REGULATION OF FINANCIAL INSTITUTIONS eJOURNAL

"Bank Stock Performance and Bank Regulation Around the Globe" Free Download

MATTHIAS PELSTER, TU Dortmund University
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FELIX IRRESBERGER, TU Dortmund University
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GREGOR N. F. WEISS, TU Dortmund University
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We analyze the effect of bank capital, regulation, and supervision on the annual stock performance of global banks during the period of 1999-2012. We study a large comprehensive panel of international banks and find that higher Tier 1 capital decreases a bank’s stock performance over the whole sample period. However, during turbulent times stocks of more highly capitalized banks perform significantly better. Additionally, we find strong evidence that banks that are more likely to receive government bailout during financial distress realize smaller stock performance. In contrast, we find no convincing evidence that banks that generate higher non-interest income have a higher performance.

"Bail-In Provisions in State Aid and Resolution Procedures: Are They Consistent with Systemic Stability?" Free Download
CEPS Policy Briefs No. 318

STEFANO MICOSSI, Associazione italiana delle società per azioni
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GINEVRA BRUZZONE, ASSONIME
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MIRIAM CASSELLA, ASSONIME
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This CEPS Policy Brief examines the provisions for bail-in in the European Union – that is, the principle whereby any public measure to recapitalise a bank with insufficient prudential capital must be preceded by a write-down or conversion into equity of creditors’ claims – in state aid policies and in the new resolution framework for failing banks, with two aims:

i) to assess whether and how they are coordinated and

ii) more importantly, whether they address satisfactorily the question of systemic stability that may arise when investors fear that creditors’ claims are likely to be bailed-in in a bank crisis.

The issue is especially relevant in the present context, as the comprehensive assessment exercise underway for EU banks falling under the direct supervision of the European Central Bank may lead supervisors to require substantial capital injections simultaneously for many of the banks involved, possibly shaking investors’ confidence across EU banking markets.

The authors conclude that the two sets of rules are, broadly speaking, mutually consistent and that they already contain sufficient safeguards to address systemic stability concerns. However, the balance of the elements underpinning the European Commission’s decisions in individual cases may not be clear to bank creditors and potential investors in financial markets. The impression of unneeded rigidity on this very sensitive issue has been heightened by official statements over-emphasising that each case will be assessed individually under competition rules, thus feeding the concern that the systemic dimension of the issue may have been underestimated. Therefore, further clarification by the Commission may be needed on how the various criteria will be applied during the ongoing transition to banking union – perhaps through a new communication completing the state aid framework for banks in view of the adoption of the new resolution rules.

"Fraud Is Already Illegal: Section 621 of the Dodd-Frank Act in the Context of the Securities Laws" Free Download
University of Michigan Journal of Law Reform, Forthcoming

NATHAN R. SCHUUR, University of Michigan Law School
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In the aftermath of the financial crisis, lawmakers and the public focused on abuses in the securitization industry. Perceived failings of the securities laws to prevent abuses spurred Congress to enact Section 621 of the Dodd-Frank Act, which prohibits conflicts of interest in asset-backed securitizations. But the law is unnecessary. The antifraud laws already address the abuses and certain conflicted transactions, if properly disclosed, can be beneficial. The section should be repealed.

"Stress Testing: Observations of Its Possible Effect" Free Download

MICHAEL ROGINSKY, Independent
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This article examines important aspects of regulatory stress testing. It states that the way stress testing is implemented might increase systemic risk faced by the banking industry. It also states that despite the effort of using uniform stress testing scenarios, the results are not transparent and uniform for different banks due to the fact that different empirical models behave materially different when stressed parameters are used as an input. Several improvements are suggested in the article.

"Restructuring an Insolvent Bank" Free Download

NUSRET CETIN, Independent
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Banks are regarded as special institutions, and regulated and supervised heavily than other institutions. However, regulation and supervision cannot achieve zero failure regimes. Banks fail like any other commercial entities, and will continue to fail. Failure of a bank may trigger formal insolvency (resolution) proceedings, if there is no available option to save it as a going concern. Bank insolvency proceedings comprise various mechanisms, instruments, and transactions to enable resolution authorities to properly deal with a failed bank. Bank restructuring within insolvency proceedings means taking extensive measures to resolve the bank’s problems, including recapitalisation, transfer of the bank’s shareholding or asset base to new investors, or the bank’s merger with (or acquisition by) another healthy bank and employing other restructuring techniques. This article analyses bank restructuring and possible tools and mechanisms that resolution authorities should have at their disposal to smoothly conduct the process.

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About this eJournal

This eJournal distributes working and accepted paper abstracts covering regulatory and legal aspects of national and international financial institutions. The eJournal welcomes research that deals with legal aspects of depository institutions including banks, credit unions, trust companies, and mortgage loan companies. Topics also include regulation of insurance companies, brokers, underwriters, and investment funds.

Editors: G. William Schwert, University of Rochester, and Rene M. Stulz, Ohio State University (OSU)

Submissions

To submit your research to SSRN, sign in to the SSRN User HeadQuarters, click the My Papers link on left menu and then the Start New Submission button at top of page.

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If your organization is interested in increasing readership for its research by starting a Research Paper Series, or sponsoring a Subject Matter eJournal, please email: RPS@SSRN.com

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Financial Economics Network (FEN), a division of Social Science Electronic Publishing (SSEP) and Social Science Research Network (SSRN)

Directors

BANKING & FINANCIAL INSTITUTIONS EJOURNALS

MICHAEL C. JENSEN
Harvard Business School, Social Science Electronic Publishing (SSEP), Inc., National Bureau of Economic Research (NBER), European Corporate Governance Institute (ECGI)
Email: mjensen@hbs.edu

Please contact us at the above addresses with your comments, questions or suggestions for FEN-Sub.

Advisory Board

Regulation of Financial Institutions eJournal

EDWARD I. ALTMAN
Max L. Heine Professor of Finance and Vice Director, New York University (NYU) - Salomon Center, Max L. Heine Professor of Finance, New York University (NYU) - Department of Finance

DENNIS R. CAPOZZA
Professor of Finance and Dykema Professor of Business Administration, University of Michigan, Stephen M. Ross School of Business

DONALD CHEW
Morgan Stanley Investment Management

JOHN DAVID CUMMINS
Joseph E. Boettner Professor, Temple University, Joseph E. Boettner Professor, Temple University - Risk Management & Insurance & Actuarial Science, Harry J. Loman Professor Emeritus, University of Pennsylvania - Insurance & Risk Management Department

DOUGLAS W. DIAMOND
Merton H. Miller Distinguished Service Professor of Finance, University of Chicago - Booth School of Business, National Bureau of Economic Research (NBER)

EUGENE F. FAMA
Robert R. McCormick Distinguished Service Professor of Finance, University of Chicago - Finance

STEPHEN FIGLEWSKI
Professor of Finance, New York University - Stern School of Business

STUART I. GREENBAUM
Bank of America Professor of Managerial Leadership, Washington University in St. Louis - Olin Business School

MICHAEL C. JENSEN
Jesse Isidor Straus Professor of Business Administration, Emeritus, Harvard Business School, Co-Founder, Chairman, Managing Director and Integrity Officer, Social Science Electronic Publishing (SSEP), Inc., Research Associate, National Bureau of Economic Research (NBER), Fellow, European Corporate Governance Institute (ECGI)

JONATHAN M. KARPOFF
Washington Mutual Endowed Chair in Innovation Professor of Finance, University of Washington - Michael G. Foster School of Business

KENNETH LEHN
Professor of Business Administration, University of Pittsburgh - Finance Group

STANLEY R. PLISKA
University of Illinois at Chicago - Department of Finance

CHARLES I. PLOSSER
President, Federal Reserve Bank of Philadelphia, National Bureau of Economic Research (NBER)

KATHERINE SCHIPPER
Duke University - Fuqua School of Business

ALAN SCHWARTZ
Sterling Professor of Law, Yale Law School

G. WILLIAM SCHWERT
Distinguished University Professor of Finance and Statistics, University of Rochester - Simon School, National Bureau of Economic Research (NBER)

RENE M. STULZ
Everett D. Reese Chair of Banking and Monetary Economics, Ohio State University (OSU) - Department of Finance, National Bureau of Economic Research (NBER), Fellow, European Corporate Governance Institute (ECGI)

ROSS L. WATTS
Erwin H. Schell Professor of Management, Massachusetts Institute of Technology (MIT) - Sloan School of Management