Bank supervisory arrangements: International evidence and Indian perspective

Historically, central banks have had the dual objective of safeguarding monetary and financial stability. Increasingly, over the last two decades or so, concerns about financial stability have gained prominence, reflecting the growing number, breadth and severity of bouts of financial distress. At the same time, the role of central banks in safeguarding financial stability has been evolving. In part, this has resulted from developments in the financial system in the wake of liberalisation and innovation. More recently, some central banks have been divested of their supervisory responsibilities through changes in legislation. Structurally, as the blurring of distinction between different types of institutions (banks, securities firms and insurance companies) continues, there remains the issue of whether single or multiple supervisory authorities should be the norm and whether the central bank should be assigned any supervisory role. In this context, the present chapter seeks to understand the cross-country evidence with regard to regulation and supervision. The purpose of the Chapter is to delineate the extant arrangements of regulation and supervision and whether supervisory authority in respective countries is conducted monopolistically by the central bank or shared with other supervisory authorities. Such an analysis seeks to achieve two broad objectives: (a) whether and to what extent do different countries exhibit different supervisory arrangements and (b) on the basis of available evidence, what broad inferences can be gleaned regarding the synergies between supervision and monetary policy?supervision; central banking; mega supervisor;

Determinants of net interest margin under regulatory requirements: an econometric study

Using data for the period 1995-96 to 1999-2000, this paper seeks to identify the factors influencing spreads of Scheduled Commercial Banks in India. Among the explanatory variables, we incorporate, in addition to the standard set of variables, regulatory requirement variables. Our analysis reveals that (i) size does not necessarily correlate with higher spread, and (ii) higher fee income enables banks to tolerate lower spreads. With regard to regulatory requirement variables, it is found that (i) capital plays an important role in affecting spreads of public sector banks, and (ii) non-performing assets is uniformly important across all bank groups in influencing spreads.Net interest margin; regulatory requirements; banking; India

Neurocognition and emotional processing in bipolar offspring

PhD ThesisBackground/aims: Recent evidence suggests that the psychosocial function for patients with Bipolar Disorder (BD) may not always be as favorable as originally proposed by Emil Kraeplin. This dysfunction has been statistically associated with neurocognitive measures (on tasks assessing working memory, learning and executive function) and emotional processing (on tasks assessing facial emotion labeling). Studies of Offspring of Bipolar Parents (OBP) in comparison with Offspring of Healthy Controls (OHC) demonstrate elevated risk for development of BD and limited evidence of impairment in neurocognitive function and emotional processing. The identification of an endophenotype for BD could help in early identification of BD, institution of early appropriate intervention and thereby perhaps limit this psychosocial dysfunction. The aims included the recruitment of a matched sample of OBP and OHC and investigation of neurocognitive function and facial emotion labelling in these two groups. The hypotheses were: OBP will show impairment in the domains of memory, learning and executive function, OBP will demonstrate more errors on facial emotion labeling tasks and the deficits in facial emotion labelling will not be related to impairments demonstrated on the domains of memory, learning and executive function. Results: OBP showed deficits in IQ, spatial working memory, visual and auditory working memory as compared to OHC. OBP also made more errors on tasks of facial emotion labeling; particularly on ‘fearful faces’ in comparison to OHC. The novel finding from this project was the lack of significant association between the reported neurocognitive deficits and facial emotion labeling deficits in OBP. Conclusion: The study identified deficits in neurocognitive function and facial emotion labeling in OBP which appear to be independent. These deficits met some criteria for being considered an endophenotype for BD. The study was limited by a small sample size, lack of blinding and low specificity of these deficits for BD. Further longitudinal research to study the evolution of these deficits would be the next step in confirmation of these deficits as a potential candidate endophenotype for BD. In addition research should focus on factors that might contribute to these deficits such as severity of parental BD (‘nature’) and family environment (‘nurture’).Northumberland, Tyne and Wear NHS Foundation Trust (Dr Ali Zaatar, Dr Suresh Joseph, Mr James Duncan and Dr Carole Kaplan) and the Mental Health Foundation North East Branch

Bank response to capital requirements: Theory and Indian evidence

The paper discusses the theory of how banks' respond to risk-based capital standards and conducts an empirical estimation to ascertain the response of banks to capital requirements in the Indian contextcapital; banking; India

Regulating Market Risks in Banks: A Comparison of Alternate Regulatory Regimes

Regulators have traditionally used simple models to measure the capital adequacy of banks. The growing internationalisation and universalisation of banking operations have meant that the same is no longer possible, as banks face increasing, and increasingly opaque, market risk. The significance of market risk has also been acknowledged in the New Capital Accord enunciated by the Basel Committee in 1999. The focus of the paper is on market risk, that is, any market related factor that affects the value of a position in the financial instrument or a portfolio of instruments. As it stands at present, the three commonly used approaches to regulating market risks in banks include the building block approach, internal model approach and precommitment approach. The paper evaluates the pros and cons of the various approaches and concludes with a discussion of the applicability of these models in the Indian context.VaR; banking; India; market risk

Bank supervisory arrangements: International evidence and Indian perspective

Historically, central banks have had the dual objective of safeguarding monetary and financial stability. Increasingly, over the last two decades or so, concerns about financial stability have gained prominence, reflecting the growing number, breadth and severity of bouts of financial distress. At the same time, the role of central banks in safeguarding financial stability has been evolving. In part, this has resulted from developments in the financial system in the wake of liberalisation and innovation. More recently, some central banks have been divested of their supervisory responsibilities through changes in legislation. Structurally, as the blurring of distinction between different types of institutions (banks, securities firms and insurance companies) continues, there remains the issue of whether single or multiple supervisory authorities should be the norm and whether the central bank should be assigned any supervisory role. In this context, the present chapter seeks to understand the cross-country evidence with regard to regulation and supervision. The purpose of the Chapter is to delineate the extant arrangements of regulation and supervision and whether supervisory authority in respective countries is conducted monopolistically by the central bank or shared with other supervisory authorities. Such an analysis seeks to achieve two broad objectives: (a) whether and to what extent do different countries exhibit different supervisory arrangements and (b) on the basis of available evidence, what broad inferences can be gleaned regarding the synergies between supervision and monetary policy

Bank supervisory arrangements: International evidence and Indian perspective

Historically, central banks have had the dual objective of safeguarding monetary and financial stability. Increasingly, over the last two decades or so, concerns about financial stability have gained prominence, reflecting the growing number, breadth and severity of bouts of financial distress. At the same time, the role of central banks in safeguarding financial stability has been evolving. In part, this has resulted from developments in the financial system in the wake of liberalisation and innovation. More recently, some central banks have been divested of their supervisory responsibilities through changes in legislation. Structurally, as the blurring of distinction between different types of institutions (banks, securities firms and insurance companies) continues, there remains the issue of whether single or multiple supervisory authorities should be the norm and whether the central bank should be assigned any supervisory role. In this context, the present chapter seeks to understand the cross-country evidence with regard to regulation and supervision. The purpose of the Chapter is to delineate the extant arrangements of regulation and supervision and whether supervisory authority in respective countries is conducted monopolistically by the central bank or shared with other supervisory authorities. Such an analysis seeks to achieve two broad objectives: (a) whether and to what extent do different countries exhibit different supervisory arrangements and (b) on the basis of available evidence, what broad inferences can be gleaned regarding the synergies between supervision and monetary policy

Determinants of net interest margin under regulatory requirements: an econometric study

Using data for the period 1995-96 to 1999-2000, this paper seeks to identify the factors influencing spreads of Scheduled Commercial Banks in India. Among the explanatory variables, we incorporate, in addition to the standard set of variables, regulatory requirement variables. Our analysis reveals that (i) size does not necessarily correlate with higher spread, and (ii) higher fee income enables banks to tolerate lower spreads. With regard to regulatory requirement variables, it is found that (i) capital plays an important role in affecting spreads of public sector banks, and (ii) non-performing assets is uniformly important across all bank groups in influencing spreads

Determinants of net interest margin under regulatory requirements: an econometric study

Using data for the period 1995-96 to 1999-2000, this paper seeks to identify the factors influencing spreads of Scheduled Commercial Banks in India. Among the explanatory variables, we incorporate, in addition to the standard set of variables, regulatory requirement variables. Our analysis reveals that (i) size does not necessarily correlate with higher spread, and (ii) higher fee income enables banks to tolerate lower spreads. With regard to regulatory requirement variables, it is found that (i) capital plays an important role in affecting spreads of public sector banks, and (ii) non-performing assets is uniformly important across all bank groups in influencing spreads

Regulating Market Risks in Banks: A Comparison of Alternate Regulatory Regimes

Regulators have traditionally used simple models to measure the capital adequacy of banks. The growing internationalisation and universalisation of banking operations have meant that the same is no longer possible, as banks face increasing, and increasingly opaque, market risk. The significance of market risk has also been acknowledged in the New Capital Accord enunciated by the Basel Committee in 1999. The focus of the paper is on market risk, that is, any market related factor that affects the value of a position in the financial instrument or a portfolio of instruments. As it stands at present, the three commonly used approaches to regulating market risks in banks include the building block approach, internal model approach and precommitment approach. The paper evaluates the pros and cons of the various approaches and concludes with a discussion of the applicability of these models in the Indian context