Financial Stability, New Macro Prudential Arrangements and Shadow Banking: Regulatory Arbitrage and Stringent Basel I I I Regulations

Despite Basel III’s efforts to address capital and liquidity requirements, will the risks linked to regulatory arbitrage increase as a result of Basel III’s more stringent capital and liquidity rules? As well as Basel III reforms which are geared towards greater facilitation of financial stability on a macro prudential basis, further efforts and initiatives aimed at mitigating systemic risks – hence fostering financial stability, have been promulgated through the establishment of the De Larosiere Group, the European Systemic Risk Board, and a working group comprising of “international standard setters and authorities responsible for the translation of G20 commitments into standards.” This paper aims to investigate the impact of Basel III on shadow banking and its facilitation of regulatory arbitrage as well as consider the response of various jurisdictions and standard setting bodies to aims and initiatives aimed at improving their macro prudential frameworks. Furthermore, it will also aim to illustrate why immense work is still required at European level – as regards efforts to address systemic risks on a macro prudential basis. This being the case even though significant efforts and steps have been taken to address the macro prudential framework. In so doing, the paper will also attempt to address how coordination within the macro prudential framework – as well as between micro and macro prudential supervision could be enhanced

The ergonomics of command and control

Since its inception, just after the Second World War, ergonomics research has paid special attention to the issues surrounding human control of systems. Command and Control environments continue to represent a challenging domain for Ergonomics research. We take a broad view of Command and Control research, to include C2 (Command and Control), C3 (Command, Control and Communication), and C4 (Command, Control, Communication and Computers) as well as human supervisory control paradigms. This special issue of ERGONOMICS aims to present state-of-the-art research into models of team performance, evaluation of novel interaction technologies, case studies, methodologies and theoretical review papers. We are pleased to present papers that detail research on these topics in domains as diverse as the emergency services (e.g., police, fire, and ambulance), civilian applications (e.g., air traffic control, rail networks, and nuclear power) and military applications (e.g., land, sea and air) of command and control. While the domains of application are very diverse, many of the challenges they face share interesting similarities

Multi-Layer Cyber-Physical Security and Resilience for Smart Grid

The smart grid is a large-scale complex system that integrates communication technologies with the physical layer operation of the energy systems. Security and resilience mechanisms by design are important to provide guarantee operations for the system. This chapter provides a layered perspective of the smart grid security and discusses game and decision theory as a tool to model the interactions among system components and the interaction between attackers and the system. We discuss game-theoretic applications and challenges in the design of cross-layer robust and resilient controller, secure network routing protocol at the data communication and networking layers, and the challenges of the information security at the management layer of the grid. The chapter will discuss the future directions of using game-theoretic tools in addressing multi-layer security issues in the smart grid.Comment: 16 page

The Role of Central Banks and Competition Policies in the Rescue and Recapitalisation of Financial Institutions During (and in the Aftermath of) the Financial Crisis

Recent years have witnessed a change in focus from considerations of factors which could impede competition, for example over-regulation, to the need to strike a balance between over-regulation and insufficient regulation – in order to provide the right level of safety for consumers (such that they are protected from risky investments). A driving force behind the need for deregulation over the past two decades has been the objective and desire to foster competition. Re-regulation thereafter assumed centre stage in some jurisdictions in response to the need to manage cross sector services' risks more efficiently. Rescue cases involving guarantees (contrasted with restructuring cases) during the recent Financial Crisis, have illustrated the prominent position which the goal of promoting financial stability has assumed over that of the prevention or limitation of possible distortions of competition which may arise when granting State aid. The importance attached to maintaining and promoting financial stability - as well as the need to facilitate rescue and restructuring measures aimed at preventing systemically relevant financial institutions from failure, demonstrate how far authorities are willing to overlook certain competition policies. However increased government and central bank intervention also simultaneously trigger the usual concerns – which include moral hazard and the danger of serving as long term substitutes for market discipline. An interesting observation derives from the relationship between State aid grants, competition, and the potential to induce higher risk taking levels. Whilst the need to promote and maintain financial stability is paramount, safeguards need to be implemented and enforced to ensure that measures geared towards the aim of sustaining system stability (measures such as lender of last resort arrangements and State rescues) do not unduly distort competition as well as induce higher risk taking levels. This paper will draw attention to safeguards which have been provided by the Commission where approval is considered for the grant of State aid to financial institutions whose problems are attributable to inefficiencies, poor asset liability management or risky strategies. Whether the distinction drawn by the Commission – with regards to the preferential grant of recapitalisation packages to fundamentally sound banks (which require less restructuring measures)is justified, will also be considered. How far central banks and governments should intervene and how far distortions of competition should be permitted ultimately depends on how systemically relevant a financial institution is

Financial stability, new macro prudential arrangements and shadow banking: regulatory arbitrage and stringent Basel III regulations

Despite Basel III’s efforts to address capital and liquidity requirements, will the risks linked to regulatory arbitrage increase as a result of Basel III’s more stringent capital and liquidity rules? As well as Basel III reforms which are geared towards greater facilitation of financial stability on a macro prudential basis, further efforts and initiatives aimed at mitigating systemic risks – hence fostering financial stability, have been promulgated through the establishment of the De Larosiere Group, the European Systemic Risk Board, and a working group comprising of “international standard setters and authorities responsible for the translation of G20 commitments into standards.” This paper aims to investigate the impact of Basel III on shadow banking and its facilitation of regulatory arbitrage as well as consider the response of various jurisdictions and standard setting bodies to aims and initiatives aimed at improving their macro prudential frameworks. Furthermore, it will also aim to illustrate why immense work is still required at European level – as regards efforts to address systemic risks on a macro prudential basis. This being the case even though significant efforts and steps have been taken to address the macro prudential framework. In so doing, the paper will also attempt to address how coordination within the macro prudential framework – as well as between micro and macro prudential supervision could be enhanced.counter party risks; liquidity; European Systemic Risk Board; stability; systemic risk; Shadow Banking; central banks; regulatory arbitrage; OTC derivatives; European Central Bank; supervision; coordination

Waiting for Leviathan: A Note on \u3cem\u3eModern Wo\u27er Trading Co Ltd v Ministry of Finance of the People\u27s Republic of China\u3c/em\u3e

This article analyzes a Chinese bid protest that has taken nearly seven years to adjudicate, yet as of this writing, no institution of the Chinese state has evaluated the substance of the protester’s bid challenge. Instead, the supplier’s complaint has been snared in a grey area between two of China’s multiple bid protest systems, burdening the supplier to push China’s administrative state to respond. The saga of Modern Wo’Er Trading Company Ltd. v The Ministry of Finance of the People’s Republic of China raises compelling questions about the relationship of China’s 1999 Tender and Bidding Law and China’s 2002 Government Procurement Law, the nature of administrative power in China, and the ability of Chinese public procurement law to offer justice to aggrieved supplier

Juridical and financial considerations on the public re capitalisation and rescue of financial institutions during periods of financial crises (Part I)

As well as a consideration of why the lender of last resort facility should be used for emergency situations and systemically relevant institutions in particular, an interesting point which will be considered in this paper is the comparison between the European Central Bank (ECB) Recommendation and its application by the Commission in the Re capitalisation Communication, specifically with its Annex, where the Commission explains how it determines the price of equity (ordinary or common shares) - balancing the “real value” with the “market value” within a crisis context. Whether the Commission and Member States have applied this methodology in determining the price of equity with respect to the capital of banks acquired by Member States, will also be addressed. Such consideration could provide a vital key to determining the real value of State Aid and the best possible price for which capital could be sold. Given the scale of government intervention and State rescues which occurred during the recent crisis – as well as the prominence accorded to measures aimed at preventing and limiting distortions of competition, calls have been made for competition authorities to take on more formidable roles in designing and implementing exit strategies. In order to foster competition as much as possible, it is proposed that ”governments should provide financial institutions with incentives to prevent them from depending on government support once the economy begins to recover.”Financial Crisis; re capitalisation; guarantees; Troubled Asset Relief Program (TARP); fundamentally sound institutions; rescues.

Should non-euro area countries join the single supervisory mechanism?

Irrespective of the euro crisis, a European banking union makes sense, including for non-euro area countries, because of the extent of European Union financial integration. The Single Supervisory Mechanism (SSM) is the first element of the banking union. From the point of view of non-euro countries, the draft SSM regulation as amended by the EU Council includes strong safeguards relating to decision-making, accountability, attention to financial stability in small countries and the applicability of national macroprudential measures. Non-euro countries will also have the right to leave the SSM and thereby exempt themselves from a supervisory decision. The SSM by itself cannot bring the full benefits of the banking union, but would foster financial integration, improve the supervision of cross-border banks, ensure greater consistency of supervisory practices, increase the quality of supervision, avoid competitive distortions and provide ample supervisory information. While the decision to join the SSM is made difficult by uncertainty surrounding other elements of the banking union, including possible burden sharing, we conclude that non-euro EU members should stand ready to join the SSM and be prepared for negotiations on the other elements of the banking union