Foreign competition in U.S. banking markets

Foreign penetration of U.S. wholesale banking already exceeds that of most other industry groups; unless market capitalization ratios for U.S. banks go up—or down for foreign banks—this trend is likely to continue.Banks and banking, Foreign - United States

Debt as a control device in transitional economies : the experiences of Hungary and Poland

The basic economic challenge in the transition from socialism to capitalism is creating incentive structures and institutions that promote enterprise change and restructuring. This is the motivation for most of the reforms debated during the transition - whether privatization, demonopolization, trade reform, or financial sector reform. Most research on corporate governance and privatization has focused on the role of owners - whether on the problems inherent in the separation of ownership and management (most Western literature) or on the need for true owners who represents the interests of capital (most literature on transition economies). But debt is also an important control device, as Western literature on corporate finance increasingly recognizes. The authors explore debt's role as a control device in transition economies, focusing especially on Hungary and Poland, which are relatively far along in the reform process. They ask, first, in what ways creditors exert control over firms in advanced market economies and how such control interacts with that exerted by equity holders. They then ask whether creditors in Central and Eastern European countries play similar roles and, if not, what roles they should play, and what can be done to give them the capacity and incentives to play those roles. They focus on three fundamental requirements for debt to function as a control device: information, proper incentives for creditors (including banks, suppliers, and government), and an efficient legal framework for debt collection (including collateral, workout, and bankruptcy regimes). While both countries are making progress in all three areas, there is still much to be done. Hungary and Poland illustrate only two of many approaches. Other transitional economies, such as the Czech Republic, Estonia, and Russia, are following different approaches that should be explored in future analysis.International Terrorism&Counterterrorism,Banks&Banking Reform,Payment Systems&Infrastructure,Environmental Economics&Policies,Financial Intermediation,Banks&Banking Reform,Environmental Economics&Policies,Financial Intermediation,Financial Crisis Management&Restructuring,Housing Finance

Payments system issues in financial markets that never sleep

Payment systems ; Foreign exchange ; Risk ; Stock market

Opportunity cost and prudentiality : a representative-agent model of futures clearinghouse behavior

Includes bibliographic references (p. 31-38)

Opportunity cost and prudentiality : an analysis of futures clearinghouse behavior

Margin deposits, which serve as collateral to protect the clearinghouse, are typically the most important tool for risk management. The authors develop a model that explains how creating a futures clearinghouse may allow traders simultaneously to reduce both the risk of default and the total amount of margin that members post. Optimal margin levels are determined by the need to balance the deadweight costs of default against the opportunity cost of holding additional margin. Both costs are a consequence of market participants'imperfect access to capital markets. The simultaneous reduction in default risk and in the opportunity cost of margin deposits is possible because the creation of the clearinghouse facilitates multilateral netting. The authors characterize the conditions under which multilateral netting will dominate bilateral netting. They also show that it is credible for the clearinghouse to expel members who default, further reducing the risk of default. Finally, they show that it may (but need not) be optimal for the clearinghouse to monitor the financial condition of its members. If monitoring occurs, it will reduce the amount of margin required, but need not affect the probability of default. The empirical tests run by the authors indicate that the opportunity cost of margin plays an important role in determining margin. The relationship between volatility and margins indicates that participants face an upward-sloping opportunity cost for margin, which appears to more than offset the effects that monitoring and expulsion would be expected to have on margin setting.Environmental Economics&Policies,Banks&Banking Reform,International Terrorism&Counterterrorism,Economic Theory&Research,Insurance&Risk Mitigation

Does regulation drive innovation?

Bank capital ; Capital ; Bank supervision ; Nonbank activities

Capital shocks and bank growth -- 1973 to 1991

Bank capital ; Banks and banking

What we know about the deposit insurance problem

Deposit insurance

Regulatory burden handicaps low-risk banking

Bank supervision ; Bank reserves

Disintermediation marches on

Disintermediation ; Asset-backed financing