...Article The Effects of Bank Regulation on the Relationship Between Capital and Risk ALESSANDRA TANDA Department of Economics, Management and Quantitative Methods, Università degli Studi di Milano, Via Conservatorio, 7, Milan 20122, Italy. E-mail: alessandra.tanda@unimi.it Capital regulation acts as an external force in the determination of bank capital and risk levels. Changes in the regulatory framework can influence banks’ decisions. Starting from the debate of the prudential regulation after the financial crisis, this paper reviews the main empirical contributions on the role of capital regulation in the determination of banks’ capital ratios and risk exposure to evaluate bank behavior. Capital and risk decisions seem to be effectively influenced by regulation, although results may vary according to factors such as time period, country, and the type of capital analyzed. Comparative Economic Studies (2015) 57, 31–54. doi:10.1057/ces.2014.35; published online 22 January 2015 Keywords: bank regulation, capital, Basel, risk, literature review JEL Classification: G2 INTRODUCTION The latest financial crisis has highlighted how bank capital regulation is necessary for the stability of the financial system. But also, it appears that it is not sufficient to ensure that banks’ decisions, in terms of risk and capital, are consistent with the aims of regulation. Regulation acts as an external force in the capital optimization process as banks set simultaneously the...
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...A certain amount of regulation in banks is necessary. Without regulation there would not be anything to prevent all kinds of financial crises. This however, does potentially pose a problem of over-regulation. As the government regulates the banking industry they could potentially take this too far but I believe heavy regulation has much less potential for drastic disastrous events to occur than when banks are working with a large amount of deregulation. Examples of problems involving banks are plentiful when it comes to deregulation, for instance, banks would come into trouble when depositors ask for large withdrawals and the banks would not have enough cash to keep up. In these cases before the Federal Reserve System banks would appeal for “bank holidays” where they would close for a time being to catch up and make agreements amongst themselves, which occurred during the Panic of 1907. The Fed was created at that point to hopefully ease the minds of depositors as a reserve bank to loan money to member banks in last resort circumstances and it worked. (Krugman) Other reasons banks need to be heavily regulated is the potential for unethical practices. If banks, for example, begin approving every loan regardless of credit risk this may cause the bank to fail eventually when the loan defaults which has implications on everyone involved including those who have money deposited in the bank that no longer can retrieve this money. This leads to the government having to step in with...
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...COMMERCIAL BANKS AND NEW CAPITAL REGULATION MAF 202 Prepared By: Simardeep Sran - 211689444 Due: September 12, 2013 Table of Contents 1. Introduction 4 2. Findings 5 3.1. Move from Basel II to Basel III 5 3.2.1. The Global Financial Crisis and Basel II Shortcomings 5 3.2. Basel III 6 3.3.2. Main Features 6 3.3.3. Basel II and Basel III Difference 8 3.3. Implications of Basel III 9 3.4.4. Global Banking System 9 3.4.5. Banking System in Australia 9 3.4.6. Banking System in Japan 10 3. Conclusions 11 4. Reference List 12 1. Introduction The financial system is beyond indispensable in the global economy, with commercial banks playing a vital role as the main form of a financial institution. Within the financial system it is crucial to have regulations and guidelines for financial institutions...
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...Chapter-5 Banking Sector Performance, Regulation and Bank Supervision 5.1 Industry statistics of the banking sector and the performance trends have been discussed in this chapter. The banking sector in Bangladesh comprises of four categories of scheduled banks. These are, nationalized commercial banks (NCBs), government owned development finance institutions (DFIs), private commercial banks (PCBs) and foreign commercial banks (FCBs). As of December 2004, total number of banks operating in Bangladesh remained unchanged at 49. These banks have a total number of 6,303 branches including 10 overseas branches. Structure of the banking sector with breakdown by type of banks is shown in Table 5.1. 5.3 Total deposits of the banks in 2004 rose to Taka 1,326.1 billion from Taka 1,140.3 billion in 2003 showing an overall increase by 16.3 percent. The NCBs' (comprising of 4 largest banks) share in deposits decreased from 46.0 percent in 2003 to 42.8 percent in 2004. On the other hand, PCBs' deposits in 2004 amounted to Taka 588.0 billion or 44.3 percent of the total industry deposit against Taka 468.2 billion or 41.1 percent in 2003. FCBs' deposits in 2004 rose by Taka 11.00 billion or 13.0 percent over the previous year. The DFIs' deposits in 2004 were Taka 75.1 billion against Taka 62.6 billion in 2003 showing an increase of 20.0 percent over the year. 5.2 In 2004, the nationalized commercial banks (NCBs) held 39.6 percent of the total industry assets...
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...Theory and Practice of Regulation of Anti-Money Laundering for Banks and NonBanks Hayford Kwesi Annor Manager, Risk & Compliance/AMLRO, ABii National Savings & Loans Ltd. Doctorate of finance student, SMC University, Switzerland. FAAFM, Ch.FE, ACCPA, MBA, BSc, HND h.k.annor@gmail.com Abstract A deregulated financial sector is free to accumulate and allocate funds from anywhere irrespective of the nature, form, intent and source. Without regulatory oversight, this poses zero risk to banks and nonbanks no matter how they finance the capital structure. In the real world, banking is an outcome of interactions between the regulator and the regulated. Regulatory consequences apply for failure to comply with the acceptable standards of best practices of banking regulation which include fines, sanctions, jail terms and revocation of the banking license for willful or non-willful noncompliance. The physical disposal of proceeds of funds’ from crime with aim of separating same, through creation of layers to disguise trails of the source and make it seem legitimate undermines the integrity of the financial system. It is required of the banking sector to build a comprehensive framework that identifies, assesses, monitors, mitigates and reports perceptions of suspicious activities of money launderers under the discipline of the regulator to avoid being sanction for the related offences. This paper reviews theory to link practice towards money laundering risk assessment...
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...BANGLADESH BANK PRUDENTIAL REGULATIONS FOR BANKS : SELECTED ISSUES [UPDATED TILL JUNE 2009] POLICY ON CAPITAL ADEQUACY OF BANKS ........................................................................ 3 POLICY ON LOAN CLASSIFICATION AND PROVISIONING................................................ 10 CORPORATE GOVERNANCE IN BANK MANAGEMENT ...................................................... 16 RESTRICTION ON LENDING TO DIRECTORS OF PRIVATE BANKS .................................. 21 RULES AND REGULATIONS FOR APPOINTMENT OF CHIEF EXECUTIVE AND ADVISOR IN BANKS .................................................................................................................... 25 CONSTITUTION OF THE BOARD OF DIRECTORS AND FIT AND PROPER TEST FOR APPOINTMENT OF BANK DIRECTORS AND DEPOSITOR DIRECTOR .............................. 27 CONSTITUTION OF THE AUDIT COMMITTEE OF BOARD OF DIRECTORS..................... 32 POLICY ON SINGLE BORROWER EXPOSURE …………………………………………….. 34 POLICY FOR RESCHEDULING OF LOANS .............................................................................. 38 POLICY FOR LOAN WRITE OFF ................................................................................................ 41 LARGE LOAN RESTRUCTURING SCHEME (LLRS) ............................................................... 42 REQUIREMENT FOR OBTAINING INFORMATION ON LARGE LOAN FROM CREDIT INFORMATION BUREAU .................................................................................
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..."Impact of Government Regulation" Please respond to the following: •* From the scenario for Katrina’s Candies, take a position as to whether government regulation is constraining or enabling in this situation, as it relates to the operational efficiency of the company. Speculate on the fundamental manner in which government regulation could impact the shareholders’ wealth and profitability. Considering the scenario for Katrina’s Candies, I believe the government regulation is enabling in this situation, as it relates to the operational efficiency of the company. The government’s intervention in the US market place process is to; provide for a market that is competitive by keeping monopolistic and other anti-competitive tactics at bay, protect the public interest and enable and encourage innovation. These are accomplished through the antitrust regulation statues and their enforcement which prohibits monopolies as stated in the Sherman Act, 1890 (McGuigan et al., 2014). The presence of anticompetitive business practices of collisional price fixing, wholesale price discrimination, exclusive dealing and tying contracts, anti-merger regulations, and interlocking directorates are specified in the Clayton Act, 1914. The Federal Trade Commission is the nation’s consumer protection agency that works for the consumer to prevent fraud, deception and unfair business practices in the marketplace. Government policies are there to ensure that products are available to the consumer at lower...
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...organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail cases@ivey.uwo.ca. Copyright © 2010, Richard Ivey School of Business Foundation Version: 2013-03-11 INTRODUCTION The world’s biggest banks have a combined 1,730 (US$2,287 billion) gap in liquid investments that they must fill within four years, according to the Basel Committee on Banking Supervision, the international banking watchdog. Under the Basel III rule book, finalized by the committee on Thursday, December 16, 2010, 91 of the world’s biggest banks — tested in an impact assessment — also have a 577 billion capital shortfall compared with the new 7 per cent headline number for equity tier one capital, a measure of financial strength. 2 It was expected that the capital target could be achieved over time from retained earnings. For the 91 banks examined by the Basel committee, the combined “tier one capital ratio” was...
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...will follow will include the reasons for the global financial crisis and what steps the government is taking to overcome or recover from the crisis. One of the main reasons emphasized in the following text for the crisis is lack of effective regulations. Moreover the most important financial alteration that various committee’s around the world are taking is strengthening the regulatory requirements on the financial institutions. Hereafter it could be settled that government intervention could have played a huge role in avoiding the crisis. Many countries around the world have to decide whether to regulate or not to regulate their accounting standards. Supporters of regulation usually state that the free market notion states that accounting information is like an economic good so it is best to leave the markets to decide what and how much information is needed. This will help achieve efficient market system, however this kind of a system exists only in theory and not in reality, and so then what is the point of a free market system when it cannot be efficient? (Y. Hong, 2007) The rewards of free market system are realized only when it is executed in isolation. But in reality, markets cannot be left completely on its own and some regulation or government intervention is required. Government intervention even at its minimum will not be able to achieve efficient markets and thus it is better to have a well regulated system. Free market system has led to market failures that have...
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...law is that is “creates duties, obligations, and rights that reflect accepted views of a given society” (Melvin, 2011, pg. 4). Law also helps businesses resolve disputes that have to do with the rights of the business and citizens (Melvin, 2011, pg. 4). Obtaining an understanding of the legal system can help businesses gain a competitive edge, as well as add value to the business. Many businesses rely on attorneys to help them with their business needs. By obtaining an attorney, or counsel, businesses often reduce the cost of risk and liability and result in business opportunities (Melvin, 2011, Pg. 7). There are many regulations that businesses have to follow, such as environmental regulations (The Clean Air Act, The Clean Water Act, The Safe Drinking Water Act, The Pollution Prevention Act, ect.) (“All Businesses”, 2009). It is evident that some regulations are put in place to protect the environment, while others are put in place to protect citizens or businesses them self. There is also much compliance that businesses must follow, such as minimum wage laws. Each state provides business owners with a different minimum wage amount to help protect employees. An example of the minimum wage being enforced would be businesses in New York paying their employees no less than $7.25 an hour and businesses in Washington paying their employees no less that $9.04 an hour (“United States Department of Labor”, 2012). In many court cases, consumers are holding businesses responsible...
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...pretext of market failure arising from externalities, decreasing cost industries, and equity considerations for maximising social welfare. In Pakistan, where the private sector has played a dominant role, except probably for the 1970s,1 private sector activities have all along been regulated through various types of controls and regulations on entry and exit, prices, credit, foreign exchange, imports, investments, etc. These regulations were imposed with a view to ensuring that private sector allocations were in accordance with the national priorities [see Pakistan (1983-84)]. However, the objectives were rarely realised and, in fact, these regulations have been responsible for red-tapism and corruption. On the grounds of government failure, privatisation and deregulation policies are being practised almost everywhere in the hope that they would help in efficient allocation of resources and higher levels of productivity. Considerable regulatory reforms have also been effected in Pakistan over the last two decades. Investment and import licensing have been withdrawn, most of the foreign exchange restrictions have been removed, capital market regulations have been simplified, price controls have been lifted, and interest rates have been deregulated. However, there is considerable room for further regulatory reforms. Similarly, various public enterprises in the manufacturing and financial sectors have been privatised, telecommunication, airlines, and energy firms have been partially...
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...com/shop/mgmt-520/mgmt-520-weekly-assignments/ Or Visit www.hwcampus.com MGMT 520 Week 2 Assignment Administrative Regulations Pick an administrative agency of either the federal or a state government. Find where the current and proposed regulation changes for that agency are located on the Internet (i.e., the Federal Register or the State Administrative Agency website.) Regulations.gov is a good place to begin your research. Pick one proposed regulation change currently under consideration (if you find one that has already closed out but interests you, you can use that instead) and write the following regarding it: 1. State the administrative agency that controls the regulation. Explain why this agency and your proposed regulation interests you (briefly). Will this proposed regulation affect you, or the business in which you are working? If so, how? Submit a copy of the proposed regulation along with your responses to these five questions. The proposed regulation can be submitted as either a separate Word document (.doc) or Adobe file (.pdf). This means you will submit two attachments to the Week 2 Dropbox: (a) a Word document with the questions and your answers, and (b) a copy of the proposed regulation you used for this assignment. (10 points) 2. Describe the proposal/change. (10 points) 3. Write the public comment that you would submit to this proposal. If the proposed regulation deadline has already passed, write the comment you would have submitted. Explain briefly what you wish...
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...Better Regulation for Growth Regulatory Quality and Competition Policy Investment Climate Advisory Services of the World Bank Group With funding from FIAS, the multi-donor investment climate advisory service in partnership with BETTER REGULATION FOR GROWTH GOVERNANCE FRAMEWORKS AND TOOLS FOR EFFECTIVE REGULATORY REFORM REGULATORY QUALITY AND COMPETITION POLICY INVESTMENT CLIMATE ADVISORY SERVICES WORLD BANK GROUP ©2010 The World Bank Group 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978-750-4470; Internet: www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. About the Investment Climate Advisory Services of the World Bank Group The Investment Climate...
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...90’s which resulted in the collapse of Barings Bank, due to this the Financial Services Authority changed the structure of financial regulation that consolidated regulation responsibilities. The aftermath of the financial crisis of 2007 to 2009 has drawn the financial accounting standard setting into the orbit of political processes focused on restructuring the regulation of the world’s financial markets. The crisis has ignited worldwide debate on issues of systemic risk and the role played by financial regulation in creating exacerbating the crisis. There have been proposals for how to regulate the financial markets and financial institutions should be changed to ease the potential for large scale financial meltdowns in the future. There are many aspects of the financial system under debate, including the alleged role played by financial accounting standards in deepening the trajectory of the crisis. The crisis has forced politicians, regulators and economists to scrutinise financial accounting standards and create pressure for change, which creates an opportune moment to consider how to organise the analysis of efficient regulatory choice. This paper lays out the basic arguments that have been put forth both for and against the regulation of corporate reporting. 2. The Case of Mandatory Disclosure Here the paper discusses issues related to the nature of disclosure, whether it is a case of choice or formal regulation (voluntary or mandatory). We are being introduced...
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...CHAPTER ONE INTRODUCTION 1.1 Background Banking reached colonial Africa through the activities of colonial merchants, and the first bank in West Africa was established in 1894, that is the British Bank for West Africa (BBWA), which extended its operations to Ghana soon after in 1896. In Ghana, the Bank of Ghana is responsible for the banking sector. The Bank of Ghana was established in 1957 to oversee the health of the nation’s financial sector. Presently the Bank of Ghana is empowered by the banking act of 2004, Act 673 (amended in 2007) and the Bank of Ghana Act 2002, Act 612 to regulate banks in Ghana. The mission of the central bank is “to pursue sound monetary and financial policies aimed at price stability and create an enabling environment for sustainable economic growth.” In maintaining a stable banking industry, the Bank of Ghana ensures that banks playing a part in the pursuit of its goals are well leveraged to withstand any unforeseen circumstances. One way the central bank does this is to ensure that banks have capital adequacy to a certain level through the regulation of the minimum capital requirement. The issue of the minimum capital requirement, its increases and implications has always been an issue of hot debates amongst economists, and even politicians. The minimum capital requirement is the minimum level of security below which the amount of financial resources should not fall (European Parliament legislative resolution of 22 April...
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