About SUERF
- Our Mission
- Objectives
- SUERF Council
- SUERF Secretariat
- Press Information
Events
- Colloquia
- Marjolin Prize
- Lectures
- Seminars
- Conferences
- Workshops
Publications
- Studies
- Colloquium books
- Submitting a Paper
- Archive
- Royalties Arrangements
- Newsletter
- Subscriptions (LSS)
- Order Colloquium Volume
Membership
- Members Directory
- Membership Renewal
Links
- Kindred Institutions
- Events
Contact us
SUERF StudiesThe Council of Management invites the submission of high quality papers for inclusion in the series. All papers are refereed and drafts may be sent either directly to the chairman of the Editorial Board (Professor Morten Balling) or via the Executive Secretary at the secretariat. The language in all SUERF publications is English. Copies of can be obtained from the SUERF Secretariat using this form (.pdf file to be returned by fax or e-mail).
In 2003, SUERF Studies numbering was changed, with the 23rd SUERF
Study becoming Study 2003/1 2005/1 "Will the Adoption of Basel
II Encourage Increased Bank Merger Activity? Evidence from the United
States" by Timothy H. Hannan and Steven J. Pilloff 2006/1 "Fiscal Issues in the New EU Member Countries - Prospects and Challenges" by Helmut Wagner 2007/1 "Information and Uncertainty in the Theory of Monetary Policy" by Helmut Wagner 2008/1 "Monetary Policy Transmission in Poland: A Study of the Importance of Interest Rate and Credit Channels" by Tomasz Lyziak, Jan Przystupa and Ewa Wrobel (1) (2) (3) (4) (5) All aspects of banking business are being radically transformed
and to an extent that is changing the fundamental economics of the
banking firm and the banking industry. This is because of three
dominant factors: a series of powerful pressures acting simultaneously;
technology is changing the very core of banking business: information
advantages, processing, monitoring, delivery, etc; and because,
as a result of these pressures, competition is increasingly developing
from outside the traditional banking industry. The paper reviews
the pressures impinging on the economics of banking and considers
their implications for the structure of the banking industry; the
business operations of banks, and the structure of the banking firm."
(6) The paper analyses the performance of emerging equity markets since
1985 in the light of the Asia crisis. Contrary to the high hopes
of many investors, emerging markets have severely under-performed
as an asset class over the whole period, (especially since 1994),
lagging well behind the US and Europe both in returns and volatility.
The paper looks at the factors which have driven emerging markets
performance and asks why returns have been so poor. It finds that
periods of strong gains in particular countries and regions followed
major policy transformations, for example with the emergence of
the Asian miracle in the 1980's, then Latin America's renaissance
in the early 1990's and later, Eastern Europe's emergence. Other
major factors that frequently play a role are US interest rates
and world growth trends. The emerging market crisis of 1997-8 has
damaged the credibility of the Asian miracle and investors now seem
to be assigning emerging stocks much higher risk premia than before.
One reason for this change is the surprisingly weak relationship
between profits growth and GDP growth, which the paper suggests
may be due partly to over-investment leading to diminishing profitability
and partly deficiencies in corporate governance. (7) The first paper overviews theoretical arguments for and against
deposit insurance, a system that can be aimed at consumer protection
and/or at financial stability. But deposit protection, by reducing
risk, can cause "moral hazard", in particular in relations to institutions
potentially "too-big-to-fail". The US and Japanese experiences with
deposit insurance are useful lessons for Europe as they demonstrate
how badly can market participants be affected by moral hazard. The
second paper discusses lending of last resort in the Eurozone. The
authors support the ECB's view that this function must be confined
to play a minor role and that it must be handled with 'constructive
ambiguity'. However, they think explicit decisions and a clear division
of responsibilities are needed to ensure that its role is really
minor and that the ambiguity is in fact constructive. They call
for euro-wide standards of supervision and for the establishment
of a 'European Observatory of Systemic Risk'. They also recommend
"prompt corrective action" with the authorities ready to close banks
before they become insolvent, if they do not comply with their instructions
to keep high capital ratios. Read together the two papers offer
useful insights into the current debate about how to make the financial
infrastructure of Europe more robust. (8) This paper considers the implementation challenges facing the Basel
Committee's new proposals on bank capital standards. When compared
with the existing Capital Accord, the proposals represent a shift
across two intersecting dimensions-regulatory versus economic capital,
and rules-based versus process-oriented regulation. On minimum capital
standards, the case for using external ratings may be stronger than
has been recognized, given the divergences in the purpose and design
of internal ratings. On supervisory review, ensuring comparability
among supervisors and building supervisory capacity will present
serious challenges. On enhancing market discipline, incentives for
markets to exercise discipline will be required. (9) The expansion of Spanish banks in Latin America is one of the most
important elements of bank internationalisation in recent years.
Spanish banks now head the ranking of foreign banks in the region.
At first glance, it is paradoxical that at a time of notable progress
in the process of European integration, there is an intensification
of Spanish investment flows to Latin America. Macroeconomic performance,
deregulation, pure banking elements and cultural factors explain
the decision of Spanish banks to establish themselves in the region.
Given that only a few years have passed since the beginning of the
expansion in Latin America, and the economic and financial turbulence
experienced by the region in the last two years, it is a little
early to properly evaluate the success of this expansion. However,
preliminary evidence supports the idea that Latin American revenues
have to some extent offset the decline in Spanish net interest income
caused by the low interest rate environment in Europe. The presence
of Spanish banks in Latin American will increase competition and
improve risk management and financial stability. (10) In the first half of 2000 the authors of this paper visited the
twelve District Reserve Banks in the United States which was followed
by a discussion at the Board in Washington. The aim of this visit
was to get a deeper insight into the working of the American Federal
Reserve System in order to see whether there is a sufficient basis
for a comparison with the European System of Central Banks. The
direct contacts with many senior and research staff members enabled
them to deepen their factual empirical knowledge about the US banking
system. The staff set aside a lot of time to discuss the relevant
questions and made various members of the Economic Research Departments
available for further conversation. Particularly enlightening were
the stimulating views of some Reserve Bank presidents on the task
and rules of monetary policy. (11) The subject matter of this paper is the design of appropriate Central
Banking arrangements and exchange rate regimes for those former
centrally planned Central and East European countries that are candidates
for full membership in the European Union. We give an overview of
the existing arrangements and point out to which extent monetary
arrangements are restricted by conditions for entry both into the
European Union and eventually into the European Monetary Union.
Furthermore we investigate to which degree countries are fullfilling
the accession criteria and compare their performance with the performance
of earlier EU joiners like the countries of the Iberian Peninsula,
Ireland and Greece. After concluding that the accession criteria
do not necessarily favour a particular monetary regime, we analyse
the pros and cons of the two regimes widely believed to be most
stable- currency boards and inflation targeting. We find that under
either regime tensions are likely to arise from the attempt to meet
the accession criteria of a low inflation rate and a stable exchange
rate. Due to likely large productivity gains in the traded goods
sector the real exchange rate can be expected to display a trend
real appreciation. Thus a currency board arrangement may well fail
to produce an inflation rate below the Maastricht ceiling, unless
the economy is run with a wasteful amount of spare capacity. Similarly
the credibility of any inflation target would be undermined by the
requirement that the exchange rate be kept within a specified target
zone. This conflict could be resolved if the inflation ceiling was
re-specified in terms of traded goods price inflation (and preferable
in terms of 'core' traded goods price inflation) but this would
require a change in the Maastricht Treaty. (12) This paper critically surveys the key literature on corporate
financing policy, capital structure and firm ownership in order
to identify the leading theoretical and empirical issues in this
area. The theoretical component of the survey attempts to reconcile
competing theories of capital structure and appraises recent models
which use agency theory and asymmetric information to explore the
impact of managerial shareholdings, corporate strategy and taxation
on the firm's capital structure. The empirical component focuses
on univariate analyses as well as multivariate models of capital
structure, and makes a comparison between theoretical predictions
and empirical results. Implications are identified in terms of promising
research ideas (PRIs) for further research. The bulk of the empirical
research that we survey is concerned with the experience of a few
western industrial countries, and the implications of this research
are assessed accordingly. However, we also aim to draw out implications
for new research in developing and newly industrialised countries
with an expanding corporate sector. (13) The financial press gives very regular attention to art and culture
in their many forms. Business newspapers such as the Financial Times,
the Wall Street Journal, Het Financieele Dagblad and De Financieel
Economische Tijd give over plenty of space in their weekend editions
to news of art auction prices and exhibitions of major or less well-known
works. As well as this practical outlook, more theoretical economists
have given increasing attention to the economics of art since the
1970s. There has been a remarkably large amount of research into
the pricing of art and the closely associated subject of the return
on purchases of art. This centres on painting in general and on
individual painters. (14) This Study is based on the 8th SUERF Lecture given by Alexandre
Lamfalussy. Professor Lamfalussy has a long association with SUERF
since its creation in 1963. In July 2000 the ECOFIN established
the Committee of Wise Men on the Regulation of European Securities
Markets under the chairmanship of Baron Alexandre Lamfalussy. In
this SUERF Study the author first of all discusses the importance
of the capital market in Europe and the mandate of the Committee
and the way it conducted its investigation. The Study emphasises
the shortcomings and weaknesses of the present system of regulation
of European securities markets, and why these weaknesses have emerged.
The paper also discusses the Committee's proposed remedies and some
of the reactions to them. Professor Lamfalussy also considers some
of the developments since the Committee published its report. Throughout
the Study, the author emphasises the need for greater transparency
and consultation in the regulatory process. (15) 1) Are Italian mutual banks efficient? Evidence from two
different cost frontier techniques, by Juan Sergio Lopez, Alessandra
Appenini, and Stefania P.S. Rossi. The aim of the first paper is to analyze the efficiency of co-operative banks in Italy. The increasing competition induced by the ongoing process of liberalization in Europe has been affecting also these small financial institutions that used to operate in a more protected environment. Based on a panel of about 450 banks covering the period 1995-99, two different techniques were employed: non-parametric frontier analysis, and parametric frontier analysis. By means of this analysis it is possible to compare the results obtained using these two methodologies and analyze the determinants of bank inefficiency ad 2) The second paper is aimed at testing the hypothesis that the M&A wave over the past ten years has increased the level of efficiency of co-operative credit banks (CCBs), both in terms of overall performance and productive efficiency. The logical development is hinged on two steps: 1) an explorative analysis which is based on the observation of balance sheet ratios by quantiles, 2) a DEA application for estimating productive efficiency scores. The analysis refers to 94 CCBs which have been involved in M&As over the period 1995-98 and is carried out on both merged and non-merged banks, either before concentration or in the subsequent years. The explorative analysis mainly shows a higher level of fee-based income for merged banks, which is consistent with the hypothesis that concentration strategies enhance diversification. It also detects some degree of cost reduction just after merging. The DEA application models (CRS and VRS) tends to confirm the results of the previous analysis and estimates higher efficiency for merged banks, a lower efficiency degree for pre-merger banks, and a significant degree of scale econonomies..  top (16)
The Czech Republic, Hungary and Poland (CEEC-3) have undertaken
substantial efforts to build a new financial system under the constraints
of their legacies from central planning. In this study, first we
look at the banking sector. Then we give a description of bond and
stock markets. These topics are comple-mented by an analysis of
the structure of funding for the private and public sector, of the
financial sector's vulnerability and of the legal conditions for
external finance as well as for banking supervision. We find that
the financial sector and financial intermediation are internationally
integrated already to a large extent. This implies, inter alia,
a non-negligible exposure of the corporate sector to exchange rate
risk. While funding via equity markets remained modest, local currency-denominated
debt issues are important for public financing. Our analysis shows
that the legal, supervisory and regulatory infra-structure of the
financial system is formally well developed, but suffers from enforcement
problems. (17) This paper argues that the implications of globalization for monetary
policy come mainly through two channels: On the one hand, the many
structural changes, which are associated with the globalization
process, cause an increase in uncertainty surrounding monetary policy.
This leads to an increase in uncertainty about how to interpret
macroeconomic data/indicators and about the monetary transmission
mechanism. On the other hand, by strengthening the process of global
economic integration, the globalization process increases international
competition. Thereby, globalization forces market players to make
structural adjustments or reforms which change the conditions or
constraints under which monetary policy is implemented. (18) This paper aims at analysing the determinants of the recent wave
of European banks to Brazil under the context of the recent phase
of banking internationalisation. In its first part, it analyses
the process of banking internationalisation from both analytical
and historical approach. Focusing on the determinants of the banking
internationalisation process, the paper shows that (i) the recent
wave of banking internationalisation is characterised not only for
financial institutions following their existing relationships, but
also and increasingly by a greater integration with the local market;
(ii) banks operating in countries where the banking sector is larger
and more profitable should be able to export a superior skill and
are more likely to expand their activities abroad. The second part
of the paper examines the determinants of the expansion of European
banks in Brazil, as well as the expansion strategy of the four major
European banks in Latin America - BSCH, BBVA, HSBC and ABN-Amro.
In this regard, it shows that the recent wave of European banks
entering Latin America and Brazil is determined by a set of different
factors, that includes the process of restructuring the banking
sector under the EMU; the dynamics of the internationalisation of
the Spanish banks, since they have been the main players in the
recent influx of foreign banks into Latin America; the process of
market deregulation in the region since early 1990s, in the broader
context of economic and political reforms; the better prospects
of the region for increasing returns to financial institution compared
to developed countries, as well as the potential gains in efficiency.
Besides, it also shows that one of the common features of the four
major European banks in Latin America - BSCH, BBVA, HSBC and ABN-Amro
- is that all the top 4 are big universal banks that choose to expand
abroad as a strategy to expand their activities. More precisely,
expanding abroad is not only a source of diversification of earnings,
but also a way to strengthen their position in the European banking
market under the pressure of economic and monetary union. (19) 1) The Future for Small & Regional Banks in Europe, by David T.
Llewellyn (20) This paper first reviews a number of stylised facts concerning
OECD country business cycles over the past four decades. In general,
the amplitude of business cycles has fallen, driven mainly by declining
fluctuations of domestic demand. As a result, international divergencies
of cyclical positions have diminished but, outside the euro area,
there is little evidence of increased synchronisation of cycles.
The paper then reviews a number of influences on business cycles.
The evidence suggests that, on balance, features of macroeconomic
policies may have tended to reduce cyclical volatility and structural
changes, notably the increased share of the service sector in the
economies, have also tended to dampen the cycle. More recently,
there are signs that financial market prices have increasingly moved
in sympathy across countries, and the final section of the paper
illustrates how this could affect the international transmission
of cyclical shocks and the associated need for policy response. (21)
This essay discusses the corporate governance of banks. Bank managers
must balance competing demands from shareholders and regulators,
which distinguishes banks from most other firms. The essay is structured
into three parts. The theoretical section first broadly defines
management and its governance as a process with certain built-in
ambiguities that defy a strict notion of accountability. Then, a
focus on financial stakeholders clarifies the different governance
objectives of owners and creditors, and integrates bank regulation
into the concept of debt governance. The empirical section surveys
the extant literature to derive insights as to which theoretical
predictions have so far received more wide-spread support, and in
which areas the insights generated by researchers are still too
vague to lend themselves as a basis for policy advice. The third
section then spells out a recommendation for a logically consistent
regime in which shareholders (equity governance) and regulators
(debt governance) can meaningfully coexist in their quest to guide
and constrain bank managers. (22)
In the context of the New Economics of Banking, the study analyses
cross-border financial consolidation from the point of view of bank
strategies. The main hypothesis of the work is that, in the present
decade, the Pan-European landscape of the financial sector will
be determined by what is happening in a limited number of banks,
this number being rather arbitrarily fixed at 100. The basic issue
to be clarified is not whether a second round of cross-border mergers
and acquisitions will occur after the present pause; but how it
will occur: according to an 'evolution' or a 'revolution' scenario.
In the study, the sample comprises the 100 largest banking groups
in Europe, selected on the basis of the Bankscope data. This sample
is supposed to be composed of subgroups with similar characteristics,
which can be discovered by statistical analysis, using clustering
techniques. The clusters help identify peer groups. Particularly
interesting for the study are the cases where banks want to overcome
the constraints of a domestic market, which, in the perspective
of European integration, no longer suffices to satisfy their ambitions
and the competition rules of the national and European authorities.
After a general discussion of motives, driving forces and discouraging
factors in cross-border financial consolidation, the study concentrates
on four topics, mostly discussed within the same conceptual and
statistical framework: (2003/1) (2003/2) (2003/3) 2003 marks the 40th anniversary of the founding of SUERF. To mark this milestone, some time ago the Council of Management commissioned Professor Jean-Paul Abraham to write a commemorative report. His mandate was not to write a history of SUERF itself (that would be too self-indulgent) but to write a reflective review of European monetary arrangements and related issues as seen through the various activities (mainly Colloquia) of SUERF. A total of twenty three Colloquia volumes have been published to date on various aspects of European monetary and financial arrangements, banking and financial markets, globalisation and its implications, corporate governance, alternative financial structures of national financial systems, and monetary policy to mention but a few. Jean-Paul is eminently qualified to undertake this task and we are extremely grateful to him for taking on this herculean venture. Professor Abraham is a distinguished academic and has been a professional banker in his long and distinguished career. Jean-Paul is also a distinguished past President of SUERF (1994-1997). We judged that his perspectives, and his intimate knowledge and experience of SUERF and its activities, would be both interesting and valuable. SUERF Colloquia have been held in sixteen countries and have had
a varied mix of speakers from central banks, the financial sector
and academics. Over the last forty years there have, of course,
been enormous changes in European and international monetary and
financial arrangements, and the role of private markets and institutions.
The report brings this out very well. What is particularly interesting
in the report is how, almost irrespective of the topic of the Colloquium,
certain common issues seem to emerge. Looking back, some of the
431 papers published in the SUERF Colloquium volumes have been very
prescient and by people who have shaped events. Professor Abraham's
report has been published to coincide with the SUERF seminar which
was held at, and hosted by, the Banque de France in Paris on October
24th, 2003. (2003/4) Safeguarding financial stability is a main task for central bankers and regulators. The world in which monetary authorities fulfil this task is changing rapidly. A change in the environment with truly long-term implications for monetary policy is the enlargement of the European Union. The authorities of the EU-accession countries must in the year 2003 and in the years to come assess their institutional and policy frameworks in order to determine if they are able to meet the challenges in a large and competitive financial market environment characterised by free capital movements and an increasing importance of multinational financial institutions. The three papers in this SUERF Study were presented in March 2003 at a SUERF seminar in Malta: Securing Financial Stability: Problems and Prospects for New EU Members. The authors of the papers analyse the conditions under which the monetary authorities of the EU-accession countries can expect to operate in the future and they give a series of policy recommendations. Michael C. Bonello (Governor, Central Bank of Malta) gives an overview
of current issues in financial stability policy. Short-term capital
movements and asset price bubbles are potential threats to stability
and that risks need not originate within the financial system itself.
In his conclusion, the Governor underlines the special interest
of accession countries in keeping at bay forces which are known
to be inimical to financial stability and in adopting structures
and practices which have proved effective in countries which have
already completed their journey to EMU. From 1995 to 2001 Russia witnessed an asset market boom, a deep financial crisis, and a surprisingly forceful recovery. An event study of this episode provides important insights for Emerging Market investment and Russia's medium-term prospects. The initial surge in bond and stock prices in 1995-97 owed to a
highly ambitious monetary stabilization program, which compressed
inflation much faster than other transition economies. Due to high
dollarization, disinflation was based on the exchange rate. The
program produced rapid real appreciation and a persistent need for
capital inflows, while weak economic structures and lack of domestic
political support prevented accompanying fiscal consolidation and
foreign direct investment. The gap between stabilization ambition
and structural reality made the currency increasingly vulnerable.
Also, the program did not provide a politically viable "emergency
exit" from the exchange rate target corridor. Devaluation was
postponed through heavy international support. The ultimate crisis
escalation in August 1998 resulted in a partial government default
and steep devaluation. (2004/1)
1) Integration of European Supervisory Systems: Harmonisation
or Unification? by Andreas Grünbichler and Patrick Darlap On May 1, 2004, ten countries in Central, Eastern and Southern Europe will become full members of the EU. The parliaments and monetary authorities of the ten accession countries have already to a large extent adapted their legal and institutional structures to the new Europe-wide environment. The papers in this SUERF Study analyse from different perspectives the challenges to regulators, supervisors, Governments and central bankers that are related to safeguarding financial stability in a large economic union with financial markets that are open to global competition. The papers were presented in March 2003 at a seminar jointly organised by SUERF and the Central Bank of Malta. Grünbichler and Darlap examine the challenges facing financial supervisors. They must deal with the fundamental changes in the financial landscape related to the EU accession process. They also examine how regulators and supervisors should be equipped and considering the extent of integration of supervision, whilst maintaining regulatory and supervisory independence. Changes arrive in particular in light of the restructuring phase, the adoption of new international banking and insurance standards and the emergence of integrated finance market regulation. Insurance supervision's “Solvency II exercise” and differing labour division and cooperation models between central banks and supervisory authorities also necessitate changes. Salo discusses the relevance of fiscal soundness for monetary stability. Fiscal authorities seldom have well-defined policy rules. Debt sustainability is a rather vague concept. The soundness of individual countries' fiscal position is assessed and budget implications of EU accession also examined. The medium-term picture for new EU countries appears very favourable. Fiscal policies might, however, place a heavy burden on monetary policies. The ability of new member states to comply with the Stability and Growth Pact's requirements is also analysed. Lipschitz, Lane and Mourmouras examine the potential influence of capital flows on developments and policy choices in the transition countries. They consider capital/labour ratios and the effects of low/high interest rates in particular in terms of the marginal product of capital. They also examine cross-border flows of investment to the transition economies. The development of real values of currencies of transition countries relative to those of Western countries is explored. The implications for accession countries' monetary authorities are also considered. (2004/2)
On October 24, 2003, SUERF celebrated its 40th anniversary in the Galerie Dorée of the Banque de France with an especially high level and rich seminar. The memorable occasion was further elevated by Jean-Claude Trichet giving the tenth SUERF Annual Lecture in his last public speech as Governor of the Banque de France, prior to taking over as President of the European Central Bank. This study brings together in slightly edited form the four papers presented at the seminar and the Annual Lecture. In combining these presentations in one Study we also want to point to the breadth of SUERF's academic and applied activities over the forty years of SUERF's existence. It is also worth mentioning that the speakers at the seminar not only held high offices for SUERF but they also reflect the three pillars of SUERF's constituencies, i.e., central bankers, practitioners from the commercial financial sectors, and academics.
This paper studies the incentives to join or enlarge a monetary
union under alternative assumptions about the extent of market reform
within the union and in candidate countries. Lack of labour mobility,
wage/price flexibility or fiscal reform brings costs for both new
entrants and in the existing union. Countries will only want to
join a union where there has been sufficient reform, and where markets are more flexible than their own. But existing members
will want the same properties of their new partners as well. Fiscal
restrictions, or a lack of fiscal flexibility, will exaggerate this
incentive mismatch and may delay the necessary reforms. (2004/4)
This paper documents the recent performance of European electronic
purses. It presents data on 16 such schemes, and compares their
penetration and usage rates. These rates are shown to differ substantially.
A number of schemes are doing increasingly well and in all probability
are here to stay. These schemes have also received a boost from
the introduction of the euro. But a number of other schemes are
making little or no headway. Some have even experienced a relapse
and appear to be on the verge of disappearance. The paper tries
to identify explanations for these disparate fates. (2004/5) The successful start of Economic and Monetary Union in Europe has
prompted more research into the issue of exchange rate regimes and
if there were any lessons to be drawn from the European experiment
for other regions in the world. We review the relevant issues from
an Optimum Currency Area perspective. The focus on issues relating
to the suitability of switching to a common currency based on notions
of economic distance and the correlation of aggregate economic shocks.
The empirical evidence presented in this paper shows that the cost
of monetary union declined substantially in some target countries
while it appears to have risen in others. This leads to some interesting
policy implications also for the new EU members. (2004/6) This study is aimed at developing new empirical models for evaluating
the efficiency of bankruptcy legislations. The paper is divided
in three parts. In the first part, we analyze from a conceptual
point of view the effects on debtor firms of the lack of creditors’
powers in bankruptcy. In the second part, we develop a new rating
method for bankruptcy legislations according to their degree of
creditors protection and apply it to five European countries. In
the third part, we introduce a new approach for empirically estimating
the efficiency of bankruptcy legislation based on the cost of banking
credit and we test it on the Italian case. In particular, the unprecedented
tool being used in the third section consists of the New Basel Capital
Accord, i.e. the capital adequacy regulatory framework that is about
to be put into effect as of the end of 2006. (2005/1) This study presents two tests of the hypothesis that adoption of an internal ratings-based approach to determining minimum capital requirements, proposed as part of the Basel II capital accord, would cause adopting banking organizations to increase their acquisition activity. The study employs U.S. data and focuses on the advanced internal ratings-based approach, as proposed for banking organizations in the United States. The first test estimates the relationship between excess regulatory capital and subsequent merger activity, including organization and time fixed effects, while the second test employs a “difference in difference” analysis of the change in merger activity that occurred the last time U .S. regulatory capital standards were changed. Estimated coefficients and observed differences have signs consistent with the hypothesis, but results are either statistically insignificant or imply differences that are small in magnitude. (2005/2) This paper brings to the forefront the assumptions that we make when focusing on a particular type of explanation for bank profitability. We evaluate a broad field of research by introducing a general framework for a profit maximizing bank and demonstrate how different types of models can be fitted into this framework. Next, we present an overview of the current major trends in European banking and relate them to each model’s assumptions, thereby shedding light on the relevance, timeliness and shelf life of the different models. This way, we arrive at a set of recommendations for a future research agenda. We advocate a more prominent role for output prices, and suggest a modification of the intermediation approach. We also suggest ways to more clearly distinguish between market power and efficiency, and explain why we need time-dependent models. Finally, we propose the application of existing models to different size classes and sub-markets. Throughout we emphasize the benefits from applying several, complementary models to overcome the identification problems that we observe in individual models. (2005/3) This paper aims at providing a complete picture of banking mergers and acquisitions (M&As) in Europe during the 1990s and at offering economic evaluation and strategic analyses of the process. (2005/4) (2006/5) (2007/1) (2007/2) EU Accession – with its potential for trade and investment integration, and an acquis-based strengthening of institutions – improves the chances of good outcomes. It also triggers accelerated financial development, including through the role of EU-15 banks. There is a setting that raises the stakes for policy: it can spur the expansion of the productive economy; but it can also magnify distortions, as seen in the proliferation of unhedged foreign currency borrowing. Prudent fiscal policies and bold structural reforms are needed to underpin the medium-term outlook for growth and forestall risks of financial stress. (2007/3) In the first paper based on a keynote address, Spyros G. Stavrinakis, Central Bank of Cyprus gives an overview of the legal framework for corporate governance in financial institutions in Cyprus. According to a Central Bank Directive issued in 2006, implementation of corporate governance principles is mandatory for all banks incorporated in Cyprus and their overseas branches and for some Cyprus branches of foreign banks domiciled outside the European Economic Area. Banks are obliged to have a robust internal governance framework, consistent lines of reporting and effective risk identification, management, monitoring and reporting procedures for all the risks to which credit institutions are actually or potentially exposed. The board of directors should take the lead in establishing and approving ethical standards and corporate values for itself and for the bank’s senior executive management. Potential conflicts of interest should be identified, prevented or appropriately managed. Each bank should maintain a compliance function that monitors compliance with rules, regulations and policies. Clear lines of responsibility and accountability should be set and enforced. New members of the board of directors as well as the senior executive managers of banks have to be vetted and approved by the Central Bank of Cyprus for their “fitness and properness.” In order to ensure transparency concerning the implementation of the principles, each bank’s corporate governance framework should be disclosed in the bank’s annual report and on its public website. In the second paper by Christian Harm, University of Muenster, “The Governance of the Banking Firm” the author builds on the literatures on corporate governance and financial regulation. In relation to governance of financial institutions, agency theory has both merits and shortcomings. It provides good explanations in many delegation situations but it has severe difficulties in dealing with institutions with several stakeholders and complex objective functions for the management. Firms guided by shareholder value may work more effectively than firms guided by stakeholder cacophony. Depositors are important stakeholders in banks. Since they are typically incapable of managing the supervision of their claims on the bank, they rely on regulators to do it for them. Remuneration systems for bank managers should provide proper incentives. According to the author, incentives should be structured such as to reward particular strategic achievements. Banks can apply executive stock option plans, but should confine options to a secondary place behind other long-term incentives based on success criteria that further shareholder interests without compromising the regulatory mission. Such an incentive framework tends, however, to be very complex so that the general ambiguities associated with the concept of governance could imply that in the banking firm, selecting managers with a proper intrinsic motivation may be superior to defining complex remuneration programs. In the third paper “Corporate Governance Issues in Non-Shareholder Value Financial Institutions: A Case Study of Mutual Building Societies in the UK”, David T. Llewellyn, Loughborough University, focuses on corporate governance in non-incorporated financial firms. The author describes the relevant stakeholders and the nature of agency problems in different types of financial firms. He compares monitoring mechanisms, incentives, abilities and feasibilities of managers and members of mutuals. Mutuality raises specific corporate governance issues: Corporate governance is less clearly defined because the firm’s objectives are less clearly defined. Conflicts of interest between managers and owners are less easily identified and it is more difficult to create management incentives. The almost exclusive source of capital is retained profits and each member has a non-exclusive and non-marketable claim to residual net worth. Voting rights are typically not proportional to the size of the ownership stake. There is no market in ownership claims and therefore no effective market in corporate control. Consequently, there is ample scope for mutuals to be inefficient. There is, however, no evidence that the efficiency and performance of mutuals are poorer that that of incorporated financial firms. In the fourth paper “Corporate Governance in Emerging Market Banks”, Bridget Gandy, Fitch Ratings Ltd., and her co-authors from the rating agency look at the framework for corporate governance of banks in a sample of emerging market countries. Since the crisis in the late 1990s in Latin America and Asia, there has been a marked improvement in corporate governance of financial institutions in the regions under observation. Many countries have taken legal steps to develop functioning market economies with a view to the need to satisfy the demands of international capital markets. Several banks have listed their shares on stock exchanges in developed markets and foreign bank ownership and involvement in local banking systems have increased. In Central and Eastern Europe, countries’ desire for EU-accession has impacted on the development of their corporate governance systems. At the individual bank level, Fitch Ratings looks at bank board independence and quality, oversight and the importance of related party transactions, the integrity of the audit process, acceptability of executive and director remuneration, ownership structures and transparency. In evaluating the quality of governance at the country level, the authors apply a three-pillar approach in line with Montesquieu: Powers and responsibilities need to be separated between a representative legislature, a competent and accountable executive branch and a fair and independent judiciary. The paper contains an interesting table in which a number of key regulatory initiatives in a sample of emerging market countries are compared. The authors point out that large scale privatizations have reduced the importance of state-owned banks in many countries. There are, however, still several examples with complex holding structures involving banks with potential negative implications for corporate governance quality and problems with related party transactions. Acquisitions by foreign banks with developed corporate governance standards have generally had a positive impact and also listing of bank shares on foreign stock exchanges with tough disclosure and transparency requirements have contributed positively to the quality of corporate governance in emerging market banks. Read together, the four papers give a good overview of the development of corporate governance practices and remaining problems in financial institutions of different types and with domicile in different countries. (2007/4) The attention for the governance of financial sector supervisors is of a recent date. The debate has risen to the fore as part of the wider discussion about the appropriate institutional organization of financial supervision and the drive for compliance with international best practices in the regulatory field. This paper takes stock of the regulatory governance debate. We first discuss the main premise of the paper, that regulatory governance plays a pivotal role in instilling financial sector governance, which in turn is a key source of corporate governance in the non-financial sector (the governance nexus). Having established this premise, we identify the main pillars for regulatory governance - independence, accountability, transparency, and integrity. The next two sections take a look at where we stand in practice. First, we review to what extent recent reforms of supervisory structures worldwide are embracing the four pillars underlying regulatory governance. We find that policy makers are gradually making efforts to improve the foundations for regulatory governance. However, further convincing, in particular of the beneficial effects of accountability, seems necessary. Secondly, we review a number of studies that assess the impact of (aspects of) regulatory governance on the soundness of the banking system (an indicator of good financial system corporate governance), or other aspects of the governance nexus. Most studies show a positive impact of stronger regulatory governance frameworks on the soundness of the financial system. However, further empirical evidence to strengthen the case for good regulatory governance seems desirable. (2008/1) The importance of credit in the monetary transmission mechanism has recently attained a lot of attention due to a growing understanding that credit market imperfections can have an impact on the monetary policy effectiveness. In this study, using Vector Error Correction Models (VECMs) and Structural Vector Autoregressions (S-VARs), we go in-depth of the role of credit in the Polish monetary policy transmission. Papers on the role of credit in the money transmission mechanism (MTM) in Poland show that the credit channel operates. It seems however, that factors through which it affects the aggregate demand might have changed over time. The most recent study on the bank-level data suggests that the degree of bank liquidity has an impact on its efficiency: the most liquid banks do not reduce their loan supply for firms after monetary policy tightening. Previous works suggested that bank size and capital as well as variables connected with risk taking might have played a role in the credit channel operation. The results presented in this study suggest that the monetary policy impact on loan supply is, if anything, weak. One of the reasons is that Polish banks hold large amounts of highly liquid assets in their portfolios. Banks are therefore able to implement buffer-stock behaviour: in response to a tighter monetary policy, they can reduce their stocks of most liquid assets and insulate loan portfolios. To shed some light on the behaviour of the corporate sector we show how interest rate shocks affect the indebtedness of various types of firms (private, individual, i.e. small privately owned entities employing up to nine persons, state-owned). Since the balance sheet channel (one of the concepts within the broad credit channel theory) stresses the impact of monetary policy on the borrowers. balance sheets, we examine the relationship between loans and financial standing of firms. We find some support for the hypothesis that firms. balance sheets are an important factor in the loan supply function. We also analyse the reactions of various types of loans, i.e. investment, revolving and export credit, as well as real estate and securities loans to monetary policy shocks. Our results suggest that after a monetary tightening the response of investment loans differs from the response of other types of loans. |
| <<< Back |