Table of Contents

Reframing Complexity: Hedge Fund Policy Paradigm for the Way Forward

Cecilia C. Lee, University of Washington - School of Law

Systemic Banking Crises, Financial Liberalization and Governance

Basma Majerbi, Gustavson School of Business, University of Victoria
Houssem Rachdi, University of Tunis - Faculty of Economic Sciences and Management (ESSEC)

Dynamics of Debt Capacity

Andreea Minca, Cornell University
Johannes Wissel, Cornell University - School of Operations Research and Industrial Engineering

Evaluation of Post-GFC Policy Response of New Zealand: Non-Banking Perspective

Noel Yahanpath, Eastern Institute of Technology
Syrus M. Islam, University of Otago - Department of Accountancy and Finance


REGULATION OF FINANCIAL INSTITUTIONS eJOURNAL

"Reframing Complexity: Hedge Fund Policy Paradigm for the Way Forward" Free Download
Brooklyn Journal of Corporate, Financial and Commercial Law, Vol. 9, No. 2

CECILIA C. LEE, University of Washington - School of Law
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In the wake of the global financial crisis, the need for systemic risk mitigation in the shadow banking system is resoundingly evident. The task at hand is incomplete, leaving grey areas such as hedge funds obfuscated. I contend it is both timely and relevant to revisit hedge fund regulatory reform. The relationship between the banking and non-banking sectors requires continuous monitoring and further regulation, particularly in market conditions likely to shift banking functions outside the realms of prudential regulation. In addition, as complacency is a likely companion to normalcy, the window of opportunity for meaningful reforms is rapidly closing. This Article proposes an elucidating and flexible policy paradigm in support of an understandable stance on hedge fund regulation. Such approach is crucial to continue the discourse on post-crisis reforms. By conceptualizing degrees of regulatory intensity and prescriptiveness as points on a continuum, the proposed matrix of continuums provides contextual adaptability. It also reframes the complexities of hedge fund regulation using basic regulatory trade-offs. In doing so, this proposal supports ongoing evaluations and open dialogue of relevant issues. Accordingly, such policy paradigm for a targeted and balanced formula of hedge fund regulation reflects pivotal lessons from the recent crisis and offers a simplified perspective to facilitate analysis of reforms in the context of the international soft law system.

"Systemic Banking Crises, Financial Liberalization and Governance" Free Download
Multinational Finance Journal, Vol. 18, No. 3/4, p. 281-336, 2014

BASMA MAJERBI, Gustavson School of Business, University of Victoria
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HOUSSEM RACHDI, University of Tunis - Faculty of Economic Sciences and Management (ESSEC)
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This paper revisits the relationship between liberalization and systemic banking crisis in light of a more comprehensive measure of financial liberalization and its interaction with various measures of banking governance and institutional quality. We estimate the probability of systemic banking crisis for a sample of 53 countries using multivariate logit models and allowing the determinants of crisis to vary across country groups. The results show that liberalization increases the likelihood of crisis only at early stages of financial reforms and up to certain level, after which, greater liberalization, through more advanced financial reforms, tends to reduce the probability of systemic banking crisis. We also find that stricter banking regulation and supervision, better law and order, government stability, lack of corruption and bureaucratic efficiency generally lead to reduced probability of crisis. However, the magnitude and significance of the beneficial effects of governance largely depend on the degree of liberalization and vary across countries depending on their levels of income and development.

"Dynamics of Debt Capacity" Free Download

ANDREEA MINCA, Cornell University
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JOHANNES WISSEL, Cornell University - School of Operations Research and Industrial Engineering

We propose a model that explains the build-up of short term debt when the creditors are strategic and have different beliefs about the prospects of the borrowers' fundamentals. We define a dynamic game among creditors, whose outcome is the short term debt process as a function of the borrower's fundamentals. As common in the literature, this game has multiple Nash equilibria. We give a refinement of the Nash equilibrium concept that leads to a unique equilibrium. For the resulting debt-to-asset process of the borrower we define a notion of stability.

Bank runs are predictable: a bank run begins when the debt-to-asset process leaves the stability region and becomes a mean-fleeing sub-martingale with tendency to reach the debt ceiling, which is the point when the borrower becomes illiquid.

The debt ceiling and the stability region are computed explicitly. A critical ingredient in our model is the distribution of capital across the beliefs of the creditors and we allow for a wide variety of specifications for this distribution.

"Evaluation of Post-GFC Policy Response of New Zealand: Non-Banking Perspective" 
Yahanpath, N. & Islam, S. M. (2014) "Evaluation of post-GFC policy response of New Zealand: non-banking perspective", Journal of Financial Regulation and Compliance, Vol. 22 Iss: 4, pp.328-338

NOEL YAHANPATH, Eastern Institute of Technology
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SYRUS M. ISLAM, University of Otago - Department of Accountancy and Finance
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Purpose
– The purpose of this study is to explore whether the present measures being taken by the New Zealand (NZ) government are strengthening its non-banking sector effectively to address the recent financial crisis and ensure better financial stability to the economy.

Design/methodology/approach
– The basic methodology used in this paper is the “documentary research method?. For this study, data has been collected from various published sources; e.g. The Bulletin, the Financial Stability Report and other publications of the Reserve Bank of NZ, publications by Statistics NZ and a number of NZ government Ministries, and some newspapers and magazines, etc.

Findings
– We find that the NZ government is revamping the non-banking sector by introducing a prudential regime. However, we also find some gaps in the existing regulatory systems that need to be addressed to ensure soundness in the total system.

Research limitations/implications
– The basic limitation of documentary research will be applicable to this study. Further research may be carried out to investigate the policy responses of government from banking, corporate governance and other regulatory perspectives.

Practical implications
– Our study identifies some gaps in current policy responses along with some suggestions for the future that may be taken into consideration by the respective policy-makers to further strengthen the support provided by policy responses to financial crises.

Originality/value
– Our study provides a unique insight into the evaluation of post-GFC policy response and its effectiveness with regard to non-banking sector and, to our knowledge, the first of its kind in NZ in the post-global financial crisis period.

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Regulation of Financial Institutions eJournal

EDWARD I. ALTMAN
Senior Advisor, Credit and Debt Markets Research Program, New York University (NYU) - Salomon Center, Max L. Heine Emeritus 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

J. DAVID CUMMINS
Joseph E. Boettner Professor, Temple University - Risk Management & Insurance & Actuarial Science

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
Co-Founder, Chairman, Managing Director and Integrity Officer, Social Science Electronic Publishing (SSEP), Inc., Jesse Isidor Straus Professor of Business Administration, Emeritus, Harvard Business School, 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 Business 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