Essays on financial regulation
- Autores: Anatoli Segura
- Directores de la Tesis: F. Javier Suárez Bernaldo de Quirós (dir. tes.)
- Lectura: En la Universidad Internacional Menéndez Pelayo (UIMP) ( España ) en 2014
- Idioma: inglés
- Tribunal Calificador de la Tesis: Xavier Freixas Dargallo (presid.), Marco Celentani (secret.), Jean-Charles Rochet (voc.), Enrico Perotti (voc.), Rafael Repullo (voc.)
- Materias:
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- Resumen
The financial crisis that originated with subprime-loan problems in 2007 and the burst of the real-estate bubbles in the United States and other countries has uncovered severe weaknesses in the regulation and supervision of financial entities. The magnitude of the crisis, the worst since that of the 1930s, has led to a vast reform process of the regulatory framework for the financial system at an international scale. As stated by the Financial Stability Board (FSB), the four broad objectives that articulate the reform agenda are:12 - Building resilience of financial institutions -Transforming shadow banking to transparent and resilient market-based financing - Ending too-big-to-fail -Making derivatives markets safer Hand in hand with the regulatory reform there is a growing interest within the field of financial economics, of which this PhD thesis is an example, to understand the economic reasons that may justify these policy interventions. In particular, in this dissertation I focus on a couple of regulatory responses to problems associated, in a direct or indirect manner, to refinancing risk.
One of the most important lessons of the 2007-08 financial crisis is the importance of maturity mismatch and its unavoidable companion, refinancing risk, for the stability of the financial system: the crisis vividly exposed the vulnerability of institutions with strong ma- turity mismatch to disruptions in their funding liquidity. Since August 2007, entities in the shadow banking system that financed their long-term assets with very short-term debt were the first financial agents to experience distress, which showed up in the form of refinancing problems. The interlinkages between shadow banks and banks propagated very fast the prob- lems of the former to the whole banking system, which also had a very important exposure to wholesale refinancing risk. An important example of these interlinkages were the cases of voluntary support decisions from banks to their sponsored vehicles experiencing refinanc- ing problems and that, according to market participants, were due to banks "reputational concerns".
A couple of regulatory responses are related to the events narrated above. First, the FSB, within its aim to improve the resilience offinancial institutions, is coordinating the introduction of a pair of minimum liquidity standards, the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR), that should limit banks exposure to refinancing risk. An agreement has already been reached on the LCR, that requires banks to have enough liquidity, defined as having on balance sheet certain assets (High Quality Liquid Assets) and access to some facilities (including some forms of central bank liquidity), to cover 30 days of outflows. The NSFR aims for better structural asset and liability maturity matches and its final form and implementation is still under discussion. From a theoretical perspective though, a set of questions arise: Why is the financial sector so exposed to refinancing risk? Is this exposure excessive? What market failures (if any) are addressed by this new regulation? These questions will be the focus of chapters 2 and 3 of this dissertation.
To provide background and the motivation for them, Section 1 in this chapter is devoted to review the extant literature on these issues and set the goals for the research undertaken in the two subsequent chapters Second, as part of the objective to increase the transparency of the shadow banking system, the FSB is advocating for the limitation of banks interactions with shadow banks.
In some jurisdictions, as the US and UK, steps have already been taken in this direction by prohibiting banks from giving support to their unguaranteed sponsored vehicles so that their refinancing risk is fully borne by the vehicles investors. Evaluating the adequacy of this new policy measure requires an answer to the following questions: Why did banks voluntarily support their sponsored entities in the shadow banking system? What type of reputation was at stake? Were these decisions costly for banks? Is it necessary to prohibit them? These questions will be the focus of Chapter 4. In Section 2 of this chapter I will argue that the existing literature does not provide a satisfactory answer to these questions, and I will set the goals that motivate the research undertaken in Chapter 4.
