Table of Contents

Systemic Risk and Bank Failure

Deming Wu, Office of the Comptroller of the Currency
Xinlei Shelly Zhao, Office of the Currency Comptroller - Risk Analysis Division, Kent State University - Department of Finance

The United Kingdom's Response to Crisis: A Critical Examination of the New Regulatory Structure of Financial Services Supervision.

Nikoletta Kallasidou, University of Bristol - School of Law

Eligibility, Bank Liquidity, Basel 3, Bank Credit and Macro-Prudential Policy: History and Current Issues

William A. Allen, City University London - Sir John Cass Business School

Managing Performance Signals Through Delay: Evidence from Venture Capital

Indraneel Chakraborty, Southern Methodist University (SMU), Cox School of Business
Michael Ewens, California Institute of Technology - Division of the Humanities and Social Sciences

Robust Political Economy and the Insolvency Resolution of Large Financial Institutions

Mathieu Bédard, Aix-Marseille Université, University of Toulouse 1 - Toulouse School of Economics (TSE)


REGULATION OF FINANCIAL INSTITUTIONS eJOURNAL

"Systemic Risk and Bank Failure" Free Download

DEMING WU, Office of the Comptroller of the Currency
Email:
XINLEI SHELLY ZHAO, Office of the Currency Comptroller - Risk Analysis Division, Kent State University - Department of Finance
Email:

We investigate the impact of systemic risk on bank failure. All systemic risk measures investigated in this paper are significantly related to the probability of bank failure during the latest financial crisis. The predictive power of systemic risk is strong in the one-year forecast horizon, suggesting that systemic risk has substantial impact on bank failure. Its impact weakens in the one-quarter forecast horizon, so immediately before the failure, the influence from systemic risk seems to be largely channeled through and reflected in the worsening balance sheet. Further, systemic risk is not a new phenomenon during the latest banking crisis, as it also contributes to bank failures before 2005; but the influence of systemic risk is much stronger after 2005. Finally, there is evidence that firms with higher capital ratios are more affected by systemic risk.

"The United Kingdom's Response to Crisis: A Critical Examination of the New Regulatory Structure of Financial Services Supervision." Free Download

NIKOLETTA KALLASIDOU, University of Bristol - School of Law
Email:

The 2008 economic turmoil, which greatly affected the UK, led to the realisation that there had been a missing link in the overall structure of financial regulation. Thus, within days of coming into power, the Coalition Government announced its plans for an extensive overhaul of the regulatory structure of financial services supervision and put forward an ambitious programme for reform, hoping to restore public confidence. The UK’s official response is enunciated in the Financial Services Act 2012, which came into force on the 1st of April 2013. The new legislation has resulted in the split of the Financial Services Authority (FSA) into two separate authorities, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), while a new committee, the Financial Policy Committee (FPC), has been established within the Bank of England (BoE) in order to perform macro-prudential oversight functions. This paper focuses on this very change of the regulatory architecture in the UK. It aims to critically examine its implications in order to reach a conclusion on whether the new regulatory framework is indeed what the UK needs to restore its financial stability. It will attempt to analyse whether this alteration of the regulatory framework is capable of handling future challenges posed by the ever-evolving commercial realities of the global financial markets.

"Eligibility, Bank Liquidity, Basel 3, Bank Credit and Macro-Prudential Policy: History and Current Issues" Free Download

WILLIAM A. ALLEN, City University London - Sir John Cass Business School
Email:

The paper described the historical use of commercial bills in Bank of England operations, and suggests that by making more active use of the policy instrument of central bank asset choice, and by acknowledging the connection between liquidity regulation and open-market operations, central banks could better achieve some of their macro-prudential policy objectives and stimulate high-quality bank lending.

"Managing Performance Signals Through Delay: Evidence from Venture Capital" Free Download

INDRANEEL CHAKRABORTY, Southern Methodist University (SMU), Cox School of Business
Email:
MICHAEL EWENS, California Institute of Technology - Division of the Humanities and Social Sciences
Email:

This paper asks if and how agency problems during venture capital (VC) fundraising impact investment behavior. We show that these problems manifest themselves through actions hidden from investors. VCs delay revealing negative information until after raising a new fund. After fundraising is complete, writeoffs more than double and reinvestments in relatively worse entrepreneurial firms increase. This behavior is not confined to first-time funds, low reputation VCs or those unable to raise a new fund. Delaying strategies result in deadweight loss in terms of additional capital and effort. The results are consistent with a signal-jamming equilibrium in the VC market.

"Robust Political Economy and the Insolvency Resolution of Large Financial Institutions" Free Download

MATHIEU BÉDARD, Aix-Marseille Université, University of Toulouse 1 - Toulouse School of Economics (TSE)
Email:

This research applies the robust political economy framework to a comparative institutional analysis of large US financial institutions insolvency procedures. The regimes investigated will be the bailout of financial institutions, Dodd-Frank Act's Orderly Liquidation Authority, both through procedures that follow original intent and through a 'bail-in' route, and 3 bankruptcy possibilities including Chapter 11, a so-called "Chapter 14," and a mandatory auction mechanism used as a benchmark. We study the robustness of these regimes' procedures through 5 criteria, both ex ante and ex post. These are the initiation of insolvency procedures, Too-big-to-fail moral hazard, the filtering mechanism, the allocation of resources, and their alleged systemic externalities containment abilities.

^top

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.

Distribution Services

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

Distributed by

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 - 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