Pub Date : 2023-08-25DOI: 10.1108/jfrc-12-2022-0157
Abinash Mandal, A. S.
Purpose This study aims to investigate the perceived willingness to adopt and use Forensic Accounting and Investigation Standards (FAIS) in Forensic Accounting and Investigation (FAI) assignments. The study also analyses the usefulness of FAIS in achieving the principle of natural justice (PNJ) concerning fairness. Design/methodology/approach The respondents comprised 118 accounting professionals whose online survey responses were analyzed descriptively. This study also uses a 2 × 2 contingency analysis representing two levels of usefulness and fairness. Findings The results revealed that FAIS 410 received the highest mean rating while FAIS 240 received the lowest mean rating in willingness to adopt and use FAIS, and most of the standards were related to the PNJ concerning fairness. The study shows the accounting professionals’ readiness to adapt and flourish with the help of these Standards in FAI assignments. Practical implications The findings of this study will increase practitioners’ awareness of the usefulness and fairness of FAIS, which will enhance their understanding of the significance of implementing these newly developed standards to harmonize the investigative process in forensic audits. Additionally, the findings may encourage regulators, researchers, accounting bodies and their members to adopt and conduct further FAIS studies that can advance financial crime prevention, detection and investigation knowledge. Originality/value This paper substantially contributes to the literature as it is the first to examine the usefulness and fairness of “Forensic Accounting and Investigation Standards” in the context of forensic audits and investigations, which has not been previously explored.
{"title":"Evaluating the perceived usefulness and fairness of forensic accounting and investigation standards","authors":"Abinash Mandal, A. S.","doi":"10.1108/jfrc-12-2022-0157","DOIUrl":"https://doi.org/10.1108/jfrc-12-2022-0157","url":null,"abstract":"\u0000Purpose\u0000This study aims to investigate the perceived willingness to adopt and use Forensic Accounting and Investigation Standards (FAIS) in Forensic Accounting and Investigation (FAI) assignments. The study also analyses the usefulness of FAIS in achieving the principle of natural justice (PNJ) concerning fairness.\u0000\u0000\u0000Design/methodology/approach\u0000The respondents comprised 118 accounting professionals whose online survey responses were analyzed descriptively. This study also uses a 2 × 2 contingency analysis representing two levels of usefulness and fairness.\u0000\u0000\u0000Findings\u0000The results revealed that FAIS 410 received the highest mean rating while FAIS 240 received the lowest mean rating in willingness to adopt and use FAIS, and most of the standards were related to the PNJ concerning fairness. The study shows the accounting professionals’ readiness to adapt and flourish with the help of these Standards in FAI assignments.\u0000\u0000\u0000Practical implications\u0000The findings of this study will increase practitioners’ awareness of the usefulness and fairness of FAIS, which will enhance their understanding of the significance of implementing these newly developed standards to harmonize the investigative process in forensic audits. Additionally, the findings may encourage regulators, researchers, accounting bodies and their members to adopt and conduct further FAIS studies that can advance financial crime prevention, detection and investigation knowledge.\u0000\u0000\u0000Originality/value\u0000This paper substantially contributes to the literature as it is the first to examine the usefulness and fairness of “Forensic Accounting and Investigation Standards” in the context of forensic audits and investigations, which has not been previously explored.\u0000","PeriodicalId":44814,"journal":{"name":"Journal of Financial Regulation and Compliance","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2023-08-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45926247","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}
Pub Date : 2023-08-07DOI: 10.1108/jfrc-01-2023-0001
Sunil Sangwan, N. Nayak, Vikas Sangwan
Purpose Regulation is critical for sustainable microfinance sector growth. Under this premise, the study aims to examine the different regulatory noncompliance (RNC) practices prevalent in the operations of microfinance institutions (MFIs) at the ground level. Design/methodology/approach Both the quantitative and qualitative (observations, interviews and focus group discussions) techniques are used to extract the findings. Findings The study highlights the different RNC practices exercised by the loan officers at the field level in their microfinance loan disbursements. Originality/value This study is based on the primary data collected from microfinance clients. The arguments put forth for the RNC practices are extracted from direct personal interviews with the loan officers and the clients. The role of various dilemmas/circumstances of the loan officers and the beneficiaries that implicate the MFIs in RNC is highlighted.
{"title":"Regulatory non-compliances in microfinance operations: a survey of Indian microfinance institutions","authors":"Sunil Sangwan, N. Nayak, Vikas Sangwan","doi":"10.1108/jfrc-01-2023-0001","DOIUrl":"https://doi.org/10.1108/jfrc-01-2023-0001","url":null,"abstract":"\u0000Purpose\u0000Regulation is critical for sustainable microfinance sector growth. Under this premise, the study aims to examine the different regulatory noncompliance (RNC) practices prevalent in the operations of microfinance institutions (MFIs) at the ground level.\u0000\u0000\u0000Design/methodology/approach\u0000Both the quantitative and qualitative (observations, interviews and focus group discussions) techniques are used to extract the findings.\u0000\u0000\u0000Findings\u0000The study highlights the different RNC practices exercised by the loan officers at the field level in their microfinance loan disbursements.\u0000\u0000\u0000Originality/value\u0000This study is based on the primary data collected from microfinance clients. The arguments put forth for the RNC practices are extracted from direct personal interviews with the loan officers and the clients. The role of various dilemmas/circumstances of the loan officers and the beneficiaries that implicate the MFIs in RNC is highlighted.\u0000","PeriodicalId":44814,"journal":{"name":"Journal of Financial Regulation and Compliance","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2023-08-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47671001","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}
Pub Date : 2023-07-20DOI: 10.1108/jfrc-01-2023-0007
H. Luu, P. Vu, Dung Thuy Thi Nguyen, T. Hoang
Purpose The paper aims to examine the impact of tighter banking regulation on banks’ loan loss provisioning in an emerging market context. Design/methodology/approach The authors exploit the adoption of the Basel II Accord in Vietnam as a quasi-natural experiment and use Difference-to-Difference (DiD) method to examine the impact of tighter banking regulation on Vietnamese banks’ provisioning during the period of 2010–2019. Findings The paper finds that affected banks (i.e. those taking part in the pilot adoption programme) manage to reduce their provisions significantly compared to their control peers in the post-adoption period. More importantly, this paper further finds that the affected banks manage their provisions primarily for incomes smoothing and signalling. This paper also finds that those banks expand their lending significantly and experience an increase in financial performance in the post-adoption period. Overall, the results provide supports for the “borrowing from the future” proposition that banks may perceive that a tighter banking regulation provides them with growth opportunities, so they have the tendency to manipulate their provisions to facilitate their current income. Originality/value This paper contributes to the established literature on the manipulation of bank provisioning as well as the impact of banking regulation, and especially Basel II on bank economic decisions. As compared to prior literature, the adoption of Basel II in Vietnam provided an ideal shock for us to conduct a DiD design to estimate the causal impact of tighter banking regulation on banks’ provisioning practices.
{"title":"The impact of tighter banking regulation on bank loan loss provisioning: empirical evidence from a quasi-natural experiment","authors":"H. Luu, P. Vu, Dung Thuy Thi Nguyen, T. Hoang","doi":"10.1108/jfrc-01-2023-0007","DOIUrl":"https://doi.org/10.1108/jfrc-01-2023-0007","url":null,"abstract":"\u0000Purpose\u0000The paper aims to examine the impact of tighter banking regulation on banks’ loan loss provisioning in an emerging market context.\u0000\u0000\u0000Design/methodology/approach\u0000The authors exploit the adoption of the Basel II Accord in Vietnam as a quasi-natural experiment and use Difference-to-Difference (DiD) method to examine the impact of tighter banking regulation on Vietnamese banks’ provisioning during the period of 2010–2019.\u0000\u0000\u0000Findings\u0000The paper finds that affected banks (i.e. those taking part in the pilot adoption programme) manage to reduce their provisions significantly compared to their control peers in the post-adoption period. More importantly, this paper further finds that the affected banks manage their provisions primarily for incomes smoothing and signalling. This paper also finds that those banks expand their lending significantly and experience an increase in financial performance in the post-adoption period. Overall, the results provide supports for the “borrowing from the future” proposition that banks may perceive that a tighter banking regulation provides them with growth opportunities, so they have the tendency to manipulate their provisions to facilitate their current income.\u0000\u0000\u0000Originality/value\u0000This paper contributes to the established literature on the manipulation of bank provisioning as well as the impact of banking regulation, and especially Basel II on bank economic decisions. As compared to prior literature, the adoption of Basel II in Vietnam provided an ideal shock for us to conduct a DiD design to estimate the causal impact of tighter banking regulation on banks’ provisioning practices.\u0000","PeriodicalId":44814,"journal":{"name":"Journal of Financial Regulation and Compliance","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2023-07-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45967976","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}
Pub Date : 2023-07-20DOI: 10.1108/jfrc-01-2023-0012
H. Bui, Zoltán Krajcsák
Purpose This study aims to investigate the relationship between corporate governance (CG) and financial performance in the case of publicly listed companies in Vietnam for the period from 2019 to 2021. The topic is crucial in understanding how effective governance practices can influence the financial outcomes of companies. The study sheds light on the link between CG practice and firm financial performance. It also provides insights for policymakers and practitioners to improve CG practices. Design/methodology/approach Due to the potential dynamic endogeneity in CG research, this study uses the generalized system methods of moments to effectively address the endogeneity problem. Financial performance is measured by Tobin’s Q, return on equity (ROE) and return on assets (ROA). Based on organization for economic cooperation and development (OECD) standards, these indices were calculated to assess the influence of CG practices on corporate financial performance, namely, for accounting information (ROA and ROE) and market performance (Tobin’s Q and service à resglement différé (SRD) – stock price volatility) for the period 2019–2021. In addition, the study examines the relationship between changes in the CG index and changes in financial performance. Findings The study’s main objective is to determine the relationship between CG performance scores and financial performance. The study found a positive relationship between transparency disclosure and financial performance and a positive correlation between CG and company size. The COVID-19 pandemic caused a decrease in transparency and information index scores in 2021 compared to 2019 and 2020 due to delayed General Meetings of Shareholders. The study failed to find a relationship between shareholder rights index (“cg_rosh”) and board responsibility (“cg_reob”) and financial performance, concerning which the findings of this study differ from those of previous studies. Reasons are put forward for these anomalies. Originality/value Policymakers need to develop a set of criteria for assessing CG practices. They also need to promulgate specific regulations for mandatory and voluntary information disclosure and designate a competent authority to certify the transparency of company information. The study also suggests that companies should develop CG regulations and focus on regulations relating to the business culture or ethics, as well as implementing a system to ensure equal treatment among shareholders. The study found that good CG practices can positively contribute to a company’s financial performance, which is crucial for investors to evaluate the quality of CG practices for each listed company so that investment risks can be limited.
{"title":"The impacts of corporate governance on firms’ performance: from theories and approaches to empirical findings","authors":"H. Bui, Zoltán Krajcsák","doi":"10.1108/jfrc-01-2023-0012","DOIUrl":"https://doi.org/10.1108/jfrc-01-2023-0012","url":null,"abstract":"\u0000Purpose\u0000This study aims to investigate the relationship between corporate governance (CG) and financial performance in the case of publicly listed companies in Vietnam for the period from 2019 to 2021. The topic is crucial in understanding how effective governance practices can influence the financial outcomes of companies. The study sheds light on the link between CG practice and firm financial performance. It also provides insights for policymakers and practitioners to improve CG practices.\u0000\u0000\u0000Design/methodology/approach\u0000Due to the potential dynamic endogeneity in CG research, this study uses the generalized system methods of moments to effectively address the endogeneity problem. Financial performance is measured by Tobin’s Q, return on equity (ROE) and return on assets (ROA). Based on organization for economic cooperation and development (OECD) standards, these indices were calculated to assess the influence of CG practices on corporate financial performance, namely, for accounting information (ROA and ROE) and market performance (Tobin’s Q and service à resglement différé (SRD) – stock price volatility) for the period 2019–2021. In addition, the study examines the relationship between changes in the CG index and changes in financial performance.\u0000\u0000\u0000Findings\u0000The study’s main objective is to determine the relationship between CG performance scores and financial performance. The study found a positive relationship between transparency disclosure and financial performance and a positive correlation between CG and company size. The COVID-19 pandemic caused a decrease in transparency and information index scores in 2021 compared to 2019 and 2020 due to delayed General Meetings of Shareholders. The study failed to find a relationship between shareholder rights index (“cg_rosh”) and board responsibility (“cg_reob”) and financial performance, concerning which the findings of this study differ from those of previous studies. Reasons are put forward for these anomalies.\u0000\u0000\u0000Originality/value\u0000Policymakers need to develop a set of criteria for assessing CG practices. They also need to promulgate specific regulations for mandatory and voluntary information disclosure and designate a competent authority to certify the transparency of company information. The study also suggests that companies should develop CG regulations and focus on regulations relating to the business culture or ethics, as well as implementing a system to ensure equal treatment among shareholders. The study found that good CG practices can positively contribute to a company’s financial performance, which is crucial for investors to evaluate the quality of CG practices for each listed company so that investment risks can be limited.\u0000","PeriodicalId":44814,"journal":{"name":"Journal of Financial Regulation and Compliance","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2023-07-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42245001","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}
Pub Date : 2023-07-07DOI: 10.1108/jfrc-03-2023-0033
Riffat Hasan, O. Kruse
Purpose The purpose of this paper is to analyse and investigate how intensified regulatory requirements related to outsourcing have influenced and changed the outsourcing activities of German financial institutions. Design/methodology/approach The study involved interviewing 11 outsourcing experts in the German financial sector, including four of the five largest banks in Germany. In coding and analysing the collected data, this study adopted the approach of a qualitative content analysis framework. Findings The study found that the revised legal requirements have had a significant and potentially negative impact on the efficiency of outsourcing, leading to a necessity for German financial institutions to internally realign their outsourcing managements. The study further revealed practical realigned methods German financial institutions executed to meet the legal requirements. Originality/value The impact, meaning and relevance of legal requirements in the outsourcing environment of German financial institutions has been relatively under-researched from a qualitative perspective and focused on other primary fields of investigation like outsourcing decisions and outcomes. This study has, by adopting a qualitative approach, addressed the identified gap by providing first-hand insights and new knowledge.
{"title":"The impact of regulatory requirements on German financial institutions’ outsourcing arrangements","authors":"Riffat Hasan, O. Kruse","doi":"10.1108/jfrc-03-2023-0033","DOIUrl":"https://doi.org/10.1108/jfrc-03-2023-0033","url":null,"abstract":"\u0000Purpose\u0000The purpose of this paper is to analyse and investigate how intensified regulatory requirements related to outsourcing have influenced and changed the outsourcing activities of German financial institutions.\u0000\u0000\u0000Design/methodology/approach\u0000The study involved interviewing 11 outsourcing experts in the German financial sector, including four of the five largest banks in Germany. In coding and analysing the collected data, this study adopted the approach of a qualitative content analysis framework.\u0000\u0000\u0000Findings\u0000The study found that the revised legal requirements have had a significant and potentially negative impact on the efficiency of outsourcing, leading to a necessity for German financial institutions to internally realign their outsourcing managements. The study further revealed practical realigned methods German financial institutions executed to meet the legal requirements.\u0000\u0000\u0000Originality/value\u0000The impact, meaning and relevance of legal requirements in the outsourcing environment of German financial institutions has been relatively under-researched from a qualitative perspective and focused on other primary fields of investigation like outsourcing decisions and outcomes. This study has, by adopting a qualitative approach, addressed the identified gap by providing first-hand insights and new knowledge.\u0000","PeriodicalId":44814,"journal":{"name":"Journal of Financial Regulation and Compliance","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2023-07-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44830723","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}
Pub Date : 2023-06-28DOI: 10.1108/jfrc-08-2022-0099
Daniel Ofori‐Sasu, B. Mekpor, Eunice Adu-Darko, E. Sarpong-Kumankoma
Purpose This paper aims to examine the interaction effect of regulations (monetary and macro-prudential) in explaining the possible non-linear effect of bank risk exposures (credit risk and insolvency risk) on banking stability in Africa. Design/methodology/approach The study uses a two-step system generalized method of moments (GMM) estimator for a data set of banks across 54 African countries over the period 2006–2020. Findings The authors find that the relationships between bank credit risk–bank stability and bank insolvency risk–bank stability are non-linear and characterized by the presence of optimal thresholds, which are 5.3456 for credit risk and 2.3643 for insolvency. Contrary to their positive effects below these optimal thresholds, credit risk and insolvency risk become negatively linked to bank stability in Africa. The authors find that macro-prudential action and monetary policy both have a positive and significant relationship with bank stability. The authors provide evidence to support that the marginal effect of excessive credit risk and insolvency risk on bank stability is reduced when interacted with monetary and macro-prudential regulations, and the impact is significant in strong institutional environment. Research limitations/implications Future research should extend data to include developing and emerging economies in the world. Also, policymakers, researchers and practitioners should consider different regulatory and institutional frameworks in explaining the relationship between the thresholds of bank risk exposures and bank stability in the world. Practical implications Regulatory authorities should have to deeply reform their financial systems, develop risk-based regulatory framework and effective supervision mechanism relating to appropriate techniques that maintain an optimal and desired level of bank risks and risk-taking behaviours required to ensure a stable banking system. Originality/value To the best of the authors’ knowledge, this is the first study to examine how different regulatory frameworks shape the non-linear impact of bank risk exposures on bank stability in Africa.
{"title":"Bank risk exposures and bank stability in Africa: the role of regulations in a non-linear model","authors":"Daniel Ofori‐Sasu, B. Mekpor, Eunice Adu-Darko, E. Sarpong-Kumankoma","doi":"10.1108/jfrc-08-2022-0099","DOIUrl":"https://doi.org/10.1108/jfrc-08-2022-0099","url":null,"abstract":"\u0000Purpose\u0000This paper aims to examine the interaction effect of regulations (monetary and macro-prudential) in explaining the possible non-linear effect of bank risk exposures (credit risk and insolvency risk) on banking stability in Africa.\u0000\u0000\u0000Design/methodology/approach\u0000The study uses a two-step system generalized method of moments (GMM) estimator for a data set of banks across 54 African countries over the period 2006–2020.\u0000\u0000\u0000Findings\u0000The authors find that the relationships between bank credit risk–bank stability and bank insolvency risk–bank stability are non-linear and characterized by the presence of optimal thresholds, which are 5.3456 for credit risk and 2.3643 for insolvency. Contrary to their positive effects below these optimal thresholds, credit risk and insolvency risk become negatively linked to bank stability in Africa. The authors find that macro-prudential action and monetary policy both have a positive and significant relationship with bank stability. The authors provide evidence to support that the marginal effect of excessive credit risk and insolvency risk on bank stability is reduced when interacted with monetary and macro-prudential regulations, and the impact is significant in strong institutional environment.\u0000\u0000\u0000Research limitations/implications\u0000Future research should extend data to include developing and emerging economies in the world. Also, policymakers, researchers and practitioners should consider different regulatory and institutional frameworks in explaining the relationship between the thresholds of bank risk exposures and bank stability in the world.\u0000\u0000\u0000Practical implications\u0000Regulatory authorities should have to deeply reform their financial systems, develop risk-based regulatory framework and effective supervision mechanism relating to appropriate techniques that maintain an optimal and desired level of bank risks and risk-taking behaviours required to ensure a stable banking system.\u0000\u0000\u0000Originality/value\u0000To the best of the authors’ knowledge, this is the first study to examine how different regulatory frameworks shape the non-linear impact of bank risk exposures on bank stability in Africa.\u0000","PeriodicalId":44814,"journal":{"name":"Journal of Financial Regulation and Compliance","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2023-06-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49239893","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}
Pub Date : 2023-06-22DOI: 10.1108/jfrc-10-2022-0119
Zied Saadaoui, Salma Mokdadi
Purpose This paper aims to improve the debate linking the business models of banks to their riskiness by checking if diversification exerts different impacts on the probability of bank distress depending on the level of capital buffers. Design/methodology/approach The paper focuses on a sample of listed bank holding companies observed between 2007:Q3 and 2022:Q4. The authors use three subindexes of bank diversification. The authors estimate a dynamic model specification using a system generalized method of moments with robust standard errors and consistent estimators under heteroskedasticity and autocorrelation within a panel. Sensitivity and robustness checks are performed. Findings Asset and income diversification increase the probability of distress in low-capitalized banks during normal periods (excluding periods of crises and high uncertainty). Concerning crisis periods, a marginal increase in asset diversification during the global financial crisis (GFC) and the COVID-19 pandemic crisis induces a more important increase in the probability of failure of well-capitalized banks relative to low-capitalized ones. Contrary to the results obtained for the GFC period, well-capitalized banks were found to pursue more careful funding diversification in reaction to the sudden increase of uncertainty during the Russia–Ukraine war. Research limitations/implications Prudential supervision should concentrate on well-capitalized banks to encompass unexpected excessive risk-taking during crisis periods. Regulatory requirements should constrain fragile banks to avoid pursuing assets and income diversification strategies that increase earnings volatility. Originality/value The main originality of this paper is to consider the interaction between three different dimensions of bank diversification and capital regulation during stable and unstable periods using the marginal effect analysis. Moreover, this paper uses, initially, the GFC as the reference crisis period to study the impact of capital buffers and diversification interactions on the probability of bank distress. Then, the authors extend the observation period until 2022:Q4 to include two additional major events, namely, the COVID-19 pandemic and the Russia-Ukraine war.
{"title":"Capital buffers, business models and the probability of bank distress: a dynamic panel investigation","authors":"Zied Saadaoui, Salma Mokdadi","doi":"10.1108/jfrc-10-2022-0119","DOIUrl":"https://doi.org/10.1108/jfrc-10-2022-0119","url":null,"abstract":"\u0000Purpose\u0000This paper aims to improve the debate linking the business models of banks to their riskiness by checking if diversification exerts different impacts on the probability of bank distress depending on the level of capital buffers.\u0000\u0000\u0000Design/methodology/approach\u0000The paper focuses on a sample of listed bank holding companies observed between 2007:Q3 and 2022:Q4. The authors use three subindexes of bank diversification. The authors estimate a dynamic model specification using a system generalized method of moments with robust standard errors and consistent estimators under heteroskedasticity and autocorrelation within a panel. Sensitivity and robustness checks are performed.\u0000\u0000\u0000Findings\u0000Asset and income diversification increase the probability of distress in low-capitalized banks during normal periods (excluding periods of crises and high uncertainty). Concerning crisis periods, a marginal increase in asset diversification during the global financial crisis (GFC) and the COVID-19 pandemic crisis induces a more important increase in the probability of failure of well-capitalized banks relative to low-capitalized ones. Contrary to the results obtained for the GFC period, well-capitalized banks were found to pursue more careful funding diversification in reaction to the sudden increase of uncertainty during the Russia–Ukraine war.\u0000\u0000\u0000Research limitations/implications\u0000Prudential supervision should concentrate on well-capitalized banks to encompass unexpected excessive risk-taking during crisis periods. Regulatory requirements should constrain fragile banks to avoid pursuing assets and income diversification strategies that increase earnings volatility.\u0000\u0000\u0000Originality/value\u0000The main originality of this paper is to consider the interaction between three different dimensions of bank diversification and capital regulation during stable and unstable periods using the marginal effect analysis. Moreover, this paper uses, initially, the GFC as the reference crisis period to study the impact of capital buffers and diversification interactions on the probability of bank distress. Then, the authors extend the observation period until 2022:Q4 to include two additional major events, namely, the COVID-19 pandemic and the Russia-Ukraine war.\u0000","PeriodicalId":44814,"journal":{"name":"Journal of Financial Regulation and Compliance","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2023-06-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42164359","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}
Pub Date : 2023-06-21DOI: 10.1108/jfrc-04-2023-0050
Anton P. Müller, Svend Reuse
Purpose Following the United Kingdom's (UK) withdrawal from the European Union (EU), there is uncertainty in the financial services industry on equivalence of regulatory regimes. This also affects the insurance industry. As of now, it is not clear if the UK’s supervisory regime (“Solvency UK”) will be classified as equivalent to the European Solvency II supervisory regime. After no equivalence decision was taken during the Brexit transition period and there are efforts by the UK in the form of the UK Solvency II Review and the Financial Services and Markets Bill to adapt Solvency II more to the characteristics of the national insurance market, the uncertainties are intensified. Although Solvency II non-equivalence would have a significant impact on insurance groups operating in both the UK and the EU, there has been no detailed analysis of whether these initiatives could have an impact on a future Solvency II equivalence decision. The purpose of this paper is to address and close this research gap with a literature review and a subsequent equivalence mapping and discussion. Design/methodology/approach Based on the literature review methodology, this paper draws on academic sources as well as publications from governments and regulators, articles from consultancies and subject matter experts and uses this literature to provide an overview of the current state of research on equivalence in the wider financial services industry, but specifically on Solvency II equivalence, the UK Solvency II Review and the Financial Services and Markets Bill. Based on this literature review, the paper also forms the basis for an innovative and forward-looking Solvency II equivalence mapping and discussion. Findings Several articles state that differences between Solvency II and Solvency UK could harm a future Solvency II equivalence decision. The UK Solvency II Review and the Financial Services and Markets Bill are two initiatives that support the objective of aligning the Solvency II supervisory regime more closely with the circumstances of the UK insurance market. Although both initiatives contribute to the fact that Solvency UK differs in parts from Solvency II, based on the literature review and the subsequent equivalence mapping and discussion, there are currently no reforms that should harm future Solvency II equivalence decisions. Originality/value This paper provides a previously non-existent overview of equivalence in the wider financial services industry, but specifically on Solvency II equivalence, the UK Solvency II Review and the Financial Services and Markets Bill, and brings them together in an innovative equivalence discussion. It thus presents the current state of knowledge on Solvency II after Brexit and develops it further around a mapping against the equivalence criteria. As non-equivalence could have significant implications for insurance groups operating in both the UK and the EU, this paper is a useful and practical study that provides
{"title":"Solvency II post-Brexit: equivalence discussion in light of the UK solvency II review and the financial services and markets bill","authors":"Anton P. Müller, Svend Reuse","doi":"10.1108/jfrc-04-2023-0050","DOIUrl":"https://doi.org/10.1108/jfrc-04-2023-0050","url":null,"abstract":"\u0000Purpose\u0000Following the United Kingdom's (UK) withdrawal from the European Union (EU), there is uncertainty in the financial services industry on equivalence of regulatory regimes. This also affects the insurance industry. As of now, it is not clear if the UK’s supervisory regime (“Solvency UK”) will be classified as equivalent to the European Solvency II supervisory regime. After no equivalence decision was taken during the Brexit transition period and there are efforts by the UK in the form of the UK Solvency II Review and the Financial Services and Markets Bill to adapt Solvency II more to the characteristics of the national insurance market, the uncertainties are intensified. Although Solvency II non-equivalence would have a significant impact on insurance groups operating in both the UK and the EU, there has been no detailed analysis of whether these initiatives could have an impact on a future Solvency II equivalence decision. The purpose of this paper is to address and close this research gap with a literature review and a subsequent equivalence mapping and discussion.\u0000\u0000\u0000Design/methodology/approach\u0000Based on the literature review methodology, this paper draws on academic sources as well as publications from governments and regulators, articles from consultancies and subject matter experts and uses this literature to provide an overview of the current state of research on equivalence in the wider financial services industry, but specifically on Solvency II equivalence, the UK Solvency II Review and the Financial Services and Markets Bill. Based on this literature review, the paper also forms the basis for an innovative and forward-looking Solvency II equivalence mapping and discussion.\u0000\u0000\u0000Findings\u0000Several articles state that differences between Solvency II and Solvency UK could harm a future Solvency II equivalence decision. The UK Solvency II Review and the Financial Services and Markets Bill are two initiatives that support the objective of aligning the Solvency II supervisory regime more closely with the circumstances of the UK insurance market. Although both initiatives contribute to the fact that Solvency UK differs in parts from Solvency II, based on the literature review and the subsequent equivalence mapping and discussion, there are currently no reforms that should harm future Solvency II equivalence decisions.\u0000\u0000\u0000Originality/value\u0000This paper provides a previously non-existent overview of equivalence in the wider financial services industry, but specifically on Solvency II equivalence, the UK Solvency II Review and the Financial Services and Markets Bill, and brings them together in an innovative equivalence discussion. It thus presents the current state of knowledge on Solvency II after Brexit and develops it further around a mapping against the equivalence criteria. As non-equivalence could have significant implications for insurance groups operating in both the UK and the EU, this paper is a useful and practical study that provides ","PeriodicalId":44814,"journal":{"name":"Journal of Financial Regulation and Compliance","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2023-06-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41799197","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}
Pub Date : 2023-06-06DOI: 10.1108/jfrc-12-2022-0144
Alexander Conrad Culley
Purpose The purpose of this paper is to examine the effectiveness of UK investment firms’ implementation of the requirements in Commission Delegated Regulation 2017/589 (more commonly known as “Regulatory Technical Standard 6” or “RTS 6”) that govern the conduct of algorithmic trading activities. Design/methodology/approach A qualitative examination of 19 semi-structured interviews with practitioners working for, or with, UK investment firms engaged in algorithmic trading activities. Findings The paper finds that practitioners generally have a good understanding of the requirements in RTS 6. Some lack knowledge of algorithms, coding and algorithmic strategies but have used best efforts to implement RTS 6. However, regulatory fatigue, complacency, cost pressures, governance in international groups, overreliance on external knowledge and generous risk parameter calibration threaten to undermine these efforts. Research limitations/implications The study’s findings are limited to the participants’ insights. Some areas of the RTS 6 regime attracted little comment from participants. Practical implications The paper proposes the introduction of mandatory algorithmic trading qualification requirements for key staff; the lessening of the requirements in RTS 6 for automated executors; and the introduction of a recognised software vendor regime to reduce duplication and improve coordination between market participants that deploy algorithmic trading systems. Originality/value To the best of the author’s knowledge, the study represents the first qualitative examination of firms’ implementation of the algorithmic trading regime in the second Markets in Financial Instruments Directive 2014/65/EU.
{"title":"Insights into UK investment firms’ efforts to comply with MiFID II RTS 6 that governs the conduct of algorithmic trading","authors":"Alexander Conrad Culley","doi":"10.1108/jfrc-12-2022-0144","DOIUrl":"https://doi.org/10.1108/jfrc-12-2022-0144","url":null,"abstract":"\u0000Purpose\u0000The purpose of this paper is to examine the effectiveness of UK investment firms’ implementation of the requirements in Commission Delegated Regulation 2017/589 (more commonly known as “Regulatory Technical Standard 6” or “RTS 6”) that govern the conduct of algorithmic trading activities.\u0000\u0000\u0000Design/methodology/approach\u0000A qualitative examination of 19 semi-structured interviews with practitioners working for, or with, UK investment firms engaged in algorithmic trading activities.\u0000\u0000\u0000Findings\u0000The paper finds that practitioners generally have a good understanding of the requirements in RTS 6. Some lack knowledge of algorithms, coding and algorithmic strategies but have used best efforts to implement RTS 6. However, regulatory fatigue, complacency, cost pressures, governance in international groups, overreliance on external knowledge and generous risk parameter calibration threaten to undermine these efforts.\u0000\u0000\u0000Research limitations/implications\u0000The study’s findings are limited to the participants’ insights. Some areas of the RTS 6 regime attracted little comment from participants.\u0000\u0000\u0000Practical implications\u0000The paper proposes the introduction of mandatory algorithmic trading qualification requirements for key staff; the lessening of the requirements in RTS 6 for automated executors; and the introduction of a recognised software vendor regime to reduce duplication and improve coordination between market participants that deploy algorithmic trading systems.\u0000\u0000\u0000Originality/value\u0000To the best of the author’s knowledge, the study represents the first qualitative examination of firms’ implementation of the algorithmic trading regime in the second Markets in Financial Instruments Directive 2014/65/EU.\u0000","PeriodicalId":44814,"journal":{"name":"Journal of Financial Regulation and Compliance","volume":"1 1","pages":""},"PeriodicalIF":0.9,"publicationDate":"2023-06-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"62101089","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}
Pub Date : 2023-05-19DOI: 10.1108/jfrc-08-2022-0094
Saibal Ghosh
Purpose The purpose of this paper is to assess the effects of prompt corrective action on bank risk and returns in an empirical framework. Design/methodology/approach The paper uses a difference-in-difference specification to analyse whether and how PCA affects bank risk and returns. As part of robustness, the analysis also uses a fixed effects specification with Driscoll–Kraay standard errors to account for serial correlation and cross-sectional dependence. Findings The findings reveal that banks under PCA framework contribute less to systemic risk and exhibit higher market valuation. These findings differ across recapitalised versus non-recapitalised banks and for banks with differing asset quality, capital and profitability. The overall price impact is a decline in lending rates and deposit costs. Originality/value To the best of the author’s understanding, this is one of the early studies in the Indian context to carefully examine the linkage between PCA and bank behaviour.
{"title":"Bank risk and returns: did prompt corrective action make a difference?","authors":"Saibal Ghosh","doi":"10.1108/jfrc-08-2022-0094","DOIUrl":"https://doi.org/10.1108/jfrc-08-2022-0094","url":null,"abstract":"\u0000Purpose\u0000The purpose of this paper is to assess the effects of prompt corrective action on bank risk and returns in an empirical framework.\u0000\u0000\u0000Design/methodology/approach\u0000The paper uses a difference-in-difference specification to analyse whether and how PCA affects bank risk and returns. As part of robustness, the analysis also uses a fixed effects specification with Driscoll–Kraay standard errors to account for serial correlation and cross-sectional dependence.\u0000\u0000\u0000Findings\u0000The findings reveal that banks under PCA framework contribute less to systemic risk and exhibit higher market valuation. These findings differ across recapitalised versus non-recapitalised banks and for banks with differing asset quality, capital and profitability. The overall price impact is a decline in lending rates and deposit costs.\u0000\u0000\u0000Originality/value\u0000To the best of the author’s understanding, this is one of the early studies in the Indian context to carefully examine the linkage between PCA and bank behaviour.\u0000","PeriodicalId":44814,"journal":{"name":"Journal of Financial Regulation and Compliance","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2023-05-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49568649","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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