...SYSTEMIC REGULATOR 3 CLOSING THE INFORMATION GAP 4 REGULATION OF RETIREMENT SAVINGS 4 CAPITAL REQUIREMENTS 6 EXECUTIVE COMPENSATION REFORM 9 RECAPITILIZATION THREW CONTINGENT CAPITAL 10 IMPROVING RESOLUTION OPTIONS 11 CREDIT DEFAULT SWAPS, CLEARINGHOUSES, AND EXCHANGES 12 PRIME BROKERS AND RUNS 13 FINAL WORD 14 REFRENCES 16 INTORDUCTION The Squam Lake Report is a brief volume that consists of the recommendations of a think tank of 15 leading financial economists in an attempt to provide direction on financial system reforms that might help anticipate and alleviate future Systemic Crisis. The report was written in 2008 in response to the crisis that was ongoing at that time. It is good to note that getting 15 scholars to agree on 37 recommendations is something worth of appraisal. However, one cannot but point that the report is somehow disjoint in its arrangement of chapters. I articulate that this slight disorder is because of the limitations of making 15 experts agree. This disjoint attribute has not prevented the report from being very constructive and direct in addressing very important policies and sensible issues relevant to reform. The paper has two central principles that the recommendation have been built on. The first is that policymakers have to consider how new regulations will affect not only individual firms, but also the financial setup as a whole. The second principal states that firms should be responsible for the costs of their failure and...
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...Basel Committee on Banking Supervision reforms - Basel III Strengthens microprudential regulation and supervision, and adds a macroprudential overlay that includes capital buffers. Capital Pillar 1 Capital Quality and level of capital Greater focus on common equity. The minimum will be raised to 4.5% of riskweighted assets, after deductions. Capital loss absorption at the point of non-viability Contractual terms of capital instruments will include a clause that allows – at the discretion of the relevant authority – write-off or conversion to common shares if the bank is judged to be non-viable. This principle increases the contribution of the private sector to resolving future banking crises and thereby reduces moral hazard. Capital conservation buffer Comprising common equity of 2.5% of risk-weighted assets, bringing the total common equity standard to 7%. Constraint on a bank’s discretionary distributions will be imposed when banks fall into the buffer range. Countercyclical buffer Imposed within a range of 0-2.5% comprising common equity, when authorities judge credit growth is resulting in an unacceptable build up of systematic risk. Liquidity Pillar 2 Containing leverage Leverage ratio A non-risk-based leverage ratio that includes off-balance sheet exposures will serve as a backstop to the risk-based capital requirement. Also helps contain system wide build up of leverage. Pillar 3 Market discipline Revised Pillar 3 disclosures requirements The requirements introduced...
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...important business speeches ever. In it, he committed the largest company in the world to making zero waste, using 100% renewable energy and selling sustainable products. The implications are huge. These goals cannot be achieved without broad systemic changes in areas including supply chain, regulatory and consumer awareness. To achieve its goals, Wal-Mart is integrating system change efforts into its sustainability strategy. By doing so, it is pioneering what may be the first sustainability strategy that actually has the potential to achieve sustainability (sustainability relates to ensuring society survives and prospers over the long-term). This article discusses the need to better address systemic issues that essentially compel all firms to negatively impact society. It also describes why sustainability will be the competitive advantage strategy of the 21st century and how Wal-Mart is capitalizing on this opportunity. System-Watch All companies produce negative environmental and social impacts. As companies impact the closed Earth system, pushback from the system is inevitable. This pushback can take the form of activist campaigns. As the largest company in the world, Wal-Mart has high environmental and social impacts. Several activist efforts have arisen in response to these impacts, including the recent film Wal-Mart: the High Cost of Low Price. Activist efforts probably were one factor in Wal-Mart’s decision to adopt an aggressive sustainability strategy. Activist...
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...Working Group on the Issues and Concerns in the NBFC Sector Report and Recommendations RESERVE BANK OF INDIA August 2011 2 ABBREVIATIONS AND ACRONYMS AFC ALM BIS CIC-ND-SI Asset Finance Company Asset Liability Management Bank for International Settlements Systemically Important Non-Deposit Taking Core investment Company Capital Market Exposures Certificate of Registration Commercial Paper Capital to Risk Weighted Assets Ratio Commercial Real Estate Financial Companies Regulation Bill Foreign Direct Investment Investment Company Inter Corporate Deposits Infrastructure Finance Company Initial Public Offering Insurance Regulatory and Development Authority Joint Parliamentary Committee Know Your Customer Loan Company Liquidity Coverage Ratio Lender Of Last Resort Micro Finance Institution CME CoR CP CRAR CRE FCRB FDI IC ICD IFC IPO IRDA JPC KYC LC LCR LOLR MFI 3 M&A NBFC NBFC-ND-SI Mergers and Acquisitions Non Banking Financial Company Systemically important Non Deposit taking Non Banking Financial Company Deposit taking Non Banking Financial Company Non Deposit taking Non Banking Financial Company Non Banking Financial Institutions Non-convertible debentures Net Owned Funds Non-Performing Asset Over-the-counter Public Financial Institution Priority Sector Lending Reserve Bank of India Residuary Non Banking Company Return on Assets Return on Equity Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Scheduled Commercial Bank...
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...Global economic slowdown and its impact on the financial services industry in India April 2009 The global slowdown was an outcome of two events - absence of a sound regulatory framework & mismatch between financial innovation and the ability of the regulators to monitor them immediate aim should be to fix the financial system and to maintain the aggregate demand at a high enough level to stimulate the real sector 2 Contents Executive summary 1. Global financial markets: A perspective 2. Indian financial services industry 3. Impact of the recession on the financial sector of the Indian economy 4. Future outlook 5. Conclusion Contacts 4 6 9 14 18 20 23 3 Executive summary The global economy is reeling with the impact of the ongoing recession which started with the sub-prime crisis in the United States and found its way to other developed and emerging economies of the world. This recession has its roots in the initial collapse of the financial sector. However, in a world that is more integrated within each country as well as across nations, the events in the financial sector have eventually trickled down to the real sector of the economies as well. Finance and financial markets play a dominant role in growth and development of modern economies – hence, any recovery from the current recession must be couched in an overall recovery of the health and performance of the financial sector. In the absence of mature financial markets in their own economies,...
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...Global economic slowdown and its impact on the financial services industry in India April 2009 The global slowdown was an outcome of two events - absence of a sound regulatory framework & mismatch between financial innovation and the ability of the regulators to monitor them immediate aim should be to fix the financial system and to maintain the aggregate demand at a high enough level to stimulate the real sector 2 Contents Executive summary 1. Global financial markets: A perspective 2. Indian financial services industry 3. Impact of the recession on the financial sector of the Indian economy 4. Future outlook 5. Conclusion Contacts 4 6 9 14 18 20 23 3 Executive summary The global economy is reeling with the impact of the ongoing recession which started with the sub-prime crisis in the United States and found its way to other developed and emerging economies of the world. This recession has its roots in the initial collapse of the financial sector. However, in a world that is more integrated within each country as well as across nations, the events in the financial sector have eventually trickled down to the real sector of the economies as well. Finance and financial markets play a dominant role in growth and development of modern economies – hence, any recovery from the current recession must be couched in an overall recovery of the health and performance of the financial sector. In the absence of mature financial markets in their own economies,...
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...3 The Regulatory System in the United Kingdom This chapter examines the regulatory system currently in place in the United Kingdom. It provides an overview of the structure and objectives of regulation, the role of the regulator and the techniques that are employed in regulating firms and individuals who engage in investment business. 3.1 Background: the financial crisis and regulatory reform 3.1.1 Responding to the financial crisis In the UK, as elsewhere, the onset of the financial crisis exposed deficiencies in financial regulation and led to calls for regulatory reform. The Treasury Select Committee1 led the way, with its hearings into the collapse of Northern Rock exposing serious deficiencies in supervision and risk management.2 In October 2008, the Chancellor of the Exchequer asked Lord Turner, the newly appointed chairman of the FSA, to review the causes of the crisis and to make recommendations on the changes in regulation and supervisory approach needed to create a more robust banking system for the future. The Turner Review3, published in March 2009, made a 1 The Treasury Select Committee is a Parliamentary (House of Commons) committee that scrutinises the activity of the regulatory authorities in the UK. 2 See House of Commons Treasury Committee, The Run on the Rock HC 56-1 (Fifth Report of Session 2007-08). 3 FSA, ‘The Turner Review, A regulatory response to the global banking crisis’ (March 2009) at http://www.fsa.gov.uk/Pages/Library/Corporate/turner/index...
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...Working Paper Pengawasan Terhadap Lembaga Keuangan Berdampak Sistemik Working Paper: Pengawasan Terhadap Lembaga Keuangan Berdampak Sistemik (Systemically Important Financial Institution) Draft 1November2010 Rofikoh Rokhim*, Arief Wibisono Lubis**, IA Agung Faradynawati*** Makalah ini di presentasikan dalam seminar tentang Macroprudential yang diselenggarakan Bank Indonesia di Bandung, Jawa Barat, pada 1011 November 2010. * Rofikoh Rokhim adalah Staf Pengajar Fakultas Ekonomi Universitas Indonesia, Ketua Management Research Center FEUI, dan Head of Business Indonesia Intellegence Unit **Arief Wibisono Lubis adalah Staf Pengajar Fakultas Ekonomi Universitas Indonesia *** IA Agung Faradynawati adalah Staf Pengajar Fakultas Ekonomi Universitas Indonesia Korespodensi : Management Research Center, Gedung Departemen Manajemen Lantai 2 Fakultas Ekonomi Universitas Indonesia Depok 16424. Telepon: (021) 7272425 ext.503. Fax (021) 7863556. Email : rofikoh.rokhim@ui.ac.id Halaman 1 Working Paper Pengawasan Terhadap Lembaga Keuangan Berdampak Sistemik 1. Pendahuluan: Pengertian lembaga keuangan berdampak sistemik (Systemically Important Financial Institution) Pada akhir tahun 2009 perdebatan panjang muncul ketika Bank Century yang saat itu diputuskan oleh Komite Stabilitas Sistem Keuangan (KSSK) mendapat bailout karena dianggap sebagai bank gagal yang bersifat sistemik meskipun jika dilihat secara ukuran sangat kecil terhadap keseluruhan industri keuangan. Semenjak itu semakin banyak...
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...ICB Independent Commission on Banking Final Report Recommendations September 2011 ICB Independent Commission on Banking Final Report Recommendations September 2011 Official versions of this document are printed on 100% recycled paper. When you have finished with it please recycle it again. If using an electronic version of the document, please consider the environment and only print the pages which you need and recycle them when you have finished. © Crown copyright 2011 You may re-use this information (excluding logos) free of charge in any format or medium, under the terms of the Open Government Licence. To view this licence, visit www.nationalarchives.gov.uk/doc/open-governmentlicence/ or e-mail: psi@nationalarchives.gsi.gov.uk. Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned. Any enquiries regarding this publication should be sent to: Independent Commission on Banking Victoria House Southampton Row London WC1B 4AD This document is also available from our website at http://bankingcommission.independent.gov.uk/ ISBN 978-1-845-32-829-0 Produced by the Domarn Group, London. Final Report Contents Contents ...................................................................................................................... 1 List of acronyms .........................................................................................
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...Financial stability and risk disclosure Keynote address by Mr Jaime Caruana, General Manager of the BIS, to the FSB Roundtable on risk disclosure, Basel, 9 December 2011. Abstract High-quality risk disclosure is good for markets, because it helps investors make more informed decisions. It is good for prudential supervisors, because it makes banks more accountable to both supervisors and investors. And it is good for financial stability, because it reduces the chance that unexpected events will disrupt the system. To be effective in promoting market discipline, disclosure must be complemented by strong incentives for counterparties to engage in monitoring. The public sector's role in promoting transparency arises from a number of market failures, including the externalities to be gained from common standards, the "free rider" problems that may lead to too little investment in producing and gathering financial information, and the tendency of markets to overreact to bad news when the information environment is clouded. Guided by these considerations, the Financial Stability Board and the Basel Committee on Banking Supervision have long supported improvements in transparency, through their work on accounting, disclosure templates and aggregate market data. At the same time, industry and investor representatives need to play a key role in developing disclosure standards. Accounting standards need to converge, standards for the discussion and analysis that accompany financial...
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...The Global Roots of the Current Financial Crisis and its Implications for Regulation Anil Kashyap (University of Chicago) Raghuram Rajan (University of Chicago) Jeremy Stein (Harvard University) Where did the current financial crisis come from? Who or what is to blame? How will it be resolved? How do we undertake reforms for the future? These are the questions this paper will seek to answer. The analysis will have three parts. The first is a rough and ready sketch of the global roots of this crisis. Second, we will focus in a more detailed way on why it hit the financial sector, especially banks. Finally, we will end with some suggestions for future regulation, especially capital regulation. I. A Rough Sketch. It is always useful to start with the macroeconomic environment. In a sense, this is a crisis borne out of previous crises. An important difference between the recent period of sustained growth and previous periods is the low level of long term real interest rates over the last 5 years, certainly relative to the last two decades. Long rates fell following the collapse in investment in both emerging markets and developed countries after the crises in 1998 and the ICT bubble in 2001. Emerging market governments became more circumspect and increased budgetary surpluses, even while cutting back on public investment. For instance, in Philippines, investment fell from 24% of GDP in 1996 to 17% in 2006, while its savings rose from 14% to 20%. From borrowing 10% of its...
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...Evolution of Basel Norms and their contribution to the Subprime Crisis The article highlights the emergence of the Basel Accord in 1998 and how it has evolved over the course of the last 23 years. Contrary to the popular belief capital regulations have been considered the biggest underlying factor of the subprime crisis owing to securitization, the shadow banking system and the flexibility given to banks in risk assessment. The recent Basel III norms though aim to mitigate the already caused damage, the results are still left to be witnessed. Evolution of Basel Norms and their contribution to the Subprime Crisis The article highlights the emergence of the Basel Accord in 1998 and how it has evolved over the course of the last 23 years. Contrary to the popular belief capital regulations have been considered the biggest underlying factor of the subprime crisis owing to securitization, the shadow banking system and the flexibility given to banks in risk assessment. The recent Basel III norms though aim to mitigate the already caused damage, the results are still left to be witnessed. The Financial Crisis of 2008 shook the financial world and is still in tatters even after 3 years of its outbreak. From the New York investment bank Bear Stearns collapse in June 2007, Northern Rock liquidity support (Sep’ 07), Bank of America purchases of Countrywide Financial (Jan’ 08), Nationalization of Fannie Mae and Freddie Mac by the federal government (July 08), Lehman Brothers...
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...GUIDELINES TO INVEST IN INDIA MRIDUL AGRWAL mridul.15@tapmi.edu.in +919629482047 NANDINI BRAHMANAND HEGDE nandini.15@tapmi.edu.in +919686488851 MRIDUL AGRWAL mridul.15@tapmi.edu.in +919629482047 NANDINI BRAHMANAND HEGDE nandini.15@tapmi.edu.in +919686488851 India is a federal republic, with 28 states and seven federally administered union territories; it operates a multi-party parliamentary democracy system. It is a common law country with a written constitution. Parliament has two houses: the Lok Sabha (lower house) and the Rajya Sabha (upper house). The President, the constitutional head of the country and of the armed forces, acts and discharges the constitutional duties on the advice of the Council of Ministers, which is headed by the Prime Minister. The Prime Minister and the Council of Ministers are responsible to parliament and subject to the control of the majority members of parliament. Independently elected governments govern the states and union territories. India is a three-tier economy, comprising a globally competitive services sector, a manufacturing sector and an agricultural sector. The services sector has proved to be the most dynamic in recent years, with trade, hotels, transport, telecommunications and information technology, financial, and business services registering particularly rapid growth. Government Empowerment The central and state governments have passed legislation to control production, supply, distribution and...
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...evaluates the efficacy of the peer-to-peer lending model. While we primarily discuss the consumer loan market, the structure, principles and associated risks are fairly similar for other end markets as well. Contrary to popular opinion, empirical evidence from the limited available market data proves that P2P platforms do not have a lower cost as a percentage of loan receivables at this point compared to traditional banks. As these higher costs are primarily due to marketing activities, going forward, with scalability, they are poised to generate significant cost savings. Through our research, we conclude that P2P lending has a strong value proposition and the potential to disrupt the existing lending market, however, data quality, regulation and investor confidence will play a monumental role in determining the speed and magnitude of its success. What is peer-to-peer lending? Technological evolution, along with changing consumer behaviour, has led to a new era of innovation in financial services and subsequently more transparent and easy-to-use platforms. One of the new business models that has evolved, is peer-to-peer (P2P) lending. In essence, P2P lending is a form of debt financing which allows borrowers and lenders to bypass traditional banks. P2P platforms are sophisticated web-based platforms that significantly reduce the time needed to process a loan. Even though the products offered by P2P platforms are similar to those offered by traditional banks, the...
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...Definition of 'Accounting Standard's An accounting standard is a guideline for financial accounting, such as how a firm prepares and presents its business income and expense, assets and liabilities. The Generally Accepted Accounting Principles is comprised of a large group of individual accounting standards. GAAP standards apply to financial reporting in the United States and may be eventually phased out in favor of the International Accounting Standards. 1. Generally Accepted Accounting Principles (GAAP) In the U.S., Generally Accepted Accounting Principles are accounting rules used to prepare, present, and report financial statements for a wide variety of entities, including publicly traded and privately held companies, non-profit organizations, and governments. The term is usually confined to the United States; hence it is commonly abbreviated as US GAAP or simply GAAP. However, in the theoretical sense, Generally Accepted Accounting Principles encompass the entire industry of accounting, and not only the United States. Outside the academic context, GAAP means US GAAP. Similar too many other countries practicing under the common law system, the United States government does not directly set accounting standards, in the belief that the private sector has better knowledge and resources. US GAAP is not written in law, although the U.S. Securities and Exchange Commission (SEC) require that it be followed in financial reporting by publicly traded companies. Currently,...
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