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The Banking Sector Under Financial Stability
Type: Book
ISBN: 978-1-78769-681-5

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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

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Article
Publication date: 3 August 2021

Antony Rahim Atellu, Peter Muriu and Odhiambo Sule

This paper aims to establish the effect of bank regulations on financial stability in Kenya. Specifically, the study seeks to uncover the effect of micro and macro…

Abstract

Purpose

This paper aims to establish the effect of bank regulations on financial stability in Kenya. Specifically, the study seeks to uncover the effect of micro and macro prudential regulations on financial stability and their trade-offs or complementarities.

Design/methodology/approach

Using annual time series data over the period 1990–2017, the study uses structural equation model (SEM) estimation technique. This solves the problem of approximating measurement errors, using both latent constructs and indicator constructs.

Findings

Study findings reveal that macro and micro prudential regulations are significant drivers of financial stability. Further, prudential regulations are more effective when they complement each other.

Research limitations/implications

This study centers on how bank regulations affect financial stability. Future research could be carried out on the effect of Non-Bank Financial Institutions regulations on financial system stability.

Practical implications

Complementing macro and micro prudential regulation is more effective and efficient in ensuring stability of the financial system other than letting the two policy objectives operate independently.

Social implications

Regulatory authorities should introduce prudential regulations that would encourage innovations in the banking sector. This ensures easy deposit mobilization that enhances financial inclusion. Prudential regulations that ensure financial stability will be effective when low income earners are included in the financial system.

Originality/value

To the best of the authors’ knowledge, this study is the first to investigate the role of banking regulations on financial stability. This study is also pioneering in the use of SEM estimation technique, in examining how prudential regulations affect financial stability. Previous cross-country studies have focused on macro prudential regulations ignoring the importance of micro prudential regulations.

Details

Journal of Financial Regulation and Compliance, vol. 29 no. 5
Type: Research Article
ISSN: 1358-1988

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Central Bank Policy: Theory and Practice
Type: Book
ISBN: 978-1-78973-751-6

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Article
Publication date: 9 February 2015

Alexander Stöhr

Financial crises pose a challenge to the legal systems of the concerned countries and international organizations. The current crisis has exposed significant failures of…

Abstract

Purpose

Financial crises pose a challenge to the legal systems of the concerned countries and international organizations. The current crisis has exposed significant failures of regulation and supervision, making the Financial Market Law a key topic on the political agenda. Thus, great changes and challenges are ahead of us. These were the focus of an interdisciplinary and comparative conference held at the University of Marburg. The paper deals with the individual presentations and carries out an overall analysis.

Design/methodology/approach

The paper covers the most important issues in financial regulation.

Findings

An extensive regulation is confronted with several obstacles; suitable approach could be the co-regulation; desirable aim is the instauration of the mechanism of capital markets. Those who gain the benefits in case of success should also bear the losses in case of failure instead of being rescued at taxpayers’ expense.

Originality/value

The difficulties arising from extensive regulation suggest a more liberal approach to financial regulation.

Details

Journal of Financial Regulation and Compliance, vol. 23 no. 1
Type: Research Article
ISSN: 1358-1988

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Book part
Publication date: 25 July 2019

Perry Warjiyo and Solikin M. Juhro

Abstract

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Central Bank Policy: Theory and Practice
Type: Book
ISBN: 978-1-78973-751-6

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Abstract

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Central Bank Policy: Theory and Practice
Type: Book
ISBN: 978-1-78973-751-6

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Article
Publication date: 12 July 2021

Ignacio Moreno, Purificación Parrado-Martínez and Antonio Trujillo-Ponce

Despite the sophisticated regulatory regime established in Solvency II, analysts should be able to consider other less complex indicators of the soundness of insurers. The…

Abstract

Purpose

Despite the sophisticated regulatory regime established in Solvency II, analysts should be able to consider other less complex indicators of the soundness of insurers. The Z-score measure, which has traditionally been used as a proxy of individual risk in the banking sector, may be a useful tool when applied in the insurance sector. However, different methods for calculating this indicator have been proposed in the literature. This paper compares six different Z-score approaches to examine which one best fits insurance companies. The authors use a final dataset of 183 firms (1,382 observations) operating in the Spanish insurance sector during the period 2010–2017.

Design/methodology/approach

In the first stage, the authors opt for a root mean squared error (RMSE) criterion to evaluate which of the various mean and SD estimates that are used to compute the Z-score best fits the data. In the second stage, the authors estimate and compare the explanatory power of the six Z-score measures that are considered by using an ordinary least squares (OLS) regression model. Finally, the authors report the results of the baseline equation using the system-GMM estimator developed by Arellano and Bover (1995) and Blundell and Bond (1998) for dynamic panel data models.

Findings

The authors find that the best formula for calculating the Z-score of insurance firms is the one that combines the current value of the return on assets (ROA) and capitalization with the SD of the returns calculated over the full sample period.

Research limitations/implications

The main limitation of the research is that it addresses only the Spanish insurance sector, and consequently, the implications of the findings must be framed in this institutional context. However, the authors think that the results could be extrapolated to other countries. Future research should consider including different countries and analyzing the usefulness of aggregated insurer-level Z-scores for macroprudential monitoring.

Practical implications

The Z-score may be a useful early warning indicator for microprudential supervision. In addition to being an indicator of the soundness of insurers simpler than those established in the current regulation, the information provided by this accounting-based measure may help analysts and investors obtain a better understanding of insurance firms' risk factors.

Originality/value

To the best of the authors’ knowledge, this study is the first to examine and compare different approaches to calculating Z-scores in the insurance sector. The few available results on the predictive power of the Z-score are mixed and focus on the banking sector.

研究目的

雖然在償付能力標準II 內已建立了精密的監管制度,但分析人員應可以考慮以不太複雑的指標,來分析保險公司的穩健程度。Z-分數的估量在銀行業一向作為是個體風險的代理而使用,而Z-分數如應用於保險業,或許會成為有用的工具。唯在文獻裏,學者和研究人員提出了不同的方法來計算這個指標。本文比較六個不同的Z-分數估量方法,以研究出最適合保險公司的方法。我們使用一個最終數據集,包括在2010年至2017年期間在西班牙保險業界營運的183間公司(1382 個觀察)。

研究設計/方法/理念

在首個階段,我們選擇使用一個方均根誤差(RMSE) 標準來衡量用來計算Z-分數的各個平均值和標準差估量中哪個最適合使用於有關的數據。在第二個階段, 我們以普通最小平方 (OLS) 迴歸模型,去估計並比較被考慮的六個Z-分數估量的解釋力。最後,我們以Arellano與Bover (1995), 以及Blundell與Bond (1998) 為動態追蹤資料模型而發展出來的系統-廣義動差估計推定量,來發表我們基線方程式的結果。

研究結果

我們發現,計算保險公司Z-分數的最佳公式是把資產收益率及資本總額的現值,和在整個樣本期間計算出來的囘報的標準差結合起來的公式。

研究的局限/含意

我們研究主要的局限為:研究只涉及西班牙的保險業;因此,研究結果的含意,必須在這個體制的背景框架下來闡釋。唯我們相信研究結果或許可外推至其它國家。未來的研究,應考慮納入不同國家作為研究對象,並分析保險公司層面的集成Z-分數的功用,以求達到宏觀審慎監控的目的。

實際意義

Z-分數或許就微觀審慎監管而言是一個有用的早期警告器。這些以會計為基礎的估量而提供的資訊,除了較現時規例内已建立顯示保險公司穩健程度的各個指標更簡單外,還會幫助分析人員和投資者更了解保險公司的風險因素。

研究的原創性/價值

據我們所知,本研究為首個研究,去探討並比較保險業內的Z-分數的計算方法。以前關於Z-分數預測能力的,為數不多並可供取閱的研究結果均不統一;而且,這些研究都聚焦探討銀行業。

Details

European Journal of Management and Business Economics, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2444-8451

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Book part
Publication date: 25 July 2019

Perry Warjiyo and Solikin M. Juhro

Abstract

Details

Central Bank Policy: Theory and Practice
Type: Book
ISBN: 978-1-78973-751-6

To view the access options for this content please click here
Book part
Publication date: 23 October 2017

Dragan Momirović, Marko Janković and Maja Ranđelović

The economic and financial crisis, especially the sovereign debt crisis, discovered many deficiencies and weaknesses in the banking sector in the European Union (EU). The…

Abstract

The economic and financial crisis, especially the sovereign debt crisis, discovered many deficiencies and weaknesses in the banking sector in the European Union (EU). The need for special surveillance and supervision of cross-border banking cooperation and termination of the toxic link between sovereign debt and banking sector have accelerated the process of forming and establishing a Banking Union (BU). An integrated financial framework has been established in which the European Central Bank (ECB) through the Single Supervisory Mechanism (SSM) has a key role and the responsibility for the overall supervision of the banking sector of the euro zone. The Single Resolution Mechanism (SRM) and schemes of the Single Deposit Guarantee Mechanism (SDGM) are under the national supervisory authorities while the European Banking Authority (EBA) is responsible for developing the Single Rules. From the new architecture is expected the preservation of the single market and a common currency, breaking “toxic connections” between sovereign debt and banks, mitigation and removal of financial instability and economic growth. The research shows that the BU together with the ECB in a certain sense, also contributes to the normalization of credit and financial conditions in the single mark. Estimates through SSM, conducted by the ECB and the EBA, during, 2014 and 2015 on 107 banks in 21 countries indicate progress toward solvency and resilience of the banking system of the euro area. Despite some initial success the entire project BU seems to have missed on opportunities, resulted in late reactions, and was too complex to be feasible. The political will of national governments to give up sovereignty over its banking sector and transfer competencies to the supranational institutions is a key factor in the success or failure of a BU. It seems so but past experience indicates that there is no political willingness to solve problems. Mainly most of the government avoids cleaning a hidden “skeleton in closets” due to lack of means for recapitalization while some are trying for loans from the ECB to help their banks. The ECB plays a key oversight role at the EU level and has too much power, which can cause risks caused by conflicting goals. The ECB is losing the role of the final refuge of liquidity, which is the main disadvantage of a BU. The SSM is susceptible to criticism due to difficulty in operation because of slow incorporation of European legislation into national law. Slow implementation carries risks of fragmentation of the market, regardless of the responsibility of the ECB. The financial capacity of the temporary agreement with the SRM is insufficient in solving the crisis of more banks while procedural application is complex and time-consuming. Planned backstop with a centralized resource is a resolution that is insufficient for solving the failure of big systemic banks, which are too big to bail. The heterogeneity of the existing Deposit Guarantee Schemes (DGS) and the banking systems of the member states of the euro zone caused controversy in terms of setting of common insurance schemes. The procedures for the recovery and resolution of critical banks are problematic.

Details

Economic Imbalances and Institutional Changes to the Euro and the European Union
Type: Book
ISBN: 978-1-78714-510-8

Keywords

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