Capital adequacy regulation and financial conglomerates

A topical concern in public-policy debate is that the current capital adequacy regulation designed for stand-alone financial institutions exhibits several weaknesses due to the emergence of large financial institutions combining several activities under common control. This paper addresses these concerns using a theoretical framework derived from the economic literature. I will first describe the possible causes of the emergence of financial conglomerates, proceed to consider the theoretical background for the regulation of financial institutions, especially insurance and banking companies, and, finally, examine the limitations of the current regulatory framework in controlling the risks in financial conglomerates. My conclusions provide little support for the view that the regulatory approach should be modified towards a more consolidated one (ie harmonization).banking; capital adequacy regulation; insurance; financial conglomerates

The efficiency implications of financial conglomeration

This paper studies the competitive and efficiency implications of financial conglomeration driven by cost-efficiency gains in monitoring credit and insurance customers. The analysis shows that conglomeration is conducive to tougher competition in the credit market and increases profit in insurance. The aggregate profit in the financial sector does not increase, because the conglomerates pass the cost-efficiency gains on to the borrowers in full. More competitive market for financial services also reduces the aggregate risk in the financial markets, indicating that capital requirements in both sectors should be lower in the presence of financial conglomerates.financial conglomerates; banking; insurance; capital regulation

Blanket guarantee and restructuring decisions for multinational banks in a bargaining model

This paper examines blanket guarantee and restructuring decisions in respect of a multinational bank (MNB) using Nash bargaining, when the threat of a panic motivates countries to take decisions quickly. The failure of the bank would cause unevenly distributed externalities between the countries concerned, which influences restructuring incentives. In equilibrium, the bank is either liquidated or one – or both of the countries – recapitalizes it. The partition of the recapitalisation costs is sensitive to the country-specific benefits and costs from recapitalisation, panics and liquidation. The home regulator benefits from the privilege of being the only entity that can legally liquidate the MNB. Rational expectations regarding the bargaining result affect the incentives to declare a blanket guarantee.banking crises; bank restructuring; blanket guarantee; bargaining; deposit insurance

Harmonization Versus Mutual Recognition of National Eco-labels

This paper formalizes a welfare-comparison between two suggestions to correct for the market failures arising from multiple eco-labels in international markets. In an asymmetric information environment, where the goods’ environmental quality is a credence attribute, firms with different labeling standards cannot implement a separating equilibrium through price signaling. The difference between the standards generates an information-rent in the export market increasing the number of labeled firms complying with lower standards. This pro-competitive spillover implies that when labels with different requirements are treated equally on the markets (mutual recognition), the outcome is welfare superior to the case of harmonized labeling standards, insofar as the difference between the standards is relatively small

Lintulan lehtikuusimetsä.

sidott