Supervisory Power Research Articles

Bank ownership, regulation and efficiency: Perspectives from the Middle East and North Africa (MENA) Region

This paper examines the effects of bank regulation and ownership on the efficiency of banks in the emerging MENA region. The public and private view of bank regulation is tested along with the interaction of bank regulation and ownership. Results support the public view of bank regulation and suggest that both ownership concentration and supervisory power individually and interactively exert a positive influence on cost efficiency. Moreover, government ownership, capital stringency and market power have positive effects on cost efficiency, whereas activity restrictions and deposit insurance have opposite effects. Capital regulation and supervisory power improvements occurred since Basel II.

A Measure of Supervisory Power: Scale Development and Validation

Post economic reforms, organisations in India have undergone consistent experimentation with organizational structuring and strategies. These visible radical changes have also influenced the hidden power equations in the organizational setups. In an attempt to revisit present day power dynamics, this study was conducted to validate the existing power inventory scale with 11 dimensions, in Indian context. Further, 6 items were also added to the existing scale in order to investigate two additional powers vis-a- vis Negative Referent and Negative Expert power which have not been incorporated and measured in the previous scales of organizational power. In order to confirm the scale, employees response (N=385) from IT sector on 13 dimensions of power scale was collected and analysed using SPSS for Exploratory Factor Analysis (EFA) and AMOS for Confirmatory Factor Analysis (CFA) first and second order. In the first stage of analysis, the 39 items of 13 dimension power scale post analysis were factorized to 20 items and 6 factor structure. The overall tests for reliability and validity (Cronbach’s Alpha, KMO-Bartlett) of the scale indicated positive results .The CFA results (Composite Reliability, Average Variance Extracted and Discriminant Validity) showed acceptable internal consistency reliability for the overall supervisory power scale. Out of the 6 items that were developed for Negative Referent and Negative Expert power, 5 items of the same consolidated into one factor which was labelled as Negative Power. Organizations and Supervisors interested in understanding and taking deeper insights of power and its influence in organizational settings can use this scale to comprehend the dyadic relationship amongst supervisor and subordinate. This study is first hand investigation to understand power dimensions in Indian IT sector. Further, it provides a comprehensive scale for the researchers who want to explore the power dynamics in different organizational settings as a base for future study.

The Influence of Competition on the Financial Stability of Banks in the Gulf Cooperation Council Countries

This paper tests the average relationship between competition and bank stability for 70 banks operating in the Gulf Cooperation Council Countries during the period 2001-2011. Our results show that an increase in competition contributes to bank fragility and that its contribution depends on the strength of regulations. In particular, the impact on bank soundness will be stronger the lower the capital requirements, the weaker the supervisory power, the stricter the regulations imposed on bank activities, and the less transparency and market discipline. These findings carry important policy implications for banks’ stability in the Gulf Cooperation Council Countries.

Regulations, Supervision and Banks' Cost and Profit Efficiency Around the World: A Stochastic Frontier Approach

This paper uses stochastic frontier analysis and Tobit regressions to provide international evidence on the impact of regulatory, supervision and environmental factors on bank efficiency. Our contribution is twofold. First, we use a newly constructed database of 3,086 observations from 677 publicly quoted commercial banks operating in 88 countries to provide cross-country evidence on the determinants of banks’ cost and profit efficiency during the period 2000-2004. Second, we utilise the new database of the World Bank (WB), developed by Barth et al. (2004b), to investigate the impact of a broad range of regulatory and supervision measures, including capital requirements, restrictions on bank activities, private monitoring, official supervisory power of the authorities, and deposit insurance. Our results suggest a robust association of some of these measures with bank efficiency, despite being marginal in their impact compared to the influence of bank level capitalisation. We also reveal, in this context, some similarities and differences in the determinants of cost and profit efficiency, with plausible effects of the impact of the conditioning environmental factors on bank efficiency.

A Multiobjective Optimization Framework for Online Stochastic Optimal Control in Hybrid Electric Vehicles

The increasing urgency to extract additional efficiency from hybrid propulsion systems has led to the development of advanced power management control algorithms. In this paper, we address the problem of online optimization of the supervisory power management control in parallel hybrid electric vehicles (HEVs). We model HEV operation as a controlled Markov chain and show that the control policy yielding the Pareto optimal solution minimizes online the long-run expected average cost per unit time criterion. The effectiveness of the proposed solution is validated through simulation and compared with the solution derived with dynamic programming using the average cost criterion. Both solutions achieved the same cumulative fuel consumption demonstrating that the online Pareto control policy is an optimal control policy.

Optimal Leverage Ratio and Capital Requirements with Limited Regulatory Power

This article discusses the optimal leverage ratio and capital requirements when asymmetric information exists between the bank and the regulator. We show that the optimal requirements take different forms in the short and long run. In either case, imposing the risk-weighted capital requirement without considering the incentives of the bank to misreport its risk profile is never optimal by itself. In the long run, the optimal requirements take the form of a leverage ratio requirement on top of the risk-weighted capital requirement. The add-on leverage ratio requirement, which serves as a compensation for the limited supervisory power of the regulators, should be set such that the risk-taking behavior of the bank is unchanged from the situation in which the regulator uses the risk-weighted capital requirement alone, and the misreporting incentive of the bank is eliminated by the add-on leverage ratio requirement.

More Than Just a Potted Plant: A Court's Authority to Review Deferred Prosecution Agreements Under the Speedy Trial Act and Under Its Inherent Supervisory Power

In the last decade, the Department of Justice has increasingly relied on pretrial diversion agreements as a means of resolving corporate criminal cases short of prosecution. These pretrial diversion agreements—non-prosecution and deferred prosecution agreements—include substantive terms that a company must abide by for the duration of the agreement in order to avoid prosecution. When entering a deferred prosecution agreement, the Department of Justice files charges against the defendant corporation as well as an agreement outlining the variety of terms with which the company must comply. This delay in prosecution is permitted under the Speedy Trial Act, which provides an exception to the general requirement that prosecution commence seventy days after charges are filed for delays intended to allow a defendant to demonstrate “good conduct.” Until very recently, these agreements were accepted and approved by courts without question. In 2014, however, over the objection of the Department of Justice, a district court scrutinized a deferral and, in 2015, a second district court rejected a deferral because the terms of the agreement were, in its view, much too lenient. The 2015 rejection has raised questions about the proper roles of courts and prosecutors in resolving criminal cases. In particular, judicial review of deferred prosecution agreements might improperly interfere with the Executive’s discretion in deciding whether to prosecute a criminal defendant, thereby violating separation-of-power principles. This Note argues, however, that judicial review is appropriate and constitutionally permissible. First, review authority is appropriate because Congress has granted the courts that review authority under a proper reading of the Speedy Trial Act. Additionally, the congressional grant of review authority is bolstered by the inherent supervisory power of courts to ensure the fair administration of criminal justice.

Overview of recent control technologies for future power systems

Abstract The increasing integration of renewable power generation in power systems poses new challenges to power system control. In this article, we describe a multi-layer power system control architecture that addresses these challenges and comprises economic planning, supervisory power control, as well as voltage and frequency control as main layers. Several parts of this architecture have already been developed and tested on diverse components including building energy management, micro grid management and wind park control. We provide an overview of these applications and indicate white spots in this control architecture that require further research.

A Supervisory Power Flow Controller for a Hybrid Power System

Hybrid power system presented in this work focuses on the combination of wind, solar, and energy storing systems for sustainable power generation. The output power of wind turbine is only available under a specific speed or higher. The solar energy varies hourly, daily and seasonally which depends on variation of solar irradiation. A generator-set with a battery bank can be integrated with the wind and PV-system to ensure the continuity of power supply for all conditions.The paper aims to model and simulate the transient and steady state behavior of a Solar-Wind hybrid power generation system together with energy storage bank. Besides, a supervisory power flow controller has been developed which determines a power source that is selected to operate in order to satisfy the load demand taking into account the sun irradiance and the wind speed. The energy storage bank may be used to store an excess of power from the renewable energy system (RES) that will be used when there is insufficient supplied power. If either the available power from the wind turbine or from the solar panels or both of them cannot satisfy the load demand the generator set system will be used to satisfy the load demand. The functionality of the presented Hybrid Power System has been successfully designed and simulated using Matlab/Simulink tool.

Do bank regulation and supervision matter?

Purpose – The purpose of this paper is to examine the impact of bank regulation and supervision on bank development, efficiency and fragility over the period of 1999-2011. Design/methodology/approach – The authors’ approach is based on a multivariate difference-in-difference model which controls for potential endogeneity of the explanatory variables and unobservable country-specific effect. The paper investigates the changes of bank outcomes and a country’s regulation and supervisory practices, in terms of capital regulation, supervisory power, private monitoring, entry into banking requirements, overall restrictions on bank activities and government ownership of banks in a sample of 53 countries with a total of 482 observations. Findings – Empirical results indicate that greater capital regulatory requirements reduce bank fragility, as measured by lower levels of non-performing loans but reduce bank efficiency, as measured by higher levels of net interest margin; supervisory practices that strengthen private sector monitoring of banks improve bank development, as measured by bank private credit as a share of gross domestic product; lower levels of non-performing loans are associated with greater enter-into-banking requirements and less restrictiveness on bank activities; and greater government ownership of banks is associated with both higher levels of net interest margin and higher levels of non-performing loans. Overall, the findings support Basel II’s first and third pillars: capital requirements and private monitoring. Originality/value – This cross-country analysis provides evidence on which specific regulatory and supervisory practices work best in light of what was learned from the recent financial crisis.

Regulations, institutions and income smoothing by managing technical reserves: International evidence from the insurance industry

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.

Regulations, profitability, and risk-adjusted returns of European insurers: An empirical investigation

This study examines the effect of regulations on European insurers’ profitability and risk-adjusted returns. We find an inverted U-shaped relationship between return on assets and regulations relating to capital adequacy, accounting and auditing requirements, and disclosures to supervisors. In contrast, requirements related to technical provisions have a negative effect on return on assets, and we find no evidence of an association with regulations related to investment and supervisory power. We also find evidence of an inverted U-shaped relationship between a firm's risk-adjusted rate of return and regulations relating to capital requirements as well as corporate governance and internal control. We observe the opposite in the case of technical provisions. These results are robust to controls for various country-specific attributes such as macroeconomic environment, stock market development, overall quality of institutions, and legal origins.

Drivers of structural change in cross-border banking since the global financial crisis

The paper analyzes the effects of changes to regulatory policy and to monetary policy on cross-border bank lending since the global financial crisis. Cross-border bank lending has decreased, and the home bias in the credit portfolio of banks has risen sharply, especially among banks in the euro area. Our results suggest that expansionary monetary policy in the source countries – as measured by the change in reserves held at central banks – has encouraged cross-border lending, both in euro area and non-euro area countries. Regarding regulatory policy, increases in financial supervisory power or independencve of the supervisory authorities have encouraged credit outflows from source countries. The findings thus underline the importance of regulatory arbitrage as a driver of cross-border bank flows since the global financial crisis. However, in the euro area, arbitrage in capital stringency was linked to lower cross-border lending since the crisis.

Drivers of Structural Change in Cross-Border Banking Since the Global Financial Crisis

The paper analyzes the effects of changes to regulatory policy and to monetary policy on cross-border bank lending since the global financial crisis. Cross-border bank lending has decreased, and the home bias in the credit portfolio of banks has risen sharply, especially among banks in the euro area. Our results suggest that expansionary monetary policy in the source countries - as measured by the change in reserves held at central banks - has encouraged cross-border lending, both in euro area and non-euro area countries. Regarding regulatory policy, increases in financial supervisory power or independence of the supervisory authorities have encouraged credit outflows from source countries. The findings thus underline the importance of regulatory arbitrage as a driver of cross-border bank flows since the global financial crisis. However, in the euro area, arbitrage in capital stringency was linked to lower cross-border lending since the crisis.

Supervisory Power Management Control Algorithms for Hybrid Electric Vehicles: A Survey

The growing necessity for environmentally benign hybrid propulsion systems has led to the development of advanced power management control algorithms to maximize fuel economy and minimize pollutant emissions. This paper surveys the control algorithms for hybrid electric vehicles (HEVs) and plug-in HEVs (PHEVs) that have been reported in the literature to date. The exposition ranges from parallel, series, and power split HEVs and PHEVs and includes a classification of the algorithms in terms of their implementation and the chronological order of their appearance. Remaining challenges and potential future research directions are also discussed.

Bank regulation, risk and return: Evidence from the credit and sovereign debt crises

In this paper, we analyze whether regulation reduced risk during the credit crisis and the sovereign debt crisis for a cross section of global banks. In this regard, we examine distance to default (Laeven and Levine, 2008), systemic risk (Acharya et al., 2010), idiosyncratic risk, and systematic risk. We employ World Bank survey data on regulations to test our conjectures. We find that regulatory restrictions, official supervisory power, capital stringency, along with private monitoring can explain bank risk in both crises. Additionally, we find that deposit insurance schemes enhance moral hazard, as this encouraged banks to take on more risk and perform poorly during the sovereign debt crisis. Finally, official supervision and private monitoring explains the returns during both crisis periods.

The Impact of Reversing Regulatory Arbitrage on Loan Originations: Evidence from Bank Holding Companies

Mortgage banking subsidiaries of bank holding companies (BHCs) became increasingly active players in the mortgage origination market during the last decade. At the time, the Federal Reserve Board (FRB) had supervisory power over BHCs, and under the Bank Holding Company Act was authorized to monitor and examine the subsidiaries of BHCs under certain circumstances. However, this authority did not clearly extend to routine examinations of nonbank subsidiaries of BHCs. This changed between 2007 and 2009 due to FRB policy on consumer compliance supervision for nonbank subsidiaries of BHCs. Our empirical analysis tests for the impact of the new policy on the quantity and quality of loan originations by mortgage banking subsidiaries of BHCs. We use a difference-in-differences estimator with the control group being other types of lenders. We show that loan production moved from mortgage banking subsidiaries to their affiliated depository institutions after the policy change. The quality of loans originated by mortgage banking subsidiaries of BHCs increased after the policy change: The denial rates for mortgage applications increased, loan-to-income ratios decreased, and the proportion of owner occupied houses increased in mortgage banking subsidiaries more than they did in other types of lenders.

The effect of market structure, regulation, and risk on banks efficiency

Purpose – The purpose of this paper is to analyze the efficiency performance of the Gulf Cooperation Countries (GCC) banking sector. The primary focus is to assess whether market power, risk taking activities, and regulations have significant effects on GCC banks’ efficiency performance. Design/methodology/approach – The estimation and inference has been implemented using a double bootstrap procedure that simultaneously corrects for bias and validates inference on the influence of covariates. In the first stage, efficiency scores are estimated with data envelopment analysis (DEA). In the second stage, variation in the resulting efficiency scores is explained using a truncated regression model with inference based on a semi-parametric bootstrap routine. Findings – The authors found compelling evidence that efficiency is not independent of the market structure, the bank's risk taking activities, and the regulatory environment. In particular, the Lerner Index provides evidence that market power decreases efficiency. The capital adequacy, the supervisory power and the market discipline were all found to improve efficiency. Additionally, when the risk is measured by the Z-Score or even by the ratio of non-performing loans to total loans, it adversely affects efficiency. Research limitations/implications – The results of the current study have important implications for regulators and supervisors. Promoting banks’ competitive environment in the GCC countries through reducing the information barriers to entry, encouraging bank privatization, and lowering the activities restrictions can potentially improve operational efficiency of banks. Also enhancing banks’ diversification activities and risk management techniques may have the advantage of increasing operational efficiency. Furthermore, improvements in the regulatory conditions that enhance banking supervision and monitoring would also improve efficiency. Originality/value – The main contributions of the paper are threefold: first, to the knowledge, this study is the first to employ by far the most comprehensive data set of GCC banks investigated to date. Second, the analysis focusses on the influence of a wide set of factors, most of them was not covered before in related economic literature on bank efficiency of the GCC countries. Third, the methodological innovation involves applying a double bootstrap procedure proposed by Simar and Wilson (2007).

Transition Management of Microgrids With High Penetration of Renewable Energy

Microgrids are receiving attention due to the increasing need to integrate distributed generations and to ensure power quality and to provide energy surety to critical loads. Some of the main topics concerning microgrids are transients and stability concerns during transitions including intentional and unintentional islanding and reconnection. In this paper, the standard IEEE 34 bus distribution feeder is adapted and managed as a microgrid by adding distributed generations and load profiles. Supervisory power managements have been defined to manage the transitions and to minimize the transients on voltage and frequency. Detailed analyses for islanding, reconnection, and black start are presented for various conditions. The proposed control techniques accept inputs from local measurements and supervisory controls in order to manage the system voltage and frequency. An experimental system has been built which includes three 250 kW inverters emulating natural gas generator, energy storage, and renewable source. The simulation and experimental results are provided which verifies the analytical presentation of the hardware and control algorithms.

The Impact of Ownership and Regulations on Bank Risk-Taking: Evidence from the Middle East and North Africa (MENA) Region

This paper examines how bank regulations and ownership structure individually and interactively influence bank risk-taking behaviour. We use generalised method of moments (GMM) estimation technique to analyze unbalanced panel data on 153 commercial banks from 12 Middle East and North Africa (MENA) countries. Predictably, foreign ownership is found to be inversely related to portfolio risk in all specifications, while government ownership shows positive association with portfolio risk only among the non GCC (Gulf Cooperative Council) banks. We also find supervisory power having a positive effect on portfolio risk and a negative effect on credit risk, whereas activity restrictions show opposite effects on these two risk measures. In addition, these effects are reinforced for banks with higher ownership concentration and/or higher government ownership. The GCC banks show better results in relation to negative effects of capital regulations and market discipline on portfolio risk, although these effects are inconclusive in other specifications. Overall, our study results call for an increased activism of the policymakers and regulators in enforcing regulatory reform initiatives relating to ownership and other bank regulations.