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Abstract

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Designing the New European Union
Type: Book
ISBN: 978-1-84950-863-6

Article
Publication date: 1 June 2004

Donato Masciandaro

The objective of this work is to analyse worldwide trends in financial supervision architectures. The focus is on the key issue in the debate – the single supervisor…

1297

Abstract

The objective of this work is to analyse worldwide trends in financial supervision architectures. The focus is on the key issue in the debate – the single supervisor versus multiauthority model – in order to build up indexes of supervision unification, essential to perform studies on the causes and effects of various supervisory regimes. First, the paper introduces a Financial Authorities’ Concentration (FAC) Index. A comparative analysis of 69 countries confirmed that an increase in the degree of concentration of supervisory powers is evident in the developed countries, and particularly in the European Union. Secondly, the paper considers the nature of the institutions to which control responsibilities are entrusted. In particular, the role the central bank plays in the various national institutional settings is examined. An index of the central bank’s involvement in financial supervision is introduced, the Central Bank as Financial Authority (CBFA) Index. Each national institutional structure can be identified with the two above characteristics. Two models are the most frequent: (a) countries with a high level of unification of powers and weak central bank involvement (single financial authority regimes); and, (b) countries with a low level of unification of powers and strong central bank involvement (central bank dominated multiple supervisor regimes). A trade‐off therefore emerges between the degree of financial sector unification and the role of the central bank. Two possible explanations of this relationship emerged: the blurring hazard effect and the monopolistic bureau effect.

Details

Journal of Financial Regulation and Compliance, vol. 12 no. 2
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 31 July 2007

Donato Masciandaro, Maria J. Nieto and Henriette Prast

This paper aims to analyse the economics of financing banking supervision and attempts to respond to two questions: What are the most common financing practices? Can the…

1252

Abstract

Purpose

This paper aims to analyse the economics of financing banking supervision and attempts to respond to two questions: What are the most common financing practices? Can the differences in current financing practices be explained by country‐specific factors, using a path‐dependence approach?

Design/methodology/approach

The paper performs an empirical analysis that identifies the determinants of the financing structure of banks' prudential supervision using a sample of 90 banking supervisors (central banks and financial authorities).

Findings

The paper concludes that supervisors in central banks are more likely to be publicly funded, while financial authorities are more likely to be funded via a levy on the regulated banks. The financing rule is also explained by the structure of the financial systems. Public funding is more likely in bank‐oriented structures. Finally, the geographical factor is also significant: European bank supervisors are more oriented towards the private funding regime.

Practical implications

In general, the paper does not find evidence of the role of the political factor, the size of the economy, the level of development and the legal tradition.

Originality/value

The paper analyses the financial governance of banking supervision in a sample of 90 countries world‐wide. The empirical analysis focuses on the financing rules and identifies factors that explain the differences between supervisory authorities.

Details

Journal of Financial Regulation and Compliance, vol. 15 no. 3
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 20 June 2019

Chadi Azmeh

This paper aims to examine the impact of bank regulation and supervision on financial stability. Financial sector reform, especially in developing countries, takes the…

Abstract

Purpose

This paper aims to examine the impact of bank regulation and supervision on financial stability. Financial sector reform, especially in developing countries, takes the form of a sudden adjustment in regulation and supervision. The main objective of the paper is to examine whether this fast and sudden adjustment in regulation and supervision has an undesirable impact on financial stability. Furthermore, the paper examines the role of real economic development in determining the impact of financial reform on financial stability.

Design/methodology/approach

Empirically, on a sample of 57 developing countries over the period 2000-2013, the author explored the impact of bank regulation and supervision on financial stability for different sub-groups of countries. The division is based on the real level of economic development and, most importantly, on the speed of adjustment in regulation and supervision. The study uses the cross-sectional–ordinary least square model. Each country has three observations (average 2000-2004, average 2005-2008 and average 2009-2013), which are convenient, with the date of the three surveys on regulation and supervision (2002-2006-2011). The period of the averages is selected to cover periods before and after the survey as regulation and supervision may be adopted before the survey and as its impact may persist for the period after.

Findings

The major finding of this study is that it supports the important role of the speed of adjustment in regulation and supervision, and its impact on financial stability. Soft adjustment in regulation and supervision has more positive impact on financial stability than fast adjustment. Activity restrictions have positive and significant impact on financial stability in soft adjustment countries’ group. On the other hand, in countries with fast adjustment, results show negative and statistically significant impact on financial stability, especially for supervisory independence. More time is needed for supervisors to adapt to new regulation and supervision and gain expertise to monitor financial condition of banks in a consistent manner. Results also show that the level of economic development is an important factor when testing the impact of regulation and supervision on financial stability. In lower income countries, more room is available for corruption in lending, which has a negative impact on financial stability.

Practical implications

This study advocates the necessity of taking the speed of adjustment in regulation and supervision by policymakers in developing countries, while initiating reform in the financial sector. Financial sector reform that takes the form of a sudden adjustment in regulation and supervision may have undesirable results in terms of financial stability. On the other hand, soft adjustment in regulation and supervision, which gives more room for supervisors to adapt and gain expertise, may have more positive impact on financial stability.

Originality/value

This paper is the first paper to explore new methods of calculating the speed of adjustment in regulation and supervision, and to examine whether the high speed of financial reform in developing countries has an undesirable impact on financial stability.

Details

Journal of Financial Regulation and Compliance, vol. 27 no. 4
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 19 June 2020

Nurazilah Zainal, Annuar Md Nassir, Fakarudin Kamarudin and Siong Hook Law

The purpose of this study is to examine how banking regulation and supervision affect the performance of microfinance institutions (MFIs). It proposes performance of the…

Abstract

Purpose

The purpose of this study is to examine how banking regulation and supervision affect the performance of microfinance institutions (MFIs). It proposes performance of the MFIs from the aspect of social and financial efficiency because the MFIs nowadays not only view to sustain the social role of poverty eradication but in the same time they must strive the financial sustainability to maintain the operation in long run. This study also includes the macroeconomic condition and firm level variables to control for social and financial efficiency of the MFIs.

Design/methodology/approach

The data consists 168 MFIs from five countries in Southeast Asia from year 2011 to 2017. First stage of analysis is to identify level of social and financial efficiency by using data envelopment analysis approach. Second stage is to examine impact of bank regulation and supervision to the social and financial efficiency by applying panel regression analysis and generalized method of moments for robust estimation methods.

Findings

The finding shows the MFIs own lower social efficiency and higher score in financial efficiency. This indicates in pursuing financial sustainability, the MFIs in Southeast Asia countries have lost sight of their original mission of poverty reduction. Furthermore, the result also presents a significant impact of bank regulation and supervision to the social and financial efficiency of the MFIs. However, the results appear in different direction when more negative effect is associated with social efficiency. This specifies that bank regulation and supervision are not appropriate to accommodate the social needs, thus hampering the effort of poverty reduction by the MFIs.

Research limitations/implications

The present study only concentrates on the impact bank regulation and supervision to the performance of the MFIs. As the operation of the MFIs currently has been largely exposed in banking operation, it is suggested that future studies to look for other special issues such as country governance that might influence specifically in social and financial aspect of the MFIs.

Practical implications

The empirical findings from this study could be useful and may have significant implications for the regulators. The regulators or policymakers could establish the new regulation framework that fulfil the dual needs (social and financial) of the MFIs. Furthermore, the empirical findings also could serve as guidance to regulators and decision-makers in designing new policies for a sustainable and competitive sector of the MFIs. Although the MFIs recently brings a similar role as commercial banks, they need to retain the social aspects as that is the original mission of the MFIs

Originality/value

The present study proves that the bank regulation and supervision have brought a significant influence to the performance of the MFIs in ASEAN 5 countries.

Details

Studies in Economics and Finance, vol. 38 no. 2
Type: Research Article
ISSN: 1086-7376

Keywords

Article
Publication date: 1 March 2004

Andreas Grünbichler and Patrick Darlap

The paper highlights what are currently the most relevant aspects in the debate surrounding the possible reform in the institutional setup of financial markets regulation…

Abstract

The paper highlights what are currently the most relevant aspects in the debate surrounding the possible reform in the institutional setup of financial markets regulation and supervision, not least about the future role of Central Banks. As a preliminary question, the definition of financial stability is addressed. Then, the importance of stability for the economy and the specific role of regulators and supervisors and possible regulatory failure are discussed. On this basis, a possible evolving design for regulation and supervision on a national and a European level has to be checked against optimality, taking into account the different objectives of state intervention into the market. Finally the state of play in the institutional reform of European financial market legislation is described.

Details

Journal of Financial Regulation and Compliance, vol. 12 no. 1
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 9 November 2015

Larry D Wall

The purpose of this paper is to develop an explicitly macroprudential supervisory framework designed to identify threats to financial stability use existing mechanisms to…

Abstract

Purpose

The purpose of this paper is to develop an explicitly macroprudential supervisory framework designed to identify threats to financial stability use existing mechanisms to reduce the risk of these threats and to provide information to the authorities to more efficiently mitigate any instability that does arise.

Design/methodology/approach

This paper begins with an analysis of the limitations of microprudential regulation. It then develops a macroprudential surveillance framework focused on those financial markets that have the potential to undermine financial stability. It concludes with a discussion of how the surveillance results may be used to enhance financial stability.

Findings

The current supervisory focus on microprudential supervision of systemically important institutions is insufficient; an explicitly macroprudential focus is required.

Research limitations/implications

Although this paper’s conceptual framework is applicable to all advanced financial systems the discussion of specific regulatory structures focuses on the USA.

Practical implications

An explicit supervisory focus on the threats posed by major financial markets is feasible and desirable.

Social implications

The probability of a financial crisis and the economic damage caused by a crisis can be significantly reduced by redirecting some regulatory efforts toward in-depth analysis of major financial markets.

Originality/value

The paper emphasizes that macroprudential supervision must include both quantitative and detailed analysis of the qualitative aspects of key markets.

Details

Journal of Financial Regulation and Compliance, vol. 23 no. 4
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 1 January 2001

Kern Alexander

The need for international regulation of financial markets became apparent in the mid‐1970s in response to the post‐Bretton Woods liberalisation of financial markets. The…

Abstract

The need for international regulation of financial markets became apparent in the mid‐1970s in response to the post‐Bretton Woods liberalisation of financial markets. The elimination of the fixed exchange rate parity with gold resulted in the privatisation of financial risk, which created pressure to eliminate controls on cross‐border capital movements and the further deregulation of financial markets. It became necessary for national regulatory authorities to promote safe and sound banking systems through the effective management of systemic risk in national markets. Similarly, the need for international standards of prudential supervision was also recognised, to prevent solvent banking institutions in one jurisdiction from losing business to less respectable institutions operating in other jurisdictions whose laws permitted cut‐rate financial services and other risky financial practices. The privatisation of financial risk also created the need for financial institutions to spread their risks over many assets and activities, which led, in turn, to a significant increase in short‐term cross‐border portfolio investment that has, in many instances, exposed capital‐importing countries to increased systemic risk due to the volatility of such investments.

Details

Journal of Financial Crime, vol. 8 no. 3
Type: Research Article
ISSN: 1359-0790

Article
Publication date: 1 March 2001

Kern Alexander

This paper examines the need for international regulation of financial markets and suggests the possible role that a global financial supervisor might play in providing…

Abstract

This paper examines the need for international regulation of financial markets and suggests the possible role that a global financial supervisor might play in providing effective regulation of international financial markets. The first part discusses the nature of systemic risk in the international financial system and the necessity for international Minimum Standards of prudential supervision for banking institutions. The second part examines the efforts of the Basel Committee on Banking Supervision to devise non‐binding international standards for managing systemic risk in financial markets. Recent financial crises in Asia, Russia and Latin America suggest, however, that informal efforts by international bodies such as the Basel Committee are inadequate to address the risk of systemic failure in financial systems. The third part therefore argues that efficient international financial regulation requires certain regulatory functions to be performed by a global supervisor acting in conjunction with national regulatory authorities. These functions should involve the authorisation of financial institutions, generation of rules and standards of regulatory practice, surveillance of financial markets, and coordination with national authorities in implementing and enforcing such standards.

Details

Journal of Money Laundering Control, vol. 5 no. 1
Type: Research Article
ISSN: 1368-5201

Article
Publication date: 3 May 2013

Christopher P. Buttigieg and Martha Chetcuti

The purpose of this paper is to test two hypotheses: first, that the regulatory framework applicable to funds in Malta and the Malta Financial Services Authority's…

Abstract

Purpose

The purpose of this paper is to test two hypotheses: first, that the regulatory framework applicable to funds in Malta and the Malta Financial Services Authority's (MFSA's) approach to financial supervision, have been instrumental to the process which made Malta an attractive jurisdiction for the registration of funds; and second, that the proper implementation of the Alternative Investment Fund Managers Directive (AIFMD) and the sustained commitment of the MFSA to engage qualified resources for proper supervision of the financial sector are fundamental, if Malta is to remain an attractive funds jurisdiction.

Design/methodology/approach

The research was carried out through a literature review of available documentation and empirical research via a survey carried out by way of a questionnaire that was sent to a selected sample of fund professionals operating in Malta.

Findings

The findings of the empirical research suggest that the regulatory and supervisory regime in Malta has indeed played a pivotal role in establishing Malta as a funds jurisdiction. The research has also confirmed the challenges which Malta is facing in this field.

Originality/value

The paper examines the regulation and the supervision of funds in Malta and sheds light on the challenges that need to be overcome if Malta is to retain its position as a jurisdiction for the registration of funds. The authors also make recommendations on how the challenges may be addressed.

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