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Article
Publication date: 11 May 2015

Eva Ka Yee Kan and Mahmood Bagheri

This paper aims to explain the importance of the international cooperation and coordination among supervisory authorities of different countries in event of banking crises. It…

Abstract

Purpose

This paper aims to explain the importance of the international cooperation and coordination among supervisory authorities of different countries in event of banking crises. It also suggests that the harmonious relationship has to be attained in the adoption of ex ante financial regulatory measures and ex post compensation schemes. In other words, the paper highlights the linkage between ex ante preventive regulatory measures and ex post compensation schemes, on the one hand, and cooperation among national regulatory and supervisory authorities in globalized financial markets. Although the paper is relevant to most developed and emerging financial markets, it chooses Hong Kong as a context to examine this proposal. In the current literature, there are no similar approach linking these two paradigms and examining them in an integrated context.

Design/methodology/approach

The paper adopts a conceptual framework after the 2008 global financial crisis and takes Hong Kong, an international financial centre in which numerous branches or subsidiaries of foreign financial institutions locate, as an example to examine how the coordination with foreign supervisory authorities are being conducted and to analyse whether the present regulatory framework in Hong Kong is effective and sufficient against banking crises. Through the review of the literature, the important link between ex ante regulatory measures and ex post compensation schemes is found to be significant in adopting proper solutions.

Findings

Through analysing the Hong Kong financial regulators’ reports on the collapse of Lehman Brother, the paper finds out that even though there is some weakness in the cooperation and coordination between regulators after the 2008 financial crisis, Hong Kong is still in the progress of proposing bank special resolution regime. Although there has been some awareness on the issue of coordination between home and host states regulatory measures, there is still a lack of awareness of the connection between regulatory measures and compensation schemes.

Research limitations/implications

Conflict of interests could hardly be prevented in the course of cooperation and coordination among home and host regulatory authorities, and the coordination of the important link between ex ante regulatory measures and ex post compensation scheme which involves legal and economic analyses is a challenging task.

Practical implications

The paper’s findings show that there are practical implications for the recent rapid development of special resolution regime for global systematically important financial institutions against future banking crises and for managing the balance between the adoption of financial supervisory laws and special resolution measures.

Originality/value

This paper suggests that the harmonious coordination between ex ante regulatory measures and ex post compensation schemes has to be achieved through international context to avoid the absurd situations. This conceptual integrated framework presented in the current paper is not touched upon by the existing literature. This important concept is valuable for future research, and it is significant to financial regulators, legislators and the government in adjusting policy against banking crises in both developed and developing countries.

Details

International Journal of Law and Management, vol. 57 no. 3
Type: Research Article
ISSN: 1754-243X

Keywords

Open Access
Article
Publication date: 26 October 2021

Guoxiang Song

Because systemically important banks' takeovers in the US were expected to contain the 2008 global financial crisis (GFC) but were found to have imposed large cost on…

1392

Abstract

Purpose

Because systemically important banks' takeovers in the US were expected to contain the 2008 global financial crisis (GFC) but were found to have imposed large cost on shareholders, this paper examines the effectiveness of these acquisitions during the GFC and investigates what went wrong with the market for corporate control of large banks.

Design/methodology/approach

This paper presents a model of the disciplinary takeover based on the efficient market hypothesis which provides appropriate measures for it to examine the financial performance of acquiring banks after takeover.

Findings

The results indicate that the takeover market for large banks was ineffective in two aspects: the market did not distinguish strong banks from weak banks before the crisis and acquirers performed worse after takeover. Such ineffectiveness reflects the fundamental deficiencies of large bank takeovers arising from some key distinguishing characteristics of large banks.

Research limitations/implications

The sample size of systemically important banks' takeovers is small so large-sample standard statistical inferences cannot be used.

Practical implications

The deficiencies of large bank takeovers need to be rectified in order to aid in resolving future crises.

Originality/value

This paper provides rare and detailed insight based on case studies of large US bank takeovers during the GFC.

Details

Journal of Capital Markets Studies, vol. 6 no. 1
Type: Research Article
ISSN: 2514-4774

Keywords

Article
Publication date: 15 November 2011

Sigbjørn Atle Berg

There is an emerging consensus that systemically important banks should face stricter regulations and systemic surcharges. To make this latter principle operational the regulator…

392

Abstract

Purpose

There is an emerging consensus that systemically important banks should face stricter regulations and systemic surcharges. To make this latter principle operational the regulator will need to quantify the systemic importance of individual banks. The purpose of this paper is to review the proposed measures of systemic importance from the research community and discuss their merits relative to how a regulator would ideally wish to calibrate surcharges on systemically important banks, and to evaluate how useful proposed measures of the systemic importance of financial institutions will be to regulators.

Design/methodology/approach

The author reviews the main contributions to the research literature and discusses their relevance for the problem faced by regulators.

Findings

There are five main caveats that make the proposed measures of systemic importance less useful for regulators.

Practical implications

The proposed measures may help identify relevant aspects of systemic importance, but the regulators will need to construct their own measures for practical use.

Originality/value

The paper provides a critical review of a research literature that could potentially have large practical implications.

Details

Journal of Financial Regulation and Compliance, vol. 19 no. 4
Type: Research Article
ISSN: 1358-1988

Keywords

Open Access
Article
Publication date: 18 January 2024

Paola Ferretti, Cristina Gonnella and Pierluigi Martino

Drawing insights from institutional theory, this paper aims to examine whether and to what extent banks have reconfigured their management control systems (MCSs) in response to…

1015

Abstract

Purpose

Drawing insights from institutional theory, this paper aims to examine whether and to what extent banks have reconfigured their management control systems (MCSs) in response to growing institutional pressures towards sustainability, understood as environmental, social and governance (ESG) issues.

Design/methodology/approach

The authors conducted an exploratory study at the three largest Italian banking groups to shed light on changes made in MCSs to account for ESG issues. The analysis is based on 12 semi-structured interviews with managers from the sustainability and controls areas, as well as from other relevant operational areas particularly concerned with the integration process of ESG issues. Additionally, secondary data sources were used. The Malmi and Brown (2008) MCS framework, consisting of a package of five types of formal and informal control mechanisms, was used to structure and analyse the empirical data.

Findings

The examined banks widely implemented numerous changes to their MCSs as a response to the heightened sustainability pressures from regulatory bodies and stakeholders. In particular, with the exception of action planning, the results show an extensive integration of ESG issues into the five control mechanisms of Malmi and Brown’s framework, namely, long-term planning, cybernetic, reward/compensation, administrative and cultural controls.

Practical implications

By identifying the approaches banks followed in reconfiguring traditional MCSs, this research sheds light on how adequate MCSs can promote banks’ “sustainable behaviours”. The results can, thus, contribute to defining best practices on how MCSs can be redesigned to support the integration of ESG issues into the banks’ way of doing business.

Originality/value

Overall, the findings support the theoretical assertion that institutional pressures influence the design of banks’ MCSs, and that both formal and informal controls are necessary to ensure a real engagement towards sustainability. More specifically, this study reveals that MCSs, by encompassing both formal and informal controls, are central to enabling banks to appropriately understand, plan and control the transition towards business models fully oriented to the integration of ESG issues. Thereby, this allows banks to effectively respond to the increased stakeholder demands around ESG concerns.

Details

Meditari Accountancy Research, vol. 32 no. 7
Type: Research Article
ISSN: 2049-372X

Keywords

Open Access
Article
Publication date: 14 September 2020

Matteo Foglia, Alessandra Ortolano, Elisa Di Febo and Eliana Angelini

The purpose of this paper is to study the evolution of financial contagion between Eurozone banks, observing the credit default swaps (CDSs) market during the period 2009–2017.

1066

Abstract

Purpose

The purpose of this paper is to study the evolution of financial contagion between Eurozone banks, observing the credit default swaps (CDSs) market during the period 2009–2017.

Design/methodology/approach

The authors use a dynamic spatial Durbin model that enables to explore the direct and indirect effects over the short and long run and the transmission channels of the contagion.

Findings

The results show how contagion emerges through physical and financial market links between banks. This finding implies that a bank can fail because people expect other related financial institutions to fail as well (self-fulfilling crisis). The study provides statistically significant evidence of the presence of credit risk spillovers in CDS markets. The findings show that equity market dynamics of “neighbouring” banks are important factors in risk transmission.

Originality/value

The research provides a new contribution to the analysis of EZ banking risk contagion, studying CDS spread determinants both under a temporal and spatial dimension. Considering the cross-dependence of credit spreads, the study allowed to verify the non-linearity between the probability of default of a debtor and the observed credit spreads (credit spread puzzle). The authors provide information on the transmission mechanism of contagion and, on the effects among the largest banks. In fact, through the study of short- and long-term impacts, direct and indirect, the paper classify banks of systemic importance according to their effect on the financial system.

Details

Studies in Economics and Finance, vol. 37 no. 4
Type: Research Article
ISSN: 1086-7376

Keywords

Article
Publication date: 4 November 2013

Jacopo Carmassi and Richard John Herring

The purpose of this paper is to analyze whether and how “living wills” and public disclosure of such resolution plans contribute to market discipline and the effective resolution…

1256

Abstract

Purpose

The purpose of this paper is to analyze whether and how “living wills” and public disclosure of such resolution plans contribute to market discipline and the effective resolution of too big and too complex to fail banks.

Design/methodology/approach

The disorderly collapse of Lehman Brothers is analyzed. Large, systemically important banks are now required to prepare resolution plans (living wills). In the USA, parts of the living wills must be disclosed to the public. The public component is analyzed with respect to contribution to market discipline and effective resolution of banks considered too big and complex to fail. In a statistical analysis of the publicly available section of living wills, this information is contrasted with legislative requirements.

Findings

The analysis of public disclosures of resolution plans shows that they are insufficient to facilitate market discipline and, in some instances, fail to enhance public understanding of the financial institution and its business. When coupled with the uncertainty over how an internationally active financial institution will be resolved, the paper concludes that these reforms will do little to reduce market expectations that some financial firms are simply too big or too complex to fail.

Research limitations/implications

A very small data set and the necessity of cross-checking the authors' observations with all publicly available sources. The authors have also tried to infer a purpose for public disclosure of parts of resolution plans. The authorities are remarkably vague on the issue and so the authors have assumed they actually did have a specific intent that would strengthen the system.

Practical implications

The inference from the publicly available portion of living wills is that the authorities are a very long way from abolishing too-big-to-fail.

Originality/value

So far as the authors know, this is the first in-depth analysis of the information available in the public sections of living wills.

Details

Journal of Financial Economic Policy, vol. 5 no. 4
Type: Research Article
ISSN: 1757-6385

Keywords

Article
Publication date: 2 November 2015

Francesca Campolongo, Jessica Cariboni, Nathalie Ndacyayisenga and Andrea Pagano

The purpose of this paper is to do an empirical analysis assessing whether banks highly involved into trading activities show specific business model choices. Key factors in the…

Abstract

Purpose

The purpose of this paper is to do an empirical analysis assessing whether banks highly involved into trading activities show specific business model choices. Key factors in the analysis are a proper measure for trading activities and a consistent classification of banks in terms of business choices.

Design/methodology/approach

We investigate three measures for trading activities proposed by regulators in the context of bank structural reform in Europe. Through robust statistics we identify the key trading players and classify banks into a limited number of business model clusters, relying on a set of balance sheet and income statement indicators.

Findings

Using a sample of 100 European banks in 2007-2012, results show that the measures identify similar, but not identical, sets of banks highly involved into trading. The measure proposed by the European Commission selects fewer banks and is more consistent over time. The business model analysis identifies six rather stable clusters, from small-medium retail-focused banks to very large investment groups. The measures coherently identify as key trading players the largest investment groups and select very few retailed focused banks. Differences among measures arise for very large retail-diversified and medium/large wholesale banks.

Originality/value

These results could feed the debate on which measures for trading regulators could consider depending on the target of the reform they would implement. For instance we show that the measure proposed by the European Commission selects less well capitalized retail-diversified banks compared to the others.

Details

Journal of Financial Economic Policy, vol. 7 no. 4
Type: Research Article
ISSN: 1757-6385

Keywords

Article
Publication date: 26 January 2022

Burcu Gurol and Valentina Lagasio

This study aims to investigate the relationship between banks’ board structure and sustainability performance.

2718

Abstract

Purpose

This study aims to investigate the relationship between banks’ board structure and sustainability performance.

Design/methodology/approach

The empirical quantitative paper covers a sample of 35 European banks that are listed at the EUROSTOXX 600. Regression analysis techniques were used in the analyses.

Findings

Results indicate that board size, women ratio and independent directors ratio on board are positively and significantly related to environmental social governance (ESG), E and S disclosure scores. Also, we find that ESG disclosure is related to bank profitability.

Practical implications

Findings have implications for both policymakers and practitioners (bankers and investors). Large bank boards, which have women and independent members, could perform better in terms of ESG disclosure. The results also show that large banks and banks with high borrowing care more about sustainability. For banks to reach resources, they should perform well in terms of sustainability disclosure to their stakeholders.

Social implications

Banks should observe academic findings on corporate governance (CG) practices, which lead to a better ESG disclosure to structure their CG to improve at the best their disclosure policies: they should prefer larger boards with a high level of women and independence. In addition, we attach importance to the ESG performance of the banking sector due to its fund transfer functions. Banks transfer the deposits they collect to those in need of funds as loans. For this reason, it is important to which sector and which business they give credit. The importance of banks on ESG and their adoption of sustainability dimensions also affect their credit decisions.

Originality/value

This study examines the relationship between banks’ board structure variables and their effect on ESG, E and S scores separately. This study thinks that the G score can be a handicap for ESG-CG relations. Because chosen CG variables (women ratio, independent ratio, board size) affect G scores positively and can reason for positive ESG-CG relation. The environmental and social impact of women ratio, independent ratio and board size can be seen in this study.

Article
Publication date: 7 September 2021

Babajide Oyewo

This study investigates firm attributes (namely level of capitalisation, scope of operation, organisational structure, organisational lifecycle, systemic importance and size…

1507

Abstract

Purpose

This study investigates firm attributes (namely level of capitalisation, scope of operation, organisational structure, organisational lifecycle, systemic importance and size) affecting the robustness of enterprise risk management (ERM) practice, the extent to which ERM affects the performance of banks and the impact of ERM on the long-term sustainability of banks in Nigeria. This was against the backdrop that the 2012 banking reform was a major regulatory intervention that mainstreamed ERM in the Nigerian banking sector.

Design/methodology/approach

The study employed a mixed methodology of content, trend and quantitative analyses. Ex post facto research design was deployed to analyse performance differential of banks, with respect to the implementation of ERM, over a 10-year period (2008–2017). A disclosure checklist developed from the COSO ERM integrated framework was used to assess the robustness of ERM by content-analysing divulgence on risk management in published annual reports. The banking reform periods were dichotomised into pre- (2008–2012) and post- (2013–2017) reform periods. Jonckheere–Terpstra test, independent sample t-test and Mann–Whitney test were applied to analyse a total of 1,036 firm-year observations over the period 2008–2017.

Findings

Result shows that bank attributes significantly affecting the robustness of risk management practice are level of capitalisation, scope of operation, systemic importance and size. Performance of banks improved slightly during the post-2012 banking reform period. This suggests that as banks consolidate on the gains of ERM, benefits of the regulatory policy on risk management may be realised in the long run. Result also shows that ERM enhances long-term performance, connoting that effective risk management could serve as a competitive strategy for surviving turbulence that typically characterises the banking sector.

Practical implications

The emergence of level of capitalisation, scope of operation, systemic importance and size as determinants of ERM provides empirical evidence to support the practice of reviewing the capital requirements for banking business from time to time by regulatory authorities (i.e. recapitalisation policy) as a strategy for managing systemic risk. Top management of banks may consider instituting mechanisms that will ensure risk management is given prominence. A proactive approach must be taken to convert risks to opportunities by banks and other financial institutions, going forward, to cope with the vicissitudes of financial intermediation.

Originality/value

The originality of the study stems from the consideration that it provides some new insights into the impact of ERM on banks long-term sustainability in a developing country. The study also contributes to knowledge by exposing the factors determining the robustness of risk management practice. The study developed a checklist for assessing ERM practice from annual reports and other risk management disclosure documents. The paper also adds to the scarce literature on risk governance and risk management.

Details

Journal of Accounting in Emerging Economies, vol. 12 no. 2
Type: Research Article
ISSN: 2042-1168

Keywords

Article
Publication date: 29 June 2021

Rajesh Kumar Bhaskaran, K.S. Sujit and Saksham Mongia

This research study examines the impact of social and governance initiatives on financial performance of global banks. The study is significant in the context of massive changes…

1799

Abstract

Purpose

This research study examines the impact of social and governance initiatives on financial performance of global banks. The study is significant in the context of massive changes in regulations, government policy, social attitudes and market development attributed to banking sector.

Design/methodology/approach

The source of data for this study was ESG database of Thomson Reuters. The study was based on 472 global banks. The research paper uses two-stage least square model and the study covered the five-year period 2015–2019.

Findings

Banks with high intensity of social and governance-related activities have positive market-based valuation effects. Adequately capitalized banks tend to invest more in social initiatives. Banks' governance initiatives directed toward the use of anti-takeover defensive mechanisms are skeptically perceived by markets. Riskier banks tend to have less investments in social initiatives.

Research limitations/implications

The findings are relevant in the context of expectations from policymakers, consumers and investors with respect to the role which banks ought to play in funding the development of a sustainable economy. The research finding that strong governance and social initiatives by banks are value-enhancing measures is a clear evidence of the significance of ESG initiatives as value-creating mechanisms as perceived by markets.

Originality/value

This study addresses the gap in the research, which examines the role of governance and social initiatives on value creation in the banking sector firms. The study examines the impact of different elements of governance and social initiatives on financial performance of banks.

Details

International Journal of Productivity and Performance Management, vol. 72 no. 1
Type: Research Article
ISSN: 1741-0401

Keywords

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