Post-Crisis Regulation + Structural Reform

Transcription

1 Post-Crisis Regulation + Structural Reform Phil Molyneux

2 Post-Crisis Financial Reform 1. Prudential Regulation 2. Integrating Micro- and Macro-policies 3. Bank Supervision 4. Systemic Risk 5. Bank Resolution 6. Financial Market Structure 7. Structural Reform Liikanen, Vickers + Dodd Frank

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9 Bank Structural Reform: Liikanen, Bank Recovery + Resolution Directive, Vickers, Dodd-Frank How to deal with extra-territorial issues? 3 silo banks? Vickers v Liikanen v Dodd Frank Legislation at different stages & development US rules stem from long-standing legal regime + provisions in Dodd-Frank - unlikely to be amended UK White Paper stemming from Vickers lacks details leaves room for substantial arbitrage Liikanen Report is simply advice from a high-level expert group to an EU Commissioner substantial arbitrage

10 Liikanen, Bank Recovery & Resolution Directive, Vickers + Dodd Frank

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14 Source: Linklaters (2012) Comparison of Proposed Structural Reforms to the Banking Sector in the EU, UK and US

15 Bank Structural Reform: Liikanen, Bank Recovery + Resolution Directive, Vickers, Dodd-Frank How to deal with extra-territorial issues? 3 silo banks? Vickers v Liikanen v Dodd Frank LOW RISK + DIVERSIFICATION Early studies (Litan 1985, Wall 1987, Kwast 1989, Gallo et al. 1996, Uzun and Webb 2007, Jiangli and Pritsker 2008) tend to find that expansion into non-banking activities such as securities underwriting, securities brokerage, and asset securitization helps banks diversify away risk, at least partially. Legislation at different stages & development US rules stem from longstanding legal regime + provisions in Dodd-Frank - unlikely to be amended HIGH RISK + DIVERSIFICATIN Recent studies tend to find increased risk. Allen and Jagtiani (2000), DeYoung and Roland (2001), Stiroh (2004, 2006), DeJonghe (2010) and Demirguc-Kunt and Huizinga (2010) Liikanen Report is simply advice from a high-level expert group to an EU Commissioner substantial arbitrage UK White Paper stemming from Vickers lacks details leaves room for substantial arbitrage Probability of distressed bank failure declined with pure fee-based non-traditional activities such as securities brokerage and insurance sales, but increased with assetbased non-traditional activities such as venture capital, investment banking and asset securitization. (DeYoung and Torna, 2012)

16 Conclusions Interesting issues, nice agenda, little reform YET Most progress has been unilateral (US, UK) Searching for international cooperation maybe wrong + tricky: Untimely Reform is the lowest common denominator/ 3-silos maybe problematic What did cooperation ever do for me? (Basel I? Basel II? Basel III by ? The EU??) Best just to take a unilateral decision on the conditions for doing banking business

17 References Allen, L., Jagtiani, J., Risk Effects of Combining Banking, Securities, and Insurance Activities. J. Econ. Bus. 52, DeJonghe, O., Back to the Basics in Banking? A Micro-analysis of Banking System Stability. J. Finan. Intermediation 19, Demirguc-Kunt, A., Huizinga, H., Bank Activity and Funding Strategies: The impact on risk and returns. J. Finan. Econ. 98, DeYoung, R., Roland, K.P., Product Mix and Earning at Commercial Banks: Evidence from a Degree of Total Leverage Model. J. Finan. Intermediation 10, DeYoung, R and Torna, G (2012) Non-traditional Banking Activities and Bank Failures During the Financial Crisis, mimeo Gallo, J.G., Apilado V.P., Kolari J.W., Commercial Bank Mutual Fund Activities: Implications for Bank Risk and Profitability. J. Banking Finance 20(2), Jiangli, W., Pritsker, M., The Impact of Securitization on US Bank Holding Companies. Unpublished manuscript, SSRN: Kwast, M.L., The Impact of Underwriting and Dealing On Bank Returns and Risks. J. Banking Finance 13, Litan, R. E., Evaluating and Controlling the Risks of Financial Product Deregulation, Yale J. Regul. 3, Stiroh, K.J., Diversification in Banking: Is Noninterest Income the Answer? J. Money, Credit, Banking 36(5), Stiroh, K.J., New Evidence on the Determinants of Bank Risk. J. Finan. Services Res. 30, Stiroh, K.J (2010) Diversification in Banking, Chapter 6 in Oxford Handbook of banking, eds Bergere, An, Molyneux, P and Wilson, JOS, OUP: Oxford, Uzun, H., Webb, E., Securitization and Risk: Empirical Evidence on US Banks. J. Risk Finan. 8(1), Wall, L.D., Has Bank Holding Companies Diversification Affected Their Risk of Failure? J. Econ. Bus. 39,