Unintended Consequences of the Global Derivatives Market Reform

41 Pages Posted: 14 Jan 2020

See all articles by Pauline Gandré

Pauline Gandré

Ecole Normale Supérieure (ENS) de Lyon; University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE)

Mike Mariathasan

KU Leuven- Faculty of Economics & Business

Ouarda Merrouche

University of Lausanne

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)

Date Written: January 13, 2020

Abstract

We investigate regulatory arbitrage during the G20’s global derivatives market reform. Using hand-collected data on staggered reform progress, we find that banks shift their trading towards less regulated jurisdictions. The result is driven by agenda items – such as the promotion of central clearing – that are costly, but do not directly benefit banks. We further document that subsidiaries in jurisdictions with more reform progress shift to riskier portfolios. Alleviating endogeneity concerns we show that reform progress is primarily driven by structural (time-invariant) factors.

Keywords: Bank regulation, Regulatory arbitrage, OTC Markets, Derivatives, Cross-border financial institutions, Financial risk

JEL Classification: G15, G18, G21, G23, G28

Suggested Citation

Gandré, Pauline and Mariathasan, Mike and Merrouche, Ouarda and Ongena, Steven R. G., Unintended Consequences of the Global Derivatives Market Reform (January 13, 2020). Swiss Finance Institute Research Paper No. 20-02. Available at SSRN: https://ssrn.com/abstract=3518411 or http://dx.doi.org/10.2139/ssrn.3518411

Pauline Gandré

Ecole Normale Supérieure (ENS) de Lyon ( email )

15, parvis Rene Descartes BP 7000
Lyon Cedex 07, 69342
France

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE) ( email )

93, chemin des Mouilles
Ecully, 69130
France

Mike Mariathasan

KU Leuven- Faculty of Economics & Business ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Ouarda Merrouche (Contact Author)

University of Lausanne ( email )

Quartier Chambronne
Lausanne, Vaud CH-1015
Switzerland

Steven R. G. Ongena

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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