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Article
Publication date: 9 November 2012

Isaac Ofoeda, Joshua Abor and Charles K.D. Adjasi

The purpose of this study is to examine the relationship between regulation of non‐bank financial institutions and their risk‐taking behaviours in Ghana.

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Abstract

Purpose

The purpose of this study is to examine the relationship between regulation of non‐bank financial institutions and their risk‐taking behaviours in Ghana.

Design/methodology/approach

The analysis is performed using data derived from the Bank of Ghana Database during a five‐year period, 2006‐2010. Correlated Panels Corrected Standard Errors model is used to estimate the regression equation. Capital adequacy requirements and the restrictions on non‐bank financial institutions' (NBFIs') ability to take deposits are used as proxies for regulatory pressure. The study also used the ratio of risks weighted assets‐to‐total assets, the ratio of non‐performing loans‐to‐net loans and the Z‐scores of NBFIs as measures of risk.

Findings

The results of the study show a negative relationship between minimum capital adequacy requirement and the risks weighted assets of NBFIs. This indicates that, asking NBFIs to keep higher minimum capital adequacy ratio results in reducing their risk‐taking. The results also indicate a positive relationship between regulatory pressure and risk weighted assets of NBFIs. The paper however found a negative relationship between restrictions on deposits and the risk of insolvency. The findings suggest that, non‐deposit‐taking NBFIs have higher risk weighted assets and are more prone to the risk of insolvency than deposit‐taking NBFIs.

Originality/value

The value of this study is in respect of its contribution to the extant literature on financial regulation and risk‐taking of NBFIs.

Details

Journal of Financial Regulation and Compliance, vol. 20 no. 4
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 1 March 2005

Andreas Jobst

This paper provides a comprehensive overview of the gradual evolution of the supervisory policy adopted by the Basel Committee for the regulatory treatment of asset

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Abstract

This paper provides a comprehensive overview of the gradual evolution of the supervisory policy adopted by the Basel Committee for the regulatory treatment of asset securitisation. The pathology of the new “securitisation framework” is carefully highlighted to facilitate a general understanding of what constitutes the current state of computing adequate capital requirements for securitised credit exposures. Although a simplified sensitivity analysis of the varying levels of capital charges depending on the security design of asset securitisation transactions is incorporated, the author does not engage in a profound analysis of the benefits and drawbacks implicated in the new securitisation framework.

Details

Journal of Financial Regulation and Compliance, vol. 13 no. 1
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 11 November 2013

Kersten Kellermann and Carsten Schlag

In September 2009, G20 representatives called for introducing a minimum leverage ratio as an instrument of financial regulation. It is supposed to assure a certain degree of core…

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Abstract

Purpose

In September 2009, G20 representatives called for introducing a minimum leverage ratio as an instrument of financial regulation. It is supposed to assure a certain degree of core capital for banks, independent of the controversial procedures used to assess risk. The paper aims to discuss these issues.

Design/methodology/approach

This paper discusses the interaction and tensions between the leverage ratio and risk-based capital requirements, using financial data of the Swiss systemically important bank United Bank of Switzerland.

Findings

It can be shown that the leverage ratio potentially undermines risk weighting such that banks feel encouraged to take greater risks.

Originality/value

The paper proposes an alternative instrument that is conceived as a base risk weight and functions as a backstop. It ensures a minimum core capital ratio, based on unweighted total exposure by ensuring a minimum ratio of risk-weighted to total assets for all banks. The proposed measure is easy to compute like the leverage ratio, and also like the latter, it is independent of risk weighting. Yet, its primary advantage is that it does not supersede risk-based capital adequacy targets, but rather supplements them.

Details

Journal of Financial Regulation and Compliance, vol. 21 no. 4
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 1 March 2004

Andrew Cornford

This paper is a commentary on the third in the series of consultative papers (CP3) on a NewBasel Capital Accord for banks, earlier papers being issued in 1999 and 2001. While CP3…

Abstract

This paper is a commentary on the third in the series of consultative papers (CP3) on a New Basel Capital Accord for banks, earlier papers being issued in 1999 and 2001. While CP3 retains the overall structure of its predecessor, it contains many revisions and a more complete set of rules. Greater coherence has not, however, been accompanied by a reduction in complexity. This is partly an inevitable consequence of attempting to set global standards for banks at different levels of sophistication. But it also reflects financial innovation and the growing complexity of banking practice, which are a continuing source of problems for regulation. Many of the revisions in CP3 in comparison with 2001 are a response to representations from governments and the financial sector in areas such as greater flexibility regarding adoption of different elements of the internal ratingsbased approach, adjustment of the risk weights for lending to small and medium‐sized enterprises (SMEs) to avoid punitively high interest charges, and a less prescriptive approach to measuring operational risk under the most advanced option for handling the subject. The Basel Committee on Banking Supervision intends to address some continuing reservations concerning the shape of the New Accord before mid‐2004. Even these further changes, however, are unlikely to bring on board major countries which have declared that they will not apply the New Accord or limit its application to a minority of their banks.

Details

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

Keywords

Abstract

Details

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

Article
Publication date: 3 April 2017

Heba Abou-El-Sood

The purpose of this paper is to show the importance of policy discussions on the role of governance in limiting excessive risk-taking at times of turmoil.

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Abstract

Purpose

The purpose of this paper is to show the importance of policy discussions on the role of governance in limiting excessive risk-taking at times of turmoil.

Design/methodology/approach

Corporate governance measures are regressed on measures of risk taking using a sample of US bank holding companies (BHCs) during 2002-2014.

Findings

Results show that BHCs with more concentrated shareholders, more managerial ownership, smaller boards, and less outside directors undertake less risky investments with respect to total assets, loans, and off-balance-sheet items. Capital adequacy effect is overpowering pushing for more risky positions. Finally, banks with good governance push for less risky positions, even with larger capital ratios, during the financial crisis period relative to the precrisis boom.

Practical implications

This paper extends research on the association between bank ownership structure and risk taking. It adds to prior research by examining a key feature of banks, namely, their bank-specific capital adequacy. The relevance of this study stems from recent initiatives undertaken by the Basel Committee, the Group of Thirty (G30), and bank regulators to address deficient corporate governance structures that led to bank breakdowns.

Originality/value

One of the innovations of this paper is the use of risk-weighted measures to proxy for risk taking in banks, using risk weights used by bank regulators to adjust for operational risk, credit risk, and market risk.

Details

International Journal of Managerial Finance, vol. 13 no. 2
Type: Research Article
ISSN: 1743-9132

Keywords

Book part
Publication date: 17 January 2023

Sylvia Gottschalk

Cryptoassets have recently attracted the attention of national and international financial regulators. Since the mid-2010s blockchains have increasingly been adapted to automate…

Abstract

Cryptoassets have recently attracted the attention of national and international financial regulators. Since the mid-2010s blockchains have increasingly been adapted to automate and replace many aspects of financial intermediation, and by 2015 Ethereum had created the smart contract language that underpins the digitization of real assets as asset-backed tokens (ABTs). Those were initially issued by FinTech companies, but more recently banks active on international capital and financial markets, and even central banks, for example, the Bank of Thailand, have developed their own digital platforms and blockchains. A wide variety of real and financial assets underpins ABTs, viz., real-estate, art, corporate and sovereign bonds, and equity. Consequently, owing to the significant market capitalization of cryptocurrencies, the Basel Committee on Banking Supervision (BCBS) published two consultative papers delineating its approach on cryptoasset regulation. In this study, the authors analyze the mechanics of ABTs and their potential risks, relying on case studies of recent issuance of tokens in equity, real-estate, and debt markets, to highlight their main characteristics. The authors also investigate the consequences of the increasingly oligopolistic structure of blockchain mining pools and Bitcoin exchanges for the integrity and security of unregulated distributed ledgers. Finally, the authors analyze the BCBS’ regulatory proposals, and discuss the reaction of international financial institutions and cryptocurrency interest groups. The main findings are, firstly, that most ABTs are akin to asset-backed securities. Secondly, nearly all ABTs are “off-chain/on-chain,” that is, the underlying is a traditional asset that exists off-chain and is subsequently digitized. The main exception is the World Bank’s bond-i that is genuinely native to the blockchain created by the Commonwealth Bank of Australia, and has no existence outside it. Thirdly, all ABTs are issued on permissioned blockchains, where anti-money laundering/anti-terrorist funding and know-your-customer regulations are enforced. From a prudential regulatory perspective, ABTs do not appear to pose serious systemic risks to international financial markets. This may account for the often negative reactions of banks, banking associations, and cryptocurrency interest groups to the BCBS’ 2021 proposals for risk-weighted capital provisions for cryptoassets, which are viewed as excessive. Finally, we found that issuance of ABTS and other smart contracts on permissionless blockchains such as Bitcoin and Ethereum could potentially generate financial instability. A precedent involving Ethereum and The DAO in 2016 shows that (i) there is a significant accountability gap in permissionless blockchains, and (ii) the core developers of blockchains and smart contract technology, and Bitcoin mining pools, exercise an unexpectedly high- and completely unregulated-amount of power in what is supposedly a decentralized network.

Abstract

Details

Tools and Techniques for Financial Stability Analysis
Type: Book
ISBN: 978-1-78756-846-4

Article
Publication date: 1 January 2006

Christoph Pitschke and Stephan Bone‐Winkel

The New Basel Capital Accord (Basel II) was published in June 2004. This modification of the regulatory framework for banking institutions raises the question to what extent real…

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Abstract

Purpose

The New Basel Capital Accord (Basel II) was published in June 2004. This modification of the regulatory framework for banking institutions raises the question to what extent real estate financing will be impacted and how market participants can be adequately prepared. Aims to examine the impact of Basel II on the future pricing and availability of debt capital and on the cost of capital in real estate financing and to present possible reactions for real estate developers.

Design/methodology/approach

This research paper follows a deductive approach. First, the New Basel Capital Accord and the main features of commercial real estate financing are presented. On a normative level, the implications for developers are explained. Since no information regarding the behaviour of market participants in commercial real estate financing was available, the authors have ascertained the relevant questions within the framework of an empirical analysis. A total of 205 banking institutions were asked to fill out a survey pertaining to commercial real estate financing. The results of this survey are partly presented and interpreted.

Findings

The availability and the pricing of debt capital will be risk‐adjusted and will depend on the amount of regulatory equity banks will have to hold in reserve for a credit engagement. The cost of debt capital in real estate financing will rise due to systemic reasons of the New Basel Capital Accord. Banks are/will be very restrictive with regard to credit allowances. The use of the positive leverage effect will become more difficult. Structured financing, particularly the use of private equity, is the best way to fill a potential financing gap.

Originality/value

The paper is a timely investigation of a significant regulatory framework that is of world‐wide significance. The New Basel Capital Accord is introduced in its fundamental structure and the two relevant rating approaches are described and put into context. The paper reduces the complexity of the comprehensive and sophisticated Basel Capital Accord. Based on the facts that have been analysed, recommendations of how real estate developers can react to the changes in financing that lie ahead are given.

Details

Journal of Property Investment & Finance, vol. 24 no. 1
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 21 September 2021

Faisal Abbas and Adnan Bashir

The purpose of this study is to investigate the impact of leverage, regulatory capital and tier-I capital ratios on the ex ante and ex post risk of Japanese banks.

Abstract

Purpose

The purpose of this study is to investigate the impact of leverage, regulatory capital and tier-I capital ratios on the ex ante and ex post risk of Japanese banks.

Design/methodology/approach

To test the hypotheses, the authors have implemented a panel of 507 commercial and cooperative banks of Japan over the period extending from 2001 to 2020, using a two-step system Generalized Method of Moments (GMM) framework.

Findings

The overall sample banks' results show that the impact of leverage, regulatory capital and tier-I capital ratios on ex ante and ex post risk is positive. The findings reveal that the effects of regulatory and tier-I capital ratios on ex post risk are negative (positive) for commercial (cooperative) banks, high-liquid, low-liquid and high-growth banks in Japan. In addition, the regulatory capital ratio is more beneficial for risk due to its power to absorb losses. The lagged coefficient indicates that banks require more time to adjust their ex post and ex ante risk during crisis period than during normal economic conditions.

Practical implications

The heterogeneity in results has practical implications for regulators, policymakers and bank managers in formulating the capital requirement guidelines with respect to ex ante and ex post risk across different categories and characteristics of banks.

Originality/value

To the best of the authors' knowledge, this is the first study investigating the impact of leverage, regulatory capital and tier-I capital ratios on the ex ante and ex-post risk of Japanese commercial and cooperative banks over the period from 2001 to 2020. The insights into the impact of leverage, regulatory capital and tier-I capital ratios on the ex ante and ex post risk of well-capitalized, under-capitalized, high and low-liquid banks are new in the context of Japan.

Details

Journal of Economic and Administrative Sciences, vol. 39 no. 4
Type: Research Article
ISSN: 1026-4116

Keywords

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