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331. The Systemic Risk of European Banks

Author:
Lamont Black, Ricardo Correa, Xu Huang, and Hao Zhou
Publication Date:
07-2013
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We propose a hypothetical distress insurance premium (DIP) as a measure of the European banking systemic risk, which integrates the characteristics of bank size, default probability, and interconnectedness. Based on this measure, the systemic risk of European banks reached its height in late 2011 around E 500 billion. We find that the sovereign default spread is the factor driving this heightened risk in the banking sector during the European debt crisis. The methodology can also be used to identify the individual contributions of over 50 major European banks to the systemic risk measure. This approach captures the large contribution of a number of systemically important European banks, but Italian and Spanish banks as a group have notably increased their systemic importance. We also find that bank-specific fundamentals predict the one-year-ahead systemic risk contribution of our sample of banks in an economically meaningful way.
Topic:
Debt, Regional Cooperation, European Union, Regulation, Risk, Fiscal Policy, and Banking
Political Geography:
Europe

332. International Evidence on Government Support and Risk Taking in the Banking Sector

Author:
Luis Brandao-Marques, Ricardo Correa, and Horacio Sapriza
Publication Date:
08-2013
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Government support to banks through the provision of explicit or implicit guarantees affects the willingness of banks to take on risk by reducing market discipline or by increasing charter value. We use an international sample of rated banks and find that government support is associated with more risk taking by banks, especially prior and during the 2008-2009 financial crisis. We also find that restricting banks range of activities ameliorates the link between government support and bank risk taking. We conclude that strengthening market discipline by reducing bank complexity is needed to address this moral hazard problem.
Topic:
Governance, Regulation, Risk, and Banking
Political Geography:
North America and United States of America

333. Shadow Banking and Systemic Risk in Europe and China

Author:
Sara Hsu, Jianjun Li, and Yanzhi Qin
Publication Date:
02-2013
Content Type:
Working Paper
Institution:
City Political Economy Research Centre (CITYPERC), University of London
Abstract:
We compare the European and Chinese shadow banking systems. While the European shadow banking system is better developed than the Chinese shadow banking system, herd behavior and other factors in European markets create systemic risk, which contributed in part to the financial crisis. Dispersion of risk across the "under-developed" shadow banking system in China has led to some cases of localized, concentrated risk, but not to systemic risk. We discuss proposed European shadow banking regulation and its implications for systemic risk, and discuss what lessons China might glean from such policies. We also discuss what lessons China's diverse and systemically uncoordinated shadow banking sector might provide for Europe.
Topic:
Economics, Regulation, Risk, and Shadow Banking
Political Geography:
China, Europe, and Asia

334. The Governance of the Black Holes of the World Economy: Shadow Banking and Offshore Finance

Author:
Ronen Palan and Anastasia Nesvetailova
Publication Date:
02-2013
Content Type:
Working Paper
Institution:
City Political Economy Research Centre (CITYPERC), University of London
Abstract:
This paper focuses on regulatory challenges posed by the two interconnected structures of the global financial system – the economy of tax havens (or offshore financial centres), and the shadow banking system. The financial crisis of 2007-09 has revealed that tax havens structures and shadow banking entities play a central role in the practise of financial institutions reliant on financial innovation. Thriving on complexity, opaque networks and driven by arbitrage, the two phenomena pose tremendous challenges to national and international regulators aiming to restore the financial cycle in the recessionary environment. In this paper, we analyse ‘the state of play’ and the current plans for the governance of tax havens, offshore finance and the shadow banking industry. We find that although offshore financial centres and shadow banking are outside the scope of academic economics, they have attracted a lot of attention on the part of financial researchers and regulators. Along with other macro-prudential and system risk concerns, the regulation, or governance of these ‘black holes’ of the global economy is increasingly assuming a central place on the agenda of financial regulators. In what follows, we explore the reasons behind this development.
Topic:
Governance, Regulation, Economy, Shadow Banking, and Offshore Finance
Political Geography:
Global Focus

335. The Historical Role of the European Shadow Banking System in the Development and Evolution of Our Monetary Institutions

Author:
Israel Cedillo Lazcano
Publication Date:
01-2013
Content Type:
Working Paper
Institution:
City Political Economy Research Centre (CITYPERC), University of London
Abstract:
When we hear about the 2008 Lehman Brothers crisis, immediately we relate it to the concept of “shadow banking system”; however, the credit intermediation involving lightly regulated entities and activities outside the traditional banking system are not new for the European Financial Systems, after all, many innovations developed in the past, were adopted by European nations and exported to the rest of the world (i.e. coinage and central banking), and European innovators unleashed several financial crises related to “shadowy” financial intermediaries (i.e. the Gebroeders de Neufville crisis of 1763). However, despite not many academics, legislators and regulators even agree on what “shadow banking” is, this latter does not refer exclusively to the functions of credit intermediation and maturity transformation. This concept also refers to the creation of assets such as digital media of exchange which are designed under the influence of Friedrich Hayek and the Austrian School of Economics. This lack of a uniform definition of “shadow banking” has limited our regulatory efforts on key issues like the private money creation, a source of vulnerability in the financial system that, paradoxically, at the same time could result in an opportunity to renovate European institutions, heirs of the tradition of the Wisselbank and the Bank of England which, during the seventeenth century, faced monetary innovations and led the European monetary revolution that originated the current monetary and regulatory practices implemented around the world.
Topic:
Regulation, Finance, Central Bank, Innovation, World System, and Shadow Banking
Political Geography:
Europe

336. Financial Fragility in the Current European Crisis

Author:
Domenica Tropeano
Publication Date:
01-2013
Content Type:
Working Paper
Institution:
City Political Economy Research Centre (CITYPERC), University of London
Abstract:
The paper argues that the European financial system in the years following the great financial crisis started in 2007 has become increasingly fragile. Minsky’s notion of fragility, on which it is based, is related to history, policy and institutions. In the current European environment, fragility depends on the rise of shadow banks’ assets, the expansion of derivatives and the changes in financial regulation. All these elements have jointly triggered several feedback loops. In Minsky’s opinion, policies should have the scope of thwarting self-enforcing feedback loops. Yet the policies that have been implemented so far seem to have produced the opposite effects. They have created new feedback loops that nurture fragility again. This outcome, however, is not surprising for policies may change initial conditions and have unintended consequences, as Minsky has taught us since a long time.
Topic:
Financial Crisis, Regulation, Finance, and Financial Systems
Political Geography:
Global Focus

337. Developing a Nuclear Material Control and Accounting System in Russia

Author:
Dmitry Kovchegin
Publication Date:
12-2013
Content Type:
Working Paper
Institution:
Center for International and Security Studies at Maryland (CISSM)
Abstract:
When considering the requirements for a global nuclear material accounting system, Russia’s experience in developing its domestic system deserves special attention for four reasons: First, Russia’s nuclear complex includes all of the types of nuclear facilities and nuclear material handling procedures that would be subject to a global system. Second, Russia has significant experience transitioning from an outdated system to a modern one. Third, Russia has operated its nuclear complex in a financially constrained environment and has relied in part on international assistance. Finally, the Russian nuclear complex is managed by many agencies with their own agendas, priorities, and visions of nuclear material accounting. This experience with an interagency environment may be a model for other countries. As a major nuclear power—in both military and civilian applications—Russia possesses all possible types of nuclear facilities, including all types of nuclear reactors, a complete range of fuel cycle facilities, storage sites, and several types of nuclear ships. Russia also possesses a wide variety of nuclear materials, including all types of uranium and various isotopic compositions of plutonium. These materials exist in both items and bulk accounting forms, as well is in a number of physical forms including metals, oxides, solutions, and salts. These materials are subject to a broad range of operations–at both the industrial scale and in smaller quantities for research purposes. Russia is also heavily involved in the domestic and international trade of nuclear materials. This results in a significant volume of nuclear materials transport—to include changes in ownership and in control and accounting requirements and systems. Russia began transitioning from its Soviet-era nuclear material accounting systems in the early 1990s. The Soviet Union was home to a comprehensive nuclear industry and nuclear materials accounting system. Thus, a modern system based on new standards had to be introduced into an operating nuclear complex. This process has confronted many challenges, in part because of the major cultural change that it required. After nearly 20 years of evolving the Russian system, some important issues remain unresolved.
Topic:
Security, Nuclear Power, Regulation, and Oversight
Political Geography:
Russia

338. Conflict trade: regulating illicit flows to and from war

Author:
Mark B. Taylor
Publication Date:
10-2013
Content Type:
Commentary and Analysis
Institution:
Norwegian Centre for Conflict Resolution
Abstract:
This expert analysis note describes an emerging approach to regulating illicit flows of goods to and from conflict zones. The approach, based on norms of national and international law defining business due diligence, is well suited for dilemmas posed by war economies. Due diligence offers the possibility of excluding goods from global flows if they are produced through human rights abuse or used for conflict financing, while at the same time it can limit harm to livelihoods and avoid the wholesale criminalisation of informal economies. To that end, further inter-governmental policy coordination is needed to define conflict financing under international law and to elaborate an effective regulatory strategy.
Topic:
International Law, Law, Regulation, Trade, Armed Conflict, Supply Chains, and Illicit Financial Flows
Political Geography:
Global Focus

339. EU Privacy Regulation: Implications for U.S. and EI Law Enforcement

Author:
Carlton Forbes and Jacob Victor
Publication Date:
12-2012
Content Type:
Working Paper
Institution:
Center for Global Legal Challenges, Yale Law School
Abstract:
In January 2012, the European Commission released drafts of two new pieces of legislation that would provide more stringent and more uniform regulation to the processing of electronic data relating to EU citizens. The proposed General Data Protection Regulation would govern the processing of data for general purposes, while the proposed Criminal Justice Directive would govern data processed in the specific context of criminal investigations. The Data Protection Regulation has proven controversial because of the significant number of requirements it imposes on private data processors, including requirements that the processor notify a consumer when her data is shared with a third party, and requirements that processors respect a number of new individual rights, such as the right of a consumer to request that her data be deleted (a.k.a. “the right to be forgotten”). Furthermore, the Regulation would mandate that many non-EU corporations would need to comply with its requirements when processing the data of EU citizens, or face harsh penalties. This memo summarizes the existing EU data protection regime, analyzes the changes proposed by the new Data Protection Regulation and Criminal Justice Directive, and explores the implications of this new legislation for U.S. criminal and national security investigations. We arrive at three main conclusions
Topic:
Law Enforcement, Law, European Union, Regulation, and Legal Theory
Political Geography:
Europe, North America, and United States of America

340. La fabrique politique d’une frontière européenne en Méditerranée. Le « jeu du mistigri » entre les Etats et l’Union (The political fabric of a European frontier in the Mediterranean: The “jeu du mistigri” between the States and the European Union )

Author:
Evelyne Ritaine
Publication Date:
07-2012
Content Type:
Special Report
Institution:
Centre d'Etudes et de Recherches Internationales (CERI)
Abstract:
The political determination of the Mediterranean border of the European Union seen from the perspective of the Southern European countries (Spain, Italy, Greece, Malta) illustrates the symbolic and political importance for these nations of maintaining control of the border. It has a significant impact on the types of controls that are enacted and the interplay between national and European decisions. Placing this question on the agenda brings to light a Mediterranean perspective regarding the exterior borders of the European Union that is largely determined by the conditions of integration of the different countries into the Schengen area. This new border regime is the result of complex political games and is seen as a security issue. The actual set of controls seems to be less planned and legal-rational than simply erratic and the result of tensions between internal tactics, nation state strategies and attempts at bringing within the ring of EU.
Topic:
Security, Migration, European Union, Regulation, Borders, and State
Political Geography:
Greece, Balkans, Spain, North Africa, Italy, Western Europe, Mediterranean, European Union, and Malta