1,721,060 research outputs found
Letter. Worrying reduction of capital levels
No full textSir, At first glance it might appear embarrassing for the Financial Services Authority that it recently granted Basel II IRB waiver to Northern Rock in June 2007. The impact of this was to permit Northern Rock to increase its gearing capacity as the capital requirement under IRB is significantly less than under the standardised approach
A tripartite primer on securitization: a funding source, a source of leverage and subprime backed notes
No full textStructural effects of asset -backed securitisation
No full textThis paper analyses the potential changes in the operational structure of deposit - taking financial institutions that securitize assets. Findings indicate that banks can create an asset securitization pipeline structure that enables them to increase their return on capital. In other words, through securitization banks can expand their loan provision business without increasing their liabilities or their capital levels. Using a contingent claims model, four factors that impact on the bank's decision to securitize are highlighted and analysed: (i) the level of deposit insurance; (ii) capital adequacy requirements; (iii) insolvency risk; and, (iv) the risk of credit enhancements. Furthermore, we identify key accounting and regulatory challenges that emerge for banks from the process of asset backed securitization
Equity toxic waste in asset-backed securitisation
No full textWith the ongoing change in focus from regulatory capital to economic capital comes a need to reassess banks current practice in disposing of the equity toxic waste produced as a by-product in the asset-backed securitisation process. Financial innovation coupled with the speed of change in financial markets and the sheer complexity of some financial transactions poses real difficulties for supervisors and regulators in this context. The development of risk-based regulation will undoubtedly result in compliance with the form of the new Basle II regulatory requirements. However, risk-based regulation in itself will not ensure that banks treat equity toxic waste in a way that is wholly compliant with the substance of the new Basle regulations. In the UK life assurance sector the Financial Services Authority (FSA) has been moving in the direction of embedding the concept of "a compliant competent organization" into the industry. This paper argues for a similar approach for financial entities engaged in asset-backed securitisation
Identifying "problem banks" in the German co-operative and savings bank sector: an econometric analysis
No full textThis paper provides the first econometric analysis of problem banks in Germany. Drawing on an original dataset of distressed co-operative and savings banks, we develop early warning indicators for banking difficulties using a parametric approach. Taking the idiosyncratic characteristics of the German banking sector into account and controlling for microeconomic variables, we evaluate as to whether bank type and location matter. Findings indicate that banks in West Germany are less risky than credit institutions in the Neue Länder and that co-operatives are more prone to experience financial difficulties than savings banks. We conclude that a model that combines both savings and co-operative banks is sufficient to identify problem institutions up to three years prior to the surfacing of distress
The impact of market power and funding strategy on bank-interest margins
No full textThis paper investigates the implications of market power and funding strategies for bank interest margins using a sample of 978 banks in 55 emerging and developing countries over an eight year period, 2000-2007. We provide additional insight by examining the complex interlocking of three key variables that are important for regulators: the degree of market power, funding sources and bank performance. The results show that market power increases when banks use internal funding to diversify into non-interest income generating activities. We also find that the high net-interest margins of banks in emerging and developing countries can be explained by the degree of market power, credit risk and implicit interest payments. In addition, our results suggest that interest margins among banks with market power are significantly more sensitive to internally generated funds than they are to deposit and wholesale fundin
Compliance: A review
No full textCompliance is key to the operation and reputation of the financial services sector and is now completely embedded in the way financial services organisations carry on investment business. It is also fundamental to the Financial Services Authority (FSA) in seeking to achieve its regulatory objectives as set out in SS. 3-6 of the Financial Services and Markets Act 2000. A great deal has been written on the topic of compliance and the core objective of this paper is to review and comment on the current approach to compliance which has evolved since the introduction of the Financial Services Act 1986. It notes the change of emphasis by the FSA from individual compliance competence to organisational compliance competence. It focuses on conduct of business regulation and highlights the importance of training and competence to compliance and explains how the regulatory approach has been changing from a rules-based approach to a more flexible ethical one
Unification of financial regulatory structures: the case of the Russian Federation
No full textIn this paper we develop the case for the creation of a single financial supervisory and regulatory authority for the Russian Federation. This case is based on three criteria:(a) it enables economies of scope to be exploited(b) it ensures regulatory parity(c) it satisfies prudential logicThe risk management function in banks, investment firms and insurance companies has become extremely complex utilising sophisticated statistical methodologies to analyse market data and credit ratings. Given the need for each of the three sectors to manage their risks using similar data and similar methodologies, there are economies of scope for regulators to adopt a comprehensive approach. This will also ensure regulatory parity. Over the past twenty years elimination of competitive barriers globally has led to increased cross-border and cross-sector competition. Hence in order to avoid disintermediation between sectors and between countries a unified approach will be required. Financial institutions in the three sectors are increasingly interrelated either as counter parties to a transaction or as a division within a conglomerate. Prudential logic suggests that the regulatory function should map onto the actual activities of the financial institutions themselves. This approach is being developed by the Joint Forum, a group comprising the Bank for International Settlements, the International Organisation of Security Commissioners and the International Association of Insurance Supervisors.A unified financial regulator would not only concern itself with the prevention of institution failure in the face of market, credit and operational risks. We argue that it should provide protection to customers of a financial institution should that institution fail. In order to prevent moral hazard and adverse selection problems arising the prevention and protection functions must be integrated. To ensure that these functions are carried out the unified authority needs to establish principles for the governance of financial firms and through systematic audit ensure their implementation. There needs to be co-ordination if not integration of monetary policy formulation and regulation of the financial sector. On the one hand, a restrictive monetary policy can lead to increased failures in both the productive and financial sectors. On the other hand, stringent regulatory practice could lead to reduced lending and hence impact upon productive sector activity.Finally, it is noted that an efficient financial system supported by effective supervision and regulation requires highly trained managers, auditors and supervisors. This is a necessary pre-condition and is independent of the type of regulatory structure adopted. However, a unified authority by reducing the extent of overlapping regulatory functions is able to economise on these scarce resources
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