Schuetz, Sebastian Alexander (2010): Structured Finance Influence on Financial Market Stability – Evaluation of Current Regulatory Developments.
Download (1MB) | Preview
In 2007 the world faced one of the biggest financial crises ever. It was the third important financial crisis in the last 12 years. Spillovers to the real economy and moral hazard behaviour of carpetbaggers resulted in enormous pressure on worldwide political institutions to approve a more rigorous regulation on financial institutions and to predict financial crises via early warning systems. We analyzed the performance of structured finance ratings and structured finance issuance/outstanding to detect the main shortcomings of the subprime crisis. Afterwards, we explain the behaviour of market participants with theoretical models and a survey of institutions involved in securitization. With the conclusions of this analysis we evaluate the EU regulation on credit rating agencies and current Basel II enhancements. Finally we can determine that most regulatory enhancements are in accordance with our analyzed shortcomings. Some approaches like the introduction of a leverage ratio are counterproductive and a danger for worldwide economic growth.
|Item Type:||MPRA Paper|
|Original Title:||Structured Finance Influence on Financial Market Stability – Evaluation of Current Regulatory Developments|
|Keywords:||Structured Finance; Ratings; Regulation; Subprime Crisis; Basel II; Leverage Ratio|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation
G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation
G - Financial Economics > G0 - General > G01 - Financial Crises
|Depositing User:||Sebastian Alexander Schuetz|
|Date Deposited:||30. Jun 2010 13:40|
|Last Modified:||30. Dec 2015 23:19|
Agerwal, S., B.W. Ambrose, S. Chomsisengphet and C. Liu (2006). An Empirical Analysis of Home Equity Loan and Line Performance, Journal of Financial Intermediation, 15, pp. 444-469.
Altmann, E.I. and H.A. Rijken (2005). The Effects of Rating through the Cycle on Rating Stability, Rating Timeliness and Default Prediction Performance.
American Securitization Forum (2010). Comment on the Consultative Documents “International Framework for Liquidity Risk Measurment, Standards and Monitoring” and “Strengthening the Resilience of the Banking Sector”.
Barrel, R., E. P. Davis, D. Karim and I. Liadze (2009). Bank Regulation, Property Prices and Early Warning Systems for Banking Crises in OECD Countries, Brunel University Department of Economics and Finance Working Paper, Brunel University.
Basel Committee on Banking Supervision (2009a). Enhancements to the Basel II framework, July.
Basel Committee on Banking Supervision (2009b). Strengthening the Resilience of the Banking Sector, Consultative Document.
BearingPoint (2009). Studie “Zukunft der Verbriefung in Europa”.
Bhattacharya, S., A.W.A. Boot and A.V. Thakor (1998). The Economics of Bank Regulation, Journal of Money, Credit and Banking, Vol. 30, No. 4.
Borio, C. and P. Lowe (2002). Asset Prices, Financial and Monetary Stability: Exploring the Nexus. BIS Working Papers, No. 114.
Borio, C. and P. Lowe (2002). Assessing the Risk of Banking Crises. BIS Quarterly Review, December 2002.
Borio, C. and M. Drehmann (2009). Assessing the Risk of Banking Crises – Revisited. BIS Quarterly Review, March 2009.
Brunnermeier, M. K. (2009). Deciphering the Liquidity and Credit Crunch 2007-2008, Journal of Economic Perspectives, Vol. 23, 1.
Bundesbank (1999). Hedge-Fonds und ihre Rolle auf den Finanzmärkten, Deutsche Bundesbank Monatsbericht, März.
Census Bureau (2010). Annual Home Prices, http://www.census.gov/const/uspriceann.pdf
Cole, R.T., G. Feldberg and D. Lynch (2007). Hedge Funds, Credit Risk Transfer and Financial Stability, in Banque de France Financial Stability Review – Special Issue on Hedge Funds, No. 10.
Davis, E.P. (1995). Debt, Financial Fragility and Systemic Risk, revised and expanded version, Oxford University Press.
Davis, E.P. (1999). Financial Data Needs for Macroprudential Surveillance: What are the Key Indicators of Risk to Domestic Financial Stability?, Lecture Series No 2, Centre for Central Banking Studies, Bank of England.
Davis, E.P. (2002). A Typology of Financial Crises, in Financial Stability Review No 2, Austrian National Bank.
Davis, E.P. and D. Karim (2008). Could Early Warning Systems have Helped to Predict the Sub-Prime Crisis?, National Institute Economic Review, Vol. 206, No. 1, pp. 35-47.
DeBandt, O. and P. Hartman (2002). Systemic Risk: A Survey. In C.A.E. Goodhard and G. Illing (eds.), Financial Crisis, Contagion, and the Lender of the Last Resort: A Book of Readings, London, Oxford University Press.
De Larosiere Group (2009). Report of the High Level Group of Supervision.
European Union (2009). Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on Credit Rating Agencies, Official Journal of the European Union, L 302.
Fitch (2010). Fitch Ratings Global Corporate Finance 2009 Transition and Default Study.
Franke, G. (2005). Transformation nicht-gehandelter in handelbare Kreditrisiken, Research Paper Series Thurgauer Wirtschaftsinstitut, Nr. 7.
Gibbons, R. (1992). A Primer in Game Theory, Harvester Wheatsheaf, London.
Holmes, S.A. (1999). Fannie Mae Eases Credit to Aid Mortgage Lending, New York Times, September 30.
Karim, D. (2008). The Use of Binary Recursive Trees for Banking Crisis Prediction, Brunel University Department of Economics and Finance Working Paper, Brunel University.
Keys, B.J., T.K. Mukherjee, A. Seru and V. Vig (2009). Did Securitization Lead to Lax Screening? Evidence from Subprime Loans, EFA 2008 Athens Meetings Paper.
Kiff, J. and P.S. Mills (2007). Money for Nothing and Checks for Free: Recent Developments in U.S. Subprime Mortgage Markets, IMF Working Paper, No. 07/188.
Lannoo, K. (2008). Centre for European Policy Studies Task Force Report – Concrete Steps Towards More Integrated Financial Oversight – The EU´s Policy Response to the Crisis.
Loeffler, G. (2004). An Anatomy of Rating Through the Cycle, Journal of Banking and Finance, Vol. 28, No. 3, pp. 695-720.
Masciandaro, D., M. J. Nieto and M. Quintyn (2009). Will They Sing the Same Tune? Measuring Convergence in the new European System of Financial Supervisors, International Monetary Fund Working Paper, 09, 142.
Moody´s (2007). The Performance of Structured Finance Ratings: Full-Year 2006 Report.
NBER Business Cycle Dating Committee (2001, 2003, 2008). http://www.nber.org/cycles.html
Papademos, L.D. (2007). Monitoring Hedge Funds: A Financial Stability Perspective, in Banque de France Financial Stability Review – Special Issue on Hedge Funds, No. 10.
Standard & Poors (2009). S&P Ratio highlights disparate Capital Strength among the World´s biggest Banks.
Standard & Poors (2010). Global Structured Finance Default Study – 1978-2009: Downgrades Accelerate in 2009 due to Criteria Changes and Credit Performance.