Its conceptual appeal has made the Conditional Value at Risk (CoVaR) one of the most influential systemic risk indicators. Despite its popularity, an outstanding methodological challenge may hamper the CoVaRs’ accuracy in measuring the time-series dimension of systemic risk. The dynamics of the CoVaR are entirely due to the behaviour of the state variables and therefore without their inclusion, the CoVaR would be constant over time. The key contribution of this paper is to relax the assumption of time-invariant tail dependence between the financial system and each institution’s losses. We find that the dynamic component that we introduce does not affect the estimations for the risk of individual financial institutions, but it largely affects estimations of systemic risk which exhibits more procyclicality than the one implied by the standard CoVaR.
{"title":"Dynamic CoVaR","authors":"Jorge Pinheiro, Miguel C. Herculano","doi":"10.2139/ssrn.3923075","DOIUrl":"https://doi.org/10.2139/ssrn.3923075","url":null,"abstract":"Its conceptual appeal has made the Conditional Value at Risk (CoVaR) one of the most influential systemic risk indicators. Despite its popularity, an outstanding methodological challenge may hamper the CoVaRs’ accuracy in measuring the time-series dimension of systemic risk. The dynamics of the CoVaR are entirely due to the behaviour of the state variables and therefore without their inclusion, the CoVaR would be constant over time. The key contribution of this paper is to relax the assumption of time-invariant tail dependence between the financial system and each institution’s losses. We find that the dynamic component that we introduce does not affect the estimations for the risk of individual financial institutions, but it largely affects estimations of systemic risk which exhibits more procyclicality than the one implied by the standard CoVaR.","PeriodicalId":414741,"journal":{"name":"Econometric Modeling: Financial Markets Regulation eJournal","volume":"11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-09-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122563005","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Confidential examination files show that the likelihood of a bank to voluntarily choose to be externally audited under internal controls is positively associated with disciplinary actions imposed against it by supervisors and that such actions seldom involve financial reporting. This identifies a broad role for third party monitoring in the governance of regulated entities. A narrow role in influencing financial reporting quality, on the other hand, is evidenced in structured interviews with bank examiners.
{"title":"Third Party Monitoring, Regulatory Compliance and Financial Reporting: Evidence from Banking","authors":"D. Dahl","doi":"10.2139/ssrn.3915731","DOIUrl":"https://doi.org/10.2139/ssrn.3915731","url":null,"abstract":"Confidential examination files show that the likelihood of a bank to voluntarily choose to be externally audited under internal controls is positively associated with disciplinary actions imposed against it by supervisors and that such actions seldom involve financial reporting. This identifies a broad role for third party monitoring in the governance of regulated entities. A narrow role in influencing financial reporting quality, on the other hand, is evidenced in structured interviews with bank examiners.","PeriodicalId":414741,"journal":{"name":"Econometric Modeling: Financial Markets Regulation eJournal","volume":"5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134615060","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study the mandated introduction of an auction (and its subsequent supervision) for the pri-mary bond market in China. These regulatory interventions significantly reduce the cost of debt for Chinese issuers. While this reduction is partly driven by reduced information asymmetry, we show the majority of the benefits flow from reduced agency conflict between underwriters and issuers. Using unique bidder-level data from a lead underwriter, we develop replicable tools and techniques to identify collusive bidding behavior that results in artificial (and economically costly) increases in bond yields. Such evidence can benefit global regulators, issuers and investors currently using unsupervised auction mechanisms.
{"title":"Who watches the Auctioneer? Supervising primary bond markets to reduce agency costs","authors":"Sean Foley, Xiaolu Hu, Haozhi Huang, Jiang Li","doi":"10.2139/ssrn.3826039","DOIUrl":"https://doi.org/10.2139/ssrn.3826039","url":null,"abstract":"We study the mandated introduction of an auction (and its subsequent supervision) for the pri-mary bond market in China. These regulatory interventions significantly reduce the cost of debt for Chinese issuers. While this reduction is partly driven by reduced information asymmetry, we show the majority of the benefits flow from reduced agency conflict between underwriters and issuers. Using unique bidder-level data from a lead underwriter, we develop replicable tools and techniques to identify collusive bidding behavior that results in artificial (and economically costly) increases in bond yields. Such evidence can benefit global regulators, issuers and investors currently using unsupervised auction mechanisms.","PeriodicalId":414741,"journal":{"name":"Econometric Modeling: Financial Markets Regulation eJournal","volume":"29 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-07-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125299302","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper aims to analyze the relation between the proposal for a Regulation on Markets in Crypto-assets (MiCA), an element of the Digital Finance Package of the European Commission presented on the 24th of September of 2020, and DeFi (Decentralised Finance), an ecosystem of decentralised applications (dapps) that provide financial services built on top of peer-to-peer and trustless networks.
{"title":"MiCA and DeFi ('Proposal for a Regulation on Market in Crypto-Assets' and 'Decentralised Finance')","authors":"Guilherme C. Maia, J.M. Vieira dos Santos","doi":"10.2139/ssrn.3875355","DOIUrl":"https://doi.org/10.2139/ssrn.3875355","url":null,"abstract":"This paper aims to analyze the relation between the proposal for a Regulation on Markets in Crypto-assets (MiCA), an element of the Digital Finance Package of the European Commission presented on the 24th of September of 2020, and DeFi (Decentralised Finance), an ecosystem of decentralised applications (dapps) that provide financial services built on top of peer-to-peer and trustless networks.","PeriodicalId":414741,"journal":{"name":"Econometric Modeling: Financial Markets Regulation eJournal","volume":"110 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124711401","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We investigate the relationship between macro fundamentals and credit risk, rating migrations and defaults during the start of the COVID-19 pandemic. We find that credit risk models that use macro fundamentals as covariates overestimate credit risk incidence due to the unprecedented drops in economic activity in the first lockdowns. We argue that this break in the macro-credit linkage is less affected if we take an unobserved components modeling framework, both at shorter and longer credit risk horizons.
{"title":"COVID-19, Credit Risk and Macro Fundamentals","authors":"A. Dubinova, A. Lucas, Sean Telg","doi":"10.2139/ssrn.3875628","DOIUrl":"https://doi.org/10.2139/ssrn.3875628","url":null,"abstract":"We investigate the relationship between macro fundamentals and credit risk, rating migrations and defaults during the start of the COVID-19 pandemic. We find that credit risk models that use macro fundamentals as covariates overestimate credit risk incidence due to the unprecedented drops in economic activity in the first lockdowns. We argue that this break in the macro-credit linkage is less affected if we take an unobserved components modeling framework, both at shorter and longer credit risk horizons.<br>","PeriodicalId":414741,"journal":{"name":"Econometric Modeling: Financial Markets Regulation eJournal","volume":"71 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-06-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114817980","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Researcher conducted research at PT. Bank Rakyat Indonesia Tbk with the aim of knowing the level of health of PT. Bank Rakyat Indonesia Tbk in the period 2015-2018 viewed from aspects of CAMELS which included capital, asset quality, management, earnings, liquidity, and sensitivity to market risk factors. This research is quantitative descriptive. Based on research results, CAMELS includes as a bank health analysis using CAR ratios on capital, KAP and PPAP ratios on asset quality, NPM ratios on management, ROA and BOPO ratios on earnings, RIM and PLM ratios on liquidity, and IRR ratios on sensitivity. to market risk. Based on the ratio CAMELS method of PT. Bank Rakyat Indonesia (Persero) Tbk healthy received the title from 2010 to 2014. The value of health which formed a bank show Bank Rakyat Indonesia is a bank that is able to function properly.
研究员在PT. Bank Rakyat Indonesia Tbk进行了研究，目的是了解PT. Bank Rakyat Indonesia Tbk在2015-2018年期间的健康水平，从CAMELS的各个方面来看，包括资本、资产质量、管理、收益、流动性和对市场风险因素的敏感性。这项研究是定量描述性的。根据研究结果，camel包括银行健康分析，使用资本的CAR比率，资产质量的KAP和PPAP比率，管理的NPM比率，收益的ROA和BOPO比率，流动性的RIM和PLM比率以及敏感性的IRR比率。市场风险。根据PT的比率骆驼法，印度尼西亚人民银行(Persero) Tbk health于2010年至2014年获得该称号。构成银行的健康价值表明，印尼人民银行是一家能够正常运作的银行。
{"title":"financial statment analysis using the camels method to assess banking soundness level at PT. bank rakyat indonesia (persero) Tbk.","authors":"Fitrah Astari","doi":"10.2139/ssrn.3744114","DOIUrl":"https://doi.org/10.2139/ssrn.3744114","url":null,"abstract":"Researcher conducted research at PT. Bank Rakyat Indonesia Tbk with the aim of knowing the level of health of PT. Bank Rakyat Indonesia Tbk in the period 2015-2018 viewed from aspects of CAMELS which included capital, asset quality, management, earnings, liquidity, and sensitivity to market risk factors. This research is quantitative descriptive. Based on research results, CAMELS includes as a bank health analysis using CAR ratios on capital, KAP and PPAP ratios on asset quality, NPM ratios on management, ROA and BOPO ratios on earnings, RIM and PLM ratios on liquidity, and IRR ratios on sensitivity. to market risk. Based on the ratio CAMELS method of PT. Bank Rakyat Indonesia (Persero) Tbk healthy received the title from 2010 to 2014. The value of health which formed a bank show Bank Rakyat Indonesia is a bank that is able to function properly.","PeriodicalId":414741,"journal":{"name":"Econometric Modeling: Financial Markets Regulation eJournal","volume":"59 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-12-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122932707","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The increased burden of disclosure and governance regulations is often cited as a key reason for the significant decline in the number of publicly-listed companies in the U.S. We explore the connection between regulatory costs and the number of listed firms by exploiting a regulatory quirk: many rules trigger when a firm’s public float exceeds a threshold. Consistent with firms seeking to avoid costly regulation, we document significant bunching around multiple regulatory thresholds introduced from 1992 to 2012. We present a revealed preference estimation strategy that uses this behavior to quantify regulatory costs. Our estimates show that various disclosure and internal governance rules lead to a total compliance cost of 4.1% of the market capitalization for a median U.S. public firm. Regulatory costs have a greater impact on private firms' IPO decisions than on public firms’ going private decisions. However, heightened regulatory costs only explain a small fraction of the decline in the number of public firms.
{"title":"Regulatory Costs of Being Public: Evidence from Bunching Estimation","authors":"M. Ewens, Kairong Xiao, Ting Xu","doi":"10.2139/ssrn.3740722","DOIUrl":"https://doi.org/10.2139/ssrn.3740722","url":null,"abstract":"The increased burden of disclosure and governance regulations is often cited as a key reason for the significant decline in the number of publicly-listed companies in the U.S. We explore the connection between regulatory costs and the number of listed firms by exploiting a regulatory quirk: many rules trigger when a firm’s public float exceeds a threshold. Consistent with firms seeking to avoid costly regulation, we document significant bunching around multiple regulatory thresholds introduced from 1992 to 2012. We present a revealed preference estimation strategy that uses this behavior to quantify regulatory costs. Our estimates show that various disclosure and internal governance rules lead to a total compliance cost of 4.1% of the market capitalization for a median U.S. public firm. Regulatory costs have a greater impact on private firms' IPO decisions than on public firms’ going private decisions. However, heightened regulatory costs only explain a small fraction of the decline in the number of public firms.","PeriodicalId":414741,"journal":{"name":"Econometric Modeling: Financial Markets Regulation eJournal","volume":"129 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-12-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133997639","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Stress-tests provide complementary information about banks’ risk exposures. Recent empirical evidence, however, has uncovered potential inaccuracies in stress-test based assessments. We investigate the regulatory implications of these inaccuracies. Without stress-tests, the regulator cannot observe bank’s type, and sets the same requirement across banks. Stress-testing provides a noisy signal about the banks’ types, and enables bank specific surcharges, which can improve welfare. Yet, when stress-tests are less accurate, they distort banks’ ex-ante incentives to improve their risk-return profiles. As a result, higher capital surcharges can lead banks to be more risky. The optimal surcharge depends on the accuracy of stress-tests, and can be zero.
{"title":"Limits of Stress-Test Based Bank Regulation","authors":"Isha Agarwal, Tirupam Goel","doi":"10.2139/ssrn.3712632","DOIUrl":"https://doi.org/10.2139/ssrn.3712632","url":null,"abstract":"Stress-tests provide complementary information about banks’ risk exposures. Recent empirical evidence, however, has uncovered potential inaccuracies in stress-test based assessments. We investigate the regulatory implications of these inaccuracies. Without stress-tests, the regulator cannot observe bank’s type, and sets the same requirement across banks. Stress-testing provides a noisy signal about the banks’ types, and enables bank specific surcharges, which can improve welfare. Yet, when stress-tests are less accurate, they distort banks’ ex-ante incentives to improve their risk-return profiles. As a result, higher capital surcharges can lead banks to be more risky. The optimal surcharge depends on the accuracy of stress-tests, and can be zero.","PeriodicalId":414741,"journal":{"name":"Econometric Modeling: Financial Markets Regulation eJournal","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-10-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121239683","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The Impact of the Prohibition of Trade-through In the paper titled “Does the Prohibition of Trade-Through Hurt Liquidity Demanders?” the authors explore the effects of the order protect rule (OPR) in the United States, which prohibits any trade-through in the stock market that does not execute at the best possible price among fast trading venues. The study found that, whereas trade-throughs may offer flexible trading strategies that can benefit liquidity demanders, the benefits are insignificant for most cases, especially for small trades and stocks with fast resilience. The paper suggests that the current separate regulations for fast and slow venues may be extended to differentiate stocks with fast and slow resilience speeds. The results are supported by a case study using the data from the Australian Securities Exchange. Overall, this study supports the regulation of the OPR.
{"title":"Does the Prohibition of Trade-Through Hurt Liquidity Demanders?","authors":"Ningyuan Chen, P. Gao, S. Kou","doi":"10.2139/ssrn.3005835","DOIUrl":"https://doi.org/10.2139/ssrn.3005835","url":null,"abstract":"The Impact of the Prohibition of Trade-through In the paper titled “Does the Prohibition of Trade-Through Hurt Liquidity Demanders?” the authors explore the effects of the order protect rule (OPR) in the United States, which prohibits any trade-through in the stock market that does not execute at the best possible price among fast trading venues. The study found that, whereas trade-throughs may offer flexible trading strategies that can benefit liquidity demanders, the benefits are insignificant for most cases, especially for small trades and stocks with fast resilience. The paper suggests that the current separate regulations for fast and slow venues may be extended to differentiate stocks with fast and slow resilience speeds. The results are supported by a case study using the data from the Australian Securities Exchange. Overall, this study supports the regulation of the OPR.","PeriodicalId":414741,"journal":{"name":"Econometric Modeling: Financial Markets Regulation eJournal","volume":"118 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-08-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123214130","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We analyze changes in monetary and regulatory policy on trading relationships in the U.S. repo market. We estimate that when the Federal Reserve (Fed) introduced its reverse repo (RRP) facility, money market mutual funds (MMFs) eligible to lend to the Fed cut their lending in the triparty repo market to broker-dealers (dealers) by 16%, on average. By providing a backstop, the RRP facility shifted bargaining power towards MMFs eligible to lend to the Fed, and away from dealers. Although the RRP facility strengthened trading relationships between MMFs and dealers, it also prevented some foreign dealers, who were subject to less stringent implementation of the Basel III leverage ratio, from engaging in regulatory arbitrage as effectively. We find that these policy changes influenced the way MMFs managed their balance sheets and made MMFs that were eligible to lend to the Fed safer.
{"title":"How Does Policy Affect Trading Relationships? Evidence from the U.S. Repo Market","authors":"Sriya Anbil, Zeynep Senyuz","doi":"10.2139/ssrn.2888163","DOIUrl":"https://doi.org/10.2139/ssrn.2888163","url":null,"abstract":"We analyze changes in monetary and regulatory policy on trading relationships in the U.S. repo market. We estimate that when the Federal Reserve (Fed) introduced its reverse repo (RRP) facility, money market mutual funds (MMFs) eligible to lend to the Fed cut their lending in the triparty repo market to broker-dealers (dealers) by 16%, on average. By providing a backstop, the RRP facility shifted bargaining power towards MMFs eligible to lend to the Fed, and away from dealers. Although the RRP facility strengthened trading relationships between MMFs and dealers, it also prevented some foreign dealers, who were subject to less stringent implementation of the Basel III leverage ratio, from engaging in regulatory arbitrage as effectively. We find that these policy changes influenced the way MMFs managed their balance sheets and made MMFs that were eligible to lend to the Fed safer.","PeriodicalId":414741,"journal":{"name":"Econometric Modeling: Financial Markets Regulation eJournal","volume":"3 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-07-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121476269","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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