cost of opportunism: regulatory schemes, incentive (or premiality) schemes and a third scheme based on institutional catalyst agents. Regulatory schemes based on sanctions produce the emergence of adverse redistribution effects: removal of opportunism is an efficient strategy only for less endowed local contexts, while the policy taxation burden hits too much the local environments where collective action is stronger. In line with many authors (see Hall, 2005; Camerer e Hogarth, 1999; Verdier, 2004), incentive (premiality) schemes perform badly especially because their net effects are limited to the first stages of the games. The schemes based on institutional catalyst agents seems to be the best performers: in facts, these schemes are efficient, especially through a process of learning, in pulling the other agents toward an high degree of coordination, so counter-balancing the effects of opportunists’ exploitation. Moreover an high degree of synergy emerges from a combined regulatory-institutional catalyst scheme, while incentive scheme (premiality) show, at the opposite, negative synergy both with institutional catalyst agents’ and regulatory schemes. |
| Keywords: | Opportunism, Coordination Games, Regulation, Incentives, Institutions |
| JEL: | B4 C15 C71 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:par:dipeco:2010-ep02&r=reg |
| By: | Tigran Poghosyan; Michael Koetter; Thomas Kick |
| Abstract: | Based on detailed regulatory intervention data among German banks during 1994-2008, we test if supervisory measures affect the likelihood and the timing of bank recovery. Severe regulatory measures increase both the likelihood of recovery and its duration while weak measures are insignificant. With the benefit of hindsight, we exclude banks that eventually exit the market due to restructuring mergers. Our results remain intact, thus providing no evidence of "bad" bank selection for intervention purposes on the side of regulators. More transparent publication requirements of public incorporation that indicate more exposure to market discipline are barely or not at all significant. Increasing earnings and cleaning credit portfolios are consistently of importance to increase recovery likelihood, whereas earnings growth accelerates the timing of recovery. Macroeconomic conditions also matter for bank recovery. Hence, concerted micro- and macro-prudential policies are key to facilitate distressed bank recovery. |
| Keywords: | Bank regulations , Bank resolution , Bank soundness , Bank supervision , Banking crisis , Banks , Capital , Credit risk , Economic models , Germany , Risk management , |
| Date: | 2010–02–02 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/27&r=reg |
| By: | Mariko Fujii (Asian Development Bank Institute) |
| Abstract: | It is widely believed that the practice of securitization is one of the causes that led to the 2007–08 financial crisis. In this paper, I show that securitized products such as collateralized debt obligations (CDO) are particularly vulnerable to systematic risk and tend to show higher tail risk. These characteristics, in turn, are closely associated with joint failures and systemic risk. In order to achieve greater stability of the financial system, it is important to prevent the recurrence of the collapse of specific markets as this may lead to the collapse of other components of the financial system. From this perspective, the financial regulations that should be applied to these problematic financial products and their relation to possible systemic risks are discussed. |
| Keywords: | secirotozation, CDO, financial crisis, financial regulations, systemic risk |
| JEL: | G11 G28 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:eab:financ:2162&r=reg |
| By: | Adalbert Winkler (Asian Development Bank Institute) |
| Abstract: | How much can regional monitoring of financial markets and coordination of financial sector policies contribute to preventing and mitigating financial crises? This paper reviews and compares the experiences of Europe and Asia, which have taken different routes and have achieved different levels of regional financial integration. The analysis suggests that the harmonization and coordination of regulation and supervision, with a strong focus on maturity and currency mismatch problems, would constitute an important step toward mitigating the risk of crisis. However, regional monitoring and coordination will remain difficult as long as lender-of-last-resort activities and fiscal support packages are organized on a national level. Against this background, the crisis is a wake-up call for further progress on monetary integration in Asia along the lines of the reformed Chiang Mai Initiative. In Europe, the crisis reveals the need to establish a sustainable regulatory and supervisory structure that properly defines and reflects the responsibilities of regional and national authorities in crisis management, including its fiscal dimension. |
| Keywords: | financial crisis,regional monitoring, regional financial integration, Europe, Asia, financial regulation |
| JEL: | F15 F33 F36 G38 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:eab:financ:2174&r=reg |
| By: | Arai, Yasuhiro |
| Abstract: | We discuss the software patent should be granted or not. There exist two types of coping in the software market; reverse engineering and software duplication. Software patent can prevent both types of copies since a patent protects an idea. If the software is not protected by a patent, software producer cannot prevent reverse engineering. However, the producer can prevent the software duplication by a copyright. It is not clear the software patent is socially desirable when we consider these two types of coping. We obtain the following results. First, the number of copy users under the patent protection is greater than that under the copyright protection. Second, the government can increase social welfare by applying copyright protection when the new technology is sufficiently innovative. |
| Keywords: | Copyright Protection, Intellectual Property Right, Software |
| JEL: | D42 K39 L86 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:hit:ccesdp:26&r=reg |
| By: | Piccione, Michele; Spiegler, Ran |
| Abstract: | This paper studies market competition when firms can influence consumers' ability to compare market alternatives, through their choice of price "formats". We introduce random graphs as a tool for modelling limited comparability of formats. Our main results concern the interaction between firms' equilibrium price and format decisions and its implications for industry profits and consumer switching rates. We show that narrow regulatory interventions that aim to facilitate comparisons may have adverse consequences for consumer welfare. Finally, we argue that our limited-comparability approach provides a new perspective into the phenomenon of product differentiation. |
| Keywords: | price competition; industrial organization; limited comparability; bounded rationality; framing; consumer protection; product differentiation; complexity |
| JEL: | D18 C79 L13 D43 |
| Date: | 2009–05–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21427&r=reg |
| By: | Yoon Je Cho (Asian Development Bank Institute) |
| Abstract: | This paper discusses the role of state intervention for prevention, containment, and resolution of financial crises based mainly on the Korean experience during the 1997 Asian financial crisis. Crises in emerging market and developing economies tend to be more complicated than those faced by advanced economies because they are twin crises: financial and currency crises. Such crises require the development of a comprehensive strategy covering the stabilization of the domestic financial market and the foreign exchange market, closely coordinated responses by different government bodies, an extraordinary effort for financial restructuring, and the introduction of a new regulatory framework. This effort should be based on an effective crisis management team of experts given a clear mandate with well defined power; strong political support; effective communication with the market players, both domestic and foreign; and sufficient mobilization of public funds. In this regard, this paper emphasizes the importance of building a reliable information base, prompt actions, orchestrating political consensus, and a balanced approach to restructuring and regulation among different types of financial institutions. The paper also highlights the need for a new international financial architecture matching the rapid integration into the global market of the financial markets of emerging and developing economies while their currency remains non-convertible. |
| Keywords: | financial crisis, Korea, state intervention, crisis management, financial regulation |
| JEL: | E58 G18 G21 G28 F34 F36 N20 O16 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:eab:financ:2165&r=reg |
| By: | Marcel Boyer (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, Université de Montréal); Donatella Porrini (Universita del Salento - Facolta di Economia) |
| Abstract: | We focus in this paper on the effects of court errors on the optimal sharing of liability between firms and financiers, as an environmental policy instrument. Using a structural model of the interactions between firms, financial institutions, governments and courts we show, through numerical simulations, the distortions in liability sharing between firms and financiers that the imperfect implementation of government policies implies. We consider in particular the role played by the efficiency of the courts in avoiding Type I (finding an innocent firm guilty of inappropriate care) and Type II (finding a guilty firm innocent of inappropriate care) errors. This role is considered in a context where liability sharing is already distorted (when compared with first best values) due not only to the courts' own imperfect assessment of safety care levels exerted by firm but also to the presence of moral hazard and adverse selection in financial contracting, as well as of noncongruence of objectives between firms and financiers on the one hand and social welfare maximization on the other. Our results indicate that an increase in the efficiency of the court system in avoiding errors raises safety care levels, thereby reducing the probability of accident, and allowing the social welfare maximizing government to impose a lower liability [higher] share for firms [financiers] as well as a lower standard level of care. |
| Keywords: | Environmental Policy, Court Efficiency, Liability Sharing, Regulation, Incomplete Information. |
| Date: | 2010–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00463913_v1&r=reg |
| By: | Bennedsen, Morten; Nielsen, Kasper Meisner |
| Abstract: | In a large sample of European firms we analyze the value discount associated with disproportional ownership structures first documented by Claessens et al (2002). Consistent with a theoretical model of incentives and entrenchment effects, we find higher value discount in family firms, in firms with low cash flow concentration, and in industries with higher amenity value. Furthermore, the discount is higher in countries with good investor protection and higher for dual class shares than for pyramids. We find no impact on operating performance, likelihood of bankruptcy, dividend policy, or growth. Finally, we discuss policy implications of these findings. |
| Keywords: | Ownership Structure, Dual Class Shares, Pyramids, EU Company Law |
| JEL: | G30 G32 G34 G38 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hitcei:2009-05&r=reg |
| By: | Bos Iwan; Pot Erik (METEOR) |
| Abstract: | The conventional wisdom is that cartels are bad. In particular, cartels that merely lead to lower production levels and higher prices are thought to be exclusively detrimental to social welfare. This is reflected in the fact that most capitalist societies have declared such so-called hard core cartel arrangements illegal per se. In this paper, we question this rather rigid approach to hard core cartels. In a simple but fairly general setting, we provide necessary and sufficient conditions for the existence of a hard core cartel that is beneficial for firms and society at large. We consider both strong (with side payments) and weak (without side payments) hard core cartel contracts and find that (i) both strong and weak welfare-enhancing cartels exist when at least one firm makes a loss on part of its sales in competition, (ii) a welfare-enhancing strong cartel exists whenever there is a difference in unit costs at competitive production levels, and (iii ) a welfare-enhancing weak cartel exists when this difference is sufficiently large. |
| Keywords: | mathematical economics; |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umamet:2010004&r=reg |