To every thing there is a season. In the area of securities regulation in the United States, it is the season for expansion. This article shows why such expansion should not involve use of the core issuer disclosure, fraud, and insider trading laws to reduce information asymmetry in the stock market in the name of investor protection. I argue that any expansion of these laws focused on this secondary market should therefore be justified by distinct concerns (namely, efficiency ones). Moreover, any push to better serve and protect investors should be focused on other areas of securities law (such as those relating to the structure of securities markets) or other markets (such as the market for investment management).
{"title":"Marginal Benefits of the Core Securities Laws","authors":"Kevin S Haeberle","doi":"10.1093/jfr/fjab008","DOIUrl":"https://doi.org/10.1093/jfr/fjab008","url":null,"abstract":"To every thing there is a season. In the area of securities regulation in the United States, it is the season for expansion. This article shows why such expansion should not involve use of the core issuer disclosure, fraud, and insider trading laws to reduce information asymmetry in the stock market in the name of investor protection. I argue that any expansion of these laws focused on this secondary market should therefore be justified by distinct concerns (namely, efficiency ones). Moreover, any push to better serve and protect investors should be focused on other areas of securities law (such as those relating to the structure of securities markets) or other markets (such as the market for investment management).","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2021-07-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138505812","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}
Dagong Global Credit Rating Agency (Dagong) was originally branded as a Chinese national representative credit rating agency. Its international expansion in the US and the EU, in order to challenge the biggest international credit rating agencies, was unsuccessful and achieved little of significance. Dagong’s business suffered a complete halt because of a one-year suspension by the Chinese financial regulators. Its ratings heeded China’s geopolitical interest and China’s strategic plans of economic development rather than signalling the credit risks of debt instruments. Dagong’s ratings had a significant political bias towards countries which were China’s economic and political allies or supplied raw materials to China. Dagong officially became a state-owned credit rating agency following a reconstruction by the Chinese state in 2019. This article concludes that this new ownership may exacerbate the geopolitical characteristics of Dagong and poses a challenge to the international financial market.
{"title":"The Rise and Fall of Dagong Global Credit Rating Agency: A Geopolitical Challenge for the Rating Industry","authors":"Chunping Bush","doi":"10.1093/jfr/fjab007","DOIUrl":"https://doi.org/10.1093/jfr/fjab007","url":null,"abstract":"\u0000 Dagong Global Credit Rating Agency (Dagong) was originally branded as a Chinese national representative credit rating agency. Its international expansion in the US and the EU, in order to challenge the biggest international credit rating agencies, was unsuccessful and achieved little of significance. Dagong’s business suffered a complete halt because of a one-year suspension by the Chinese financial regulators. Its ratings heeded China’s geopolitical interest and China’s strategic plans of economic development rather than signalling the credit risks of debt instruments. Dagong’s ratings had a significant political bias towards countries which were China’s economic and political allies or supplied raw materials to China. Dagong officially became a state-owned credit rating agency following a reconstruction by the Chinese state in 2019. This article concludes that this new ownership may exacerbate the geopolitical characteristics of Dagong and poses a challenge to the international financial market.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2021-06-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43654383","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}
Being a big bank means the regular payment of huge fines to a number of different regulators, paired with profuse apologies, and promises to do better next time. This article makes use of a hand-collected dataset to show how this enforcement worked in the United States after the passage of the Dodd-Frank Wall Street Reform Act. American regulators have tended to hunt the big banks in packs, with multiple regulators pursuing fines against financial institutions for the same misconduct. Regulators frequently enforce in a ‘viral’ manner: once they sanction one bank for a type of misconduct, the chances that they will sanction another bank for the same sort of misconduct increases. Some regulators like to bundle a variety of different unlawful actions by banks into one global settlement. Enforcement by the Department of Justice can result in spectacularly expensive settlements compared to the level of enforcement by primary banking regulatory agencies; overall, Department of Justice sanctions in dollars dwarf those of all other agencies policing part of what a bank does. American enforcement, despite suspicion to the contrary, does not appear to protect domestic banks and discriminate against foreign ones. Although this article’s primary goal is to make sense of the federal government’s overall enforcement practices, one recommendation is made: criminal prosecutors should consult with safety and soundness regulators before unveiling indictments and settlements against banks.
{"title":"Enforcement against the Biggest Banks","authors":"David Zaring","doi":"10.1093/jfr/fjab005","DOIUrl":"https://doi.org/10.1093/jfr/fjab005","url":null,"abstract":"Being a big bank means the regular payment of huge fines to a number of different regulators, paired with profuse apologies, and promises to do better next time. This article makes use of a hand-collected dataset to show how this enforcement worked in the United States after the passage of the Dodd-Frank Wall Street Reform Act. American regulators have tended to hunt the big banks in packs, with multiple regulators pursuing fines against financial institutions for the same misconduct. Regulators frequently enforce in a ‘viral’ manner: once they sanction one bank for a type of misconduct, the chances that they will sanction another bank for the same sort of misconduct increases. Some regulators like to bundle a variety of different unlawful actions by banks into one global settlement. Enforcement by the Department of Justice can result in spectacularly expensive settlements compared to the level of enforcement by primary banking regulatory agencies; overall, Department of Justice sanctions in dollars dwarf those of all other agencies policing part of what a bank does. American enforcement, despite suspicion to the contrary, does not appear to protect domestic banks and discriminate against foreign ones. Although this article’s primary goal is to make sense of the federal government’s overall enforcement practices, one recommendation is made: criminal prosecutors should consult with safety and soundness regulators before unveiling indictments and settlements against banks.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2021-05-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138505811","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 meteoric growth of global cryptocurrency markets presents novel challenges to regulators. Some policymakers and scholars warn that regulation will cause trading activity to cross borders into less-regulated jurisdictions—or even smother a promising new financial asset class. Others believe regulatory actions will stimulate activity by providing clarity to market participants. Standing behind this disagreement is a debate about the desirability of either outcome. Some believe that governments should promote development of the cryptocurrency sector within their countries, while others view cryptocurrencies as conduits of illegality and fraud that should be restricted through strict regulation or even outright bans. Yet these debates have, to date, been conducted almost entirely without data concerning the effects of regulation on market activity. As a corrective, in this article we assembled original data on cryptocurrency regulations worldwide and used them to empirically examine movement in trading activity at a number of exchanges following key regulatory announcements. We found that a wide variety of models yielded almost entirely null results. From the creation of bespoke licensing regimes to targeted anti-money-laundering and anti-fraud enforcement actions, as well as many other categories of government activities, we found no systemic evidence that regulatory measures cause traders to flee, or enter into, the affected jurisdictions. These findings at last provide an empirical basis for regulatory decisions concerning cryptocurrency trading. Among other things, they call into question that capital flight or chilling effects should be a first-order concern.
{"title":"The Impact of Cryptocurrency Regulation on Trading Markets","authors":"Brian D Feinstein, Kevin Werbach","doi":"10.1093/jfr/fjab003","DOIUrl":"https://doi.org/10.1093/jfr/fjab003","url":null,"abstract":"The meteoric growth of global cryptocurrency markets presents novel challenges to regulators. Some policymakers and scholars warn that regulation will cause trading activity to cross borders into less-regulated jurisdictions—or even smother a promising new financial asset class. Others believe regulatory actions will stimulate activity by providing clarity to market participants. Standing behind this disagreement is a debate about the desirability of either outcome. Some believe that governments should promote development of the cryptocurrency sector within their countries, while others view cryptocurrencies as conduits of illegality and fraud that should be restricted through strict regulation or even outright bans. Yet these debates have, to date, been conducted almost entirely without data concerning the effects of regulation on market activity. As a corrective, in this article we assembled original data on cryptocurrency regulations worldwide and used them to empirically examine movement in trading activity at a number of exchanges following key regulatory announcements. We found that a wide variety of models yielded almost entirely null results. From the creation of bespoke licensing regimes to targeted anti-money-laundering and anti-fraud enforcement actions, as well as many other categories of government activities, we found no systemic evidence that regulatory measures cause traders to flee, or enter into, the affected jurisdictions. These findings at last provide an empirical basis for regulatory decisions concerning cryptocurrency trading. Among other things, they call into question that capital flight or chilling effects should be a first-order concern.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2021-03-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138505815","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}
In this article, we examine the reform of the prudential treatment of banks’ sovereign exposures with the purpose of introducing risk-sensitive capital charges and limiting home bias. We consider six different options and measure their impact on the common equity Tier 1 (CET1) ratio of 82 banks fom 10 euro-area countries, participating in the 2019 European Banking Authority EU-wide transparency exercise and subject to European Central Bank supervision. Our evidence shows that the proposal put forward by the Basel Committee on Banking Supervision in 2017 is the proposal which leads to the most evenly distributed impact across countries, in terms of CET1 ratio decline. That proposal targets the goals of risk sensitivity and diversification, with two independent instruments: rating-based risk weights and concentration add-ons. As a consequence, it is the only proposal which introduces an incentive for banks located in all countries, whether low rated or high rated, to reduce their home bias. Some proposals focus on one objective only: either risk sensitivity or diversification. Others introduce heavy penalization for banks located in low-rated countries, without addressing the home bias of banks located in high-rated countries. Several options are prone to pro-cyclicality, and we measure this effect by simulating the impact of a two-notch downgrading of high debt countries on the CET1 ratio of banks. Some relevant cross-country effects emerge from our analysis, due to the large cross-country exposures of a few intermediaries.
{"title":"Banks’ Sovereign Exposures: In Search of New Rules","authors":"Angelo Baglioni, Francesco Cefalà","doi":"10.1093/jfr/fjab002","DOIUrl":"https://doi.org/10.1093/jfr/fjab002","url":null,"abstract":"In this article, we examine the reform of the prudential treatment of banks’ sovereign exposures with the purpose of introducing risk-sensitive capital charges and limiting home bias. We consider six different options and measure their impact on the common equity Tier 1 (CET1) ratio of 82 banks fom 10 euro-area countries, participating in the 2019 European Banking Authority EU-wide transparency exercise and subject to European Central Bank supervision. Our evidence shows that the proposal put forward by the Basel Committee on Banking Supervision in 2017 is the proposal which leads to the most evenly distributed impact across countries, in terms of CET1 ratio decline. That proposal targets the goals of risk sensitivity and diversification, with two independent instruments: rating-based risk weights and concentration add-ons. As a consequence, it is the only proposal which introduces an incentive for banks located in all countries, whether low rated or high rated, to reduce their home bias. Some proposals focus on one objective only: either risk sensitivity or diversification. Others introduce heavy penalization for banks located in low-rated countries, without addressing the home bias of banks located in high-rated countries. Several options are prone to pro-cyclicality, and we measure this effect by simulating the impact of a two-notch downgrading of high debt countries on the CET1 ratio of banks. Some relevant cross-country effects emerge from our analysis, due to the large cross-country exposures of a few intermediaries.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2021-02-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138505814","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}
Patrick A McLaughlin, Oliver Sherouse, Mark Febrizio, M Scott King
The passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 continued a trend toward lengthier and more complex acts of Congress. In this article, we use novel metrics of the size, scope, and complexity of acts of Congress to assess Dodd-Frank’s place in this trend. Our analysis is consistent with the hypothesis that, in terms of its regulatory effects, Dodd-Frank is the biggest act of Congress in recent history and may become the biggest ever. We argue that this trend toward longer and more complex laws can cause deterioration in the quality of the regulations the laws authorize for two procedural reasons. First, a large act can create a regulatory surge that overwhelms the quality control process. Second, because a large act can precipitate the creation of many regulations by different agencies that target the same industry, the agencies create rules in relative ignorance of their potential interactions.
2010年通过的《多德-弗兰克华尔街改革与消费者保护法案》(Dodd-Frank Wall Street Reform and Consumer Protection Act)延续了国会通过更长、更复杂法案的趋势。在本文中，我们使用国会法案的规模、范围和复杂性的新指标来评估多德-弗兰克法案在这一趋势中的地位。我们的分析与这样一个假设是一致的，即就其监管效果而言，多德-弗兰克法案是近期历史上最大的国会法案，并可能成为有史以来最大的法案。我们认为，由于两个程序上的原因，这种趋向于更长和更复杂的法律的趋势可能导致法律授权的法规质量的恶化。首先，一个大的行为可能会造成监管激增，使质量控制过程不堪重负。其次，由于一项重大行为可能促使针对同一行业的不同机构制定许多法规，这些机构在制定规则时相对忽视了它们之间潜在的相互作用。
{"title":"Is Dodd-Frank the Biggest Law Ever?","authors":"Patrick A McLaughlin, Oliver Sherouse, Mark Febrizio, M Scott King","doi":"10.1093/jfr/fjab001","DOIUrl":"https://doi.org/10.1093/jfr/fjab001","url":null,"abstract":"The passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 continued a trend toward lengthier and more complex acts of Congress. In this article, we use novel metrics of the size, scope, and complexity of acts of Congress to assess Dodd-Frank’s place in this trend. Our analysis is consistent with the hypothesis that, in terms of its regulatory effects, Dodd-Frank is the biggest act of Congress in recent history and may become the biggest ever. We argue that this trend toward longer and more complex laws can cause deterioration in the quality of the regulations the laws authorize for two procedural reasons. First, a large act can create a regulatory surge that overwhelms the quality control process. Second, because a large act can precipitate the creation of many regulations by different agencies that target the same industry, the agencies create rules in relative ignorance of their potential interactions.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2021-02-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138543515","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 article comments on the Consultation Report published by the Financial Stability Board (FSB) evaluating the success of regulatory reforms since the global financial crisis of 2007–2009. It argues that the FSB’s assessment of the role of equity is too narrow, being phrased in terms of bankruptcy avoidance and risk-taking incentives, without attention to debt overhang creating distortions in funding choices, the systemic impact of ample equity reducing deleveraging needs after losses, or equity contributing to smoothing of lending and asset purchases over time. The FSB’s treatment of systemic risk also pays too little attention to the mutual interdependence of different parts of the system, which is not well captured by linear causal relationships. Finally, the article points out that bank resolution of systemically important institutions is still not viable, due to lack of political acceptance of single-point-of-entry procedures and bail-in. Within the European Union, this viability is further undermined by the lack of sufficient funding for banks in resolution and the lack of fiscal backstops.
{"title":"Twelve Years after the Financial Crisis—Too-big-to-fail is still with us","authors":"M. Hellwig","doi":"10.1093/JFR/FJAA012","DOIUrl":"https://doi.org/10.1093/JFR/FJAA012","url":null,"abstract":"\u0000 This article comments on the Consultation Report published by the Financial Stability Board (FSB) evaluating the success of regulatory reforms since the global financial crisis of 2007–2009. It argues that the FSB’s assessment of the role of equity is too narrow, being phrased in terms of bankruptcy avoidance and risk-taking incentives, without attention to debt overhang creating distortions in funding choices, the systemic impact of ample equity reducing deleveraging needs after losses, or equity contributing to smoothing of lending and asset purchases over time. The FSB’s treatment of systemic risk also pays too little attention to the mutual interdependence of different parts of the system, which is not well captured by linear causal relationships. Finally, the article points out that bank resolution of systemically important institutions is still not viable, due to lack of political acceptance of single-point-of-entry procedures and bail-in. Within the European Union, this viability is further undermined by the lack of sufficient funding for banks in resolution and the lack of fiscal backstops.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2021-01-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/JFR/FJAA012","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44470178","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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