Ojo, Marianne (2011): Juridical and financial considerations on the public recapitalisation and rescue of financial institutions during periods of financial crises (Part II).
Download (1529Kb) | Preview
In response to the recent Financial Crisis - after it had been widely accepted that “a serious disturbance in the economy of Member States” had occurred, and that several measures were required to remedy this disturbance, various Commission communications were adopted. The Communications include: The first Communication which (initially), was the only one that the Commission adopted intentionally: the Communication on the application of State aid rules to measures taken in relation to financial institutions in the context of the current global financial crisis (hereinafter "the Banking Communication").
However, faced with the pressure to issue more guidelines (such pressure being exerted by Member States), the Commission adopted three further Communications: the Communication on the re capitalisation of financial institutions in the current financial crisis: limitation of aid to the minimum necessary and safeguards against undue distortions of competition (hereinafter "the Recapitalisation Communication"); the Communication “On the treatment of impaired assets in the Community banking sector” (hereinafter, “the Toxic Assets Comunication”) and finally, the Communication on the return to viability and the assessment of restructuring measures in the financial sector in the current crisis under the State aid rules (hereinafter "the Restructuring Communication").”
Whilst the Banking and Re capitalisation Communications constituted the focus of study in Part I to this paper, this paper will focus on the impact of shadow banking and Basel III on regulatory arbitrage, the corresponding need for greater transparency and disclosure within financial markets – particularly within OTC markets, and impediments to the successful implementation of capital requirements which are aimed at fostering financial stability, coordination and harmonisation. Further, it will consider the extent to which regulators are prepared to deviate from regulations during the implementation of stress-testing and rescue programmes which are aimed at restoring stability to the financial system.
The redefinition of quantitative and qualitative standards for capital, in implementing the Supervisory Capital Assessment Programme (SCAP), as illustrated in the paper, should demonstrate the extent to which regulators, independent of shadow banking practices, are prepared to deviate from capital regulations under adverse scenarios where certain regulations prove to be unduly stringent.
|Item Type:||MPRA Paper|
|Original Title:||Juridical and financial considerations on the public recapitalisation and rescue of financial institutions during periods of financial crises (Part II)|
|Keywords:||Financial Crisis; state aids; recapitalisation; regulatory arbitrage; shadow banking; Basel III; supervision; financial stability; OTC markets; counter party risks; stress testing; Supervisory Capital Assessment Program (SCAP); market discipline|
|Subjects:||E - Macroeconomics and Monetary Economics > E0 - General > E02 - Institutions and the Macroeconomy
D - Microeconomics > D0 - General
K - Law and Economics > K2 - Regulation and Business Law
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty
G - Financial Economics > G0 - General > G01 - Financial Crises
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles
|Depositing User:||Dr Marianne Ojo|
|Date Deposited:||09. Sep 2011 14:19|
|Last Modified:||16. Feb 2013 06:55|
Allen, William A., Chan, Ka Kei, Milne, Alistair K. L. and Thomas, Steve H., Basel III: Is the Cure Worse than the Disease? (September 30, 2010)
Bank for International Settlements, Consultative Document, „Strengthening the Resilience of the Banking Sector
Basel Committee on Banking Supervision, ‘Capital Requirements and Bank Behaviour: The Impact of the Basel Accord’ Basel Committee on Banking Supervision Working Papers April 1999
BRIEF, „Deutsche Bank CFO Says Concerned New Basel Rules Allow Shadow Banking System Whilst Constraining Bank Sector“ < http://www.finanznachrichten.de/nachrichten-2011-05/20264700-briefdeutsche-bank-cfo-says-concerned-new-basel-rules-allow-shadow-banking-system-020.htm
DIRECTIVE 2009/111/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 16 September 2009 amending Directives 2006/48/EC, 2006/49/EC and 2007/64/EC as regards banks affiliated to central institutions, certain own funds items, large exposures, supervisory arrangements, and crisis management.
European Banking Federation, Comments on consultative documents issued by Basel Committee on Banking Supervision “Strengthening the Resilience of the Banking Sector” and “International Framework for Liquidity Risk Measurement, Standards and Monitoring” <http://www.finansraadet.dk/media/208544/ebf_hoeringssvar_international_framework_for_liquidity_risk_measurement_standards_and_monitoring_150410.pdf
European Commission, „“Economic Crisis in Europe: Causes, Consequences and Responses, section 3.2.1 Crisis Resolution Policies: Stress Testing of Banks“ < http://ec.europa.eu/economy_finance/publications/publication15887_en.pdf >
European Commission, Communication from the Commission_ From Financial Crisis to Recovery: A European Framework for Action at page 3 29.10.2008 COM (2008) 706 final < http://eurlex. europa.eu/LexUriServ/LexUriServ.do?uri=COM:2008:0706:FIN:EN:PDF>
Financial Stability Board, „Shadow Banking: Scoping the Issues (A Background Note of the Financial Stability Board) http://www.financialstabilityboard.org/publications/r_110412a.pdf
Gerard D, „Managing the Financial Crisis in Europe: Why Competition Law is Part of the Solution, Not of the Problem” Global Competition Review December 2008 <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1330326>
Hannoun H, „Towards a Global Financial Stability Framework“ Bank for International Settlements Publications, page 9 of 26 <http://www.bis.org/speeches/sp100303.pdf>
Hoshi T and Kashyap AK, “Will the U.S. Bank Recapitalization Succeed? Eight Lessons from Japan“ NBER Working Paper No. 14401 August 2009
Ojo M, „Central Banks and Different Policies Implemented in Response to the Recent Financial Crisis“
Ojo M, „Preparing for Basel IV (whilst commending Basel III) : Why liquidity risks still present a challenge to regulators in prudential supervision ( Part II)“ http://mpra.ub.uni-muenchen.de/32630/ and http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1732304
Ojo M, „Financial Stability, New Macro Prudential Arrangements and Shadow Banking: Regulatory Arbitrage and Stringent Basel III Regulations „ Available at SSRN: http://ssrn.com/abstract=1859543 and http://mpra.ub.uni-muenchen.de/31319/
Rodriguez – Miguez J and Ojo M, “Juridical and Financial Considerations on the Public Re Capitalisation and Rescue of Financial Institutions During Periods of Financial Crisis”
„TARPOONED: The Recapitalization of the US Financial Industry „October 16, 2008 Dewey and LeBoeuf Publications <http://www.dl.com>
US Department of the Treasury, Treasury White Paper: The Capital Assistance Program and Its Role in the Financial Stability Plan 2 (Feb. 23, 2009)[hereinafter Treasury White Paper].
Wall AE, „Stress Tests and Market Discipline“ Banking and Financial Services Policy Report Volume 30 No 9 September 2011
Zoltan Pozsar, Tobias Adrian, Adam Ashcraft, and Hayley Boesky , „Shadow Banking“ Staff Report No 458 July 2010, Federal Reserve Bank of New York http://www.newyorkfed.org/research/staff_reports/sr458.pdf