The banking industry has adopted an approach to managing financial risk based on economic capital, the amount of capital necessary to achieve a specified level of protection…
Abstract
The banking industry has adopted an approach to managing financial risk based on economic capital, the amount of capital necessary to achieve a specified level of protection against financial ruin. In the New Basel Capital Accord, regulators have recently proposed capital regulation to reduce operational risk. In this article, the author challenges the rationale for employing a capital charge to mitigate operational risk.
This article reviews the history of international coordination in the supervision of financial institutions noting why cooperation developed first and has been most extensive in…
Abstract
Purpose
This article reviews the history of international coordination in the supervision of financial institutions noting why cooperation developed first and has been most extensive in oversight of banks relative to securities firms and insurance companies. It also poses the question of whether the extent of international coordination can be sustained or may even diminish.
Design/methodology/approach
The history of international coordination is used to illustrate the hypotheses that cooperation is more likely: the broader the international consensus on policy objectives and the potential gains from cooperation, the wider the international consensus on policy objectives and the potential gains from cooperation, the deeper the international agreement on the probable consequences of policy alternatives, the stronger the international institutional infrastructure for decision-making and the greater the domestic influence of experts who share a common understanding of a problem and its solutions.
Findings
All five of these factors that have enabled deepening and broadening of international cooperation have diminished in strength so that international cooperation is not likely to expand and may even be in retreat.
Originality/value
This article clarifies the factors that facilitate international cooperation and highlights the key obstacles to sustaining international cooperation.
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Reva Berman Brown and Richard Herring
The temporal aspects of strategy and decision making have not, until recently, been accorded the importance they deserve. This paper describes a study undertaken to measure the…
Abstract
The temporal aspects of strategy and decision making have not, until recently, been accorded the importance they deserve. This paper describes a study undertaken to measure the temporal perception of people in an organization. An instrument was devised which the authors have called “the circle test” which measures subjects’ temporal relatedness and temporal dominance ‐ how people perceive the relationship between their past, present and future. Since the size of the organization studied is small, the research took the form of an exploratory study only, but the results of the research indicate that the use of the circle test can demonstrate differences in temporal perception between the sexes and between different age groups. Differences in temporal perception between people at different responsibility levels in the organisation is also suggested.
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Before providing an overview of the conference with the above title and this Special Issue, this paper aims to present a view of the meaning of systemic risk, factors that affect…
Abstract
Purpose
Before providing an overview of the conference with the above title and this Special Issue, this paper aims to present a view of the meaning of systemic risk, factors that affect systemic risk and measures of systemic risk. Thereafter, the conference presentations and the papers in this issue are summarized.
Design/methodology/approach
Characteristics and measures of systemic risk are reviewed. Conference papers and presentations are summarized.
Findings
While some aspects of systemic risk of a financial institution can be measured, an important aspect associated with contagion through markets is not easily captured by simple measures.
Originality/value
The conference and the papers in this issue contribute to the policy debate about sources and characteristics of systemic risk.
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Jacopo Carmassi and Richard John Herring
The purpose of this paper is to analyze whether and how “living wills” and public disclosure of such resolution plans contribute to market discipline and the effective resolution…
Abstract
Purpose
The purpose of this paper is to analyze whether and how “living wills” and public disclosure of such resolution plans contribute to market discipline and the effective resolution of too big and too complex to fail banks.
Design/methodology/approach
The disorderly collapse of Lehman Brothers is analyzed. Large, systemically important banks are now required to prepare resolution plans (living wills). In the USA, parts of the living wills must be disclosed to the public. The public component is analyzed with respect to contribution to market discipline and effective resolution of banks considered too big and complex to fail. In a statistical analysis of the publicly available section of living wills, this information is contrasted with legislative requirements.
Findings
The analysis of public disclosures of resolution plans shows that they are insufficient to facilitate market discipline and, in some instances, fail to enhance public understanding of the financial institution and its business. When coupled with the uncertainty over how an internationally active financial institution will be resolved, the paper concludes that these reforms will do little to reduce market expectations that some financial firms are simply too big or too complex to fail.
Research limitations/implications
A very small data set and the necessity of cross-checking the authors' observations with all publicly available sources. The authors have also tried to infer a purpose for public disclosure of parts of resolution plans. The authorities are remarkably vague on the issue and so the authors have assumed they actually did have a specific intent that would strengthen the system.
Practical implications
The inference from the publicly available portion of living wills is that the authorities are a very long way from abolishing too-big-to-fail.
Originality/value
So far as the authors know, this is the first in-depth analysis of the information available in the public sections of living wills.
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Robert A. Eisenbeis and Richard J. Herring
The purpose of this paper is to examine the events leading up to the Great Recession, the US Federal Reserve’s response to what it perceived to be a short-term liquidity problem…
Abstract
Purpose
The purpose of this paper is to examine the events leading up to the Great Recession, the US Federal Reserve’s response to what it perceived to be a short-term liquidity problem, and the programs it put in place to address liquidity needs from 2007 through the third quarter of 2008.
Design/methodology/approach
These programs were designed to channel liquidity to some of the largest institutions, most of which were primary dealers. We describe these programs, examine available evidence regarding their effectiveness and detail which institutions received the largest amounts under each program.
Findings
We argue that increasing financial fragility and potential insolvencies in several major institutions were evident prior to the crisis. While it is inherently difficult to disentangle issues of illiquidity from issues of insolvency, failure to recognize and address those insolvency problems delayed necessary adjustments, undermined confidence in the financial system and may have exacerbated the crisis.
Research limitations/implications
Disentangling issues of illiquidity from issues of insolvency is inherently difficult and so it is not possible to specify a definitive counterfactual scenario. Nonetheless, failure to recognize and address the insolvency problems in several major institutions until more than a year after the crisis had begun delayed the necessary adjustment and undermined confidence in the financial system.
Originality/value
This paper is among the first to analyze data showing the amounts of lending and the distribution of these loans across institutions under the Fed’s special liquidity facilities during the first 18 months of the financial crisis.
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Abstract
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John S. Jahera and David A. Whidbee
The global banking environment is experiencing significant change as regulatory and geographical barriers to competition are reduced. As these barriers are removed, greater…
Abstract
The global banking environment is experiencing significant change as regulatory and geographical barriers to competition are reduced. As these barriers are removed, greater integration of banking services is developing throughout the world affecting the performance and structure of banking institutions. This research examines the stock returns and volatility of stock returns for a sample of banks in the United States, Europe, Canada and Japan. The general focus is to identify factors influencing the return and risk and to examine cross‐country differences in these factors. The results suggest that while size does not affect return volatility for any of the categories of banks, it does affect returns for banks in Japan, the U.S. and other non‐universal banking systems. Likewise, the investment in fixed assets appears consistently to adversely affect returns. A number of differences are found across country borders and across type of institutions (i.e. universal versus non‐universal banks).
We are informed that at a recent meeting of representatives of some important learned societies a resolution was adopted by an overwhelming majority that Public Libraries should…
Abstract
We are informed that at a recent meeting of representatives of some important learned societies a resolution was adopted by an overwhelming majority that Public Libraries should have no connection with the custody of Local Records.
The purpose of this paper is to investigate the practice of comedians in relation to freedom of expression, so as to throw light on the issue of giving or avoiding offence.
Abstract
Purpose
The purpose of this paper is to investigate the practice of comedians in relation to freedom of expression, so as to throw light on the issue of giving or avoiding offence.
Design/methodology/approach
The literature of comedy, newspaper coverage of comedy in the UK in 2008, observation of comedians in performance, and a small, informal interview programme with stand up comedians were used in the preparation of the paper.
Findings
Stand up comedians, despite their own sense that they defy restriction and popular perception of their material as often offensive, do monitor their material for potential offence. They assess the extent of offence and modify their performances in response. In some cases they apply personal formulae to this process.
Research limitations/implications
The interview programme is too small to claim to be fully representative and is intended only to give an indicative view of the field.
Practical implications
Examination of comedians' practice has implications for information service institutions and the giving of access to potentially offensive content.
Originality/value
The paper may be the first study of comedy in an information science context and it contains implications for further studies that use comedy as an example of content, and creative practice to further develop understanding of information provision issues.