International Banking and Cross-Border Effects of Regulation: Lessons from Canada
H. Evren Damar, Adi Mordel
International Journal of Central Banking,
Nr. 1,
2017
Abstract
We study how changes in prudential requirements affect cross-border lending of Canadian banks by utilizing an index that aggregates adjustments in key regulatory instruments across jurisdictions. We show that when a destination country tightens local prudential measures, Canadian banks increase the growth rate of lending to that jurisdiction, and the effect is particularly significant when capital requirements are tightened and weaker if banks lend mainly via affiliates. Our evidence also suggests that Canadian banks adjust foreign lending in response to domestic regulatory changes. The results confirm the presence of heterogeneous spillover effects of foreign prudential requirements.
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International Banking and Cross-border Effects of Regulation: Lessons from Germany
Jana Ohls, Markus Pramor, Lena Tonzer
International Journal of Central Banking,
Supplement 1, March
2017
Abstract
We analyze the inward and outward transmission of regulatory changes through German banks’ (international) loan portfolio. Overall, our results provide evidence for international spillovers of prudential instruments. These spillovers are, however, quite heterogeneous between types of banks and can only be observed for some instruments. For instance, domestic affiliates of foreign-owned global banks reduce their loan growth to the German economy in response to a tightening of sector-specific capital buffers, local reserve requirements, and loan-to-value ratios in their home country. Furthermore, from the point of view of foreign countries, tightening reserve requirements is effective in reducing lending inflows from German banks. Finally, we find that business and financial cycles matter for lending decisions.
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Mortgage Companies and Regulatory Arbitrage
Yuliya Demyanyk, Elena Loutskina
Journal of Financial Economics,
Nr. 2,
2016
Abstract
Mortgage companies (MCs) do not fall under the strict regulatory regime of depository institutions. We empirically show that this gap resulted in regulatory arbitrage and allowed bank holding companies (BHCs) to circumvent consumer compliance regulations, mitigate capital requirements, and reduce exposure to loan-related losses. Compared to bank subsidiaries, MC subsidiaries of BHCs originated riskier mortgages to borrowers with lower credit scores, lower incomes, higher loan-to-income ratios, and higher default rates. Our results imply that precrisis regulations had the capacity to mitigate the deterioration of lending standards if consistently applied and enforced for all types of intermediaries.
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International Banking and Cross-border Effects of Regulation: Lessons from Germany
Jana Ohls, Markus Pramor, Lena Tonzer
Abstract
We analyze the inward and outward transmission of regulatory changes through German banks’ (international) loan portfolio. Overall, our results provide evidence for international spillovers of prudential instruments, these spillovers are however quite heterogeneous between types of banks and can only be observed for some instruments. For instance, foreign banks located in Germany reduce their loan growth to the German economy in response to a tightening of sector-specific capital buffers, local reserve requirements and loan to value ratios in their home country. Furthermore, from the point of view of foreign countries, tightening reserve requirements was effective in reducing lending inflows from German banks. Finally, we find that business and financial cycles matter for lending decisions.
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Regulations, Institutions and Income Smoothing by Managing Technical Reserves: International Evidence from the Insurance Industry
Chrysovalantis Gaganis, Iftekhar Hasan, Fotios Pasiouras
Omega,
Nr. 3,
2016
Abstract
This paper investigates the role of technical reserves in the income smoothing behavior of insurance companies. This is one of the first attempts in the literature to trace such relationship in the insurance industry, especially at a multi-country setting. The experience of 770 insurance firms operating in 87 countries over the period 2000–2009 reveals that there is a significant evidence of income smoothing. The paper also finds that institutional characteristics, e.g., the rule of law, common law legal origin, economic freedom, and regulations relating to technical provisions and supervisory power constrain income smoothing but other factors such as capital requirements, tax deductibility of provisions, auditing, and corporate governance do not have a significant effect.
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How Effective is Macroprudential Policy during Financial Downturns? Evidence from Caps on Banks' Leverage
Manuel Buchholz
Working Papers of Eesti Pank,
Nr. 7,
2015
Abstract
This paper investigates the effect of a macroprudential policy instrument, caps on banks' leverage, on domestic credit to the private sector since the Global Financial Crisis. Applying a difference-in-differences approach to a panel of 69 advanced and emerging economies over 2002–2014, we show that real credit grew after the crisis at considerably higher rates in countries which had implemented the leverage cap prior to the crisis. This stabilising effect is more pronounced for countries in which banks had a higher pre-crisis capital ratio, which suggests that after the crisis, banks were able to draw on buffers built up prior to the crisis due to the regulation. The results are robust to different choices of subsamples as well as to competing explanations such as standard adjustment to the pre-crisis credit boom.
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Consequences of China’s Opening to Foreign Banks
Ran Li, Xiang Li, Wen Lei, Yiping Huang
L. Song, R. Garnaut, C. Fang, L. Johnston (Hrsg.), China's Domestic Transformation in a Global Context. Acton: ANU Press,
im Erscheinen
Abstract
China’s government has recently implemented additional reforms to relax the regulatory environment for foreign banks. Specifically, State Council Order No. 657, signed by Premier Li Keqiang, announced a decision to revise the Regulations of the People’s Republic of China on the Administration of Foreign-Funded Banks, effective from 1 January 2015. Implications of the revised regulations include removal of the requirement that a minimum of RMB100 million operating capital be transferred unconditionally from the overseas parent bank to the newly opened Chinese branch. In addition, in terms of the conditions attached to the right to carry out RMB-denominated activity, foreign banks are now eligible to apply to undertake local currency business after operating in China for one year—down from the previous three years. The requirement for two consecutive years of profit will be scrapped as well.
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Protect and Survive? Did Capital Controls Help Shield Emerging Markets from the Crisis?
Makram El-Shagi
Economics Bulletin,
Nr. 1,
2012
Abstract
Using a new dataset on capital market regulation, we analyze whether capital controls helped protect emerging markets from the real economic consequences of the 2009 financial and economic crisis. The impact of the crisis is measured by the 2009 forecast error of a panel state space model, which analyzes the business cycle dynamics of 63 middle-income countries. We find that neither capital controls in general nor controls that were specifically targeted to derivatives (that played a crucial role during the crisis) helped shield economies. However, banking regulation that limits the exposure of banks to global risks has been highly successful.
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The Role of Investment Banking for the German Economy: Final Report for Deutsche Bank AG, Frankfurt/Main
Michael Schröder, M. Borell, Reint E. Gropp, Z. Iliewa, L. Jaroszek, G. Lang, S. Schmidt, K. Trela
ZEW-Dokumentationen, Nr. 12-01,
Nr. 1,
2011
Abstract
The aim of this study is to assess the contributions of investment banking to the economy with a particular focus on the German economy. To this end we analyse both the economic benefits and the costs stemming from investment banking.
The study focuses on investment banks as this part of banking is particularly relevant for financing companies as well as the development and use of specific products to support the needs of private and professional clients. The assessment of benefits and costs of investment banking has been conducted from a European perspective. Nevertheless there is a focus on the German economy to allow a more detailed analysis of certain aspects as for example the use of derivatives by German companies, the success of M&As in Germany or the effect of securitization on loan supply and GDP in Germany. For comparison purposes other European countries and also the U.S. have been taken into account.
The last financial crisis has shown the negative impacts of banks on the financial system and the whole economy. In a study on the contribution of investment banks to systemic risk we quantify the negative side of the investment banking business.
In the last part of the study we assess how the effects of regulatory changes on investment banking. All important changes in banking and capital market regulation are taken into account such as Basel III, additional capital requirements for systemically important financial institutions, regulation of OTC derivatives and specific taxes.
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The Determinants of Bank Capital Structure
Reint E. Gropp, Florian Heider
Review of Finance,
Nr. 4,
2010
Abstract
The paper shows that mispriced deposit insurance and capital regulation were of second-order importance in determining the capital structure of large U.S. and European banks during 1991 to 2004. Instead, standard cross-sectional determinants of non-financial firms’ leverage carry over to banks, except for banks whose capital ratio is close to the regulatory minimum. Consistent with a reduced role of deposit insurance, we document a shift in banks’ liability structure away from deposits towards non-deposit liabilities. We find that unobserved time-invariant bank fixed-effects are ultimately the most important determinant of banks’ capital structures and that banks’ leverage converges to bank specific, time-invariant targets.
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