Finance 110631-1165 Banking regulation and supervision.
-
Upload
kathryn-holmes -
Category
Documents
-
view
224 -
download
1
Transcript of Finance 110631-1165 Banking regulation and supervision.
![Page 1: Finance 110631-1165 Banking regulation and supervision.](https://reader030.fdocuments.net/reader030/viewer/2022032607/56649ed35503460f94be30b7/html5/thumbnails/1.jpg)
Finance 110631-1165
Banking regulation and supervision
![Page 2: Finance 110631-1165 Banking regulation and supervision.](https://reader030.fdocuments.net/reader030/viewer/2022032607/56649ed35503460f94be30b7/html5/thumbnails/2.jpg)
Finance 110631-1165
Lecture outline
Areas of banking regulation
The Basel Committee
EU-banking regulation
American banking regulation
Banking regulation challenges
![Page 3: Finance 110631-1165 Banking regulation and supervision.](https://reader030.fdocuments.net/reader030/viewer/2022032607/56649ed35503460f94be30b7/html5/thumbnails/3.jpg)
Finance 110631-1165
Financial supervisory functions of the central bank
Entry into banking regulation
Banking activity regulation
Capital requirements
Deposit insurance schemes
Finance 110631-1165
![Page 4: Finance 110631-1165 Banking regulation and supervision.](https://reader030.fdocuments.net/reader030/viewer/2022032607/56649ed35503460f94be30b7/html5/thumbnails/4.jpg)
Finance 110631-1165
Entry into banking regulation
Limitations placed on the ownership of banksLegal requirements for obtaining a licenseCompetition in banking
![Page 5: Finance 110631-1165 Banking regulation and supervision.](https://reader030.fdocuments.net/reader030/viewer/2022032607/56649ed35503460f94be30b7/html5/thumbnails/5.jpg)
Finance 110631-1165
Banking activity regulation
Can banks engage in non-banking
activities e.g.Securities activities
Insurance activities
Real estate activities
![Page 6: Finance 110631-1165 Banking regulation and supervision.](https://reader030.fdocuments.net/reader030/viewer/2022032607/56649ed35503460f94be30b7/html5/thumbnails/6.jpg)
Finance 110631-1165
Capital requirements
How much capital must banks hold? What type of capital must banks hold?Initial and overall capital stringency
![Page 7: Finance 110631-1165 Banking regulation and supervision.](https://reader030.fdocuments.net/reader030/viewer/2022032607/56649ed35503460f94be30b7/html5/thumbnails/7.jpg)
Finance 110631-1165
Deposit insurance
What requirements have to fulfilled by banks in order to be covered by deposit insurance?
What part of the banks assets is covered by the fund?
![Page 8: Finance 110631-1165 Banking regulation and supervision.](https://reader030.fdocuments.net/reader030/viewer/2022032607/56649ed35503460f94be30b7/html5/thumbnails/8.jpg)
Finance 110631-1165
Banking supervision
When can supervisors take action?How far can they intervene in the banks
activity?When can be a bank declared insolvent by
authorities? Loan qualification- when is a loan
doubtfull or loss?
![Page 9: Finance 110631-1165 Banking regulation and supervision.](https://reader030.fdocuments.net/reader030/viewer/2022032607/56649ed35503460f94be30b7/html5/thumbnails/9.jpg)
Finance 110631-1165
Regulation on national and international levels
Each country has its own regulatory standards
Moreover international institutions try to set common standards
The Basel CommitteEU-regulation
![Page 10: Finance 110631-1165 Banking regulation and supervision.](https://reader030.fdocuments.net/reader030/viewer/2022032607/56649ed35503460f94be30b7/html5/thumbnails/10.jpg)
Finance 110631-1165
International banking supervision
The goals: Ensuring safe and effective payment settlements
Risk minimalisation
Ensuring international financial system stability
![Page 11: Finance 110631-1165 Banking regulation and supervision.](https://reader030.fdocuments.net/reader030/viewer/2022032607/56649ed35503460f94be30b7/html5/thumbnails/11.jpg)
Finance 110631-1165
The Basel Committee (1)
A forum for regular cooperation on banking supervisory
Its objective is to enhance understanding of key supervisory issues
Its activity is aimed at improving the quality of banking supervision worldwide
![Page 12: Finance 110631-1165 Banking regulation and supervision.](https://reader030.fdocuments.net/reader030/viewer/2022032607/56649ed35503460f94be30b7/html5/thumbnails/12.jpg)
Finance 110631-1165
The Basel Committe (2)
The Committee's members come from all around the world
The Committee issues recommendations concerning supervisory and regulatory standards
It communicates its research results to regulators
![Page 13: Finance 110631-1165 Banking regulation and supervision.](https://reader030.fdocuments.net/reader030/viewer/2022032607/56649ed35503460f94be30b7/html5/thumbnails/13.jpg)
Finance 110631-1165
Basel I
1988 Basel Accord
Minimum capital requirements for banks
Banking supervision- international
responsibility
Information exchange
![Page 14: Finance 110631-1165 Banking regulation and supervision.](https://reader030.fdocuments.net/reader030/viewer/2022032607/56649ed35503460f94be30b7/html5/thumbnails/14.jpg)
Finance 110631-1165
Basel II
2004 Basel Accord
Capital allocation should more risk adjusted
Precise methods of quantifying: operational,
credit and market risk
Limitation regulatory arbitrage (the possibility to
use differences in regulatory standards)
![Page 15: Finance 110631-1165 Banking regulation and supervision.](https://reader030.fdocuments.net/reader030/viewer/2022032607/56649ed35503460f94be30b7/html5/thumbnails/15.jpg)
Finance 110631-1165
Basel III
2012 Basel Accord
A response to the financial crisis
More stringent capital requirements
Tier I capital- common equity and disclosed reserves
Tier II capital- instruments specified in the Accord eg.
undisclosed reserves, provisions
Stringent capital requirements for transactions with
derivatives
![Page 16: Finance 110631-1165 Banking regulation and supervision.](https://reader030.fdocuments.net/reader030/viewer/2022032607/56649ed35503460f94be30b7/html5/thumbnails/16.jpg)
Finance 110631-1165
Basel III
Countercyclical buffer- banks should hold an additional
buffer of capital as provision for an economic downturn
The goal is to dampen procyclicality in loans
Leverage indicator
Short term and medium term liquidity indicators
Stressed value-at-risk- banks undergo stress test
![Page 17: Finance 110631-1165 Banking regulation and supervision.](https://reader030.fdocuments.net/reader030/viewer/2022032607/56649ed35503460f94be30b7/html5/thumbnails/17.jpg)
Finance 110631-1165
EU-regulations
European Banking Authority
The institution was created in 2011 as a
reaction to the crisis
Its task is to monitor EU-banks e.g. by
means of stress tests
![Page 18: Finance 110631-1165 Banking regulation and supervision.](https://reader030.fdocuments.net/reader030/viewer/2022032607/56649ed35503460f94be30b7/html5/thumbnails/18.jpg)
Finance 110631-1165
EU-regulations
In the case of failure of national rules the EBA
regulation supersedes national regulations
The goal of EBA is also to avoid regulatory
arbitrage
It sets a common reporting framework for the
regulated banks
![Page 19: Finance 110631-1165 Banking regulation and supervision.](https://reader030.fdocuments.net/reader030/viewer/2022032607/56649ed35503460f94be30b7/html5/thumbnails/19.jpg)
Finance 110631-1165
American banking regulation (1)
Edge Act- 1916
Edge Act corporations- eclectic financial
intitutions
Since the American law limited strictly the
banking activity (e.g. limitation of foreign
transactions financing)
American banks started to go offshore
![Page 20: Finance 110631-1165 Banking regulation and supervision.](https://reader030.fdocuments.net/reader030/viewer/2022032607/56649ed35503460f94be30b7/html5/thumbnails/20.jpg)
Finance 110631-1165
American banking regulation (2)
Onshore banks- act under the national jurisdiction
Offshore banks- national banks located beside the
national jusrisdiction
Onshore offshore banks- national banks located in the
home country but they act beside the national jurisdiction
International Banking Facilities- 1981
![Page 21: Finance 110631-1165 Banking regulation and supervision.](https://reader030.fdocuments.net/reader030/viewer/2022032607/56649ed35503460f94be30b7/html5/thumbnails/21.jpg)
Finance 110631-1165
International banking and the globalisation of financial markets (1)
The establishment of non-bank financial institutions led
to a shrinking area of banking activity
This led to changes of the activity profile of the banks
Deregulation
Competitive pressure led banks to come up with new
strategies- competing through „sevices quality”
![Page 22: Finance 110631-1165 Banking regulation and supervision.](https://reader030.fdocuments.net/reader030/viewer/2022032607/56649ed35503460f94be30b7/html5/thumbnails/22.jpg)
Finance 110631-1165
International banking and the globalisation of financial markets (2)
Banking regulation vs. protection by the
state
Mergers and acquisitions led to capital
concentration oligopolistic structure
Large banks were systemtically important
institutions Too big to fail
![Page 23: Finance 110631-1165 Banking regulation and supervision.](https://reader030.fdocuments.net/reader030/viewer/2022032607/56649ed35503460f94be30b7/html5/thumbnails/23.jpg)
Finance 110631-1165
International banking and the globalisation of financial markets (3)
Technological progress
Innovations
Securitisation- selling consolidated debt as bonds or
other securities
Internationalisation of banks
New risk management techniques
Bank started to face new types of risks
![Page 24: Finance 110631-1165 Banking regulation and supervision.](https://reader030.fdocuments.net/reader030/viewer/2022032607/56649ed35503460f94be30b7/html5/thumbnails/24.jpg)
Finance 110631-1165
International banking regulation difficulties (1)
Offshore bankingNo deposit guarantees
No minimum reserve requirements
Difficulties in supervision
Lender of last resort???
![Page 25: Finance 110631-1165 Banking regulation and supervision.](https://reader030.fdocuments.net/reader030/viewer/2022032607/56649ed35503460f94be30b7/html5/thumbnails/25.jpg)
Finance 110631-1165
International banking regulation difficulties
National regulations vs, international
regulations
Emerging markets
International non-banking institutions
![Page 26: Finance 110631-1165 Banking regulation and supervision.](https://reader030.fdocuments.net/reader030/viewer/2022032607/56649ed35503460f94be30b7/html5/thumbnails/26.jpg)
Finance 110631-1165
References
International framework for liquidity risk measurement, standards
and monitoring, Basel Committee on Banking Supervision, BIS,
2010
Strengthening the resilience of the banking sector, Basel
Committee on Banking Supervision, BIS, 2009.
K. Sum, The role of banking regulation in shaping the economic
performance of the EU- countries during the financial crisis of
2007-2009, Gospodarka Narodowa 4/2013