Post-crisis Bank Research Articles

Three Objectives of International banking Regulation: Analysis of Their Interrelationship and Issues

In response to the Global Financial Crisis of 2008–2009, international financial regulators tightened the regime of banking supervision in order to minimize systemic risks, strengthen banking sector resilience and ensure financial stability. Given the increased level of credit risks and the issue of liquidity in the banking sector, as well as the role of banks in promoting the dynamics of the macro-environment, the objectives of banking regulation, through their interrelationship, may conflict with one another, and the research of this phenomenon is the subject of this article. The academic literature excludes research that provides definitive evidence on whether post-crisis banking regulation reform has achieved each of the abovementioned goals, determining the relevance of our study. The scientific novelty is attributed to the principally different approach proposed by the authors in assessing the effectiveness of the post-crisis model of international banking regulation, which is based on the analysis of the interaction and contradictions of the objectives of modern regulatory policy. The purpose of the study is to identify the extent to which the objectives of the post-crisis regulatory model were achieved and to what extent regulatory efforts contribute to the reduction of systemic risks. To achieve the research objectives, the authors applied methods of statistical and comparative analysis, synthesis of factors underlying the post-crisis regulatory mechanism, systematization, generalization and forecasting. The authors analyzed the main elements of the regulatory reform, examined the dynamics of the banking sector, and assessed the impact of the reform on systemic risks and economic growth. The research results show that tighter supervisory standards strengthened bank stress resilience, reduced systemic risks, and had a limited impact on economic growth. The article concludes that the objectives of banking regulation actively interact, but do not conflict: a consistent transition to the new Basel III standards allows each objective to be achieved.

Too-Big-to-Fail Banking in Europe: An Enduring Challenge

ABSTRACT Is banking in the European Union still too-big-to-fail (TBTF)? We address this question by providing a critical overview of post-crisis banking regulation and examining whether financial markets continue to expect European governments to bailout TBTF banks. To the latter end we use a novel set of primary data, gathered from fieldwork in Europe, analyse credit ratings of TBTF banks, and compare them with the ratings of other European banks. Our results suggest that the expectation of government support for European banks is still present. Most notably, TBTF banks command a long-term credit rating about three notches higher than what would be the case in the absence of the expectation of government support. Other European banks enjoy significant rating uplifts too, albeit smaller in size.

Board Characteristics and Bank Performance after the Global Financial and Economic Crisis – Do People Matter?

The study focuses on the impact of board characteristics on the performance of major international banks following the global financial crisis of 2008. Aspects such as the stability of governance structures, gender equality policies, and the correlation between board composition and key success indicators are analyzed. The relationships between efficiency, age, and gender of board members are explored, emphasizing the significance of dynamics in these structures for successful financial institution management. The study refrains from explicitly mentioning specific banks, providing insights into the broader issues surrounding governance in the post-crisis banking sector.

From Market Making to Matchmaking: Does Bank Regulation Harm Market Liquidity?

Abstract Postcrisis bank regulations raised market-making costs for bank-affiliated dealers. We show that this can, somewhat surprisingly, improve overall investor welfare and reduce average transaction costs despite the increased cost of immediacy. Bank dealers in OTC markets optimize between two parallel trading mechanisms: market making and matchmaking. Bank regulations that increase market-making costs change the market structure by intensifying competitive pressure from nonbank dealers and incentivizing bank dealers to shift their business activities toward matchmaking. Thus, postcrisis bank regulations have the (unintended) benefit of replacing costly bank balance sheets with a more efficient form of financial intermediation.

COVID-19, Macroeconomic and Sustainability Shocks, Moral Hazard and Resolution of Systemic Banking Crises: Designing Appropriate Systems of Public Support

Banks have so far weathered well the financial turbulence caused by COVID-19 while at the same time being central in the economic and financial response. As the crisis moves from its initial phase as a short-term liquidity shock, the financial sector is facing increasing volumes of non-performing loans, raising the spectre of a banking solvency crisis. In economies already burdened with low-quality assets, the COVID-19 fallout is intensifying existing problems with legacy loans heightening the risk of a banking crisis. These issues are now being worsened by the impact of inflation and the invasion of Ukraine. Thus, addressing increasing volumes of bad loans, while supporting the proper functioning of the financial system, is a major challenge with systemic repercussions for a range of economies. This paper identifies a great paradox: since the bank rescues of the 2008–9 Global Financial Crisis there has been a disproportionate focus on the liability side of bank balance sheets through resolution measures such as bail-in and the accumulation of bail-inable debt. Post-crisis bank resolution regimes have overlooked solutions lying within the asset side of bank balance sheets. This paper analyses historical evidence to argue that concentrating on a liability-focused approach to the exclusion of asset-side solutions is ill-conceived. An excessive accumulation of non-performing loans on the asset side of bank balance sheets inevitably renders resolution interventions on the liability/equity side ineffective or at the very least insufficient to maintain banking system viability and financial stability. Bank asset restructuring involving the use of asset management companies, asset protection schemes and even capital injections can play a critical role in achieving an expeditious restoration of banking systems’ health following a major macroeconomic, sustainability or financial crisis.

Global Post-Crisis Banking Supervision: Supervisory Powers and Institutional Changes in the Banking Sector

Global Post-Crisis Banking Supervision: Supervisory Powers and Institutional Changes in the Banking Sector

Post-crisis banking regulation and credit rating adjustments. How did the bail-in affect Eurozone banks' credit rating?

This paper looks at the credit rating adjustments on Eurozone banks that followed the post-crisis regulation of bank resolution in Europe in 2014. The empirical assessment analyses within-bank variation using the credit ratings of the major Eurozone banks. The analysis shows that with the introduction of the bail-in: 1) the ratings of Eurozone banks, as expected, were subject to downward pressures; 2) however, credit rating agencies (CRAs) reacted in a variety of ways, moving to post bail-in ratings for Eurozone banks that were more homogenous across CRAs than pre bail-in ratings. While the credit rating adjustments are rightly justified by the rating methodologies used, the convergence among CRAs suggests some degree of discretion in assigning the rating. These results are consistent with herding behaviour among CRAs.

Customer Satisfaction and Customer Loyalty in the Post-Crisis Banking Sector of Ghana

The banking industry is immensely important to the socio-economic development of emerging economies by facilitating the exchange of money between depositors and borrowers. The banking industry in Ghana is facing corporate governance challenges, which has led to non-performance and subsequent withdrawal of operating licenses. The withdrawal of the licenses by the Bank of Ghana has impact on customer loyalty and satisfaction, which has not been significantly investigated in a post crisis banking sector of Ghana. This has resulted in many companies undertaking numerous product design and innovation to satisfy customers. This study therefore is aimed at investigating the relationship between customer satisfaction and customer loyalty in the post crisis banking sector of Ghana. The study adopts the positivist traditional stance with a quantitative approach. Participants were drawn from among the customers of universal banks in Ghana. The purposive sampling technique was used to administer 250 questionnaires to customers of universal banks in Ghana in which 170 usable questionnaires were retrieved for analysis with a response rate of 68 per cent. The investigation revealed that customer satisfaction variables have significantly influenced the loyalty of customers of banks involved in this study. The results indicated that tangibles, reliability, responsiveness, assurance and empathy, and dimensions of service quality have positive influence on customer satisfaction.The investigation largely focused on quantitative analysis of results, hence; a further study adopting the qualitative approach would contribute to the body of knowledge on customer loyalty and satisfaction in the banking sector. This study provides a strong evidence for banks that have been negatively impacted by the banking crisis in Ghana and want to recover from the associated impacts on their customers to enhance their customer satisfaction by improving the tangibility and reliability of services to clients. It is recommended that Banks in Ghana focus on achieving high customer satisfaction by focusing on high quality services delivery based on the service quality dimensions. Keywords: Banking, Industry, Customer, Satisfaction, Loyalty DOI: 10.7176/JMCR/76-04 Publication date: February 28 th 2021

Financing Public Goods

I study whether and how shocks to the supply of municipal credit affect both the quantity and quality of local public goods. I use a difference-in-differences approach based on regulations that affected bank demand for municipal bonds. Credit-constrained municipalities cut spending, especially infrastructure investment. Public service quality deteriorates, manifested in increased water contamination and prolonged power outages. While amendments to the regulation mitigated municipal credit constraints, evidence is mixed on whether the quality of public service recovered. My results highlight the impact of financial market disruptions on local governments and people, and the unintended consequences of a post-crisis banking regulation.

On Post-Crisis Banks’ Fair Value Measurement Disclosure

In this paper, we study the interplay between the popularity of valuation techniques adopted by the banks, the banks’ perception of the broader risk environment, and their relative performance. In examining this relationship, we rely on the performativity theory as it applies to the fields of accounting and economic sociology. Our data consists in newly disclosed accounting information collected from banks’10-K and 20-F reports from 2012 to 2015. We use four key ingredients in our model: (1) the banks’ return on equity as a proxy for performance; (2) the range of unobservable inputs as a proxy for the banks’ risk assessment; (3) the intensity of use of valuation techniques, as a proxy for the popularity of these techniques; (4) valuation technique as market devices in the performative process. The regression results suggest that that the intensity of use of valuation techniques mediates the performative process between valuation techniques and banks’ performance.

To change banks or bankers? Systemic political (in)action and post-crisis banking reform in the UK and the Netherlands

AbstractAfter the subprime financial crisis, the countries who were worst affected set about reforming legacy financial regulations. Given multiple similarities in the way they experienced the crisis and the similar complexions of their post-crisis economies and politics, the contrast between the UK and the Netherlands' approaches to breaking up their largest banks presents a puzzle for prevailing theories in the politics of financial regulation. Both countries explored a range of reform options using similar expert committees, but while UK policymakers determined that commercial and investment operations should be ring-fenced in the largest British banks, the Dutch reform program centered on the banks’ own recommendations to change banking culture from the bottom up by developing a code of conduct and banker's oath. The paper traces this divergence to two related effects produced by the countries’ contrasting majoritarian and consensus party systems: power sharing and coalition formation. Under conditions of high issue salience, both worked to encourage British policymakers to prioritize reform, while in the Netherlands each factor reduced party political responsiveness and de-emphasized alternatives to the banks’ own reform prescriptions. The paper ultimately suggests that institutional democratic variables are worthy of greater recognition among scholars of business power and financial regulation.

ACTUAL TRENDS IN BANK LENDING

The article analyzes the key aspects of commercial bank lending operations in the post-crisis banking system recovery phase. In order to ensure stable economic growth, it is important to help increase lending to the real sector of the economy, since by increasing the volume of granted loans by 10%, experts estimate that it is possible to get 2% of GDP growth. Therefore, it is important and at the same time difficult to ensure an active resumption of corporate lending. The strategic goal of the National Bank of Ukraine and the Government is to restore real sector lending in the near future and will be a major factor in economic growth. The purpose of the article is to conduct a comprehensive analysis of the field of bank lending to identify major weaknesses, obstacles that do not allow to achieve the desired economic effect. A structural analysis of the active operations of commercial banks was conducted to identify major obstacles and identify potential drivers of credit recovery. It was revealed that during the period under review for 2016-2019, assets grew due to the following factors: exchange rate revaluation of bank balance sheets and growth in consumer lending. In the structure of active operations, lending prevails, which is a reflection of the business model chosen by banks. The share of loans granted on bank balances ranges from 56 to 64% and reflects a downward trend. If you look at the structure of the loan portfolio by maturity, it should be noted that short-term loans predominate. This situation is caused by the fact that consumer lending is growing rapidly, and in this segment loans are granted for a period of mostly up to 1 year. In recent years, there has been a trend towards an increase in the volume of loans to indivi­duals. As of 01.09.2019 is 20.92%. This structure of the loan portfolio is not yet a threat to systemic stability, but banks should carefully and conservatively reserve for such loans. The main factor contributing to economic growth is the resumption of lending to the real economy. The current situation in this segment is such that it is not possible to achieve this quickly. The main disadvantages that prevent this are the following. A significant proportion of non-performing loans on banks' balance sheets. Absence of sufficient quality solvent borrowers. Unstable macroeconomic situation. Insufficient protection of the rights of creditors, borrowers. Therefore, in order to achieve the strategic goal of securing rapid economic growth, these factors need to be explored in detail to identify possible ways of leveling them. Keywords : bank lending, loan portfolio, consumer lending, corporate lending.

New European Banking Governance and Crisis of Democracy: Bank Restructuring and Privatization in Slovenia

ABSTRACT The paper makes three contributions to the understanding of the post-crisis European banking governance. First, it offers a more comprehensive approach to banking governance, beyond the Banking Union, through its concept of ‘New European Banking Governance’ (NEBG) that incorporates EU state aid rules and fiscal regulations. Second, it considers the impact of NEBG on democratic institutions and processes in EU member states, an under-researched topic in the literature on European banking governance. Finally, through its in-depth case study of Slovenia it considers the NEBG in relation to peripheral Eurozone states. It argues that the post-crisis banking governance framework of the EU not only severely constrained the Slovenian state in its policy choices but rearranged its policy-making institutions in a way that restricted and continues to restrict democratic banking policy formation.

The stakes of global venue shopping: examining bank lobbying in the Basel Committee and the European Union

The galloping pace of globalisation has not only led to the expansion of firms across national borders and an exponential increase in the interdependency of international markets, but it has also triggered the development of the regulatory environment into a multilevel arena consisting of numerous and often overlapping and competing global institutions and regulatory jurisdictions. Our paper examines venue shopping at this global level. We argue that existing theories of multilevel venue shopping are not well suited to explaining global venue shopping. Advancing a novel theoretical framework, we argue that the decision to lobby multiple global venues is a function of the extent of firms’ international business activities and investments. We test this theory in the case of post-crisis banking regulation in the European Union and the Basel Committee on Banking Supervision. Assessing banks’ international activities in terms of the number, international scope, and geographical diversity of their subsidiaries, we find evidence supporting our argument. The new post-crisis banking rules posed a serious threat to banks’ international financial activities and banks facing the greatest costs of these new rules were also most likely to engage in global venue shopping.

Перспективы и риски формирования институциональной структуры банковского регулирования в ЕАЭС

The institutional aspect of post-crisis banking regulation reform (Basel III) remains unsettled, and as such undermines regulators’ efforts to shape a seamless platform for international financial intermediation. The lack of global acceptance of the Basel III standards amid the internationalization of banking activities is one of the main reasons for regulatory asymmetries which are difficult to handle at the national level. In this context, the efforts of governments and financial regulators are a central core of their policy in protecting banking sectors from systemic risks. It becomes imperative to bring together national mechanisms of banking regulation and to develop a regional system of regulatory institutions, as is evidenced by the single supervisory mechanism in the eurozone countries.Strengthening stress-resilience of the national banking sectors in the Eurasian Economic Union (EAEU) and the expansion of banking activities to the Eurasian economy will require a conceptual framework of the EAEU banking regulation system. However, different regulatory regimes in EAEU states along with the lack of supranational regulatory institutions may slow the progress of the Eurasian mechanism of banking regulation. This means that operationalization of the EAEU regulatory mechanism will depend on whether the mini-Basel III format as a methodological hub of regionalization and supranationalization will act as an enabler of a resolution to the regulatory trilemma of the feasibility, relevance and opportunities of supranationalization.The institutional aspect of mini-Basel III is intrinsically linked to the integrity and consistency of the supranational authority for regulation of EAEU financial markets being an authority documented in the treaty on the EAEU; however, the costs of regulatory alignment may exceed the advantages of a single-institution regulatory architecture owing to the existent and tacit risks from the heterogeneity of the national regulatory models. Stemming from the complex financial sector environment that falls short of valid and reliable institutional fundamentals, this article proposes alternative scenarios for the EAEU regulatory mechanism that could be sought for optimization of regulatory logistics and algorithms of regulatory alignment. Based on systematization of the benefits and weaknesses of each of the scenarios as well as on a comparative analysis as to whether the proposed scenarios would ensure a continuum of financial intermediation and financial stability, this article concludes that currently there are no priority approaches to the design of a supranational institutional system in the EAEU. At the same time, the identical structure of national banking sectors together with the least expensive scenario approach could underpin the process of regulatory supranationalization; however, to secure the integrity of the EAEU supranational authority, it should be complemented with an authority that would be responsible for the coordination of EAEU-wide regulatory alignment.

From Market Making to Matchmaking: Does Bank Regulation Harm Market Liquidity?

Post-crisis bank regulations raised market-making costs for bank-affiliated dealers. We show that this can, somewhat surprisingly, improve overall investor welfare and reduce average transaction costs despite the increased cost of immediacy. Bank dealers in OTC markets optimize between two parallel trading mechanisms: market making and matchmaking. Bank regulations that increase market-making costs change the market structure by intensifying competitive pressure from non-bank dealers and incentivizing bank dealers to shift their business toward matchmaking. Thus, post-crisis bank regulations have the (unintended) benefit of replacing costly bank balance sheets with a more efficient form of financial intermediation.

The Single Market's Catch-22: Supervisory Centralisation in a Fragmented Banking Landscape

The key question that the present policy contribution addresses is whether increasingly centralised powers necessarily bring about better coordination and more financial integration. In fact, the post-crisis banking regulation scenario has been characterised by such centralisation efforts in the EU. From a regulatory viewpoint, this approach is epitomised by the Single Rulebook, whereas from an institutional one, this approach is characterised by the arrangements that shape the Banking Union, which comprise the Single Supervisory Mechanism (SSM), Single Resolution Mechanism (SRM), and the European Deposit Insurance Scheme (the much debated EDIS that is yet to be finalised). In this context, supranational authorities (in the present analysis the SSM from a supervisory perspective, and the EBA from a regulatory one) advocate for an increasing centralisation of regulatory and supervisory practices across Member States in order to “reduce regulatory fragmentation and contribute to establishing a level playing field in the banking union”. The present contribution, instead, draws upon the idea that uniformity is not a realistic and perhaps not even a suitable goal. Thus, supervisory and regulatory efforts across Europe should aim at fairly and satisfyingly strike a balance between integration and an unavoidable level of fragmentation, which stems from long-standing traditions and layered structures of national banking systems. Careful design and management of such a systematic balance between National and EU levels seems, therefore, a more feasible and realistic objective. Our analysis focuses on the legal and institutional prudential frameworks, and their evolution before and after the crisis. This helps situating our contribution in the distinctive two time windows, namely between the Euro adoption and the global financial crisis (and its spill-over into the Member States debt crisis) and following the crisis. In particular, our analysis examines the large exposures case study, one of the crucial National Options and Discretions (NODs) granted to Member States by the CRR, which is claimed to be a key obstacle to achieving and smoothly applicating the Single Rulebook. Methodologically speaking, to comparatively analyse the variety of banking systems, especially the German, Italian, and French national case studies will be considered, complemented by descriptive statistics of the various banking systems and their evolution over the time windows. Specific attention will be paid to bank balance sheets, bank corporate organisation, micro- and macro-prudential regulation and supervision, taking into account the transfer of competences from the national to the supranational sphere that took place in the realm of prudential oversight.

Knowledge management and value creation in the post-crisis banking system

PurposeThis paper aims to demonstrate the existence of a relationship between the knowledge creation process and competitive advantage in the banking system. The framework of knowledge creation processes adopted in this research is the spiral of knowledge proposed by Nonaka and Takeuchi (1995). The concept of competitive advantage is limited to the measurement of economic value by adopting methods that compare the financial performance of the banks with related markets. The objective of this research is to answer the following research question: Which factors of the spiral of knowledge are relevant for increasing a bank’s economic value?Design/methodology/approachThe sample used for this empirical research is composed of 960 banks operating in 24 countries. The sample was analyzed from 2012 to 2015 and includes 3,840 observations. Regarding the methodology, hypothesis demonstration was carried out using a panel analysis (generalized least squares regression) on a set of variables.FindingsThe results show that Nonaka and Takeushi’s spiral of knowledge has a positive influence on value creation in the banking system. However, not all factors of the four modalities of converting tacit knowledge into explicit knowledge and vice versa have a positive influence on the economic value of banks. Therefore, by excluding factors that have a negative influence or are not significant, it is possible to formulate an empirical model that illustrates the relationship between the spiral of knowledge and the economic value of banks.Originality/valueThere is a lack of studies on the knowledge creation process in the banking system because most of the research is geographically limited, and empirical tests are performed on small samples. Second, generally, these studies are limited to the relationship between intellectual capital and bank performance measured by accounting ratios. However, intellectual capital is only one component of the broader concept of knowledge. This research uses a large and geographically diverse sample and studies the relationship between the spiral of knowledge and economic value, which is measured by various financial techniques.

Capital Commitment and Illiquidity in Corporate Bonds

ABSTRACTWe study trading costs and dealer behavior in U.S. corporate bond markets from 2006 to 2016. Despite a temporary spike during the financial crisis, average trade execution costs have not increased notably over time. However, dealer capital commitment, turnover, block trade frequency, and average trade size decreased during the financial crisis and thereafter. These declines are attributable to bank‐affiliated dealers, as nonbank dealers have increased their market commitment. Our evidence indicates that liquidity provision in the corporate bond markets is evolving away from the commitment of bank‐affiliated dealer capital to absorb customer imbalances, and that postcrisis banking regulations likely contribute.

Evolution of post-crisis bank regulations and controlling tools: a systematic review from a historical aspect

Amongst other causes, the excessive and uncontrolled credit growth, the high levels of leverage with insufficient high-quality capital funding, the high degree of systemic risk accompanied with the inadequate capital buffers and the insufficient liquidity buffers and excessive exposure to liquidity risk (Coen, 2016) in the early 2000’s led to first global financial crisis of the millennium in 2008–2009. Although there has been a global effort to consolidate the financial markets, different countries had different levels of regulatory response to the financial crisis, which resulted in different speed of recovery and impact on internal management control processes. This paper delivers a comprehensive review of the key global changes in the financial market and banking regulations since the 2007–2008 financial crisis by conducting a systematic review of the published papers, directives and regulations of the global, especially the new and existing American, European and Ukrainian financial regulatory bodies and International Organizations such as the Basel Committee, IMF, FSB, EU Parliament and Commission. Trend analysis provides some evidence for the stabilization effect of the new regulations, especially in case of countries with stricter supervisory frameworks (such as the Basel Standards). Finally, the impact of the regulatory environment’s changes on the existing internal controlling systems and functions of financial institutions is assessed by comparing the key pre- and post-crisis states of the different management control functions.