Recapitalizing Banks with Public Funds

Recapitalizing banks in a systemic crisis is a complex medium-term process that requires significant government intervention and careful management at both the strategic and individual bank levels. This paper examines the range of operational and strategic issues involved and the institutional arrangements needed to foster an effective banking system restructuring, as well as maximize the returns on government investment. Recapitalization approaches have varied in the different mixes of direct capital injections and asset purchases and rehabilitation that countries choose. The choice of an appropriate mix is critical to minimizing the expected present value of government outlays net of recoveries. Copyright 2001, International Monetary Fund

Regulatory taxes, investment, and financing decision for insured banks

An investigation of the effects of interest rate and credit risk on optimal capital structure and investment decisions. The authors show that with no uncertainty in interest rates, capital regulation will reduce the risk of the bank's assets, but that under interest rate uncertainty, the impact of regulation may be detrimental and raise the risk of the deposits as well as government subsidies to the bank's shareholders.Bank capital ; Deposit insurance

Credit Risk Hedging, Deposit Insurance Fund Protection, and Default Risk in Retail Banking during a Financial Crisis

[[abstract]]The barrier options theory of corporate security valuation is applied to the contingent claims of a regulated bank. The regulator/insurer of the bank owns a down-and-in call option on the bank’s assets which can be balanced against the expected coverage cost. This paper examines how the bank’s credit risk hedging operation affects its spread behavior and performance and how these effects vary at various levels of the regulatory insurance fund protection. We find that an increase in the bank’s credit risk hedging has a negative effect on its loan rate, deposit rate, default risk, and liability value. The regulatory deposit insurance fund protection reinforces the reduction in bank default risk, thereby contributing to the stability of the banking system. The insurance fund protection with credit risk hedging confirms the requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act.[[notice]]補正完畢[[journaltype]]國外[[ispeerreviewed]]Y[[booktype]]紙本[[countrycodes]]CA

Open-end real estate funds in Germany: genesis and crisis

Open-end real estate funds are of particular importance in the German bank- dominated financial system. However, recently the German open-end fund industry came under severe distress which triggered a broad discussion of required regulatory interventions. This paper gives a detailed description of the institutional structure of these funds and of the events that led to the crisis. Furthermore, it applies recent banking theory to openend real estate funds in order to understand why the open-end fund structure was so prevalent in Germany. Based on these theoretical insights we evaluate the various policy recommendations that have been raised. --Open-End Funds,Liquidity Transformation,Liquidity Crisis,Risk Sharing

Banking Crisis Resolution Policy - Lessons from Recent Experience - which elements are needed for robust and efficient crisis resolution?

The current financial crisis has sparked intense debate about how weak banks should be resolved. Despite international efforts to coordinate and converge on such policies, national policy advice and resolution practices differ. The resolution methods adopted in the Nordic banking crises in the 1990s are generally acknowledged to include important elements of “best practice”. But some of these lessons have proved hard to implement during the current crisis, and new policies have been developed as a response, particularly in the UK. Still, unresolved issues remain. These are discussed in a review of the resolution methods in the US, UK and NZ.crisis resolution, banks, special resolution regime

Corporate finance in an interest free economy: An alternate approach to practiced Islamic Corporate Finance

This paper suggests an alternate approach to corporate finance in an interest free economy by looking beyond practiced Islamic finance and suggesting alternatives for corporate finance in sourcing funds i.e. i) Ijara with embedded options, ii) limited liability partnership, iii) equity modes like Musharakah and Mudarabah iv) income bonds and v) convertible income bonds. It also suggests alternatives for corporate finance in using funds i.e. i) Islamic income funds, ii) Islamic REITs, iii) Treasury Bonds, iv) income bonds v) convertible income bonds, vi) foreign currency reserves, vii) making strategic expansion, and viii) equity investments in other companies. It also suggests methods of valuation by suggesting an alternate means of pricing capital in interest free economy and use of appropriate discount rate i.e. Nominal GDP growth rate in public finance and corporate finance in CAPM, dividend discount model, project valuation, calculating NPV, valuing income bonds and stocks. It also discusses how the problems of scarcity of capital will be solved and alternatives for insurance in an interest free economy.Islamic corporate finance, pricing of capital, Islamic public finance, scarcity of capital, Interest free economy, Interest free finance, Zakat, Usury, Time value of money, CAPM, Project evaluation, NPV, FCF

Improving regulations and supervision of pension funds : are there lessons from the Banking Sector?

The main objective of this paper is to review the regulatory framework for pension funds, and examine whether there is scope for improvements in pension regulation, particularly in light of regulatory and supervisory developments in the banking industry. The report is structured as follows: The second section summarizes the literature on banking regulation and supervision, identifying the areas of consensus and the trends in regulation and supervision across countries. The third section summarizes the literature on the regulation of pension funds. The fourth section examines the scope for improvements in pension regulation, identifying possible lessons from the banking sector to the pension industry. The fifth section provides a summary and concludes.Banks&Banking Reform,Financial Intermediation,Financial Crisis Management&Restructuring,Insurance&Risk Mitigation,Environmental Economics&Policies

Risk Taking, Guarantees, Securitization and the Option to Change Strategy: The Economics of Pulling a Fast One

This paper analyzes the risk-taking behavior of financial intuitions that have guarantees (e.g., banks with deposit insurance or Government Sponsored Enterprises with implicit guarantees) and/or institutions that find it beneficial to develop a reputation for not taking risk. For instance, banks putting together asset-backed securities have a choice of delivering the riskiest loans they can get away with or putting safe loans into deals because developing a reputation for selling good securities will get them larger fees later. The paper focuses on the following questions: Is it rational for financial institutions to take on less risk than they can get away with, and if it is rational, under what conditions will they shift strategies and increase their risk after having established a reputation for low risk? To answer the question we allow for future benefits from survival in the form of “franchise value, which comes from a good reputation and/or from continuing to receive a guarantee, and which they might lose if they increase risk. With franchise value they might take less risk than they are allowed; however, if they experience large enough negative shocks, they can reach a tipping point where they will change their strategy discontinuously, and“gamble for resurrection.”http://deepblue.lib.umich.edu/bitstream/2027.42/61510/1/1123_VanOrder.pd