Prudential Regulation Research Articles

Conflict of interest in the securities market

In the article examines the problem of applying the legal interpretation of the concept of “conflict of interest,” including as applicable to legal relations in the stock market. Such concepts as the fiduciary duties of a trustee, the controversial nature of the legal definition of a conflict of interest through the concept of personal interest are considered. The need for further development of the prudential regulation system and a more specific definition of the criteria for the fiduciary duties of the principal in the securities market are substantiated. The possibility of introducing into Russian practice the approach used in the common law system is analyzed. According to this approach, only proof of the fact of dishonest fulfillment of fiduciary duties, such as loyalty, due diligence and information duty can serve as a basis for prosecution in the event of a conflict of interest, but not the establishment of the fact of personal interest. In particular, from this point of view, the fundamental rule of the common law system applied in the stock market is considered — to fully rely on the information (i.e., a situation completely opposite to the approach that has developed in Russian law in relation to identifying conflicts of interest) provided by the broker to the client, and to expect, that he will perform his duties with all competence and due care. The author substantiates the greater effectiveness of the approach of establishing a presumption of conscientious fulfillment of fiduciary duties by a trustee and bringing to responsibility only if the contrary fact is proven.

АНАЛІЗ ДІЯЛЬНОСТІ БАНКІВ НА ФІНАНСОВОМУ РИНКУ УКРАЇНИ

The article analyzes the activity of domestic banks in Ukraine's financial market and examines the state and dynamics of the banking system's assets, capital, and liabilities for 2020-2023. Ukraine's financial market is experiencing significant challenges due to martial law, but these hard conditions also driving radical change and innovation in the sector. Due to the specificity of their activity, banks occupy a special place in the market economy and have a significant impact on the development of the financial market and the economy of the country. The integration of the national banking system into the world financial space is one of the leading directions of economic globalization, which strengthens the requirements for domestic banking institutions to increase their competitiveness and efficiency in providing financial services. This makes it necessary to study the essence and peculiarities of the functioning of banking institutions in the financial market of Ukraine in the modern, changing conditions of the development of economic relations between subjects of the national and international economy. The trend of consolidation of the banking system and withdrawal from the market of unreliable banks or banks whose capital belongs to under-sanctioned owners has been revealed. It was determined that despite the decrease in the number of these institutions, there was no significant deterioration of the main quantitative and qualitative indicators of the bank's activity, which indicates the stability of the efficiency of their activity. The state, dynamics, and quality of the banking system's credit portfolio were studied, and banks' compliance with NBU prudential regulations regarding credit risk was analyzed. The consistently high value of 45% of the share of bank assets in GDP confirms the overall efficiency of these financial institutions. A positive thing is the reduction of NPL before the full-scale invasion, but with its onset, this indicator increased again. A characteristic feature of the activity of domestic banks at present is a significant increase in the interest of institutions in investments in securities, in particular, military government bonds, the share of investments in these securities in the total assets of banks is rapidly increasing. To stabilize the financial state of the country's economy under the influence of "force majeure" circumstances, the banking system must constantly adapt its activities on the financial market, acting as an intermediary in the circulation of capital and financial resources

Prudential Regulations And Performance Of Finance Of Tier 2 Banks In Kenya

The research delves into the intricate relationship between prudential regulations and the performance of finance of Tier 2 banks in Kenya. Through a comprehensive analysis, the study aims to shed light on how adherence to prudential standards impacts the operational and financial outcomes of these banks. By examining key variables such as credit, liquidity, corporate governance, and capital regulations, the research seeks to uncover the underlying mechanisms that drive performance of finance within the banking sector. Drawing on a comparative design and employing a linear regression model, the study reveals significant insights into the effects of prudential rules on the performance of finance of Savings and Credit Cooperative Organizations (SACCOs) in Kenya. Prior to the implementation of prudential legislation, factors such as liquidity, membership growth, core capital, and credit management did not significantly predict performance of finance. However, post-implementation, these variables emerged as crucial determinants of financial success, emphasizing the importance of regulatory compliance for sustainable business growth. The findings underscore the necessity for SACCOs and Tier 2 banks to adhere to prudential standards to enhance their performance of finance and capitalize on increased business opportunities. By bridging the gap in existing literature and providing a nuanced understanding of the impact of prudential regulations, this research contributes valuable insights to the ongoing discourse on banking regulations and financial stability in Kenya

Venous thromboembolism in the era of machine learning and artificial intelligence in medicine

In this review, we embark on a comprehensive exploration of venous thromboembolism (VTE) in the context of medical history and its current practice within medicine. We delve into the landscape of artificial intelligence (AI), exploring its present utility and envisioning its transformative roles within VTE management, from prevention to screening and beyond. Central to our discourse is a forward-looking perspective on the integration of AI within VTE in medicine, advocating for rigorous study design, robust validation processes, and meticulous statistical analysis to gauge the efficacy of AI applications. We further illuminate the potential of large language models and generative AI in revolutionizing VTE care, while acknowledging their inherent limitations and proposing innovative solutions to overcome challenges related to data availability and integrity, including the strategic use of synthetic data. The critical importance of navigating ethical, legal, and privacy concerns associated with AI is underscored, alongside the imperative for comprehensive governance and policy frameworks to regulate its deployment in VTE treatment. We conclude on a note of cautious optimism, where we highlight the significance of proactively addressing the myriad challenges that accompany the advent of AI in healthcare. Through diligent design, stringent validation, extensive education, and prudent regulation, we can harness AI's potential to significantly enhance our understanding and management of VTE. As we stand on the cusp of a new era, our commitment to these principles will be instrumental in ensuring that the promise of AI is fully realized within the realm of VTE care.

THE INFLUENCE OF MONETARY POLICY AND PRUDENTIAL REGULATION ON THE FORMATION OF BANKS’ CREDIT POLICY

THE INFLUENCE OF MONETARY POLICY AND PRUDENTIAL REGULATION ON THE FORMATION OF BANKS’ CREDIT POLICY

Corporate foreign bond issuance and interfirm loans in China

We use firm-level data to analyze international bond issuance by Chinese non-financial corporations, distinguishing those by sectors classed as ‘risky’. Dollar issuance is positively correlated with the differential between domestic and foreign interest rates, and this effect is particularly strong for firms in risky sectors. Strikingly, firms in risky sectors use the proceeds to do more interfirm lending than firms in non-risky sectors. Moreover, this lending rose significantly after the authorities sought to restrict the financial activities of risky sectors in 2008–09. Firms in risky sectors compound risk by engaging in speculative activities that mimic the behavior of financial institutions while escaping prudential regulation.

Shape-shifters, chameleons and recognitional politics: The asset management industry and financial regulation

The asset management industry is becoming a systemic feature of global finance, yet has evaded regulators’ efforts to designate its largest firms as systemically important institutions. How has this been achieved? We use as our example BlackRock’s running commentary on the evolving plans of both prudential (banking) and securities (market) regulators in the period from 2008 to 2018. We show how asset managers engaged in successful recognitional politics, based on a decade-long struggle to influence how they were seen across the regulatory divide. James C. Scott’s most recent thoughts on legibility codes provide us with our conceptual language of shape-shifters and chameleons. Two distinct strategies were simultaneously in play. As a shape-shifter, BlackRock repeatedly changed form in its self-presentation to prudential regulators concerned with systemic risk, so they could not be certain what they were looking at. As a chameleon, it invited securities regulators to maintain their authority over the asset management industry, so it could increasingly blend into the supposedly safe category of market-based finance.

Differences and interactions between banks’ financial statements and prudential regulation

Differences and interactions between banks’ financial statements and prudential regulation

Financial instability in Europe: Does geopolitical risk from proximate countries and trading partners matter?

Using a spatial econometric approach, we measure 28 European countries' foreign geopolitical risks (GPR) from their proximate countries, export destinations, and import origins from January 1985 to January 2024 at a monthly frequency. Based on difference GMM estimation on dynamic panel data model, we find that the foreign GPRs increase Europe's financial instability through potential channels of surging energy inflation and capital flight to the U.S. Compared with high-income countries with a bank-based financial system, low-income countries with a market-based financial system are more fragile to the foreign GPRs. These findings can help European financial authorities improve prudential regulation policies.

Basel core principles for effective banking supervision: an update after a decade of experience

The Basel Committee on Banking Supervision’s Core Principles for Effective Banking Supervision (BCPs) are a universally applicable minimum standard for sound prudential regulation and supervision of banks and banking systems. Supervisors use these principles to assess the quality of their regulatory and supervisory frameworks, while the International Monetary Fund (IMF) and the World Bank use them, as part of their Financial Sector Assessment Programme, to assess the efficacy of the banking supervision framework and supervisory approach in each jurisdiction. Since they were first introduced in 1997, the BCPs have undergone two revisions (in 2006 and 2012). In April 2024 the Basel Committee on Banking Supervision published a modification of the standard to account for developments over the last decade, the impact of structural trends in the sector and the lessons learned from previous implementations of the core principles. This article takes a look at the key aspects of this update, the main changes of which refer to new risks, such as climate-related financial risks and the digitalisation of finance, operational resilience, non-banking financial intermediation, financial risk, risk management practices, and systemic risk and macroprudential oversight.

International Experience and Reference of China's Financial Regulatory System Reform

Since the 1970s, in order to reduce financial risks in the context of fast-paced growing financial industry, China has been implementing reforms to its financial regulatory structure. In 2023, the State Administration for Financial Supervision and Administration was officially established, bringing China closer to mixed industry regulation. Currently, there are multiple types of financial regulation on a global scale, including segmented regulation, single regulation, functional regulation, and bimodal regulation. Given the rapid development of China's financial market, it is imperative to draw on better international expertise, innovate domestic regulatory framework, and persist pursuing bimodal regulatory mode under the mixed industry background. By implementing the bimodal regulation of macro prudential regulation and micro behavioral regulation, China is managing to control financial risks, protect investors lawful rights and interests, and foster the long-term and stable expansion of China's financial industry

The rise and fall of Silvergate Bank: lessons for prudential regulation of crypto-sector banking

AbstractSilvergate Bank began to “wind down operations and voluntarily liquidate” its bank in March 2023. Whereas Silicon Valley Bank and Signature Bank would be shut down by the Federal Deposit Insurance Corporation in the following days, this “crypto-sector bank” was able to satisfy depositor withdrawals and enter into voluntary liquidation. This paper examines how Silvergate Bank managed its balance sheet in a manner that maintained liquidity and its ability to satisfy substantial and unpredictable outflows from depositor withdrawals by its “crypto-firm” clients. Its approach was consistent with the ethos of the Basel III liquidity requirements to which many banks—though not Silvergate Bank—are subject. Yet the Silvergate model went further by recognising the idiosyncratic depositor dynamics of “crypto-firms”. This paper argues that prudential regulation should apply this model to (i) any bank that sources a substantial proportion of its funding from “crypto-firm” clients, irrespective of that bank’s size, and (ii) all deposits related to crypto-asset market participants at all banks.

The informational impact of prudential regulations

Banks take costly actions (such as capitalization, liquidity holding, and advanced risk management) to avoid financial distress and creditor runs. While directly affecting a bank’s risks, such actions can also signal the bank’s fundamentals. We show that prudential regulations have an informational impact: sufficiently tight regulations can eliminate inefficient separating equilibria in banks’ signaling game, thereby changing the information available to creditors and their incentives to run. When accounting for this informational impact, tightening regulations can improve banks’ payoffs and be considered bank incentive-compatible. We support this novel, information-based rationale for regulations with evidence from the US liquidity requirement.

Heterogeneity effect of prudential regulation on the stability of banks: evidence from WAEMU banks using quantile regression with fixed effects

PurposeThis paper aims to analyze the heterogeneous effect of prudential regulation on the stability of banks in the West African Economic and Monetary Union (WAEMU).Design/methodology/approachThe author uses in this study individual bank data from balance sheets, income statements of banks in the WAEMU space and annual reports of the banking commission formed into a three-year panel from the period 2017 to 2019. First, this study uses hierarchical clustering based on specific banking characteristics to determine whether the WAEMU region’s banking markets are heterogeneous or not. Second, this study uses quantile regression approach with fixed effects to explore how that prudential regulation affects the conditional distribution of WAEMU bank stability.FindingsThe analysis reveals heterogeneity resulting in two distinct groups. Using the quantile regression approach, this study demonstrates that prudential regulation has a significantly more substantial and positive effect on the upper quantiles than on the lower quantiles of the conditional distribution of WAEMU bank stability. Furthermore, the effect of banking regulation also varies among pan-African cross-border banks, national banks and foreign banks. Among these types of banks, pan-African cross-border banks remain the most stable by adopting prudential regulation. The results remain robust and vary across different WAEMU countries.Originality/valueThe contribution of this study to the literature is multifaceted. First, this study uses individual bank-level constituted in panel data from the WAEMU region to assess the effect of prudential regulation on the stability of the WAEMU’s banking sector. This approach allows for a more granular analysis as this study considers individual regional banks’ specific characteristics and behaviors. Second, this study considers the heterogeneous effect of regulation on the stability of banks within the WAEMU space. This means that this study acknowledges that not all banks are affected similarly by prudential regulations, and this research aims to identify and quantify these differences.

The role of macroprudential policies under carbon pricing

This paper analyses the effectiveness of macroprudential policy on macro-financial fluctuations when the government enforces carbon pricing to reduce carbon emissions and achieve the net-zero target. A carbon tax policy alone can reduce carbon emissions by 2030, but at the cost of a deep and prolonged recession, with consequential financial instability due to a higher probability of default on entrepreneurs in the brown sector. This result suggests that carbon pricing should be coupled with complementary policies, such as macroprudential policy. In particular, differentiated LTV ratios and differentiated capital requirements that penalize the brown sector in favour of the green sector tend to decrease the probability of default in the green sector and encourage green lending in supporting the transition to a green economy. However, such policies have little contribution in offsetting the negative impact on the macroeconomy. More stringent levels of prudential regulations are needed to reduce the fall in GDP and consumption. More specifically, the “one-for-one” prudential capital requirements on fossil fuel financing can effectively reduce defaults and move to a greener economy.

Research on the Mechanism of Corn Price Formation in China Based on the PLS-SEM Model.

After the cancellation of the temporary corn storage system in 2016, the price of corn in China returned to market regulation, resulting in increased price volatility. This study focuses on monthly data from April 2016 to March 2023 in China. The partial least squares structural equation modeling (PLS-SEM) is employed to analyze the impact of corn supply and demand factors, substitute prices, monetary supply, international corn prices, and international energy prices on the volatility of corn prices in China. Results indicate that supply and demand factors are the most direct influencers of corn prices, with demand factors having the most significant impact. Monetary supply and substitute prices affect corn prices through the demand side. External factors mainly consist of international energy and corn prices. The impact of international energy on Chinese corn prices is achieved through international corn prices, which directly influence the prices in China. It is recommended to stabilize corn market prices by regulating corn supply and demand, to improve the monitoring and early warning mechanisms for international energy and corn prices, and to implement measures for prudent regulation of monetary supply.

보험비교플랫폼 규율 방향

Even after the insurance comparison and recommendation services of fintech companies, including big tech companies, were allowed as a regulatory special case, it took more time for the service to start. Now, big tech companies are allowed to enter the insurance market. This is desirable in that it has a net function of bringing competition to the insurance market, rationally adjusting the price of insurance products according to the market mechanism and increasing the convenience of insurance for consumers. However, it is now time to pay attention to prevent consumer damage by framing business conduct regulations well.
 Referring to overseas cases that have experienced such services and faced regulatory concerns before us, we can come to the conclusion that we do not need to be bound by the principle of same function, same regulation. Even among traditional insurance brokers and platform companies, there are significant differences between small fintechs and big techs in terms of market power and group structure. Even if they provide the same service, there is a need to establish an entity-based dual regulatory system. The Korean insurance market is expected to have a greater impact than in the West because it has not experienced traditional insurance brokerage services, and there will be a need for a stronger regulatory framework. As big tech is allowed to enter the new financial market of insurance, it should not accept the strengthened behavioral regulation as an unfair regulation. On the contrary, there is an advantage to expanding insurance services within the framework of legislative regulation if it proves its role in promoting the convenience and welfare of insurance consumers under enhanced behavioral regulation.
 For the time being, the system will be guided by the financial authorities, but we should prepare for legislation. While the focus will be on business conduct regulation, the framework for prudential regulation should also be discussed in stages.

Digital disruptors at the gate. Does FinTech lending affect bank market power and stability?

This paper examines the effect of FinTech lending on the market power and stability of incumbent banks. Using an international sample of 6,225 banks during the period 2013–2019, our results show that the volume of credit provided by FinTech lenders negatively affects bank market power and stability. These results are influenced by the legal framework and institutional quality of each jurisdiction. Furthermore, the impact of FinTech lending on bank stability is partially channeled by the effect of FinTech credit on the market power of incumbent banks. Our main results – lower bank market power and bank stability – are also observed at the country level and after addressing potential endogeneity concerns. Regarding policy implications, more prudential regulation on FinTech activity is needed to address information imbalance issues and potential risks stemming from their activities. Furthermore, reinforcing the legal framework and institutional structure could serve to mitigate the adverse effects of FinTech lending on the traditional commercial banking sector.

Proportionality in the European Banking Law.Lessons from Silicon Valley Bank

Abstract 936European prudential regulation imposes significant compliance costs on banks, justifying extensive use of proportionality. However, the failure of Silicon Valley Bank raised numerous objections to this approach. According to many scholars and practitioners, the crisis of SBV originated from a substantial loosening of the regulatory standards and the corresponding supervisory enforcement. In this context, the article discusses the intricate relations between proportionality and financial stability, reaching an articulated conclusion. While concerning prudential capital requirements it seems reasonable to adopt a uniform discipline, as to supervision (e. g., SREP), a proportional approach seems more appropriate. At the same time, the failure of SVB advocates in favor of a partly different approach toward corporate governance.

ПРУДЕНЦІЙНЕ РЕГУЛЮВАННЯ БАНКІВСЬКОЇ ДІЯЛЬНОСТІ В ЄВРОПЕЙСЬКОМУ СОЮЗІ

Purpose. The purpose of the article is to analyze prudential regulation of banking activity in theEuropean Union and to provide proposals for improving prudential regulation in Ukraine.Methodology. The methodological basis of the research is the dialectical method, which allows youto investigate the set of phenomena in the relationship; a comparative method that allows you tosave the studied phenomena; the method of studying international practice, as well as the methodsof analysis, synthesis, deduction, induction, historical-legal method and formal-legal method. Results. The first section of the article analyzes categorically – the conceptual apparatus ofprudential regulation of banking activity as a type of banking regulation in particular, as well asthe place of prudential regulation of banking activity and its significance for the financial systemof Ukraine.The second section of the article is devoted to the study of prudential regulation of banking activityin individual member states of the European Union (France, Federal Republic of Germany).The third section of the article is devoted to the study of practical problems that arise in theimplementation of prudential regulation and prudential supervision and the provision of proposalsfor improving banking regulation in Ukraine.Conclusions. Prudential regulation of banking activity is an important component for thedevelopment and maintenance of the stability of the banking sector. The successful functioningof the market economy of Ukraine, like that of other countries, is connected with the efficiency ofthe functioning of the market of banking services, in particular credit institutions. Conducting ananalysis of prudential regulation is particularly relevant, because this topic has not yet receivedproper development in the scientific works of scientists and is only beginning to gain practicalsignificance. This study makes it possible to draw a number of basic conclusions about the legaland economic nature of prudential regulation and its main element – prudential supervision, tostudy the legal position of the subjects of this activity, to analyze the problems of the developmentand use of this system, as well as the experience of foreign countries in solving them. Prudentialsupervision ensures transparency and transparency of banking activities and is aimed atpreventing potential negative phenomena in the banking sector as a whole and, in particular,stopping excessively risky or illegal activities in specific banks, which can lead to the bankruptcyof a credit organization, and sometimes to systemic banking or even economic crises. It can beconcluded that effective prudential supervision is an integral part of the system of prudentialregulation of banking activity and is of crucial importance for maintaining the stability of thebanking sector, which is confirmed during the analysis of systemic banking crises.