Establishing a European securities regulator: is the European Union an optimal economic area for a single securities regulator?

The paper’s purpose is to address the economic, institutional, and legal issues confronting the establishment of a more centralised approach to EU securities regulation and to suggest that the theory of optimum currency areas can be used as a model to assess the economic benefits and costs of further centralisation of securities regulation in the European Union. The European Union’s Financial Services Action Plan seeks to achieve an integrated market in financial services in order to accomplish the economic and political objectives of the Treaty of Rome. The FSAP is premised on the notion that the adoption of legal and regulatory measures to achieve liberalisation in cross-border trade in financial services will also achieve integration of EU financial markets. This paper argues that liberalisation of financial markets does not necessarily lead to integration of financial markets. Furthermore, it argues that the institutional design and scope of financial regulation should be based, in part, on the extent of integration in the financial market. That is, the domain of the regulator should be the same as the domain of the market. European capital and financial markets remain fragmented and segmented. This paper argues therefore that, until EU financial markets become more integrated, a single EU securities regulator would not be an efficient or effective institutional model for EU securities markets. In other words, at present, the EU is not an optimal economic area for a single securities regulator

Organizational choices of banks and the effective supervision of transnational financial institutions : [Version: 19 Juli 2012]

This paper outlines relatively easy to implement reforms for the supervision of transnational banking-groups in the E.U. that should not be primarily based on legal form but on the actual risk structures of the pertinent financial institutions. The proposal also aims at paying close attention to the economics of public administration and international relations in allocating competences among national and supranational supervisory bodies. Before detailing the own proposition, this paper looks into the relationship between sovereign debt and banking crises that drive regulatory reactions to the financial turmoil in the Euro area. These initiatives inter alia affirm effective prudential supervision as a pivotal element of crisis prevention. In order to arrive at a more informed idea, which determinants apart from a perceived appetite for regulatory arbitrage drive banks’ organizational choices, this paper scrutinizes the merits of either a branch or subsidiary structure for the cross-border business of financial institutions. In doing so, it also considers the policy-makers perspective. The analysis shows that no one size fits all organizational structure is available and concludes that banks’ choices should generally not be second-guessed, particularly because they are subject to (some) market discipline. The analysis proceeds with describing and evaluating how competences in prudential supervision are currently allocated among national and supranational supervisory authorities. In order to assess the findings the appraisal adopts insights form the economics of public administration and international relations. It argues that the supervisory architecture has to be more aligned with bureaucrats’ incentives and that inefficient requirements to cooperate and share information should be reduced. Contrary to a widespread perception, shifting responsibility to a supranational authority cannot solve all the problems identified. Resting on these foundations, the last part of this paper finally sketches an alternative solution that dwells on far-reaching mutual recognition of national supervisory regimes and allocates competences in line with supervisors’ incentives and the risk inherent in crossborder banking groups

Preconditions for a successful implementation of supervisors' prompt corrective action: Is there a case for a banking standard in the European Union?

Over the past years, several countries around the world have adopted a system of prudential prompt corrective action (PCA). The European Union countries are being encouraged to adopt PCA by policy analysts who explicitly call for its adoption. To date, most of the discussion on PCA has focused on its overall merits. This paper focuses on the preconditions needed for the adoption of an effective PCA. These preconditions include conceptual elements such as a prudential supervisory focus on minimizing deposit insurance losses and mandating supervisory action as capital declines. These preconditions also include institutional aspects such as greater supervisory independence and authority, more effective resolution mechanisms, and better methods of measuring capital.

EU GENERAL DATA PROTECTION REGULATION SANCTIONS IN THEORY AND IN PRACTICE

EU GENERAL DATA PROTECTION REGULATION SANCTIONS IN THEORY AND IN PRACTIC

JAMAICA: IS AN INDEPENDENT CENTRAL BANK FEASIBILE?

We are more than a little bit surprised at the seeming reticence of the central bank's governor, Mr Derrick Latibeaudiere, to the idea of a monetary policy committee, being proposed by the private sector. The suggestion forms part of the package of proposals of the so-called Partners for Progress group, who have been seeking a framework for sustained growth in the Jamaican economy. This group has not only been talking. They have been prepared to back the strength of their convictions with substantial action. Indeed, they have been attempting to convince domestic financial institutions to convert high-cost Jamaican dollar loans to other forms of debt instruments that would ease the short-term interest burden and provide an opportunity for the Government to begin to seriously address the public sector deficit. Reasonably, those who are putting together this programme want to be assured that the administration establishes the environment in which concessions made by the private sector translate into real macro- economic value. One way to help ensure this is through transparency in policy formulation. A monetary policy committee is but one instrument, so far as the partners are concerned, to add value to the idea. Mr Latibeaudiere's reservation, it seems, rests on his argument that such committees usually operate in the context of independent central banks, which are removed from direct political control and which have control over monetary policy formulation. Perhaps! Indeed, this newspaper supports the idea of an independent central bank, whose principal officers are removed from the whim of political control and have the authority, under law, to limit lending to the government. This is an ideal for which we must strive - the sooner the better. However, we do not see an independent central bank and a monetary policy committee in the context of the existing structure of the Bank of Jamaica as mutually exclusive. The truth be told, senior officials who speak of the operation of the BOJ often hail its relative independence and the creative tension which usually exists between the central bank and the finance ministry. In fact, there is a healthy bit of chest-thumping at Nethersole Place. In any event, we would have thought that in the absence of its independence, a monetary policy committee, involving key economic players, would be a development welcomed by the central bank and its top managers. Such a committee would, on the face of it, provide the central bank with some level of insulation from political controllers or politicised and over-reaching bureaucrats at the finance ministry. Indeed, the timely publication of the minutes of the meeting on which the decisions of the committee were made would provide powerful moral authority against a Government that was intent on running roughshod over the wishes of the committee. We, for instance, would like to know the thinking, and technical arguments, behind the decision in the first quarter of last year to push interest rates well beyond 30 per cent to defend the Jamaican dollar. It would be interesting to know what was the stance of the professional central bankers on offering investors such high levels of real return on their money. The fundamental argument is that better decisions are likely to be made in an environment of openness and transparency and on the basis of access to other than a narrow slate of views. Moreover, the kind of committee which is being proposed could well be a fundamental first step to an independent central bank.Central Bank,Jamaica,Jamaica Central bank,Central Bank Jamaica

Pension supervision : understanding international practice and country context

This paper proposes an approach to classifying and measuring the primary elements of private pension supervision, and undertakes an evaluation using a representative set of countries. The analysis considers how supervision methods and style relate to the basic design of pension systems, and the broader environment in which they operate. Supervisory systems are shown to include six main elements, with considerable variation among systems in the scope, and intensity of activities within each element. The analysis concludes that there are discernible relationships between supervisory methods, and the context in which they are applied. The level of economic development, depth of capital markets, underlying legal framework presence of mandates, and number of funds supervised are found to be associated with depth, and intensity of supervision activities. These findings support the principle that the organization, and management of private pension supervision is significantly derived from the context, and environment in which these systems operate.

THE OBJECTIVITY OF THE BUSINESS COMPETITION SUPERVISORY COMMISSION IN DECIDING BUSINESS COMPETITION CASES IN INDONESIA

This study discusses the commission board's objectivity in a trial while deciding a business court case. This study aims to identify the commission board and investigators' authority in a courthouse, and the fact that they are in the same institution as well as the concern. This study uses a type of normative research through a statutory approach and a conceptual approach. This research's data source is obtained by tracing statutory regulations, especially those related to business competition. The research shows a relationship that can affect The Indonesian Competition Commission (ICC) decision regarding the extent of authority that ICC has, as contained in the provisions of Article 36 of Law No. 5/1999. This obscurity can provide legal loopholes that have potentially offer a wide range of unlawful authority for ICC. Therefore, the Government has to amend the current regulatio

North American free trade agreement : issues on trade in financial services for Mexico

To maximize the efficiency gains from the North American Free Trade Agreement (NAFTA), the regulatory environment for Mexican banking, insurance, and securities markets should be further harmonized with those of the more advanced and efficient Canadian and U.S. markets. The authors argue that a prerequisite for NAFTA's success is to remove regulatory distortions and to eliminate opportunities for regulatory arbitrage. Moreover, eliminating or reducing disparities between the NAFTA countries'tax rates and ways of levying taxes would help prevent distortions, tax evasion, and tax avoidance. Complete harmonization may not be feasible or even desirable, given the way the three countries'financial systems have evolved and the differences between their industrial structures and stages of economic development. In banking, insurance, and securities markets, the main free trade issues are the convergence of authorization criteria and the removal of most of the obstacles to freedom of establishment. It is also important to harmonize guarantee schemes and to create well-defined Mexican schemes to protect small, unsophisticated investors rather than mismanaged institutions. The key to NAFTA's success in the financial sector will be effective prudential regulation and supervision - particularly because of the heavy financial pressures on the newly privatized banks and the financial groups that own them. Without effective supervision, the new owners of the banks may take excessive risks to recoup the substantial element of goodwill in the privatization price, before the protection from foreign competition and new entrants is phased out. An integrated market will presuppose greater cooperation and information exchange among the national regulatory authorities to ensure, for instance, that weak banks do not undermine credit standards and that weak insurers do not offer deceptively low-priced policies. In these areas, Mexico needs intensive training and cooperation with the Canadian and U.S. regulatory authorities. To increase the contestability of the financial markets and benefit from the transfer of financial technology, the Mexican financial system should be opened to foreign entry. But Mexico needs to modernize its financial institutions and the authors conclude that the proposed NAFTA should allow for a gradual approach to foreign entry. A reasonable transition period, extending up to the year 2000, will give Mexican institutions ample time to achieve the efficiency gains that motivated the quest for the agreement in the first place.Banks&Banking Reform,Financial Intermediation,Economic Theory&Research,Environmental Economics&Policies,Financial Crisis Management&Restructuring