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Abstract: Abstract This study proposes a taxonomy for asset management companies to facilitate conceptualization, classification, and measurement. Accordingly, the study qualitatively analyzes variations in the types of assets transferred to asset management companies, the transfer pricing mechanism, and the extent of risk conveyance. The study uses a cross-country setting to analyze differences in corporate structure, resolution mandate, capital structure, and legal status of asset management companies. Through country-specific case illustrations, the study discusses the merits and demerits of different classification features. The study develops a list of feasible design feature combinations for an asset management company. PubDate: 2022-06-01
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Abstract: Abstract Since the global financial crisis, banking regulations have become more stringent and complex. In particular, capital and liquidity adequacy requirements have been discussed extensively in various contexts. This study constructs a general equilibrium model that incorporates banks and households that hold both liquid and illiquid assets to compare the economic effects of capital and liquidity adequacy requirements. Simulations show that liquidity regulation in the style of current the Basel Accord, as well as capital regulation, reduces the probability of financial crisis after a recession, not only by restricting banks’ leverage, but also by aiding the recovery of asset prices. PubDate: 2022-06-01
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Abstract: Abstract 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. PubDate: 2022-06-01
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Abstract: Abstract In this paper, we expand the scarce literature regarding the effects of ownership structure and board composition on market measures of banks’ systemic risk. Based on a sample of 87 European banks over the period 2010–2016, we provide evidence that ownership concentration has a non-monotonic (inverted u-shape) relationship with systemic risk. Additionally, we find that board characteristics (board size and gender) affect a bank’s systemic risk, but for small banks only. Overall, our evidence suggests that the traditional banks’ size-focused approach to systemic risk study should be complemented with governance dimensions, especially in a context like the European one, where ownership concentration is high. Our results also imply that practitioners and policymakers should promote better governance practices in banks in the form of more adequate ownership and board structures that are better able to control systemic risk. PubDate: 2022-06-01
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Abstract: Abstract This study seeks to examine the level of transparency of remuneration policy in financial holding companies (FHCs) using the example of the UniCredit Group, as well as to identify the factors that affect its level. It will also indicate to what extent international recommendations on remuneration policy transparency have been implemented into national legal regulations and codes of best practice. Using data collected on the basis of annual reports of financial institutions that belong to the UniCredit Group from 2005 to 2018, I found that the UniCredit Group’s remuneration policy has a low level of transparency. Although the dominant bank discloses all information required by international recommendations and regulations, the subsidiary banks’ disclosures are kept to a minimum. The study also showed that the level of transparency (measured by the remuneration policy transparency index) is influenced by all the governance characteristics examined (the size of the bank’s board, the appointment of independent directors in the bank’s board, the frequency of meetings of the remuneration committee, and the direct involvement of the shareholder) and firm characteristics (the size of the bank and the financial performance measured by ROE). The study also showed that not all countries have decided to implement international recommendations on remuneration policy into their legal regulations and codes of best practice (this is especially true for countries outside the European Union). PubDate: 2022-06-01
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Abstract: Abstract This paper proposes a process for developing a comprehensive policy life-cycle management (PLM) framework that institutionalises the essential elements of regulatory policy life-cycle implementation. Central banks face challenges during the life-cycle processes of regulatory policy management. The evident reasons for some of these challenges are missing significant policy quality attributes (PQAs) associated with the dynamics of multidimensional constraints that negatively impact the policies' return. This paper suggests using PQAs to formalise a systematic and comprehensive PLM framework. Thematic analysis of data collected at Saudi Central Bank (SAMA) revealed thirteen policy life-cycle challenges and identified eleven PQAs. The constructed PLM framework encompasses six phases: engineering, analysis, evaluation, execution, monitoring, and optimisation. The application of the PLM framework and its PQAs in a single case study provides insights into its potential usability and strength in improving regulatory policy implementation more broadly. The extended PLM framework's contribution is to open avenues of research and inform practice for diverse stakeholders such as regulatory authorities, policy science community engagement, and on-the ground regulatory policy initiatives. PubDate: 2022-06-01
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Abstract: Abstract This paper develops a framework of assessing de jure adoption of Sharīʿah governance standards of international standards setting bodies and uses it to assess the legal and regulatory framework of Sharīʿah governance regimes (SGR). Using leximetrics and content analysis, the framework is used to assess SGR in four countries (Kuwait, Malaysia, Pakistan and UAE) in an objective manner. The results show that Malaysia has the most robust SGR and UAE has the weakest legal and regulatory environment of Sharīʿah governance. The results also identify the weaknesses in the SGR and areas that can be improved further. Furthermore, the paper reveals the diversity in the qualitative nature of SGR in terms of the extent to which the laws and regulations are used to develop the SGR in different countries. As the Islamic financial industry continues to grow globally, regulators would need to mitigate the Sharīʿah non-compliant risk by introducing the international Sharīʿah governance standards to promote growth and ensure stability of the sector. The framework to assess the SGR can be a used as a first step to assess the SGR in different jurisdictions to identify the weaknesses and come up with relevant laws and regulations to strengthen the SGR for the development of a robust Islamic financial sector. PubDate: 2022-06-01
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Abstract: Abstract This paper aims to contribute to the literature debate on the regulators’ dilemma affecting international financial regulations focusing on the banking regulation of dual financial systems. In this regard, the paper provides a new taxonomy of Islamic Financial Systems considering the banking regulation as a driver for the classification and a more detailed definition of dual financial systems. The literature review reveals the existence of different financial system structures affected by socio-cultural biases due to different characteristics of various countries and financial systems globally. The risk of regulatory arbitrage or over-regulation phenomena is high, stifling the growth and the level playing field for both some systemically financial systems. PubDate: 2022-05-03
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Abstract: Abstract In this paper, we study the effects of supervisory stress test exercises on 19 UK banks over the 2005–2018 period. The novelty of our approach is that we include two stress testing timelines from two banking supervisory authorities. Using a difference-in-difference methodology, in a first step, we analyse the effects of the Bank of England’s stress tests on the lending behaviour of large UK banks. In a second step, for robustness, we also examine the stress tests administered by the European Banking Authority. Our main result is that banks that failed the stress tests reduced lending. Additionally, we show that the effectiveness of the stress tests exercises remained unchanged throughout the period. PubDate: 2022-04-15
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Abstract: Abstract One of the major goals of bank supervisors is to predict bank distress events. As the environment changes, it is crucial to reassess and improve the models used in monitoring banks. The financial soundness of banks is traditionally assessed based on accounting ratios. However, the incorporation of market information in these models may significantly improve its ability to predict bank distress. The present paper has two main objectives, the first is to assess if market information adds value to accounting-based monitoring models when the purpose is to detect bank distress situations. Further, it also seeks to understand if the predictive power of market signals increased with transparency requirements. To accomplish this purpose, a total of 81 distress events from a sample of 248 European banks between 2008 and 2020 were analyzed. First, a logit univariate analysis was used to evaluate the relevance of each accounting and market variable. Then, the optimal multivariate accounting-based model to predict distress events was constructed using a stepwise approach. Finally, the previous model was extended to include the relevant market variables. The results support the use of market variables in bank monitoring models. Further, the present study provides evidence that the predictive power of market variables increased after the strengthening of the information requirements set by the Basel agreements. It can be concluded that the results support the use of market information for banking supervisory purposes, especially, in transparent markets. PubDate: 2022-03-25
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Abstract: Abstract Following the Great Financial Crisis, European Union (EU) rules in the area of banking supervision have become ever more strongly influenced by the (formally non-binding) standards developed by international financial fora, chief of which are the G20 and the Basel Committee on Banking Supervision. European representation in these fora fluctuates, as varying, though, reduced groups of individual Member States are involved directly alongside EU institutions and bodies. Taking the example of the Basel Accords, this article sets forth to examine how the European participation in those fora is articulated, whilst also assessing the existing mechanisms of democratic accountability. Indeed, in view of the important constraints these standards impose on European legislators, it is of utmost importance that they be involved early on when they are defined to avoid any democratic accountability gap from arising. PubDate: 2022-03-01 DOI: 10.1057/s41261-021-00168-y
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Abstract: Abstract The national central banks of the euro area are crucial to the monetary policy of the euro. Their Governors sit (on a personal title) on the Governing Council of the ECB, and they execute most of the monetary policies. Whereas the recent ruling by the German Constitutional Court on the Public Sector Purchases Program highlighted the uncomfortable role of the German Bundesbank in between national and EU law, the euro-crisis already showed other legal strains on the position of the national central banks in Economic and Monetary Union. This article argues that EMU empowered national central banks, even when it took away their power to individually set monetary policies for their respective Member States. The euro-crisis then disturbed the balance struck in the construction of the ECB between protecting national interests and effective decision-making, resulting in several legal problems. PubDate: 2022-03-01 DOI: 10.1057/s41261-021-00175-z
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Abstract: Abstract The governance models of banking supervision in the Single Supervisory Mechanism (SSM) and Anti-Money Laundering (AML) have been subject to relevant developments in recent years. These have reshaped institutional and rule designs in the European Union, especially the relation between the national and supranational level. Since 2014, the European Central Bank (ECB) has supranational tasks and powers for the direct supervision of credit institutions, while the AML framework remains a national supervisory model with some EU harmonisation of the substantive rules. This article attempts to compare the two governance models by looking at the two systems through an assessment of their current tasks, objectives, responsibilities and powers. The article shows that there are multiple differences visible with regard to the multilevel cooperation and exercise of tasks and powers in the two models as well as divergent ways in which they will develop in future. It also demonstrates that there are challenges and opportunities in the designs and rules of the two systems. PubDate: 2022-03-01 DOI: 10.1057/s41261-021-00166-0
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Abstract: Abstract An objective of the European Union’s Banking Union is to prevent Member States from having to subsidise banks. The Single Resolution Mechanism may have limited but has not eliminated state aid to banks. This is shown by the relevant statistics, the number of positive Commission decisions and the provisions of the Single Resolution Mechanism Regulation. State aid is allowed in three situations: when a bank is resolved, when it is liquidated and when it is solvent but needs temporary liquidity or more capital. This article identifies a difference between the European Commission and the Single Resolution Board in the interpretation of the concept of “public interest”. The article further argues that this difference may not contradict the objectives of the Banking Union if state aid is still necessary to prevent damage to regional economies. PubDate: 2022-03-01 DOI: 10.1057/s41261-021-00173-1
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Abstract: Abstract The past decade has profoundly reshaped the fiscal governance system of the Eurozone. Supranational prerogatives vis-à-vis State budgets have been significantly expanded, thereby redefining the nature of Union action in the field of fiscal policy and transforming the dynamics between the Union and its Member States. In spite of its overhaul and the practical effects that Eurozone fiscal governance now produces on the ground, the paper shows that overall, this regulatory system still formally qualifies as soft law. This results in a deep disconnect between the form and substance of Eurozone fiscal surveillance in the Eurozone, which raises a number of constitutional challenges. The paper shows that the source of this disconnect is to be found in the strict apprehension of the hard law/soft law divide and the narrow understanding of bindingness attached to it, which currently prevails in the legal discipline, but no longer corresponds to the realities of the EU’s regulatory practice. From there on, the paper offers an alternative approach towards the distinction between hard and soft law, based on a renewed, more open and contextual, understanding of the concepts of bindingness and legal effects, which might reconcile the form and the reality of Eurozone fiscal governance nowadays. PubDate: 2022-03-01 DOI: 10.1057/s41261-021-00161-5
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Abstract: Abstract Since 2015 European and national audit offices have been expressing discontent with their audit powers regarding banking supervision. Key to this discontent is the European Court of Auditor’s limited mandate vis-à-vis the ECB’s supervisory activities, which in practice means that the former does not have towards the ECB’s Single Supervisory Mechanism the same full audit powers it has vis-à-vis all other EU institutions and agencies. This limitation is ultimately based on the principle of central bank independence as enshrined in Article 130 of the Treaty on the Functioning of the European Union. In addition to the above, national auditors have recently criticized their alleged difficulty to access all relevant information concerning supervision of less significant banks, since some documents may be considered by the ECB to be not accessible to national audit offices. These two aspects limiting the power of European and national audit offices (also identified as the first and second audit gap) seem to be related since the latter gap arises in part from the restricted mandate regarding the supervision of the ECB’s supervisory function. This article explores the conditions for the existence of an audit gap and its real significance, mainly by assessing whether national audit offices had a mandate to audit their banking supervisor in the first place. It also addresses the formula of a memorandum of understanding agreed between the ECA and the ECB with the purpose of enhancing the cooperation between both institutions in the context of an audit to the ECB’s supervisor function, and the role of the L-bank judgement in the understanding of the relations between the European Court of Auditors, the ECB, the national audit offices and national banking supervisors. PubDate: 2022-03-01 DOI: 10.1057/s41261-021-00171-3
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Abstract: Abstract ECB officials have recently poured scorn on the notion that the ECB could introduce a central bank digital currency (CBDC) in the Eurozone, with one labelling such an initiative as “economically inefficient and legally untenable.” This article assesses the justifications for these claims from legal and economic perspectives. It finds that, based upon prevailing ECB policies and the myriad options available for CBDC design, such claims are flawed. The article further explains that the ECB’s reticence to consider the introduction of CBDC may impair the development of payments systems and obstruct financial inclusion. PubDate: 2022-03-01 DOI: 10.1057/s41261-021-00162-4
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Abstract: Abstract Following the outbreak of the Great Financial Crisis, numerous reforms were conducted in all areas of the European Union (EU)’s Economic and Monetary Union. These reforms aimed at strengthening the resilience of Member States’ economies after they had been put under severe strain by the crisis. They included, among others, the reinforcement of the efforts toward economic coordination in the framework of the European Semester for economic policy coordination, or the creation of the European Banking Union after which competences in the areas of banking supervision and bank resolution have been transferred to the European level. More than a decade after the Great Financial Crisis however, several of these reforms are still underway. This article is an introduction to this Special Issue whose contributions examine the reforms performed to date, as well as those that are currently under discussion, from the perspectives of multilevel (administrative) cooperation and the resort to soft law instruments. Indeed, the procedures newly devised rely heavily on the effective cooperation between national and European institutions as well as on a variety of soft law instruments. PubDate: 2022-03-01 DOI: 10.1057/s41261-021-00172-2
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Abstract: Abstract Cross-border banking presents a unique set of challenges in the EU from the perspective of arranging administrative oversight structures. Structuring cooperation between different EU and national authorities in a way which is conducive to trust-building and mutual engagement is an essential condition for overcoming disintegrative tendencies in the internal market. To assess how the existing EU arrangements fare in this regard in the context of EU resolution law, this article comparatively analyses the different models of multilevel administrative cooperation in the post-crisis EU framework. These are specifically the centralised model of the European Banking Union (Single Resolution Mechanism) and the relatively looser networked model of the resolution colleges. The multilevel cooperation under both models is nuanced given the distinct roles of the national resolution authorities, EU agencies and the differentiated status of non-euro area Member States in the EBU (Croatia, Bulgaria). The article’s findings allow to identify specific problems of constitutional nature pertaining to the accountability of administrative cooperation, equality of Member States and the implications of Meroni doctrine’s distortive effects. PubDate: 2022-03-01 DOI: 10.1057/s41261-021-00160-6
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