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Andrew Campbell, John Raymond LaBrosse, David G. Mayes and Dalvinder Singh
The purpose of this paper is to explore the arrangements that have been used in the present crisis and their relative success and to look to the post‐crisis situation.
Abstract
Purpose
The purpose of this paper is to explore the arrangements that have been used in the present crisis and their relative success and to look to the post‐crisis situation.
Design/methodology/approach
The paper examines and explains the crisis and the roles of deposit insurance and government guarantees. It deals with coverage, funding, institutional structure, speed of payout, incentives, accountability and, in particular, considers how such systems should function in a world of cross‐border institutions.
Findings
The paper suggests how such principles and standards should be set either through International Association of Deposit Insurers or some more efficient means to complement an international approach to financial stability being addressed by the Basel institutions.
Originality/value
There is no widely accepted standard over what the reformed financial system safety net should look like with respect to the protection of deposits and the wider guaranteeing of creditors and other stakeholders. This paper, therefore, makes an attempt to fill that gap.
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This paper aims to consider whether it is plausible to resolve troubled systemically important cross-border banks by dividing them so that the component national authorities can…
Abstract
Purpose
This paper aims to consider whether it is plausible to resolve troubled systemically important cross-border banks by dividing them so that the component national authorities can resolve the parts in their jurisdiction separately according to their own priorities.
Design/methodology/approach
The example of New Zealand is used. This country has chosen just such a route in its Open Bank Resolution (OBR) policy. The difficulties and advantages of this route to resolution are analyzed.
Findings
The paper concludes that the New Zealand route is plausible for systemic subsidiaries, providing there is deposit insurance. The minimum cost route is likely to be one where the home authority takes responsibility for the whole group and keeps all systemic operations running. It remains to be seen what the new EU-level proposals could achieve.
Research limitations/implications
OBR is as yet fortunately untried although there are some examples from a smaller scheme in Denmark.
Practical implications
These findings have important implications for financial regulators round the world but especially in the EU as it seeks to find a similar approach in the Recovery and Resolution Directive.
Originality/value
This topic has not been covered by others and will add ideas of practical value to the debate. One of the major problems addressed by the Basel Committee in its approach to supervision and regulation of cross-border banks is to come up with arrangements that allow the network of national authorities to handle problems in a large cross-border bank quickly, efficiently and preferably pre-emptively without recourse simply to a major taxpayer bailout.
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Swarna D. Dutt and Dipak Ghosh
The purchasing power parity hypothesis is investigated within a highly economically integrated set of nations, namely the European Monetary System. We use the Phillips‐Hansen…
Abstract
The purchasing power parity hypothesis is investigated within a highly economically integrated set of nations, namely the European Monetary System. We use the Phillips‐Hansen Fully Modified Ordinary Least Squares procedure, which for the first time allows for an unrestricted cointegration test of the PPP doctrine. We sequentially test for the weak and strong form of PPP.
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David Mayes and Faisal Alqahtani
The purpose of this paper is to explore the extent of underpricing in the Saudi Arabian market of initial public offerings (IPOs), offer explanations and consider whether…
Abstract
Purpose
The purpose of this paper is to explore the extent of underpricing in the Saudi Arabian market of initial public offerings (IPOs), offer explanations and consider whether Sharia-compliance had a significant impact on the initial returns.
Design/methodology/approach
A comprehensive sample of 72 IPOs in Saudi Arabia between 2004 and September 2010 is used to analyse the initial return after adjusting it to the market movement as well as controlling for some common factors.
Findings
This paper finds that not only underpricing occurs but it is also among the highest levels in the world. While traditional factors affecting initial returns include age, market timing and firm size, it is found that Sharia compliance significantly reduces underpricing in Saudi Arabia. This may imply that Sharia compliance helps to reduce the uncertainty and consequences of the limited information inherent in IPOs.
Research limitations/implications
Further research is needed to see if the effect of Sharia compliance status on the short-run performance of IPOs extends to other Islamic countries or is a country-specific characteristic. More firms need to be examined to identify the market characteristics that drive the returns.
Practical implications
Very substantial sums are being “left on the table” and more efficient pricing of IPOs would be of considerable benefit to firms.
Social implications
By considering two different regimes, this paper offers some important lessons for the treatment of risk-taking, particularly in Islamic countries.
Originality/value
This paper is among the first to provide an empirical evidence of the impact of Sharia compliance on the initial return pattern in the IPO market.
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Christine Ann Brown, Kevin Davis and David Mayes
– The purpose of this study is to explain rationale for regulatory change in Australia and New Zealand after the global financial crisis.
Abstract
Purpose
The purpose of this study is to explain rationale for regulatory change in Australia and New Zealand after the global financial crisis.
Design/methodology/approach
Outline regulatory changes and relate to crisis experience and regulatory shortcomings exposed.
Findings
Regulatory change was driven primarily by need, as capital importing nations, to comply with emerging global standards, and the different approaches in both nations are also related to domestic political considerations.
Research limitations/implications
The process of regulatory change in response to the crisis is ongoing.
Practical implications
A number of areas for further improvement in financial regulation are identified.
Social implications
Costs of poor regulation and financial crises are identified.
Originality/value
A comparison of regulatory approaches in two countries dominated by the same four large banks helps understand the challenges of cross-border financial regulation cooperation.
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In the present era, there is visible trend of transition of the economy from the managerial capitalism to finance capitalism, which increases the role of finance in the economic…
Abstract
In the present era, there is visible trend of transition of the economy from the managerial capitalism to finance capitalism, which increases the role of finance in the economic development of a country. The concept of financial development deals with the access, depth, efficiency, and stability of the financial institution and the market of a country. On the other hand, the financial integration is the degree of the financial openness of a country. There are de facto (gross stock of foreign assets and liabilities as a ratio of GDP, cross border capital flows) and de jure (capital account restrictions) measures of the financial integration. An efficient financial system increases the savings rate, which enhances capital accumulation in the economy. This process will channelize the fund from the household to the financial system. The economic liberalization induces the household to utilize their global market fund and enhance the marginal productivity of the capital. A deeper financial integration is expected to increase the public access in the domestic financial market as well as in the global market. Financial integration has some indirect effect on the economic growth through expansion and development of the financial system. In this context, this study examines the state of financial development and the financial integration across emerging countries in Asia. An attempt also was made to investigate whether the developed financial system promotes the financial integration or the financial integration induces the authority to develop the financial system. This study is based on the selected Asian countries over the period 2001–2016. Empirical evidence also support a significant positive association between the indicators of financial development and financial integration. It also indicates an empirical relationship from the financial development to the financial integration, and vice versa.
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Dulani Jayasuriya Daluwathumullagamage
The business model of monoline insurers is to guarantee payments of debt issues in case of defaults by the issuer. Although sparse attention is given to monolines in literature…
Abstract
Purpose
The business model of monoline insurers is to guarantee payments of debt issues in case of defaults by the issuer. Although sparse attention is given to monolines in literature, they play an important role in enabling municipalities and firms in refinancing. This study aims to conduct a systematic review of 181 articles from 1990 to 2020 from 23,130 records and a case study on the key monoline insurers. Key failure, success factors and demand for future monoline insurance are identified. Finally, the study explores monolines’ potential during COVID-19 and develops a framework for monoline governance and regulation.
Design/methodology/approach
The study follows Briner and Denyer and Moher et al. to implement the systematic review. The methodology involves ascertaining the motivation behind the review, and formulating research questions; aggregating relevant prior literature from scientific databases, conducting quality assessment and synthesising the data; and conducting extensive analysis for framework development. Case study methodology foundation phase focuses on understanding the research philosophy. The second phase involves documenting the procedures involved. The final phase involves collecting the relevant quantitative and qualitative material. In addition, collecting empirical data from numerous sources allows triangulation.
Findings
The review results of 181 articles from 1990 to 2020 show that peak article counts occur in 2010 and 2013 (nine academic studies) and in 2008 and 2010 (six industry studies). Over- and under-explored domains happen to be bond pricing (86 academic studies) and bond markets (36 industry studies) and corporate bonds (19 academic studies), respectively. The study highlights failure factors such as adverse selection, premiums mispricings, inadequate capital and regulation, untimely downgrades and governance issues; and identifies success factors such as conservative underwriting, early financing, competitor business acquisitions and obtaining put-back claims. Potential during COVID-19 is discussed and a monoline governance framework is developed.
Research limitations/implications
Search and selection criteria distortions may lead to sample selection bias in systematic reviews. Issue is addressed by using different permutations of the search key words to refine the search criteria. Reference list of collected final sample of articles are perused to identify additional articles. It is difficult to obtain verifiable empirical data on the bond/monoline insurers or their insured products, especially for the structured finance sector. Most of the information available on data stream and firm’s quarterly financial reports for publicly traded monoline/bond insurers and credit rating reports are included to overcome this issue.
Practical implications
Demand for bond/monoline insurance still persists even in the USA. Although borrowing costs are low, obtaining bank loans would be challenging for municipalities and corporates with increased risks. Especially, given worldwide government stimulus on wages, most municipalities would possess reduced budgets for public finance. Monoline insurance can play a key role in financing such projects. Thus, it is important to understand their unique traditional and transformed business model and applicability during and post-COVID-19. Given the near extinction of bond/monoline insurers during the 2008 global financial crisis (GFC), an adequate framework for bond/monoline insurers as developed in this study is key for future business continuity.
Social implications
There is significant interest, especially, from the industry on monolines as identified in our systematic review. Monoline insurance has major effects on taxpayers, government policies and bond investors. They aid in financing public finance projects that have significant societal impact. This study contributes by filling existing gaps in the literature, especially, from a behavioural, ethical and social perspective of the monolines, regulators, other stakeholders and new entrants to the industry during COVID-19. This study links prior finance theories to the impact of bond/monoline insurer’s during the 2008 GFC and their stakeholders involved that has societal implications.
Originality/value
This study can be differentiated from prior research on monoline insurers as follows: The study identifies, gaps, similarities, trends between prior academic and industry literature and develop a bond/monoline governance framework; identifies key failure and success factors during the 2008 GFC crisis to develop the governance framework and identify monolines’ potential during COVID-19; as opposed to most prior literature that only focus on one (Drake and Neal, 2011 analyse MBIA) or two key bond/monoline insurers, this study focuses on five key bond/monoline insurers in detail and all other key insurers as well in the empirical analysis section.