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Author: Katia D'Hulster
Publisher:
ISBN:
Category :
Languages : en
Pages : 19
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Book Description
While international policymakers are making good progress on the important work of global resolution and the preparation of recovery and resolution plans, a growing number of supervisors, home as well as hosts, are resorting to territorial approaches. Higher capital ratios, dividend restrictions, restrictions on liquidity flows and even forced subsidiarization are gaining renewed popularity. The objective of these territorial approaches is to protect the interests of the domestic stakeholders of a foreign bank and to limit the effects of cross-border contagion. This type of “ring-fencing” has a negative connotation as it comes at a cost for banks and the efficiency of the overall global financial system. This article addresses the following questions:(1) What makes prudential supervisors more likely to ring-fence?; (2) Do all forms of ring-fencing really deserve this bad reputation?; (3) What are the risks that these measures are addressing and which instruments have been used?; and (4) What are the implications of ring-fencing for the banking group, financial stability in the home and host country, as well as global financial stability?
Author: Katia D'Hulster
Publisher:
ISBN:
Category :
Languages : en
Pages : 19
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Book Description
While international policymakers are making good progress on the important work of global resolution and the preparation of recovery and resolution plans, a growing number of supervisors, home as well as hosts, are resorting to territorial approaches. Higher capital ratios, dividend restrictions, restrictions on liquidity flows and even forced subsidiarization are gaining renewed popularity. The objective of these territorial approaches is to protect the interests of the domestic stakeholders of a foreign bank and to limit the effects of cross-border contagion. This type of “ring-fencing” has a negative connotation as it comes at a cost for banks and the efficiency of the overall global financial system. This article addresses the following questions:(1) What makes prudential supervisors more likely to ring-fence?; (2) Do all forms of ring-fencing really deserve this bad reputation?; (3) What are the risks that these measures are addressing and which instruments have been used?; and (4) What are the implications of ring-fencing for the banking group, financial stability in the home and host country, as well as global financial stability?
Author: Ms.Anna Ilyina
Publisher: International Monetary Fund
ISBN: 1455209473
Category : Business & Economics
Languages : en
Pages : 37
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Book Description
This paper presents a stylized analysis of the effects of ring-fencing (i.e., different restrictions on cross-border transfers of excess profits and/or capital between a parent bank and its subsidiaries located in different jurisdictions) on cross-border banks. Using a sample of 25 large European banking groups with subsidiaries in Central, Eastern and Southern Europe (CESE), we analyze the impact of a CESE credit shock on the capital buffers needed by the sample banking groups under different forms of ring-fencing. Our simulations show that under stricter forms of ring-fencing, sample banking groups have substantially larger needs for capital buffers at the parent and/or subsidiary level than under less strict (or in the absence of any) ring-fencing.
Author: Katia D'Hulster
Publisher:
ISBN:
Category :
Languages : en
Pages : 25
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Book Description
Territorial bias or home bias refers to the degree of geographical separation of the local operations of a cross border banking group from its foreign parent bank or affiliates to protect the local operations from cross-border contagion. The purpose of this paper is to measure and rank territorial bias in prudential banking regulation and supervision in 22 European Union (EU) and non-EU countries with financial systems predominantly owned by foreign banks. First, a scoring system is developed to measure territorial bias on an individual country basis (vertical analysis). Second, the results are compared across two peer groups, EU and non-EU (horizontal analysis). I find that territorial bias is present to a varying degree in the prudential supervision and the regulations of the countries surveyed. On average higher territorial bias is observed in the non-EU group. Generally, there is also less dispersion in the EU, which can be explained by a more unified regulatory framework and the efforts to achieve supervisory convergence. Non-EU countries also use a wider array of instruments; typically higher capital ratios, mandatory conversion from systemic branches to subsidiaries, stricter local governance requirements, and liquidity restrictions. This is the first analysis and quantification of territorial bias in bank supervision and regulation.
Author: Gyöngyi LÓRÁNTH
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Author: José Vinãls
Publisher: International Monetary Fund
ISBN: 1484340949
Category : Business & Economics
Languages : en
Pages : 27
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Book Description
The U.S., the U.K., and more recently, the E.U., have proposed policy measures directly targeting complexity and business structures of banks. Unlike other, price-based reforms (e.g., Basel 3 and G-SIFI surcharges), these proposals have been developed unilaterally with material differences in scope, design and implementation schedules. This may exacerbate cross-border regulatory arbitrage and put a further burden on consolidated supervision and cross-border resolution. This paper provides an analysis of the potential implications of implementing different structural policy measures. It proposes a pragmatic and coordinated approach to development of these policies to reduce risk of regulatory arbitrage and minimize unintended consequences. In doing so, it also aims to identify a set of common policy measures that countries could adopt to re-scope bank business models and corporate structures.
Author: International Monetary Fund
Publisher: International Monetary Fund
ISBN: 1498343287
Category : Business & Economics
Languages : en
Pages : 41
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Book Description
Developing an effective framework for cross-border resolution is a key priority in international regulatory reform. Large bank failures during the global financial crisis brought home the lack of adequate tools for resolving “too-big-to-fail” institutions. In cross-border cases, misaligned incentives and lack of robust mechanisms for resolution and cross-border cooperation left some country authorities with little choice but to take unilateral actions, which contributed to the high fiscal costs of the crisis and resulted in disorderly resolution in some cases
Author:
Publisher:
ISBN: 9781475547979
Category : Africa
Languages : en
Pages : 102
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Book Description
Pan-African banks are expanding rapidly across the continent, creating cross-border networks, and having a systemic presence in the banking sectors of many Sub-Saharan African countries. These banking groups are fostering financial development and economic integration, stimulating competition and efficiency, introducing product innovation and modern management and information systems, and bringing higher skills and expertise to host countries. At the same time, the rise of pan-African banks presents new challenges for regulators and supervisors. As networks expand, new channels for transmission of macro-financial risks and spillovers across home and host countries may emerge. To ensure that the gains from cross border banking are sustained and avoid raising financial stability risks, enhanced cross-border cooperation on regulatory and supervisory oversight is needed, in particular to support effective supervision on a consolidated basis. This paper takes stock of the development of pan-African banking groups; identifies regulatory, supervisory and resolution gaps; and suggests how the IMF can help the authorities address the related challenges.
Author: Mr.Julian T. S. Chow
Publisher: International Monetary Fund
ISBN: 1463922027
Category : Business & Economics
Languages : en
Pages : 36
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Book Description
This paper assesses proposals to redefine the scope of activities of systemically important financial institutions. Alongside reform of prudential regulation and oversight, these have been offered as solutions to the too-important-to-fail problem. It is argued that while the more radical of these proposals such as narrow utility banking do not adequately address key policy objectives, two concrete policy measures - the Volcker Rule in the United States and retail ring-fencing in the United Kingdom - are more promising while still entailing significant implementation challenges. A risk factor common to all the measures is the potential for activities identified as too risky for retail banks to migrate to the unregulated parts of the financial system. Since this could lead to accumulation of systemic risk if left unchecked, it appears unlikely that any structural engineering will lessen the policing burden on prudential authorities and on the banks.
Author: D. Wilson Ervin
Publisher:
ISBN:
Category :
Languages : en
Pages : 34
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Book Description
This working paper examines the impact of imposing multiple ring-fencing regimes on bank safety, including a 'prisoner's dilemma' effect that can arise from host country incentives. It discusses these issues first on a qualitative basis to establish intuition, and then quantifies the risk of different structures via a Merton-style option model. The results suggest that there is a material advantage (i.e. reduced probability of local failure) for a jurisdiction that ring-fences its subsidiary if other jurisdictions do not match that decision. This host jurisdiction benefits from both (i) local capital and (ii) the ability to tap a large central reserve. However, if other jurisdictions adopt similar ring-fencing policies, then the benefit of a pooled 'central reserve' capital is voided and all jurisdictions become worse off.Under our model, we find that failure risk increases by a large multiple if ring-fencing becomes pervasive. In some cases, the increase in risk is 5x or more, compared to a structure where internal capital is fully mobile. This is caused by 'misallocation risk' - the risk that a bank has enough capital resources overall, but cannot get those resources to the right subsidiary in time to avoid a local failure. The paper concludes with suggestions on possible policy alternatives that could mitigate these issues. We consider a few hybrid cases, which suggest that a 'partly ring-fenced bank' can mitigate a substantial amount of misallocation risk if the central reserve is significant and not committed too early.We then explore alternatives which build on the Financial Stability Board's post-crisis bank resolution architecture. Large amounts of 'bail-in' capital are now being issued by the biggest global banks, and these resources can fund an alternative to the hard legal entity bankruptcies (or emergency bail-outs) seen in the 2008 crisis - events that appear to motivate many of the recent ring-fencing initiatives. We conclude with a 'straw man' proposal that aims to produce a more resilient overall outcome for the group while addressing legitimate host concerns. We believe the paper is relevant for the ongoing policy debates on bank structure, capital allocation and resolution.
Author: Eugenio Cerutti
Publisher: World Bank Publications
ISBN:
Category : Banks and banking, International
Languages : en
Pages : 34
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Book Description
"The authors examine the factors that influence banks' type of organizational form when operating in foreign markets using an original database of the branches and subsidiaries in Latin America and Eastern Europe of the top 100 international banks. They find that regulation, taxation, the degree of desired penetration in the local market, and host-country economic and political risks matter. Banks are more likely to operate as branches in countries that have higher corporate taxes and when they face lower regulatory restrictions on bank entry, in general, and on foreign branches, in particular. Subsidiaries are the preferred organizational form by banks that seek to penetrate the local market establishing large and mostly retail operations. Finally, there is evidence that economic and political risks have opposite effects on the type of organizational form, suggesting that legal differences in the degree of parent bank responsibility vis-à-vis branches and subsidiaries under different risk scenarios play an important role in the kind of operations international banks maintain overseas "--World Bank web site.
