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Does too much competition in banking hurt society? What policies can best protect and stabilize banking without stifling it? Institutional responses to such questions have evolved over time, from interventionist regulatory control after the Great Depression to the liberalization policies that started in the United States in the 1970s. The global financial crisis of 2007-2009, which originated from an oversupply of credit, once again raised questions about excessive banking competition and what should be done about it. Competition and Stability in Banking addresses the critical relationships between competition, regulation, and stability, and the implications of coordinating banking regulations with competition policies. Xavier Vives argues that while competition is not responsible for fragility in banking, there are trade-offs between competition and stability. Well-designed regulations would alleviate these trade-offs but not eliminate them, and the specificity of competition in banking should be accounted for. Vives argues that regulation and competition policy should be coordinated, with tighter prudential requirements in more competitive situations, but he also shows that supervisory and competition authorities should stand separate from each other, each pursuing its own objective. Vives reviews the theory and empirics of banking competition, drawing on up-to-date analysis that incorporates the characteristics of modern market-based banking, and he looks at regulation, competition policies, and crisis interventions in Europe and the United States, as well as in emerging economies. Focusing on why banking competition policies are necessary, Competition and Stability in Banking examines regulation's impact on the industry's efficiency and effectiveness.
This book theoretically and empirically explores why Japanese banks engaged in seemingly contradictory behaviors in the 1990s, namely, the credit crunch and evergreening, i.e., inefficient additional lending. A credit crunch occurs when banks are unwilling to finance good and efficient projects. Evergreening implies that banks reluctantly lend additional money to poorly performing and financially vulnerable firms. The authors hypothesize that these practices stemmed from violation of the absolute priority rule (APR) by creditors, thus making it possible to explain this seemingly contradictory banking behavior in a consistent way. In Japan, the APR has often been violated legally by courts and some governmental acts. Examples from the 1990s involve legal abuse in the form of short-term tenancy protection (tanki chinshaku ken) and political intervention in the liquidation of Housing Loan Companies, or Ju-sen. The Supreme Court of Japan has issued critical decisions leading to serious violations of APR in the early 1990s. Evidence provided here supports theoretical results. Empirical testing for a significant difference in banking behavior before and after the Court decision using data from Japanese firms in the 1980s and 1990s found that theoretical arguments were empirically supportable in the last half of the 1980s and through the 1990s. Finally, based on their analysis, from the theoretical point of view the authors consider the optimal legal scheme to achieve the best assessment of initial and additional lending in light of the legal reform of the 2000s.
What causes a financial crisis? Can financial crises be anticipated
or even avoided? What can be done to lessen their impact? Should
governments and international institutions intervene? Or should
financial crises be left to run their course? In the aftermath of
the recent Asian financial crisis, many blamed international
institutions, corruption, governments, and flawed macro and
microeconomic policies not only for causing the crisis but also
unnecessarily lengthening and deepening it.
This book introduces the fundamentals of retail credit risk management, provides a broad and applied investigation of the related modeling theory and methods, and explores the interconnections of risk management with other firm operations and industry regulation. The focus on retail (private individuals and small-medium enterprises) and the constant reference to the implications of the financial crisis for credit risk management, make the book distinctive.
The eastwards expansion of the European Union is one of the most explosive economic and political issues of the early 21st century. Economic and financial stability combined with rising prosperity in the applicant countries are increasingly seen as necessary preconditions for European Union membership. This authoritative volume, written by scholars and practitioners from Central and Western Europe and the United States, confronts the issues involved in three of the countries most likely to be successful applicants to the EU - the Czech Republic, Hungary and Slovenia. A spotlight is turned on the banking and financial industries, as they are crucial to the achievement of economic stability. The blend of expertise deployed, which draws on in-depth knowledge and extensive experience in central banking, financial and commercial law, business, practical policy making and economic analysis, ensures that this book is timely, relevant and insightful. The authors suggest that the role of the state in both creating and maintaining an effective financial sector is central. Furthermore, they argue that well-regulated commercial banks and strategic foreign investors are a must as, in practice, the attempt to skip straight to modern capital markets has been ruinous. This accessibly written volume will be of interest to students and scholars of economics, finance, law, political science, the sociology of economic life and European studies.
In the past thirty years the financial sector has seen unparalleled growth and has exerted increased economic and political influence and significance. This growth has come hand-in-hand with several serious economic crises and greater monetary instability. Set against this background, this important book offers a wide ranging, critical analysis of the financial sector. Each of the chapters explores a different theme under the general topic of money, finance and capitalist development. The performance of capitalist economies is first analysed from a Keynesian evolutionary perspective before moving to a focus on the East Asian crisis and asking the question of whether the global neo-liberal regime can survive in Asia. The rapid growth of the financial sector has involved, amongst other changes, a dramatic growth in the sale of financial derivatives. This activity is examined and found to increase uncertainty rather than decrease risk. The nature of money, and in particular the nature of endogenous credit money, is thoroughly discussed, and the political economy of central banks and their operations is reviewed. The book concludes with a critical assessment of the non-accelerating inflation rate of unemployment. Money, Finance and Capitalist Development will be of great value and interest to financial and monetary economists, as well as students and scholars of macroeconomics and finance.
Jacob Henry Schiff (1847-1920), a German-born American Jewish banker, facilitated critical loans for Japan in the early twentieth century. Working on behalf of the firm of Kuhn, Loeb & Co., Schiff's assertiveness in favour of Japan separated him from his fellow German Jewish financiers and the banking establishment generally. This book's analysis differs from the consensus that Schiff funded Japan largely out of enmity towards Russia but rather sought to work with Japan for over thirty years. This was as much a factor in his actions surrounding the Russo-Japanese War (1904-1905) as his concern to thwart Russian antisemitism. Of interest to financial historians alongside Japanese historians and academics of both genres, this book provides a lively and thoroughly researched volume that precisely focuses on Schiff's mastery of banking.
This book introduces the reader to the 'world of finance', more exactly to one core activity: investment banking. Analysing the practices of traders, analysts, brokers and bankers it reveals how their contrasting perspectives on shares are put to use and the consequences this has for investment banks, corporations, investors and the stock markets.
Bank regulation in Africa has come to a crossroad. Whilst the transition from Basel I to Basel II was relatively smooth, there was much uncertainty as to the feasibility of the Basel II regulatory codes. In the aftermath of the financial crisis and the failure of Basel II, the industry is looking to the next wave of regulatory change in Basel III with both interest and scepticism. This book focuses on key policy issues during the transition of bank regulation in Africa, from Basel I, to the global financial crisis and collapse of Basel II, progressing towards the new financial regulatory architecture embedded in Basel III. Bank regulators in Africa, and commercial bankers on the continent, are worried about many features of Basel III but their voices seem to have gone unheard. This book reflects on the developments that led to the demise of Basel I and II and introduces the new challenges and opportunities constantly emerging in bank regulatory reform in Africa.
Banking with Integrity provides rich and in-depth case studies of banks which were doing well during the financial crisis of 2007-2010. While other banks went bankrupt, were nationalized, or struggled for survival some of the featured cases increased market share, attracted more customers and avoided home evictions of their clients.
The next few years will be critical for Europe's banking industry. It faces a number of financial sector reforms that will have a decisive impact on the dominant practices and business models followed across the European Union. This timely volume presents the results of the first screening exercise conducted on the performance, stability, risk, efficiency, and corporate governance of twenty-six major European banks --before, during, and after the financial crisis. The authors use those findings to help identify the key strengths and weaknesses inherent in the dominant business models, in light of the upcoming regulatory changes.
When China's economic reforms were beginning, there was an expectation in the west that China's financial markets would be opened to western banks and that China's banks would be reformed along western lines. Joint ventures between Chinese banks and western banks, minority shareholding by western banks and the involvement of western banking personnel in assisting Chinese banks with their reforms were all seen as moves towards reform along western lines. This book analyses the role which western bankers have played in China's economic reforms, focusing on their influence on institutional change and corporate governance. Based on extensive original research, the book shows that while components of western models of corporate governance have been widely adopted, the motivation for these changes seems to have been legitimacy-seeking by Chinese banks, and that whilst there has been relatively rapid change in the formal legislative environment, informal organisational practices are changing at a much slower pace. Alliances between Chinese and western banks are woven with contradictions and power games and so many actors in the Chinese banking sector seek to resist manipulation by their western counterparts. The financial crisis weakened the idea that western banks are a universally correct model and strengthened China's resolve to keep control of its banking sector and manage it along Chinese lines.
'It's not the people who are bad, it's the culture.' 'Friends turned on me, on my wife.' 'This job involves in some part selling your soul for a good salary.' 'You're sitting there, and you may have just made the decision that destroyed the world.' Winner of the NS Public Prize for Book of the Year 2015 Joris Luyendijk, an investigative journalist, knew almost nothing about banking until he was assigned to investigate the financial sector. Over two years he spoke to more than 200 people - from the competitive investment bankers and elite hedge fund managers to downtrodden back office staff and those made redundant in regular 'culls'. They opened up about what they actually do, about the toxic hiring and firing culture and about the overwhelming technological and mathematical opacity of their work. They admitted that in the crash of 2008, they hoarded food, put their money in gold and prepared to evacuate their children to the countryside. And they agreed that nothing had changed since then.
Economics and political economy lack the analytical tools to explain the differing impact of the recent international financial crisis that erupted in 2007 on developed economies. The principal contribution of this edited volume is to offer a 'market-based banking' framework which transcends the dominant dichotomous understanding of financial systems in terms of credit-based and capital-based. It demonstrates why this dichotomy is obsolete through an appreciation of the activities of banks. Further, it employs 'market-based banking' to overcome the inability of existing typologies to explain financial system change. 'Market-based banking' provides a framework that is more reflective of banking in modern financial systems, and one that provides a more successful explanation of the differential impact of the recent financial crisis. The comparative and single-country chapters in this volume compare the extent of 'market-based banking' across eleven countries, including all of the G7 economies. The chapters also consider the impact of the financial crisis in terms of necessary government support and lending to non-financial companies. The edited volume includes work by authors who are widely respected experts in national political economies, finance, financial regulation, banking, central banking, and monetary policy. This volume is one of the first book-length comparative studies of the financial crisis and its impact and one of the few recent comparative studies of national banking / financial systems in any discipline.
A deeper examination of Basel III for more effective capital enhancement The Handbook of Basel III Capital Enhancing Bank Capital in Practice delves deep into the principles underpinning the capital dimension of Basel III to provide a more advanced understanding of real-world implementation. Going beyond the simple overview or model, this book merges theory with practice to help practitioners work more effectively within the regulatory framework, and utilise the complex rules to more effectively allocate and enhance capital. A European perspective covers the CRD IV directive and associated guidance, but practitioners across all jurisdictions will find value in the strategic approach to decisions surrounding business lines and assets; an emphasis on analysis urges banks to shed unattractive positions and channel capital toward opportunities that actually fit their risk and return profile. Real-world cases demonstrate successful capital initiatives as models for implementation, and in-depth guidance on Basel III rules equips practitioners to more effectively utilise this complex regulatory treatment. The specifics of Basel III implementation vary, but the underlying principles are effective around the world. This book expands upon existing guidance to provide a deeper working knowledge of Basel III utility, and the insight to use it effectively. * Improve asset quality and risk and return profiles * Adopt a strategic approach to capital allocation * Compare Basel III implementation varies across jurisdictions * Examine successful capital enhancement initiatives from around the world There is a popular misconception about Basel III being extremely conservative and a deterrent to investors seeking attractive returns. In reality, Basel III presents both the opportunity and a framework for banks to improve their assets and enhance overall capital the key factor is a true, comprehensive understanding of the regulatory mechanisms. The Handbook of Basel III Capital Enhancing Bank Capital in Practice provides advanced guidance for advanced practitioners, and real-world implementation insight.
This book traces the development of China's banking system through the first 25 years of China's socialist market economy up to the present. It examines how China's leaders have chosen their own path for reforming and regulating the banking sector and shows how this approach has differed significantly from the neoliberal approach promoted by the West. The book demonstrates the effectiveness of the Chinese approach, contrasting China's relative success in weathering the Asian financial crisis with the huge disruption experienced by other East and Southeast Asian nations which had followed the neoliberal model much more closely. The book explains how China's officials were able to resist the persistent efforts of foreign financial institutions to gain control of China's financial sector, particularly around the time of China's entry to the World Trade Organization. It argues that China's increasing influence in international financial institutions after the global financial crisis can help mitigate the risk of future financial crises and promote global financial stability.
Adam Smith's 'invisible hand' relied on the self-interest of individuals to produce good outcomes. Economists' belief in efficient markets took this idea further by assuming that all individuals are selfish. This belief underpinned financial deregulation, and the theories on incentives and performance which supported it. However, although Adam Smith argued that although individuals may be self-interested, he argued that they also have other-regarding motivations, including a desire for the approbation of others. This book argues that the trust-intensive nature of financial services makes it essential to cultivate such other-regarding motivations, and it provides proposals on how this might be done. Trustworthiness in the financial services industry was eroded by deregulation and by the changes to industry structure which followed. Incentive structures encouraged managers to disguise risky products as yielding high returns, and regulation failed to curb this risk-taking, rent-seeking behaviour. The book makes a number of proposals for reforms of governance, and of legal and regulatory arrangements, to address these issues. The proposals seek to harness values and norms that would reinforce 'other-regarding' behaviour, so that the firms and individuals in the financial services act in a more trustworthy manner. Four requirements are identified which together might secure more strongly trustworthy behaviour: the definition of obligations, the identification of responsibilities, the creation of mechanisms which encourage trustworthiness, and the holding to account of those involved in an appropriate manner. Financial reforms at present lack sufficient focus on these requirements, and the book proposes a range of further actions for specific parts of the financial industry.
The current banking crisis has tested every dimension of banking and created maximum uncertainty for its future - yet banks must plan for this future. Author of a number of books on best practice in bank management, Steven Davis has interviewed 25 senior bank executives, management consultants, regulators, rating agencies and analysts to understand how the strategies of the leading banks might evolve in the future. Its unique research, case studies of success, and conclusions for the future should be of interest to senior bank management as well as their advisors, regulators and analysts.
This volume brings together some of the most important articles on the topic of financial intermediaries. Financial Intermediaries puts recent developments into an appropriate historical setting, with seminal works by Edgeworth, Arrow, Gurley, Shaw, Baumol, Tobin and Stigler combined with more recent ones by Fischer, Black, Weiss and Stiglitz.
Endorsed by the Chartered Banker Institute as core reading for its professional qualifications, Culture, Conduct and Ethics in Banking emphasizes the importance of professionalism for banks, and explores how all staff play a key role in putting customers at the heart of their business. Taking an applied approach, it aims to develop the reader's capability to: recognize and contribute towards balanced outcomes for consumers and organizations; understand the impact of reputational deficit; and understand the personal impact of an individual in the workplace. From a discussion of the main branches of ethical thinking to an overview of regulation and legislation in the UK and internationally, this book covers the theory and practice of conduct and professionalism in banking. Chapters contain activities and industry case studies, and further reading and viewing suggestions are included to help develop a deeper understanding of the topics covered. With fully referenced discussion of conflicts of interest, decision making models, the role of professional bodies, corporate governance, conduct risk management and the Global Financial Crisis 2007-08, Culture, Conduct and Ethics in Banking is the essential guide for finance professionals.
Gentlemen Bankers investigates the social and economic circles of one of America's most renowned and influential financiers to uncover how the Morgan family's power and prestige stemmed from its unique position within a network of local and international relationships. At the turn of the twentieth century, private banking was a personal enterprise in which business relationships were a statement of identity and reputation. In an era when ethnic and religious differences were pronounced and anti-Semitism was prevalent, Anglo-American and German-Jewish elite bankers lived in their respective cordoned communities, seldom interacting with one another outside the business realm. Ironically, the tacit agreement to maintain separate social spheres made it easier to cooperate in purely financial matters on Wall Street. But as Susie Pak demonstrates, the Morgans' exceptional relationship with the German-Jewish investment bank Kuhn, Loeb & Co., their strongest competitor and also an important collaborator, was entangled in ways that went far beyond the pursuit of mutual profitability. Delving into the archives of many Morgan partners and legacies, Gentlemen Bankers draws on never-before published letters and testimony to tell a closely focused story of how economic and political interests intersected with personal rivalries and friendships among the Wall Street aristocracy during the first half of the twentieth century.
The author investigates the strategies of eight publicly listed banks in Britain and Germany in the context of European financial integration. Evidence is provided that banks with defensive strategies fared better than those which attempted to break out of a coherent financial system in order to embrace new business opportunities.
The credit and banking crisis which hit the western world in 2007/2008 has and will continue to have far-reaching after-effects. At their core are Collateralized Debt Obligations (CDOs) and Credit Default Swaos (CDSs), the main themes of this book.
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