Friday, July 7, 2017

Deglobalizing or Reglobalizing?

Are Global Banks Pulling Back or Expanding Their Cross-border Connections?

Author: David Schwartz

On June 30, 2017, the Bank For International Settlements (BIS) published the results of a study examining trends in bank deglobalization since the financial crisis. Prompted by data indicating a decline in cross-border activity by banks, the BIS launched a study to determine whether the data support the hypothesis that the largest global banks have truly scaled back their cross-border activity since 2007, or whether it might be an indicator of some other trend.

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Monday, December 5, 2016

Basel Chair Calls for More Research into Bank Risk Models

Author: David Schwartz

In his December 2, 2016 keynote speech at the second Conference on Banking Development, Stability and Sustainability, Basel Committee Chairman Stefan Ingves invited the financial industry and academics to help better calibrate capital and liquidity standards. As the Committee finalizes Basel III, Ingves said that he welcomes research and rigorous analysis of how the Committee should think about the capital benefits of allowing banks to use internally modeled approaches to calibrate appropriate capital floors. While standardized modeling approaches have the benefit of being uniform and simple, they lack precision and may ignore real differences in risk among banks better addressed by internal models. Recognizing that “academic challenge…is an essential ingredient of a healthy financial and regulatory system,” Chairman Ingves says that the Basel Committee is eager to see research that answers questions like:

 

  • What are the pre-conditions for such models to produce better outcomes than, say, simpler standardized approaches? 
  • To whom do the benefits of improved modeling accrue?  For example, if a bank using a model can lower its capital requirements by, say, 30%, what are the financial stability and real economy benefits of such an approach? 
  • To what extent do the benefits of modeling accrue to lower-risk borrowers as opposed to the parties being compensated for developing and using the models?
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Friday, September 9, 2016

GFMA Measures the Costs of Basel Reforms

Recommends a Period for Observation and Adjustments to Basel Rules

Author: David Schwartz

On August 10, 2016, the Global Financial Markets Association (GFMA) released a comprehensive analysis of the potential costs of the new Basel standards on lending and capital markets. The report was conducted by Oliver Wyman, a  leading global management consulting firm, on behalf of GFMA and represents a comprehensive review of the existing literature on the effects of the Basel III standards on capital markets and banking activities. Given the volume and rapidity of regulatory changes in response to the financial crisis and the complexity of the global financial system, GMFA felt it was necessary to have a better understanding of the costs of reforms, both intentional and unintentional.  

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Sunday, June 12, 2016

Should Size Matter When it Comes to Financial Regulation?

Author: David Schwartz

In a June 8, 2016 address in Berlin, Dr. Andreas Dombret, Member of the Executive Board of the Deutsche Bundesbank, spoke about potentially easing the burden on smaller financial institutions by calibrating financial regulation based on banking entities' size and complexity. Dr. Dombret began his remarks by warning that the burdens of regulatory reform may be overwhelming smaller institutions. And with only larger banks able to cope, increased regulation may have the unintended effect of driving more consolidation, resulting in less diversity, more concentration of risk, and perpetuation of the too big to fail phenomenon.

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Monday, May 16, 2016

BIS Publishes Survey on Integration of Regulatory Capital and Liquidity Instruments

Author: David Schwartz

In March 2016, the Bank for International Settlements (BIS) published a paper reviewing the current knowledge and empirical data on the effects of new bank capital and liquidity requirements.  This literature review is comprised of three essays surveying the current body of research and empirical studies on liquidity and its interaction with capital and on other supervisory requirements.

 

Because the study is a literature review, BIS did not perform empirical analysis of its own. Rather, the authors carefully examined the available studies performed, assessed their scope, methodologies, and results, and drew conclusions regarding what has been learned thus far, noting gaps or areas still in development.  Overall, the literature review’s authors found that, because new capital requirements have been in place for quite awhile, a great deal of research has already been performed on their costs and benefits, as well as their effects on economic activity. In contrast, liquidity requirements and other supervisory tools like buffers and stress tests have only been implemented since the recent financial crisis. As a result, there has been far less time to study their efficacy or their knock-on effects, leaving gaps in the literature.

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