Ojo, Marianne (2011): Capital, liquidity standards and macro prudential policy tools in financial supervision: addressing sovereign debt problems.
Preview |
PDF
MPRA_paper_31096.pdf Download (169kB) | Preview |
Abstract
During the recent Financial Crisis, as well as the 2010 and ongoing European Sovereign Debt Crisis, several governments had/have had to raise their debt levels in order to stabilize their economies. The principal problem attributed to sovereign debts, which is linked to their characteristics, is the possibility of defaults occurring in relation to these – since they are usually accompanied without collaterals. The possibilities of such defaults occurring are further increased where bailouts are granted in relation to these debts. Increased doubts in relation to the likelihood of larger sovereigns “rolling over maturing debt on their own”, as well as the consequential occurrence of “very high, economically penalizing, interest rates”, is considered to be the present reality.
This paper aims to illustrate why distressed countries, once granted bail-outs, should be given full assurance (by grantors of the bail-outs) that continued assistance will be provided in the form of accompanying aids to assist in completing repayments relating to such bailouts (through the extension of repayment periods or reduced interest rates) – rather than aggravating their position (hence facilitating the risk of defaults).
As well as a consideration of improvements which have been introduced through Basel III in respect of prudential supervisory tools (supervisory tools such as capital, liquidity requirements, and macro prudential policy tools), and an analysis of recent efforts which have been undertaken by the Basel Committee to address information gaps in derivative markets (a source of huge losses to many major banks), the paper also explores how the new Basel liquidity standards (that is, the Liquid Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR), could be effectively implemented in mitigating sovereign debt crises. Ultimately, the paper will seek to demonstrate that additional leverage ratios which are to be introduced by the Basel Committee, will play a very crucial role if the new liquidity standards are to achieve their desired effects and stated objectives.
Item Type: | MPRA Paper |
---|---|
Original Title: | Capital, liquidity standards and macro prudential policy tools in financial supervision: addressing sovereign debt problems |
Language: | English |
Keywords: | European Sovereign Debt Crisis; bail-outs; Basel III; Dodd Frank Act; Capital standards; Liquidity Standards; macro prudential policy tools; Over-the-Counter (OTC) derivatives; Credit-Default-Swaps (CDS); markets; disclosure; bank; regulation; leverage ratios |
Subjects: | D - Microeconomics > D0 - General E - Macroeconomics and Monetary Economics > E0 - General K - Law and Economics > K2 - Regulation and Business Law G - Financial Economics > G2 - Financial Institutions and Services F - International Economics > F3 - International Finance D - Microeconomics > D8 - Information, Knowledge, and Uncertainty E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles |
Item ID: | 31096 |
Depositing User: | Dr Marianne Ojo |
Date Deposited: | 25 May 2011 06:56 |
Last Modified: | 27 Sep 2019 10:33 |
References: | Bank for International Settlements, “Macro prudential Policy Tools and Frameworks: Update to G20 Finance Ministers and Central Bank Governors.” February 2011 <http://www.bis.org/publ/othp13.pdf> Basel III Compliance Professionals Association (BiiiCPA), “The Basel III Accord: Capital for Systemically Important Banks Only” 2010 < http://www.basel-iii-accord.com> Basel Committee on Banking Supervision, “Consultative Document, Standard Approach to Credit Risk, Supporting Document to the New Basel Accord, January 2001 Basel Committee on Banking Supervision, “Consultative Document, The Internal Ratings Based Approach Supporting Document to the New Basel Capital Accord” January 2001 Bank for International Settlements publications http://www.bis.org/publ/bcbsca05.pdf Basel Committee on Banking Supervision, “Principles for Sound Liquidity Risk Management and Supervision” September 2008 http://www.bis.org/publ/bcbs144.htm Basel Committee for Banking Supervision, “Consultative Document, International Framework for Liquidity Risk Measurement, Standards and Monitoring” December 2009 <http://www.bis.org/publ/bcbs165.pdf> Basel Committee for Banking Supervision, “Groups of Governors and Heads of Supervision Announce Higher Global Minimum Capital Standards” 12 September 2010 http://www.bis.org/press/p100912.pdf?noframes=1 Basel Committee on Banking Supervision, “Basel III: A Global Regulatory Framework For More Resilient Banks and Banking Systems” December 2010 http://www.bis.org/publ/bcbs189.pdf Brandauer S, “Sovereign Debt and Economic Policies in Global Markets: A Political Economy Approach” (2006) http://edoc.ub.uni-muenchen.de/5082/1/Brandauer_Stefan.pdf Calice G, Chen J and Williams J, “Liquidity Interactions in Credit Markets: An Analysis of the Euro zone Sovereign Debt Crisis” March 2011 <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1776425> Congdon T, “Northern Rock Shows Up Mess of Basel Rules” January 2008 < http://www.telegraph.co.uk/finance/markets/2783500/Northern-Rock-shows-up-mess-of-Basel-rules.html> Economides N and Smith RC, “Trichet Bonds To Resolve the European Sovereign Debt Problem” January 2011 <http://www.ssrn.com/abstract=1836743> Financial Stability Board, “Implementing OTC Derivatives Market Reforms” 25th October 2010 <http://www.financialstabilityboard.org/publications/r_101025.pdf> Hannoun H, „Towards a Global Financial Stability Framework” Bank for International Settlements Publications, February 2010 <http://www.bis.org/speeches/sp100303.pdf Isaac N, „EU Bailouts Fail to Keep European Sovereign Debt Markets Afloat“ April 2011 http://www.elliottwave.com Moya E, “Greece and the Rising Costs of Sovereign Bonds” 29 January 2010 <http://www.guardian.co.uk/business/2010/jan/29/greece-debt-eu-sovereign-bonds> Ojo M, “Basel III and Responding to the Recent Financial Crisis: Progress made by the Basel Committee in relation to the Need for Increased Bank Capital and Increased Quality of Loss Absorbing Capital” http://ssrn.com/abstract=1680886 Ojo M, „Preparing for Basel IV – Why Liquidity Risks Still Present a Challenge to Regulators in Prudential Supervision (II) http://mpra.ub.uni-muenchen.de/27778/ http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1732304 Papanikolaou N and Wolff C, “Leverage and Risk in US Commercial Banking in the Light of the Recent Financial Crisis.” March 2011 Draft Walter S, “Basel III: Stronger Banks and a More Resilient Financial System” April 2011 http://www.bis.org/speeches/sp110406.pdf |
URI: | https://mpra.ub.uni-muenchen.de/id/eprint/31096 |