This paper examines the implications for bank regulatory and monetary policy of the business cycle; the nature of which is being transformed by the forces of globalisation and the…
Abstract
This paper examines the implications for bank regulatory and monetary policy of the business cycle; the nature of which is being transformed by the forces of globalisation and the communication and information technology revolution. Asset price fluctuations and overinvestment appear to have become more common, and ‘cheap money’ has been a causal factor. More risk‐related ‘Basel’ bank capital adequacy requirements, combined with more rigorous bad loan provisioning policies and ‘marking to market’ will result in bank regulation amplifying cycles. Hence, monetary policy must be closely coordinated with bank regulation policy to attenuate the cycle and the impact of asset price fluctuations.
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Andy Mullineux, Juda Agung and Adisorn Pinijkulviwat
This paper briefly reviews the build up to and onset of the 1987 financial crises in S. E. Asia, focusing on the experiences of Thailand and Indonesia. After emphasising the…
Abstract
This paper briefly reviews the build up to and onset of the 1987 financial crises in S. E. Asia, focusing on the experiences of Thailand and Indonesia. After emphasising the importance of banking sector restructuring and regulatory reform, progress with economic stabilisation and financial and enterprise sector restructuring in the three countries is assessed. Future prospects are then considered.
It is argued that bank regulation is required to protect depositors who are less risk averse than bank shareholders. The ongoing financial revolution has generally benefited…
Abstract
It is argued that bank regulation is required to protect depositors who are less risk averse than bank shareholders. The ongoing financial revolution has generally benefited consumers of financial services by increasing competition and broadening the range of products. More and more people have, however, been excluded. The paper considers whether further regulation is required to ensure that the financially excluded gain access to payments services and overdrafts and loans. It is concluded that there is plenty of scope for involving banks, credit unions and other new mutuals in the elimination of financial exclusion.
This paper reviews the current regulatory framework for community development financial institutions (CDFIs), which aim to enable ‘socially excluded’ people and enterprises to…
Abstract
This paper reviews the current regulatory framework for community development financial institutions (CDFIs), which aim to enable ‘socially excluded’ people and enterprises to access finance. Its focus is primarily on the UK, though account is taken of developments in other EU member countries and at the EU level. In the UK the most developed regulations relate to industrial and provident societies, which are essentially financial cooperatives lending to small enterprises and not for profit organisations, and credit unions, which tend to concentrate on personal savings and finance. CDFIs lie on the boundary of what is currently understood to be charitable status, but the Charity Commission announced a new charitable purpose, ‘community capacity building’, in December 2000 and committed to developing clear guidelines on the charitability of CDFIs by the end of 2001. Current regulatory arrangements are assessed and it is found that, apart from credit unions, which have been brought under the supervisory wing of the Financial Services Authority, CDFIs tend to operate in a context of ‘benign neglect’. While recognising that heavy‐handed regulation might stifle growth, it is argued that the downside of neglect could be uncertainty, which might also blight the development of the sector. An alternative, relatively liberal, regulatory framework is proposed, including self‐regulation for the smaller institutions via associations. It is concluded that the type of regulation should vary with the size, status (mutual vs non mutual), and source of finance (deposits vs risk capital).
The purpose of this paper is to consider in the light of the post August 2007 banking crises, how “fair” access to retail banking services for British households and small‐ and…
Abstract
Purpose
The purpose of this paper is to consider in the light of the post August 2007 banking crises, how “fair” access to retail banking services for British households and small‐ and medium‐sized enterprises (SMEs) can be assured.
Design/methodology/approach
The current responsibility for assuring the bank customers are “treated fairly” belongs to the Financial Services Authority (FSA). The paper argues for the establishment of a banking commission to regulate retail banks as utilities, leaving the FSA to concentrate on prudential (“risk based”) supervision of bank and non‐bank financial institutions.
Findings
If access to payments services is infrastructural and access to finance is regarded as essential in a modern society, then retail banks should be regulated as utilities.
Originality/value
The banking crisis led to calls for banks to maintain lending to SMEs and households (especially mortgages). This implies that access to finance, like access to water and electricity, should be assured and that customers should be protected against the “monopoly” powers of large suppliers. Hence, retail banks are utilities and should be regulated as such.
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Andrew William (Andy) Mullineux
The purpose of this paper is to consider the case for regulating financial innovation in light of the recent global financial crisis.
Abstract
Purpose
The purpose of this paper is to consider the case for regulating financial innovation in light of the recent global financial crisis.
Design/methodology/approach
Responsibility for assuring the bank customers are “treated fairly” in the UK currents belongs to the Financial Services Authority (FSA), whilst the Office of Fair Trading (OFT) oversees the Consumer Credit Act. The paper argues for the regulation of retail banking and financial service provision as a utility, leaving the FSA to concentrate on prudential supervision and the OFT to concentrate on its other responsibilities. Financial innovation in wholesale and investment banking should be regulated by the prudential authorities.
Findings
New financial instruments are frequently underpriced, which may be in part to encourage rapid and widespread adoption.
Practical implications
Good, transactions cost and risk reducing, retail financial innovation should be encouraged. New wholesale financial products should be thoroughly “stress tested” prior to being licensed, analogous to the testing of new medical “drugs” by the pharmaceutical industry.
Originality/value
The global banking crisis led to calls for banks to maintain lending to small‐ and medium‐sized enterprises and households (especially mortgages). This implies that access to finance, like access to water and electricity, should be assured and that customers should be protected against the “monopoly” powers of large suppliers. Hence, retail banks are utilities and should be regulated as such.
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This paper is based on a keynote presentation at the 2nd Pan IIM World Management Conference hosted by the Indian Institute of Management (IIM) in Kozhikode (IIMK) in November…
Abstract
Purpose
This paper is based on a keynote presentation at the 2nd Pan IIM World Management Conference hosted by the Indian Institute of Management (IIM) in Kozhikode (IIMK) in November 2014.
Design/methodology/approach
This paper draws lessons from the “Global” Financial Crisis for the governance, regulation and structural reform of banking, as well as monetary policy in a globalising financial system. Lessons are also drawn from the Eurozone Crisis, the Asian Financial Crisis and China.
Findings
This paper concludes that the appropriate extent of state ownership of banks and the process for reducing it, while also recapitalising banks, along with the development of capital markets, should be an integral part of India’s wider structural reform programme.
Originality/value
The paper provides lessons for India with regard to banking and economic growth, financial sector development and addressing market failures in small- and medium-sized enterprises and infrastructural finance.
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To consider the implications of the banks fiduciary duty to their depositors (as well as the shareholders) and the government's fiscal duty to taxpayers (in the presence of…
Abstract
Purpose
To consider the implications of the banks fiduciary duty to their depositors (as well as the shareholders) and the government's fiscal duty to taxpayers (in the presence of deposit insurance) for the corporate governance (CG) of banks.
Design/methodology/approach
Recent contributions to the literature are outlined and assessed in the context of the asymmetric information literature relating to banking.
Findings
The good CG of banks requires regulation to balance the interests of depositors and taxpayers with those of the shareholders.
Originality/value
Linking the bank regulation in literature based on information asymmetry to the CG literature.
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To explore the implications of financial sector convergence for corporate governance systems.
Abstract
Purpose
To explore the implications of financial sector convergence for corporate governance systems.
Design/methodology/approach
Globalisation, regulatory harmonisation and pensions reform are driving convergence of bank and market oriented systems of corporate finance towards a hybrid model (“hybridisation”). Given the importance of financial systems in corporate governance, this may lead to convergence of corporate governance systems; legal traditions notwithstanding.
Findings
The growth in the importance of funds (pension, insurance, mutual, hedge, venture capital) and the decline in the importance of bank as shareholders has the potential for forcing convergence in corporate governance if the funds actively use their shareholder (or proxy) voting rights. Data on financial institution voting patterns is required to test the hypothesis.
Originality/value
Hybridisation is increasingly widely recognised, although not universally supported by the data. This paper attempts to draw the implication of the hybridisation process for corporate governance given the breakdown of traditional market and bank‐based systems.