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":null,"pages":null},"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":null,"pages":null},"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":null,"pages":null},"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":null,"pages":null},"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}
Pub Date : 2023-05-16DOI: 10.1108/jfrc-01-2023-0013
Yu-Hsien Lu, Yue-Min Kang, Lu-Ming Tseng
Purpose The purpose of this paper is to explore how sales compensation disclosure, salespeople’s perception of corporate social responsibility (CSR) toward customers (i.e. customer-focused CSR), regulatory knowledge and coworkers’ ethical behavior may influence life insurance salespeople’s moral intensity and intentions to engage in misleading sales behaviors. Design/methodology/approach The hypotheses are analyzed using partial least squares (PLS) regression with the data gathered from full-time life insurance salespeople in Taiwan. Findings The main findings indicate that disclosing sales compensations will alter the ethical decision-making process of life insurance salespeople. The findings further point out that customer-focused CSR is an important variable affecting moral intensity and ethical intentions. Originality/value There has not been any research on the effects of compensation disclosure on moral intensity and misleading sales behavior. The literature gap has led to a poor understanding of the relationship between the compensation disclosure policy and ethical sales behavior. Moreover, previous studies indicate that specific factors (such as moral intensity and ethical intention) are directly associated, while the research shows that as long as a regulatory policy (e.g. the policy of compensation disclosure) changes, the correlation between these variables may shift from significant to nonsignificant (or vice versa). The results are interesting enough to warrant more research, and they also show that the direct link between variables mentioned in previous research is not always stable or universal.
{"title":"Disclosing sales compensation and its impacts on misleading sales behaviors: some observations from Taiwan’s life insurance salespeople","authors":"Yu-Hsien Lu, Yue-Min Kang, Lu-Ming Tseng","doi":"10.1108/jfrc-01-2023-0013","DOIUrl":"https://doi.org/10.1108/jfrc-01-2023-0013","url":null,"abstract":"\u0000Purpose\u0000The purpose of this paper is to explore how sales compensation disclosure, salespeople’s perception of corporate social responsibility (CSR) toward customers (i.e. customer-focused CSR), regulatory knowledge and coworkers’ ethical behavior may influence life insurance salespeople’s moral intensity and intentions to engage in misleading sales behaviors.\u0000\u0000\u0000Design/methodology/approach\u0000The hypotheses are analyzed using partial least squares (PLS) regression with the data gathered from full-time life insurance salespeople in Taiwan.\u0000\u0000\u0000Findings\u0000The main findings indicate that disclosing sales compensations will alter the ethical decision-making process of life insurance salespeople. The findings further point out that customer-focused CSR is an important variable affecting moral intensity and ethical intentions.\u0000\u0000\u0000Originality/value\u0000There has not been any research on the effects of compensation disclosure on moral intensity and misleading sales behavior. The literature gap has led to a poor understanding of the relationship between the compensation disclosure policy and ethical sales behavior. Moreover, previous studies indicate that specific factors (such as moral intensity and ethical intention) are directly associated, while the research shows that as long as a regulatory policy (e.g. the policy of compensation disclosure) changes, the correlation between these variables may shift from significant to nonsignificant (or vice versa). The results are interesting enough to warrant more research, and they also show that the direct link between variables mentioned in previous research is not always stable or universal.\u0000","PeriodicalId":44814,"journal":{"name":"Journal of Financial Regulation and Compliance","volume":null,"pages":null},"PeriodicalIF":0.9,"publicationDate":"2023-05-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48539382","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 : 2023-05-05DOI: 10.1108/jfrc-10-2022-0123
Dalano DaSouza, Kareem Martin, Peter Abraham Jr, Godson Davis
Purpose This paper aims to simulate the potential impact of increasing non-performing loans (NPLs) on capital adequacy, interest income and firm value of banks and credit unions in the Eastern Caribbean Currency Union (ECCU) using stress tests. Design/methodology/approach A financial stress testing model was deployed at the levels of individual financial intermediary (FI), sectoral loan portfolio composition, individual member country, and the ECCU collectively, to investigate the impact of NPL shocks on FI stability. Findings The authors find that shocks impact the capital adequacy of banks less than that of credit unions, but that firm value of banks is more susceptible to increases in NPLs. Interest income responses to NPL shocks were linked to credit exposure from the tourism sector, which also reduced capital adequacy more than other economic sectors. Findings show that while the COVID-19 pandemic occasioned some increase in NPLs, the magnitude of impact was significantly mitigated by pro-stability policies including loan repayment moratoria and restructuring, guidance on the distribution of profits and deleveraging by financial institutions leading up to 2020. Originality/value The paper is among the first to use stress testing on the Caribbean in response to the COVID-19 pandemic. Past studies which have used stress test models in the region have not explicitly investigated the impact of credit shocks on risk-weighted assets or interest income as done herein, nor do they include credit unions in the modeling. The results offer novel evaluations as well as implications for FIs in other developing economies, especially those that share a comparable financial and economic architecture.
{"title":"COVID-19 and financial institution stability: stress testing the Eastern Caribbean currency union","authors":"Dalano DaSouza, Kareem Martin, Peter Abraham Jr, Godson Davis","doi":"10.1108/jfrc-10-2022-0123","DOIUrl":"https://doi.org/10.1108/jfrc-10-2022-0123","url":null,"abstract":"\u0000Purpose\u0000This paper aims to simulate the potential impact of increasing non-performing loans (NPLs) on capital adequacy, interest income and firm value of banks and credit unions in the Eastern Caribbean Currency Union (ECCU) using stress tests.\u0000\u0000\u0000Design/methodology/approach\u0000A financial stress testing model was deployed at the levels of individual financial intermediary (FI), sectoral loan portfolio composition, individual member country, and the ECCU collectively, to investigate the impact of NPL shocks on FI stability.\u0000\u0000\u0000Findings\u0000The authors find that shocks impact the capital adequacy of banks less than that of credit unions, but that firm value of banks is more susceptible to increases in NPLs. Interest income responses to NPL shocks were linked to credit exposure from the tourism sector, which also reduced capital adequacy more than other economic sectors. Findings show that while the COVID-19 pandemic occasioned some increase in NPLs, the magnitude of impact was significantly mitigated by pro-stability policies including loan repayment moratoria and restructuring, guidance on the distribution of profits and deleveraging by financial institutions leading up to 2020.\u0000\u0000\u0000Originality/value\u0000The paper is among the first to use stress testing on the Caribbean in response to the COVID-19 pandemic. Past studies which have used stress test models in the region have not explicitly investigated the impact of credit shocks on risk-weighted assets or interest income as done herein, nor do they include credit unions in the modeling. The results offer novel evaluations as well as implications for FIs in other developing economies, especially those that share a comparable financial and economic architecture.\u0000","PeriodicalId":44814,"journal":{"name":"Journal of Financial Regulation and Compliance","volume":null,"pages":null},"PeriodicalIF":0.9,"publicationDate":"2023-05-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44391931","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 : 2023-05-02DOI: 10.1108/jfrc-12-2022-0146
M. Feridun
Purpose The EU prudential regime for investment firms comprising the Directive (EU) 2019/2034 (IFD) and Regulation (EU) 2019/2033 (IFR) introduces a fit-for-purpose capital framework for investment firms. The capital impact on the practice of investment management can be material depending on firms’ specific business models and risk profiles, which may require them to take strategic decisions with respect to the services they provide. Despite the importance of this issue for the practice of investment management, there exists no study among the existing studies that focuses on this issue. This study aims to fill this gap in the literature. Design/methodology/approach This paper reviews the calibration approaches the European Banking Authority (EBA) has used by exploring the deficiencies of the regime with respect to the calibration of categorization thresholds and coefficients that are used by the EBA to calculate regulatory capital requirements. Findings This paper sets out that the choice of the relevant percentile for setting the firm categorization thresholds was not based on any theoretical rule. It also discusses that the calibration of the K-factors was subjective and lacked consistency. In addition, it criticizes the sample that the EBA used for business model coverage on the grounds that it was unbalanced, resulting in certain K-factors driving the overall capital impact. Research limitations/implications Further research is needed on the calibration of thresholds as this will remain a crucial factor for the effectiveness of the new regime. In particular, a more data-driven and transparent approach would be necessary to ensure the accuracy and consistency of the thresholds. Practical implications This paper leads to the policy implication that, despite its merits that overweigh its shortcomings, potential market competition and financial stability issues that may stem from inconsistencies and a general lack of objectivity in certain aspects of the regime should not be underestimated by the EU policy makers. Originality/value The present paper contributes to the existing knowledge primarily by reviewing the EBA’s calibration approaches with respect to the K-factor coefficients and firm categorization thresholds, concluding that lack of objectivity and precision in the relevant methodologies could distort capital allocation decisions in the practice of investment management.
{"title":"Calibration issues under the EU capital regime for investment firms","authors":"M. Feridun","doi":"10.1108/jfrc-12-2022-0146","DOIUrl":"https://doi.org/10.1108/jfrc-12-2022-0146","url":null,"abstract":"\u0000Purpose\u0000The EU prudential regime for investment firms comprising the Directive (EU) 2019/2034 (IFD) and Regulation (EU) 2019/2033 (IFR) introduces a fit-for-purpose capital framework for investment firms. The capital impact on the practice of investment management can be material depending on firms’ specific business models and risk profiles, which may require them to take strategic decisions with respect to the services they provide. Despite the importance of this issue for the practice of investment management, there exists no study among the existing studies that focuses on this issue. This study aims to fill this gap in the literature.\u0000\u0000\u0000Design/methodology/approach\u0000This paper reviews the calibration approaches the European Banking Authority (EBA) has used by exploring the deficiencies of the regime with respect to the calibration of categorization thresholds and coefficients that are used by the EBA to calculate regulatory capital requirements.\u0000\u0000\u0000Findings\u0000This paper sets out that the choice of the relevant percentile for setting the firm categorization thresholds was not based on any theoretical rule. It also discusses that the calibration of the K-factors was subjective and lacked consistency. In addition, it criticizes the sample that the EBA used for business model coverage on the grounds that it was unbalanced, resulting in certain K-factors driving the overall capital impact.\u0000\u0000\u0000Research limitations/implications\u0000Further research is needed on the calibration of thresholds as this will remain a crucial factor for the effectiveness of the new regime. In particular, a more data-driven and transparent approach would be necessary to ensure the accuracy and consistency of the thresholds.\u0000\u0000\u0000Practical implications\u0000This paper leads to the policy implication that, despite its merits that overweigh its shortcomings, potential market competition and financial stability issues that may stem from inconsistencies and a general lack of objectivity in certain aspects of the regime should not be underestimated by the EU policy makers.\u0000\u0000\u0000Originality/value\u0000The present paper contributes to the existing knowledge primarily by reviewing the EBA’s calibration approaches with respect to the K-factor coefficients and firm categorization thresholds, concluding that lack of objectivity and precision in the relevant methodologies could distort capital allocation decisions in the practice of investment management.\u0000","PeriodicalId":44814,"journal":{"name":"Journal of Financial Regulation and Compliance","volume":null,"pages":null},"PeriodicalIF":0.9,"publicationDate":"2023-05-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49131514","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 : 2023-04-28DOI: 10.1108/jfrc-01-2023-0003
Simplice Asongu
Purpose This study aims to assess how corporate telecommunication (telecom) policies follow telecom sector regulation in mobile money innovation for financial inclusion in developing countries. Design/methodology/approach Telecom policies are understood in terms of mobile subscriptions, mobile connectivity coverage and mobile connectivity performance, whereas mobile money innovations represent mobile money accounts, the mobile used to send money and the mobile used to receive money. The empirical evidence is based on Tobit regressions. Findings Telecom sector regulation positively influences mobile money innovations. From net influences, mobile subscriptions and connectivity policies moderate telecom sector regulation to positively influence mobile money innovations, exclusively within the remit of mobile money accounts because the corresponding net influences on the mobile used to send money and the mobile used to receive money are negative. The interactive influences are consistently negative, and hence, thresholds for complementary policies are provided to maintain the positive influence of telecom sector regulation on mobile money innovations. Originality/value This study has complemented the extant literature by assessing how corporate telecommunication policies follow telecommunication sector regulation in mobile money innovations for financial inclusion.
{"title":"Telecommunications regulation, mobile money innovations and financial inclusion","authors":"Simplice Asongu","doi":"10.1108/jfrc-01-2023-0003","DOIUrl":"https://doi.org/10.1108/jfrc-01-2023-0003","url":null,"abstract":"Purpose This study aims to assess how corporate telecommunication (telecom) policies follow telecom sector regulation in mobile money innovation for financial inclusion in developing countries. Design/methodology/approach Telecom policies are understood in terms of mobile subscriptions, mobile connectivity coverage and mobile connectivity performance, whereas mobile money innovations represent mobile money accounts, the mobile used to send money and the mobile used to receive money. The empirical evidence is based on Tobit regressions. Findings Telecom sector regulation positively influences mobile money innovations. From net influences, mobile subscriptions and connectivity policies moderate telecom sector regulation to positively influence mobile money innovations, exclusively within the remit of mobile money accounts because the corresponding net influences on the mobile used to send money and the mobile used to receive money are negative. The interactive influences are consistently negative, and hence, thresholds for complementary policies are provided to maintain the positive influence of telecom sector regulation on mobile money innovations. Originality/value This study has complemented the extant literature by assessing how corporate telecommunication policies follow telecommunication sector regulation in mobile money innovations for financial inclusion.","PeriodicalId":44814,"journal":{"name":"Journal of Financial Regulation and Compliance","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2023-04-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135912462","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 : 2023-04-05DOI: 10.1108/jfrc-06-2022-0078
Asa Malmstrom Rognes, M. Larsson
Purpose The purpose of this study is to examine whether regulations can prevent financial crises based on the case of Sweden in the 20th century. The evolution of banking regulation relies heavily on learning across borders as well as responding to recent and remembered crises. Sweden went from being an open economy with a highly protected national banking system with several banking crises under the Classical regime, through the Statist regime with no crises followed by abrupt liberalisation in the 1980s as the country changed to a more market-based regime. This study examines the regulatory responses to crises in each of these periods to assess how, and whether, an often backward-looking regulatory framework can address forward-looking risks. Design/methodology/approach This study is a qualitative study using a historical method. The authors use archival material, official publications and statistical data as well as secondary literature to succinctly analyse crises and regulatory responses in different regulatory regimes in the 20th century. The theoretical framework builds on three macro- and microeconomic policy regimes, the Classical, the Statist and the Market regime. Findings The authors find that regulations can play a decisive role in alleviating a banking crisis, but the relationship between regulations and economic development is complex, and regulations alone cannot prevent a crisis. Originality/value To the best of the authors’ knowledge, this is the first longitudinal study of banking regulations in Sweden and how these change in response to crises with the aim of improving the role of banks in financial intermediation and financial stability. This study contributes to a body of literature on financial crises with a long-term perspective and an assessment of regulations as a policy response.
{"title":"Can regulations prevent financial crises? Uses of the past in the evolution of regulatory reforms in Sweden","authors":"Asa Malmstrom Rognes, M. Larsson","doi":"10.1108/jfrc-06-2022-0078","DOIUrl":"https://doi.org/10.1108/jfrc-06-2022-0078","url":null,"abstract":"\u0000Purpose\u0000The purpose of this study is to examine whether regulations can prevent financial crises based on the case of Sweden in the 20th century. The evolution of banking regulation relies heavily on learning across borders as well as responding to recent and remembered crises. Sweden went from being an open economy with a highly protected national banking system with several banking crises under the Classical regime, through the Statist regime with no crises followed by abrupt liberalisation in the 1980s as the country changed to a more market-based regime. This study examines the regulatory responses to crises in each of these periods to assess how, and whether, an often backward-looking regulatory framework can address forward-looking risks.\u0000\u0000\u0000Design/methodology/approach\u0000This study is a qualitative study using a historical method. The authors use archival material, official publications and statistical data as well as secondary literature to succinctly analyse crises and regulatory responses in different regulatory regimes in the 20th century. The theoretical framework builds on three macro- and microeconomic policy regimes, the Classical, the Statist and the Market regime.\u0000\u0000\u0000Findings\u0000The authors find that regulations can play a decisive role in alleviating a banking crisis, but the relationship between regulations and economic development is complex, and regulations alone cannot prevent a crisis.\u0000\u0000\u0000Originality/value\u0000To the best of the authors’ knowledge, this is the first longitudinal study of banking regulations in Sweden and how these change in response to crises with the aim of improving the role of banks in financial intermediation and financial stability. This study contributes to a body of literature on financial crises with a long-term perspective and an assessment of regulations as a policy response.\u0000","PeriodicalId":44814,"journal":{"name":"Journal of Financial Regulation and Compliance","volume":null,"pages":null},"PeriodicalIF":0.9,"publicationDate":"2023-04-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43892852","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 : 2023-03-08DOI: 10.1108/jfrc-09-2022-0115
A. K. Alosaimi, Mishari M. Alfraih
Purpose The purpose of this paper is to explore and evaluate the main segments of existing empirical literature related to Sovereign Wealth Funds (SWFs) and provide a thorough investigation of their research questions, theoretical frameworks, data selections and research methodologies. Design/methodology/approach The literature on SWFs has been split into three main streams: qualitative studies with theoretical contributions aiming to conceptualize the phenomenon of SWFs; normative assessments of the optimal asset allocations of SWFs; and empirical works that aim to investigate different perspectives of SWFs. The paper attempts to review the state of existing literature relating to these areas by answering specific questions. Findings Despite their significant size and potential impact, the literature on SWFs seems to be still in its infancy. The paper collects insights from previous literature, addresses its difficulties and challenges. Research limitations/implications The characteristics of the previous empirical literature and the challenges facing this line of research offer an insightful thought for the future research works in this topic. Originality/value The paper offers a thorough assessment of the existing empirical research on SWFs and shade some light on the techniques and procedures used.
{"title":"Investment strategies of sovereign wealth funds: the potential and challenges of empirical research","authors":"A. K. Alosaimi, Mishari M. Alfraih","doi":"10.1108/jfrc-09-2022-0115","DOIUrl":"https://doi.org/10.1108/jfrc-09-2022-0115","url":null,"abstract":"\u0000Purpose\u0000The purpose of this paper is to explore and evaluate the main segments of existing empirical literature related to Sovereign Wealth Funds (SWFs) and provide a thorough investigation of their research questions, theoretical frameworks, data selections and research methodologies.\u0000\u0000\u0000Design/methodology/approach\u0000The literature on SWFs has been split into three main streams: qualitative studies with theoretical contributions aiming to conceptualize the phenomenon of SWFs; normative assessments of the optimal asset allocations of SWFs; and empirical works that aim to investigate different perspectives of SWFs. The paper attempts to review the state of existing literature relating to these areas by answering specific questions.\u0000\u0000\u0000Findings\u0000Despite their significant size and potential impact, the literature on SWFs seems to be still in its infancy. The paper collects insights from previous literature, addresses its difficulties and challenges.\u0000\u0000\u0000Research limitations/implications\u0000The characteristics of the previous empirical literature and the challenges facing this line of research offer an insightful thought for the future research works in this topic.\u0000\u0000\u0000Originality/value\u0000The paper offers a thorough assessment of the existing empirical research on SWFs and shade some light on the techniques and procedures used.\u0000","PeriodicalId":44814,"journal":{"name":"Journal of Financial Regulation and Compliance","volume":null,"pages":null},"PeriodicalIF":0.9,"publicationDate":"2023-03-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43562354","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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