New Regulation of the Financial Industry

by Chorafas, Dimitris N.

• ISBN13: 9780312228996
• ISBN10: 0312228996
• Format: Trade Book
• Copyright: 2000-04-22
• Publisher: Palgrave Macmillan

Summary

This book by a leading financial analyst is based upon a major research project conducted in 1998 and 1999 in the UK, USA, Germany, Austria and Switzerland. It describes the new regulatory environment which has evolved for financial institutions and the changing role of regulations, country by country and globally. The role of the internet and new information and communications technology is also examined.

Author Biography

Dimitris N. Chorafas is an International Management Consultant.

Table of Contents

List of Figures	x
List of Tables	xii
Foreword	xiii
Acknowledgements	xvi
Part One The Regulation of Financial Institutions
The Evolving Role of Regulators in the Banking Industry	3	(20)
Introduction	3	(1)
A closer look at the regulators' role and their contribution	4	(4)
The expanding notion of regulating the markets in an Internet setting	8	(3)
The synergy of credit risk and market risk	11	(3)
The information economy and the role of global networks in finance	14	(4)
The phase shift in the market calls for new regulatory policies and procedures	18	(2)
Regulating the partnership between credit institutions and hedge funds	20	(3)
The Search for a New Global Financial Architecture	23	(23)
Introduction	23	(1)
The doubts arising from disfunctioning rules and markets	24	(3)
Reflections on a new global financial architecture	27	(5)
The moral hazard posed by a fire-brigade approach	32	(3)
There is a synergy between monetary policy, exchange rates and bank supervision	35	(3)
The deposit insurance solution in America which could serve as a model	38	(2)
The Federal Reserve System provides a good background for restructuring the IMF	40	(6)
Systemic Risk, Bank Supervision and Follow-the-Sun Overdraft	46	(17)
Introduction	46	(1)
Reasons underpinning systemic risk	47	(4)
The follow-the-sun overdraft	51	(2)
Systemic risk as a result of subprime lending by financial markets	53	(3)
Coping with liquidity risks without igniting inflation	56	(3)
The model of the Resolution Trust Corporation and the avoidance of systemic risk	59	(4)
Structuring the Regulatory Environment: Examples from the United States	63	(14)
Introduction	63	(1)
From the Sherman Act for free trade to rules targeting the control of risk	64	(3)
Establishing rigorous rules for risk disclosure	67	(2)
The difficult act of regulating the over-the-counter market	69	(3)
The changing regulatory landscape in the USA	72	(2)
Private Securites Litigation Reform Act of 1995	74	(3)
Changes in Bank Legislation: Examples from Germany	77	(16)
Introduction	77	(1)
Changes to the German Banking Act and their consequences	78	(2)
The redefinition of specific duties through the Sixth Act Amendment	80	(3)
The prudential value of information on loans	83	(3)
The contribution of the Sixth Act Amendment to the introduction of the euro	86	(2)
Other challenges connected to the euro, the ins and the pre-ins	88	(5)
Part Two The Many Aspects of Bank Supervision
Hands-On Experience with Bank Supervision	93	(17)
Introduction	93	(2)
A closer look at the different supervisory models in G-10 countries	95	(3)
Common elements in the supervision of banks and public companies	98	(2)
Financial examination programmes: on-site auditing versus monitoring	100	(3)
Benefits derived from a collaborative effort in banking supervision	103	(2)
The risk of conflicting rules and regulations	105	(5)
The Integration of Supervisory Duties by the Financial Services Authority: An Example from Britain	110	(14)
Introduction	110	(1)
Understanding the fact that regulation is in full evolution	111	(3)
Fundamental changes in the Financial Services and Markets Bill	114	(2)
The new powers of the Financial Services Authority	116	(2)
The Financial Services Authority and the role of regulators in controlling risk	118	(2)
The supervisory scrutiny of poor management practices	120	(4)
Cross-Border Supervision of Banks, Non-Banks and Internet Commerce	124	(18)
Introduction	124	(1)
Cross-border supervision, internet commerce and knowledge management	125	(3)
Day trading, technology and the global market place	128	(4)
An example using emerging products: the valuation of Internet stocks	132	(3)
A horde of issues: from financial engineering to fees rewarding inefficiency	135	(2)
Hedge funds, junk funds and big losses	137	(2)
Should the hedge funds industry be regulated?	139	(3)
Rigorous Approaches to the Management of Financial Risk Factors	142	(16)
Introduction	142	(1)
The strategic importance of risk management with derivative financial instruments	143	(2)
The Monitoring and reporting of derivatives risk	145	(3)
Critical questions in analysing the options book	148	(3)
Regulatory action and the Year 2000 problem	151	(4)
Supervisory authorities which have been alert regarding Year 2000 exposure	155	(3)
Model Risk and the Control of Eigenmodels by the Supervisors	158	(17)
Introduction	158	(1)
The challenge modelling solutions pose to regulators and to the bank's own board	159	(3)
Basic notions to keep in perspective when modelling the real world	162	(4)
Errors in financial modelling and model risk	166	(1)
The control of eigenmodels by the Swiss Federal Banking Commission	167	(3)
Regulation of eigenmodels by the Austrian supervisors	170	(5)
Part Three The Capital Base of Financial Institutions
Rethinking and Revamping the 1998 Capital Accord: A New Capital Adequacy Framework	175	(25)
Introduction	175	(1)
The flat 8 per cent capital adequacy by the Basle Committee and its challengers	176	(3)
A New Capital Adequacy Framework by Basle Committee on banking supervision	179	(3)
Enriching the supervisory review of Capital Adequacy through external and internal rating	182	(3)
Diversification is good, other things being equal	185	(3)
Why capital reserves, risk profiles and prudent management correlate	188	(3)
The Capital Adequacy Directive of the EU	191	(4)
The brewing regulation of commodity trades and the association with the Investment Services Directive	195	(2)
Six basic reasons for the revision of CAD	197	(3)
Central Banks, Commercial Banks and Repurchase Agreements	200	(12)
Introduction	200	(1)
Basic features of sales and repurchase agreements	201	(2)
Using repurchase agreements for going short and for other trades	203	(2)
The valuation of securities owned and securities sold	205	(2)
Regulatory and accounting practices connected with securities lending	207	(3)
Is there a dividing line between custodian duties and repurchase agreements?	210	(2)
Redefining Reporting Requirements and Opening New Frontiers	212	(18)
Introduction	212	(1)
Are there critical differences between the British, American and Swiss Regulatory Requirements?	213	(4)
Working Parties and the Gordian Knot cut by the Swiss National Bank	217	(3)
Concepts underpinning the Bundesbank's Mindest Anforderungen fur Handelsgesellschaften and the cash flow method	220	(3)
Using simulation, experimentation and public pricing information for compliance with the rules	223	(3)
Policy risk, choice of hedging and extreme events in wealth management	226	(4)
Regulators and the Wave of Mergers in Banking	230	(19)
Introduction	230	(1)
A bird's-eye view of mega bank mergers	231	(5)
Some merged institutions tend to create second-class clients	236	(4)
The aftermath of Citigroup and other mergers	240	(3)
Bank mergers in Canada and in Europe	243	(3)
After the shock: the cost of the savings and loans failure	246	(3)
Debt Management Strategies and the Restructuring of Assets and Liabilities by Sovereigns	249	(18)
Introduction	249	(1)
The global impact of debt management policies	250	(3)
Who are the watchdogs for government deficits?	253	(3)
Positioning the national economy against the globalisation forces	256	(3)
The effort to privatise the public debt	259	(4)
Are investments in equities by governments a good solution?	263	(4)
Index	267