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Growing mature after the 2007–2008 crisis, the litigation and arbitration hedge funds industry started expanding its investor base and by consequence, like all markets, hedge funds found themselves implied in various litigations and arbitrations, quite challenging for all parties involved. This chapter focuses on litigation and arbitration cases of hedge funds within the past two decades, since there have been major hedge funds which, together with their managers have failed notably, enough to differentiate themselves in opprobrium, catching the eye of the market, of the regulators, SEC, CFTC, Congress, and of the financial analysts. These cases represent evidence that hedge funds investors needed more protection and that regulators faced with several uncertainties must call for legislative solutions and enhanced prudential regulation. This chapter describes several case studies concerning various claims that financial organizations and investors might encounter if a regulatory enforcement crashes. It is certain that, due to the worldwide financial circumstances, claims against financial institutions are going to grow, which urges for more attention and regulatory enforcement.

The Israeli Supervisor of Banks is in charge of two regulatory goals: Maintaining the stability of the banking system (“prudential regulation”) and consumer protection. On the face of it, these two goals are consistent and complete each other. However, in certain situations they may conflict, making it difficult for the Supervisor to simultaneously promote them both. A striking example of such a situation is the issue of banking fees, which serves as the case study of the chapter. The chapter examines whether both fields should remain within the ambit of the Supervisor of Banks, or be divided between two separate regulators. Various countries have adopted different models in this regard, where each model has its own advantages and disadvantages. After analyzing a set of considerations and examining their implementation in the Israeli banking context, the chapter concludes that both powers should be left with the Supervisor of Banks, subject to a few operative recommendations aimed at strengthening protection for the banking consumers.

Urgency of the research. The Ukraine insurance market shows a decrease in the dynamics of development, so the search for the latest forms and methods to stimulate the efficiency of domestic insurance companies is important and timely. A comprehensive analysis of the performance of insurers of Ukraine is necessary to develop proposals to improve the efficiency of the insurance market. Target setting. In recent years, the development of the national insurance market has been characterized by a number of destabilizing factors: economic and political instability, declining effective demand for insurance services, low public confidence, expectations of a financial crisis in the country and the world. Thus, the study of the main trends in the insurance market and the problems of its prudential regulation is of great practical importance. Actual scientific researches and issues analysis. Theoretical and applied aspects of the insurance market are represented by scientific works of such famous scientists as L. Alekseenko, V. Bazylevych, K. Bazylevych, V. Vyhovska, K. Vobly, O. Gamankova, O. Zhuravka, A. Yermoshenko, O. Kozmenko, V. S. Osadets, N. Tkachenko, V. Furman, V. Shakhov, T. Yavorska, etc. Uninvestigated parts of general matters defining. Systematic research is needed to ensure effective prudential regulation as an effective mechanism for influencing the performance of insurance companies. The research objective. Analysis of the state of the Ukraine insurance market will identify the main problems that slow down its development and outline possible ways to solve them. The statement of basic materials. This article analyzes the state and trends of the Ukraine insurance market. It is established that the activity of insurance companies of the country does not meet the needs of the national economy. Conclusions. Proposals to increase the efficiency of the domestic insurance market have been developed, in particular: the need to modernize approaches to ensuring the protection of their customers through the creation of an effective system of control over compliance with solvency standards by insurance companies., Актуальність теми дослідження. Звуження темпів розвитку страхового ринку актуалізують пошук новітніх форм та методів стимулювання ефективності його функціонування, зокрема на основі комплексного аналізу показників діяльності страховиків України. Постановка проблеми. В останні роки розвиток страхового ринку характеризується тиском низки дестабілізуючих факторів, зокрема: економічна та політична турбулентність, зниження платоспроможного попиту на страхові послуги, низький рівень довіри з боку населення, негативні очікування настання фінансової кризи в країні та світі. Отже, дослідження основних тенденцій розвитку страхового ринку та проблем його пруденційного регулювання має вагоме практичне значення. Аналіз останніх досліджень і публікацій. Теоретичні та прикладні аспекти функціонування страхового ринку представлені науковими працями таких відомих учених, як: Л. Алексеєнко, В. Базилевич, К. Базилевич, В.Виговська, К. Воблий, О. Гаманкова, О. Журавка, А. Єрмошенко, О. Козьменко, В. С. Осадець, Н. Ткаченко, В. Фурман, В. Шахов, Т. Яворська та інші. Виділення недосліджених частин загальної проблеми. Системного дослідження потребують питання забезпечення ефективного пруденційного регулювання як дієвого механізму впливу на показники діяльності страхових компаній Постановка завдання. Аналіз стану страхового ринку України дасть змогу виявити основні проблеми, що уповільнюють його розвиток, та окреслити можливі шляхи їх вирішення. Виклад основного матеріалу. У цій статті проаналізовано стан та тенденції розвитку страхового ринку України. Встановлено, що діяльність страхових компаній країни не відповідає потребам національної економіки. Висновки. Розроблено пропозиції щодо підвищення ефективності функціонування вітчизняного страхового ринку, зокрема: необхідність модернізації підходів до забезпечення захисту їх клієнтів через створення дієвої системи контролю за дотриманням нормативів платоспроможності страховими компаніями

We analyze risk-taking regulation when financial institutions are linked through shareholdings. We model regulation as an upper bound on institutions' default probability, and pin down the corresponding limits on risk-taking as a function of the shareholding network. We show that these limits depend on an original centrality measure that relies on the cross-shareholding network twice: (i) through a risk-sharing effect coming from complementarities in risk-taking and (ii) through a resource effect that creates heterogeneity among institutions. When risk is large, we find that the risk-sharing effect relies on a simple centrality measure: the ratio between Bonacich and self-loop centralities. More generally, we show that an increase in cross-shareholding increases optimal risk-taking through the risk-sharing effect, but that resource effect can be detrimental to some banks. We show how optimal risk-taking levels can be implemented through cash or capital requirements, and analyze complementary interventions through key-player analyses. We finally illustrate our model using real-world financial data and discuss extensions toward including debt-network, correlated investment portfolios and endogenous networks.

Post-crisis, macro-prudential ideas have challenged the epistemic authority of private risk management technologies, declaring them to be pro-cyclical contributors to systemic risk. This discursive challenge has been most critical of the shadow banking system, where private risk management instruments are central. This challenge, however, has not been translated into regulatory tools which reflect these convictions. This paper studies this process of discursive challenge to (failed) regulatory intervention for the case of the repo-market, the heart of the current shadow banking system. It traces regulatory efforts on the global and EU level from regulatory statements to (lack of) action, documenting both the persistent articulation of macro-prudential ideas challenging private risk-management systems and timid to no regulatory intervention. It links this hiatus to international coordination problems, the need for macro-prudential action to span regulatory communities, involving banking and financial market authorities and disagreements between micro- and macro-prudentially oriented regulators. The lack of evidence and the difficulty to generate it are identified as major impediments for regulatory consensus, further aggravated by ambiguities about the goals of anti-cyclical regulation. Beyond governance problems and the persistent appeal of private risk-management systems, the paper thus points to difficulties operationalizing macro-prudential ideas as a major explanatory factor.

Longer-term mortgages would enhance both consumer choice and financial stability, but regulatory changes are needed to help them develop into a significant part of the Canadian residential mortgage market, says a new report from the C.D. Howe Institute. In “One More Case for Longer-Term Mortgages: Financial Stability,” author Michael K. Feldman notes that according to the Bank of Canada only 2 percent of all Canadian mortgages issued in 2018 were fixed-rate loans with terms of longer than five years. He further suggests that encouraging 10-year or longer mortgages would increase options for borrowers while adding more stability to the housing market.

Дослідження практичних проблем пруденційного регулювання страхової діяльності, таких як тіньова страхова діяльність, вдосконалення стандартів страхування на основі міжнародних стандартів і норм, системні фінансові кризи потребує відповідної концептуальної основи та формування єдиного підходу до розуміння пруденційне регулювання та його межі. Епідемія COVID-19 завдала безпрецедентного удару світовим фінансовим ринкам: ці нестабільні ринкові умови призвели до «втечі до якості». The study of practical problems of prudential regulation of insurance activities, such as shadow insurance activities, improvement of insurance standards based on international standards and norms, systemic financial crises requires an appropriate conceptual framework and the formation of a unified approach for understanding of prudential regulation and its boundaries. The COVID-19 epidemic dealt an unprecedented blow to the global financial markets: these volatile market conditions have led to a “flight to quality”.

European supervisors aggressively requested more capital at large banks. That may cut credit to the economy. We confirm that especially larger banks cut loans while less-significant banks partly offset that credit drop. Moreover, we identify nasty spillovers from that interaction. Specifically, larger banks’ deleveraging was associated with significant portfolio worsening for mid-sized banks. We conjecture that while small banks’ loan expansion was somewhat shielded by superior soft-information-based technologies, medium-sized banks were fully exposed to lending to bad borrowers as they boosted loans by relying on credit scoring and Internal Rating Based models. That is proving tricky through the prolonged European dip. Die europaischen Aufsichtsbehorden forderten aggressiv mehr Kapital bei den Grosbanken. Das konnte die Kreditvergabe an die Wirtschaft einschranken. Wir bestatigen, dass vor allem grosere Banken ihre Kredite kurzten, wahrend weniger bedeutende Banken diesen Kreditruckgang teilweise kompensierten. Daruber hinaus identifizieren wir unangenehme Spillovers aus dieser Interaktion. Insbesondere die Deleveraging-Aktivitaten der groseren Banken waren mit einer deutlichen Verschlechterung des Portfolios bei mittelgrosen Banken verbunden. Wir gehen davon aus, dass die Kreditausweitung der kleinen Banken zwar durch uberlegene Soft-Informationstechnologien etwas abgeschirmt war, dass aber mittelgrose Banken voll und ganz der Kreditvergabe an schlechte Kreditnehmer ausgesetzt waren, da sie die Kredite durch Kredit-Scoring und interne ratingbasierte Modelle ausweiteten. Das erweist sich als problematisch durch die anhaltende europaische Krise.

We estimate the causal effect of a mortgage supply expansion on house prices by using an exogenous change in prudential regulation: the abolition in 2006 of a banks' maturity transformation limit. After the repeal of the prudential rule, credit increased only for the banks that were previously constrained by the regulation, while it remained unchanged for the other banks. Such differential response rules out demand-based explanations and fully identify the rule abolition as an exogenous shock that we exploit as an instrument for mortgage supply expansion. We estimate the elasticity of house price growth to new mortgage credit to be close to 5 percent. Our results also show that the effect of a mortgage supply expansion on house prices significantly differs across municipalities' and borrowers' characteristics.

This paper assesses whether compensation practices for bank Chief Executive Officers (CEOs) changed after the Financial Stability Board (FSB) issued post-crisis guidelines on sound compensation. CEO compensation has become more sensitive to risk, with CEOs in the post-reform period at riskier banks receiving less variable compensation than those at less-risky peers. This was particularly true of investment banks. The changes in compensation practices are in line with the FSB’s Principles and Standards of Sound Compensation, although we do not detect significant differences between banks in jurisdictions that directly implemented the FSB guidelines compared to the other banks.

Are we experiencing convergence in preferential international trade rules on financial services? This paper tries to answer this question by comparing key obligations in the financial services chapters of five free trade agreements (FTAs): CPTPP; USMCA; KORUS; CETA; and JEFTA. The paper compares select aspects of the legal discipline introduced in the FTAs, with a view to testing whether (and to what degree) the financial services chapters in the chosen FTAs depart from the GATS template. Despite the possibility for parties to re-write substantially the rules of the game, this paper shows that the GATS template still represents the basis for bilateral and regional negotiations. In a few areas, however, the five FTAs examined in the article innovate substantially as compared to the text of the GATS. Specifically, innovative solutions concerning the discipline on prudential regulation are particularly relevant.

Targeting financial stability has become an important matter for central banks. This objective has considerable impacts on growth and reinforces the economic structure. During the last decades, the financial environment has suffered from different forms of instabilities. Turbulences, crashes, and bubbles are occuring frequently. The ability of modern economies to absorb shocks is questionned since their vulnerability is increasing. This situation is due mainly to the contraction of business cycles, fragility of financial institutions, and corporate debt. Within this scope, volatility clustering in the financial markets has been consistently observed. This paper aims to develop a dynamic system able to detect instantly different instabilities using ABM models. It consists of implementing a strategy-based prevention holistic and integrated.

In the aftermath of the 2007 global financial crisis, regulators have agreed a substantial tightening of prudential regulation for banks operating in the traditional banking sector (TBS). The TBS is stringently regulated under the Basel Accords to moderate financial stability and to minimise risk to government and taxpayers. While prudential regulation is important from a financial stability perspective, the flipside is that the Basel Accords only apply to the TBS, they do not regulate the shadow banking sector (SBS). While it is not disputed that the SBS provides numerous benefits given the net credit growth of the economy since the global financial crisis has come from the SBS rather than traditional banking channels, the SBS also poses many risks. Therefore, the fact that the SBS is not subject to prudential regulation is a cause of serious systemic concern. The introduction of Basel IV, which compliments Basel III, seeks to complete the Basel framework on prudential banking regulation. On the example of this set of standards and its potential negative consequences for the TBS, this paper aims to visualise the incentives for TBS institutions to move some of their activities into the SBS, and thus stress the need for more comprehensive regulation of the SBS. Current coronavirus crisis forced Basel Committee to postpone implementation of the Basel IV rules – this could be perceived as a chance to complete the financial regulatory framework and address the SBS as well.

This study investigates prudential regulation under the current expected credit losses (CECL) model in accounting for loan loss provisioning. We highlight the dual role (valuation role and regulatory role) of the CECL accounting in deriving the optimal regulatory leverage ratios, which integrate (1) the dual role of banks (liquidity provision to households and credit supply to the real sector); (2) the reward and risk attributes of loan portfolio composition; and (3) procyclicality and countercyclicality.

This paper studies central bank communication of the ECB as a potential factor that explains the contribution to systemic risk for a panel of large banks in the Eurozone between 2002 and 2018. The empirical evidence suggests that the ECB is able to use central bank communication to effectively steer private sector expectations in such a way that it has a robust and significant impact on banks' contribution to systemic risk. However, the results indicate that this influence varies over time, implying that the ECB uses monetary policy surprises and the associated language to steer market expectations in line with its own policy objectives at time. Additional analyses show that banks that contribute more to systemic risk tend to be more sensitive towards the effects of central bank communication. More specifically, larger banks and highly leveraged banks react more strongly to central bank communication. Furthermore, requirements of prudential regulation tend to mitigate the effects of central bank communication which is additional evidence on the topic of policy coordination between macroprudential policy and monetary policy.

We study the relationship between bank geographic complexity and risk using a unique dataset of 96 global bank holding companies (BHCs) over 2008–2016. From data on the affiliate network of internationally active banking entities, we construct a measure of geographic coverage and complexity for each BHC. We find that higher geographic complexity heightens banks’ capacity to absorb local economic shocks, reducing their risk. However, higher geographic complexity can also help banks soften the impact of prudential regulation, increasing their risk. Bank geographic complexity therefore has a Janus face, decreasing some but increasing other aspects of bank risk.

This paper analyzes the role of financial crises in the financial policy reform process, including the liberalization of the financial system and the strengthening of prudential regulation. This study considers five types of financial crises and seven dimensions of financial policy reform to evaluate the comprehensive relationships between financial crises and financial policy reform by assuming a financial crisis as an endogenous variable. Our work confirms the crisis-begets-reform argument in the context of financial liberalization by showing that all types of financial crises promote financial liberalization even when possible endogeneity problems are addressed. However, financial policy reform following financial crises does not generally include the strengthening of prudential regulation. Given the argument that financial liberalization without prudential regulation often causes financial instability or crises, our findings emphasize that policy makers should pay attention not only to financial liberalization but also to prudential regulation. Moreover, the results show that the origin of a financial crisis matters when financial regulators choose the policy dimensions of financial reform.

The 2008 crisis exposed the not-so-benign neglect of systemic risk and financial stability in theoretical analyses as well as in economic and regulatory policies. As the world financial crisis was ...

We argue that implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act has contributed significantly to the reduction of systemic risk in the United States. However, Dodd-Frank also introduced burdensome rules that have little to do with systemic risk. This article evaluates the trade-off between capital regulation and regulation of scope in the context of Dodd-Frank, with a particular emphasis on the Volcker Rule. Recent regulatory reforms aimed at rolling back Dodd-Frank are evaluated and discussed.

The liquidity regulation of banks in Pillar 1 of the Basel framework does not consider longer-term funding cost risks of different bank business models. Therefore, we assemble a data set of balance sheet positions including maturities and use the method of Value-Liquidity-at-Risk to explore 118 European retail, wholesale, and trading banks. When examining liquidity-induced equity risks, trigged by exemplary rating shifts, we find that retail banks bear significantly lower funding cost risks than wholesale and trading banks. Consequently, a prudential regulation, which simultaneously considers the funding cost risk and the diversification of the banking system, is recommended.

Nous etudions les determinants de la dynamique du levier bancaire ainsi que son role dans l’emergence de la fragilite financiere. Nous montrons qu’il existe un niveau de levier qui minimise la fragilite financiere dont la valeur est fonction du climat des affaires et du montant du collateral provisionne par les entreprises endettees. Ces resultats plaident pour la mise en œuvre d’un ratio de levier maximal qui ne serait pas fixe, comme cela est actuellement le cas dans la reglementation prudentielle de Bâle 3, mais ajustable en fonction de la position de l’economie dans le cycle.

This paper explores the interaction between monetary policy and prudential regulation in an agent-based modeling framework. Firms borrow funds from the banking system in an economy regulated by a central bank. The central bank carries out monetary policy, by setting the interest rate, and prudential regulation, by establishing the banking capital requirement. Different combinations of interest rate rule and capital requirement rule are evaluated with respect to both macroeconomic and financial stability. Several relevant policy implications were drawn. First, the efficacy of a given capital requirement rule or interest rate rule depends on the specification of the rule of the other type it is combined with. More precisely, less aggressive interest rate rules perform better when the range of variation of the capital requirement is narrower. Second, interest rate smoothing is more effective than the other interest rate rules assessed, as it outperforms those other rules with respect to financial stability and macroeconomic stability. Third, there is no tradeoff between financial and macroeconomic stability associated with a variation of either the capital requirement or the smoothing interest rate parameter. Finally, our results reinforce the cautionary finding of other studies regarding how output can be ravaged by a low inflation targeting.