Financial Regulation in the Crisis Regulation, Market Discipline, Internal Control: The Big Three in turmoil

The financial crisis has revealed the dysfunction of all banking and financial regulatory mechanisms. Prudential regulation failed to prevent the meltdown. Market discipline neglected to send any warning signals. Internal control was seriously undermined by doubtful dealings, in France as elsewhere. Does the crisis call the big three into question? No regulation mechanism is omniscient, whether it be state, market or self-regulation. As such, none of three can operate without the other two, with the corollary that they can only function together. It means that splitting up the big three can therefore not be the answer to the crisis. By contrast, since each one of them has shown its weaknesses, the only solution is to work on reinforcing each one. Unfortunately there is no guarantee that the reforms go far enough.Prudential supervision; market discipline; internal control; financial regulation

The relationship between trade credit, bank credit and financial structure : from firm-level non-linearities to financial development heterogeneity. A study on MENA firm-level data

Using a database of more than 1,100 firms in the MENA region, this article looks at the determinants of demand for trade credit, particularly access to bank credit, size, age and the quality of the firm's financial structure. We show that the difficulty of gaining acces to bank credit positively influences the use of trade credit, and thus demonstrate the substitutability of bank credit and trade credit. Besides, firm's non-financial characteristics, namely age and size do not influence similarly the probability of having trade credit and the volume of trade credit raised. Additional investigations strongly support the existence of non-linearities in the relationship between trade credit and firm's financial structure and size. Finally, financial development emerges as a key feature of the demand for trade credit. Indeed, we show that most firm-level characteristics lose their influence on trade credit when financial development is high enough. With financial development, trade credit gets primarily driven by trade relationships and does not appear any more as a palliative solution when bank credit access is difficult.Trade credit, bank credit, financial constraints, financial development.

Financial Regulation in the Crisis Regulation, Market Discipline, Internal Control: The Big Three in turmoil

International audienceThe financial crisis has revealed the dysfunction of all banking and financial regulatory mechanisms. Prudential regulation failed to prevent the meltdown. Market discipline neglected to send any warning signals. Internal control was seriously undermined by doubtful dealings, in France as elsewhere. Does the crisis call the big three into question? No regulation mechanism is omniscient, whether it be state, market or self-regulation. As such, none of three can operate without the other two, with the corollary that they can only function together. It means that splitting up the big three can therefore not be the answer to the crisis. By contrast, since each one of them has shown its weaknesses, the only solution is to work on reinforcing each one. Unfortunately there is no guarantee that the reforms go far enough

The relationship between trade credit, bank credit and financial structure : from firm-level non-linearities to financial development heterogeneity. A study on MENA firm-level data

URL des Documents de travail : http://centredeconomiesorbonne.univ-paris1.fr/bandeau-haut/documents-de-travail/Documents de travail du Centre d'Economie de la Sorbonne 2011.08 - ISSN : 1955-611XUsing a database of more than 1,100 firms in the MENA region, this article looks at the determinants of demand for trade credit, particularly access to bank credit, size, age and the quality of the firm's financial structure. We show that the difficulty of gaining acces to bank credit positively influences the use of trade credit, and thus demonstrate the substitutability of bank credit and trade credit. Besides, firm's non-financial characteristics, namely age and size do not influence similarly the probability of having trade credit and the volume of trade credit raised. Additional investigations strongly support the existence of non-linearities in the relationship between trade credit and firm's financial structure and size. Finally, financial development emerges as a key feature of the demand for trade credit. Indeed, we show that most firm-level characteristics lose their influence on trade credit when financial development is high enough. With financial development, trade credit gets primarily driven by trade relationships and does not appear any more as a palliative solution when bank credit access is difficult.A l'aide d'une base de données de plus de 1100 firmes de la région MENA, cet article examine les déterminants de la demande de crédit commercial, en particulier l'accès au crédit bancaire, la taille, l'âge et la santé financière de la firme. Nous montrons que la difficulté d'accès au crédit bancaire influence positivement le recours au crédit commercial, soulignant par là-même la substituabilité entre le premier et le second. De plus, les caractéristiques non-financières de la firme, c'est-à-dire l'âge et la taille n'ont pas le même impact selon que l'on considère la probabilité d'accéder au crédit commercial et le volume de crédit commercial obtenu. Nos résultats mettent également en avant que la structure financière et la taille de la firme influencent de façon non-linéaire la demande de crédit commercial. Enfin, le développement financier apparaît comme une dimension cruciale de la demande de crédit commercial. La plupart des caractéristiques de la firme perdent leur influence lorsque le degré de développement financier est suffisamment élevé. Dans ce contexte, la demande de crédit commercial semble principalement déterminée par les relations commerciales, et n'apparaît plus dès lors comme un palliatif lorsque l'accès au crédit bancaire est difficile

The measurement of financial intermediation in Japan

In this paper, we compute financial intermediation ratios for Japan (1970-2003) on a book value basis. According to our results, the intermediation ratio has remained quite stable, at around 85%. However, this stability is the result of two opposing trends : a decrease in credits and an increase in financial securities owned by financial (mostly, non banking) institutions. These two opposing trends would not have appeared if we had used traditional indicators computed as a fraction on GDP, or that build on a narrow definition of intermediation or use market value data. Fundamentally, our results provide evidence for a very close relation between intermediate financings and market financings and tend to reject the hypothesis of the Japanese financial system's convergence toward a capital market-based system.Disintermediation, financial system, intermediaries, capital markets.

The measurement of financial intermediation in Japan

In this paper, we examine the evolution of the Japanese financial structure, in order to challenge the expected incidences of the financial liberalization. We compute financial intermediation ratios for Japan (1979-2004) on a book value basis. According to our results, the intermediation ratio has remained quite stable, at around 85%. This stability is the result of two opposite trends: a decrease in credits and an increase in financial securities owned by financial (mostly, non-banking) institutions. These two trends are partly the consequence of the heavier weight of the Government in domestic external financing, which is traditionally less financed by credits than companies are. Besides, these two trends would not have appeared if we had used intermediation ratios in market value or other traditional indicators (Deposits/GDP, Loans to private sector/GDP, stock market capitalization/GDP, etc.). Our results provide evidence for a very close relationship between intermediate financings and market financings and tend to reject the hypothesis of the Japanese financial system's convergence toward a capital market-based system.Disintermediation, financial system, intermediaries, capital markets

The Impact of Financial Development on the Relationship between Trade Credit, Bank Credit and Firm Characteristics. A Study on Firm-Level Data from Six MENA Countries

International audienceUsing a database of more than 1,300 firms from six countries in the MENA region, we study the impact of financial development on the relationship between trade credit on the one hand and bank credit access and firm-level characteristics, especially financial health, on the other hand. Trade credit use increases with the difficulty for gaining access to bank credit, and indicators of the quality of the firm's financial structure negatively influence the use of trade credit. Additional investigations tend to suggest that increased financial development significantly reduces the substitution relationship between trade credit and bank credit, and more generally decreases the influence of most firm-level determinants for trade credit usage. These results are plausibly explained by a demand-driven story: when bank credit access gets increasingly difficult, or when financial health deteriorates, the demand for trade credit increases. Similarly, when financial development increases, firms have better access to bank credit, and impact of this variable (or financial health proxies) on the demand for trade credit becomes less or not significant

The measurement of financial intermediation in Japan

International audienceIn this paper, we examine the evolution of the Japanese financial structure, in order to challenge the expected incidences of the financial liberalization. We compute financial intermediation ratios for Japan (1979-2004) on a book value basis. According to our results, the intermediation ratio has remained quite stable, at around 85%. This stability is the result of two opposite trends: a decrease in credits and an increase in financial securities owned by financial (mostly, non-banking) institutions. These two trends are partly the consequence of the heavier weight of the Government in domestic external financing, which is traditionally less financed by credits than companies are. Besides, these two trends would not have appeared if we had used intermediation ratios in market value or other traditional indicators (Deposits/GDP, Loans to private sector/GDP, stock market capitalization/GDP, etc.). Our results provide evidence for a very close relationship between intermediate financings and market financings and tend to reject the hypothesis of the Japanese financial system's convergence toward a capital market-based system

Central Banking after the Crisis: Brave New World or Back to the Future? Replies to a questionnaire sent to central bankers and economists

URL des Documents de travail : http://centredeconomiesorbonne.univ-paris1.fr/bandeau-haut/documents-de-travail/Documents de travail du Centre d'Economie de la Sorbonne 2013.73 - ISSN : 1955-611XThis paper provides a snapshot of the current state of central banking doctrine in the aftermath of the crisis, using data from a questionnaire produced in 2011 and sent to central bankers (from 13 countries plus the euro zone) and economists (31) for a report by the French Council of Economic Analysis to the Prime Minister. The results of our analysis of the replies to the questionnaire are twofold. First, we show that the financial crisis has led to some amendments of pre-crisis central banking. We highlight that respondents to the questionnaire agree on the general principle of a 'broader' view of central banking extended to financial stability. Nevertheless, central bankers and economists diverge or give inconsistent answers about the details of implementation of this 'broader' view. Therefore, the devil is once again in the details. We point out that because of central bankers' conservatism, a return to the status quo cannot be excluded.Dans cet article, nous exploitons les réponses au questionnaire qui avait accompagné le rapport du Conseil d'analyse économique " Banques centrales et stabilités financière " en 2011. Parce qu'il couvre les différentes dimensions du Central banking et qu'il a été réalisé après le temps fort de la crise, ce questionnaire permet d'évaluer si dans l'esprit des banquiers centraux (de 13 pays différents plus la zone euro) et des économistes interrogés (31), la crise financière a modifié la doctrine de la politique monétaire, la stratégie et le cadre opérationnel des banques centrales. Notre analyse des réponses à ce questionnaire fait ressortir deux grands résultats. Le premier est que la crise financière a bel et bien amendé le consensus qui prévalait avant la crise. En particulier, les sondés semblent s'accorder sur le principe général d'une vision " élargie " des missions des banques centrales qui englobe la stabilité financière. Le second pourrait être résumé par la formule " le diable est dans les détails ! ". En effet, lorsqu'ils sont interrogés sur les détails et les implications de ce nouveau central banking, banquiers centraux et économistes donnent des réponses faiblement cohérentes. Le profil des banquiers centraux relativement plus conservateur que celui des économistes ressort dans les réponses au questionnaire et rend tout à fait envisageable, une fois la crise passée, un retour au consensus d'avant crise

Contrôle interne et réglementation bancaire : un lien éprouvé par la crise

International audienceThe financial crisis started in summer 2007 revealed the failure of all regulation mechanisms at work in the financial sector: i) Prudential regulation has failed in its mission of prevention. ii) Market discipline did not produce the warning signals that could be expected. iii) Concerning risk management and internal controls, several cases in France and around the world have unveiled serious shortcomings. This article focuses on internal control and its increased link with prudential supervision. It suggests improving the internal control without breaking the whole relation between internal control, market discipline and prudential supervisionLa crise financière amorcée à l'été 2007 a révélé la défaillance de l'ensemble des modes de régulation à l'œuvre dans la sphère financière. La réglementation prudentielle a échoué dans sa mission de prévention. La discipline de marché n'a pas produit les signaux d'alerte qu'on pouvait en attendre. Quant au contrôle interne, troisième bras de ce triptyque régulateur, plusieurs affaires, en France et dans le monde entier, ont mis au jour de graves lignes de faille. Cet article se concentre sur le contrôle interne et son articulation au dispositif de supervision, avec l'idée qu'il est urgent d'agir sans cependant défaire ce triptyque (« réglementation - discipline de marché - contrôle interne ») dont le bien-fondé demeure