Douady / Goulet / Pradier Financial Regulation in the EU

From Resilience to Growth
1. Auflage 2017
ISBN: 978-3-319-44287-7
Verlag: Springer International Publishing
Format: PDF
Kopierschutz: Wasserzeichen (»Systemvoraussetzungen)

E-Book, Englisch, 484 Seiten, eBook

Financial regulation has dramatically evolved and strengthened since the crisis on both sides of the Atlantic, with enhanced international coordination through the G-20 and the Financial Stability Board and, at the regional level, a definite contribution from the European Union. However the new regulatory environment has its critics, with many divergent voices arguing that over-regulation has become a root cause of our current economic stagnation.This book provides a bigger picture view of the impact and future of financial regulation in the EU, exploring the relationship between microeconomic incentives and macroeconomic growth, regulation and financial integration, and the changes required in economic policy to further European integration. Bringing together contributions from law, economics and management science, it offers readers an accessible but rigorous understanding of the current state of play of the regulatory environment, and on the future challenges.Coverage will include:• A review of the recent regulatory changes from a legal and economic perspective• Analysis of how the economic model of financial institutions and entities is impacted by the new frameworks• How to improve securitization and new instruments under MIFID II• Issues in the enhanced supervision under delegated acts for AIFMD, CRR-CRD IV and Solvency II• How long term funding can be supplied in lieu of the non-conventional monetary policies• A new architecture for a safer and more efficient European financial systemFinancial Regulation in the EU provides much needed clarity on the impact of new financial regulation and the future of the economy, and will prove a must have reference for all those working in, researching and affected by these changes.

Zielgruppe

Professional/practitioner

Autoren/Hrsg.

Douady, Raphaël

Goulet, Clément

Pradier, Pierre-Charles

Inhaltsverzeichnis

1;Contents;5
2;List of Figures;8
3;List of Tables;11
4;1: Introduction;13
4.1;References;17
5;Part I: Supervision of Member States’ Budgets;18
5.1;2: Political Economy of the European Monetary Institutions and Reform Proposals;19
5.1.1;2.1 Introduction;19
5.1.2;2.2 EMU Institutional System and Fiscal Policy: Theory and Historical Overview of the Reforms;21
5.1.2.1;2.2.1 Fiscal Policy in the EMU: Theory;21
5.1.2.2;2.2.2 The “Original” Stability and Growth Pact;23
5.1.2.3;2.2.3 The Fiscal Reforms Accomplished as a Consequence of the Crisis;24
5.1.2.3.1;2.2.3.1 The Reform of the SGP;26
5.1.2.3.2;2.2.3.2 The European Semester;29
5.1.2.3.3;2.2.3.3 The Euro Plus Pact;30
5.1.2.3.4;2.2.3.4 The Fiscal Compact;30
5.1.2.3.5;2.2.3.5 Financial Facilities to Allow Member States to Benefit from Financial Assistance in Case of Distress;31
5.1.3;2.3 The ECB and Monetary Policy Since the Creation of the EMU;33
5.1.3.1;2.3.1 Mandate and Structure;33
5.1.3.2;2.3.2 Phases of the ECB Monetary Policy;34
5.1.3.3;2.3.3 Extension of the ECB’s Tasks;36
5.1.4;2.4 Review of the Different Proposals for a New Economic Governance in the EMU;38
5.1.5;2.5 Conclusions;45
5.1.6;2.6 Annex;46
5.1.7;References;50
5.2;3: Fiscal Sustainability and Fiscal Rules in a Monetary Union: Theory and Practice in Europe;53
5.2.1;3.1 Introduction;53
5.2.2;3.2 Why (and How) Does Fiscal Policy Need to Be Constrained?;55
5.2.2.1;3.2.1 Public Debt Sustainability and Fiscal Policy Rules;56
5.2.2.2;3.2.2 Fiscal Discipline Within a Monetary Union;61
5.2.3;3.3 European Fiscal Rules: Too Tight? Too Loose? Or Both?;66
5.2.3.1;3.3.1 Are European Fiscal Rules Ensuring the Sustainability of Public Finance?;67
5.2.3.2;3.3.2 Procyclical Bias in European Fiscal Policy Rules;70
5.2.3.3;3.3.3 Was the European Debt Crisis the Result of Irresponsible Fiscal Policies?;73
5.2.4;3.4 Conclusions;74
5.2.5;References;75
5.3;4: The Composition Effect of New Fiscal Rules in the Euro Area;79
5.3.1;4.1 European Total Expenditures, by Country and Function;80
5.3.2;4.2 A Brief Literature Review of the Economic Impact of Public Investment;84
5.3.3;4.3 Deficit of Public Investment and the Juncker’s Investment Plan;88
5.3.4;References;91
5.4;5: The Banking Union Revisited;95
5.4.1;5.1 Background;96
5.4.2;5.2 Benefits of Banking Union;97
5.4.3;5.3 The Single Supervisory Mechanism;99
5.4.3.1;5.3.1 The Three Pillars and Their Sequencing;99
5.4.3.2;5.3.2 The Central Role of the ECB;100
5.4.3.3;5.3.3 The Necessity of Coordination;101
5.4.3.4;5.3.4 Micro- and Macroprudential Measures;102
5.4.3.5;5.3.5 Potential Conflicts within the ECB;103
5.4.4;5.4 The Single Resolution Mechanism;104
5.4.4.1;5.4.1 The Legal Basis for Bank Resolution;104
5.4.4.2;5.4.2 The Basic Ingredients of Bank Resolution;105
5.4.4.3;5.4.3 Organizing Bail-in Procedures;105
5.4.4.4;5.4.4 Governance, Funding and Fiscal Backstop;106
5.4.5;5.5 Deposit Insurance;107
5.4.6;5.6 Other Structural Issues;108
5.4.6.1;5.6.1 The Ins and the Outs;108
5.4.6.2;5.6.2 The Separation of Bank Activities;109
5.4.6.3;5.6.3 CMU and the Financing of the Real Economy;110
5.4.7;5.7 Concluding Remarks;112
5.4.8;References;113
6;Part II: Supervision of Financial Entities;114
6.1;6: Regulatory Capture in Financial Supervision;115
6.1.1;6.1 The Concept of Capture;116
6.1.1.1;6.1.1 Materialist Capture;117
6.1.1.2;6.1.2 Non-Materialist Capture;118
6.1.2;6.2 The Normalization of Capture;121
6.1.2.1;6.2.1 Institutionalization;122
6.1.2.1.1;6.2.1.1 Rationalization;122
6.1.2.2;6.2.2 Socialization;123
6.1.3;6.3 Are Financial Supervisors Insulated from Capture?;124
6.1.3.1;6.3.1 Materialist Capture;124
6.1.3.2;6.3.2 Non-Materialist Capture;126
6.1.4;6.4 The Limits of the Concept of Capture;127
6.1.5;6.5 Concluding Remarks;128
6.1.6;References;128
6.2;7: The Challenges of Regulation of Derivatives;131
6.2.1;7.1 Introduction;131
6.2.2;7.2 Structure of Derivatives;132
6.2.3;7.3 Collapse of Bretton Woods and the Rise of Hedging;134
6.2.4;7.4 Transformation of Hedging into Arbitrage;135
6.2.5;7.5 Speculative Capital;140
6.2.6;7.6 Characteristics of Speculative Capital;141
6.2.7;7.7 Forwards and Forward-like Derivatives;143
6.2.8;7.8 Options and Option-like Derivatives;145
6.2.9;7.9 Synthetic Derivatives;150
6.2.10;7.10 Conclusion;156
6.2.11;References;156
6.2.11.1;Books;156
6.2.11.2;Newspapers and Online;157
6.3;8: The challenges and implications of the Markets in Financial Instruments Directive (MiFID) and of its revision (MiFID II, MiFIR) on the efficiency of financial markets;158
6.3.1;8.1 Introduction;158
6.3.2;8.2 Context in which MiFID was implemented and its first objectives;160
6.3.3;8.3 The efficiency of financial markets;162
6.3.3.1;8.3.1 Informational efficiency and the Efficient Market Hypothesis (EMH);162
6.3.3.2;8.3.2 Operational efficiency or the microstructure research area;163
6.3.3.3;8.3.3 Allocative efficiency;164
6.3.4;8.4 The challenges and the key regulatory contributions of MiFID;166
6.3.4.1;8.4.1 Challenges around the competitiveness and the efficiency of financial markets;167
6.3.4.2;8.4.2 Challenges around the investor protection;168
6.3.4.3;8.4.3 Challenges around transparency and the quality of markets;169
6.3.4.4;8.4.4 Challenges around the supervision and the enforcement of the financial regulation;170
6.3.5;8.5 A first assessment of MiFID with the remaining challenges for MiFID II and MiFIR;170
6.3.6;8.6 The implications of MiFID and MiFID II/MiFIR on the efficiency of financial markets;173
6.3.6.1;8.6.1 Developments in market structures: The implications of the suppression of the national order flow concentration rule and of the introduction of alternative venues (MTFs, SIs and OTFs) on the liquidity;173
6.3.6.2;8.6.2 Developments in the design rules: The implications of the Best Execution policy and financial innnovations on price formation and the price discovery process;178
6.3.6.2.1;8.6.2.1 Developments in the design rules and the Best execution policy;178
6.3.6.2.2;8.6.2.2 Developments in design rules and financial innovations;179
6.3.6.3;8.6.3 Information and disclosure: The implications for the transparency and the quality of markets;181
6.3.6.4;8.6.4 Market microstructure interfaces with the other areas of finance;184
6.3.7;8.7 Conclusion: United in diversity after the Big Bang and the crisis of 2008 ?;184
6.3.8;8.8 Appendix;186
6.3.9;Bibliography;203
6.4;9: The Evolution of Insurance Regulation in the EU Since 2005;206
6.4.1;9.1 Introduction;206
6.4.2;9.2 Market Regulation;207
6.4.2.1;9.2.1 Price Regulations;208
6.4.2.2;9.2.2 Consumer Protection;210
6.4.3;9.3 The Solvency II Process;212
6.4.3.1;9.3.1 Objective and Features of the Solvency II Package;212
6.4.3.2;9.3.2 Positive Interpretation;215
6.4.3.3;9.3.3 Criticism;218
6.4.3.3.1;9.3.3.1 Accounting-Capital Requirements Feedback Loop;219
6.4.3.3.2;9.3.3.2 Long-Term Financing and Asset Concentration;220
6.4.3.3.3;9.3.3.3 Very Low Predictive Power;222
6.4.4;9.4 Systemic Risk Regulation;225
6.4.4.1;9.4.1 From Academic Evidence to Enhanced Supervision of GSII;225
6.4.4.2;9.4.2 The Insurance Business Is Not Systemic;226
6.4.4.3;9.4.3 Is the Bank Metaphor Fully Justified?;227
6.4.5;9.5 From Private to Social Costs;228
6.4.5.1;9.5.1 How Many Costs?;228
6.4.5.2;9.5.2 The Cost to the Insurance Sector (See Also Appendix 9.2);230
6.4.5.2.1;9.5.2.1 Sector-Wide Costs;230
6.4.5.2.2;9.5.2.2 Individual Level Costs;231
6.4.5.3;9.5.3 From Costs to Concentration and Uniformization;233
6.4.6;9.6 Rationale for Regulation and Future Agenda;238
6.4.6.1;9.6.1 Addressing Transition Costs and “Regulatory Avalanche”;240
6.4.6.2;9.6.2 Toward Focused Supervision;241
6.4.6.3;9.6.3 From (Infinite) Layer Cake to Fitness Menu;243
6.4.7;9.7 Conclusion;243
6.4.8; Appendix 9.1: Relative Insurance Prices in EU28;245
6.4.9; Appendix 9.2: Cost of Insurance Regulation in EU28;246
6.4.10; Appendix 9.3: Insurance Core Principles;248
6.4.10.1; Insurance Core Principles (ICP);248
6.4.10.2; Common Framework for International Groups and Capital Standard;251
6.4.10.3; Additional Supervision Requirements for G-SIIs;252
6.4.11;Bibliography;252
6.5;10: The Impact of Basel III on the Operations of Retail Banks;259
6.5.1;10.1 Improving the Reliability and Safety of Financial Institutions;261
6.5.1.1;10.1.1 The Progressive Increase in Capital Equity Required by Regulators;261
6.5.1.2;10.1.2 The Reduction in the Risk Exposure;263
6.5.1.2.1;10.1.2.1 The Consequences in Terms of Credit Risk Policies;265
6.5.1.2.2;10.1.2.2 When Retail Banks Develop Internationally;266
6.5.1.3;10.1.3 Raising Equity Capital and the Capacity to Absorb Losses;268
6.5.1.4;10.1.4 Strengthening Liquidity;271
6.5.2;10.2 Improving the Control of Financial Institutions;274
6.5.2.1;10.2.1 The Strengthening of Financial Institutions’ Governance;274
6.5.2.1.1;10.2.1.1 Regulatory Requirements in Terms of Governance Quality;275
6.5.2.1.2;10.2.1.2 Consequences for the Recruitment of Directors;277
6.5.2.2;10.2.2 Clearer Organization and Responsibilities;278
6.5.3;10.3 Conclusion;280
6.5.4;References;281
6.6;11: The Knowns and the Known Unknowns of Capital Requirements for Market Risks;282
6.6.1;11.1 Introduction;282
6.6.2;11.2 Market Regulation;283
6.6.2.1;11.2.1 Higher Solvency Ratios (CET1/RWA);284
6.6.2.2;11.2.2 A More Restrictive Notion of Prudential Equity Capital (CET1) as the Numerator of Solvency Ratios;285
6.6.2.3;11.2.3 Improved Monitoring of Counterparty Risks;286
6.6.2.4;11.2.4 Leverage Ratio Acting in Principle as a Backstop;286
6.6.3;11.3 The Reasons for Overhauling the Calculation of Risk Weighted Assets on Trading Books;287
6.6.4;11.4 The Present State of Reforms in the Calculation of Risk Weighted Assets on Trading Books;292
6.6.4.1;11.4.1 The Rise of Standardized Approaches;293
6.6.4.2;11.4.2 The Reformulation and Supervision of Internal Models;297
6.6.4.3;11.4.3 Differentiated Liquidity Horizons and the Limits to Benefits from Diversification;297
6.6.4.4;11.4.4 Default Risks in the Trading Book;298
6.6.5;11.5 Future Trends;300
6.6.6;11.6 Rethinking Banks’ Capital Markets Activities;302
6.6.7;11.7 Conclusion;305
6.6.8;Bibliography;309
6.7;12: Reforming Rating Agencies;313
6.7.1;12.1 Rating Activity’s Characteristics;313
6.7.1.1;12.1.1 Rating Agencies Give Information to Investors About the Credit Risk of Issuers;313
6.7.1.2;12.1.2 Issuer Paying System;314
6.7.1.3;12.1.3 Rating Through the Cycle;315
6.7.1.4;12.1.4 The International Credit Rating Sector Is an Oligopoly;316
6.7.2;12.2 Criticisms Towards the Activity of Rating Agencies;318
6.7.2.1;12.2.1 Conflict of Interest;318
6.7.2.2;12.2.2 Sluggishness;319
6.7.2.3;12.2.3 Toughness;319
6.7.3;12.3 The Utility of Rating Agencies;319
6.7.3.1;12.3.1 Credit Rating Agencies Have a Certification Function;319
6.7.3.2;12.3.2 Credit Rating Agencies Have a Stabilizing Effect on the Bond Market and Give a Profit Opportunity to Informed Investors;320
6.7.4;12.4 Improving Bond Market Regulation;321
6.7.5;Bibliography;322
6.8;13: The Regulation of Alternative Investment Funds in Europe: The Alternative Investment Fund Managers Directive;324
6.8.1;13.1 Introduction;324
6.8.2;13.2 The Difficulties in Approving the AIFMD;327
6.8.3;13.3 The Creation of a Residual Category;334
6.8.3.1;13.3.1 The Notion of “Alternative Investment Funds” in the AIFMD;334
6.8.4;13.4 Further Specifications by ESMA;338
6.8.5;13.5 The AIFMD as a Model of Direct Regulation;342
6.8.6;13.6 Authorization;344
6.8.7;13.7 Information To Be Provided;345
6.8.8;13.8 Initial Capital and Own Funds;347
6.8.9;13.9 Operational Requirements;348
6.8.10;13.10 Leverage;351
6.8.11;13.11 Critical Remarks;352
6.8.12;13.12 Conclusions;355
6.9;14: The Regulation of CCPs in Europe: The European Market Infrastructure Regulation (EMIR);357
6.9.1;14.1 Introduction;357
6.9.2;14.2 Definition of Market Infrastructure and CCPs;359
6.9.2.1;14.2.1 The Functions of CCPs;362
6.9.3;14.3 Pros and Cons of CCPs;365
6.9.3.1;14.3.1 Benefits of Clearing Houses;365
6.9.3.2;14.3.2 Negative Effects;367
6.9.4;14.4 An Overview of EMIR;370
6.9.4.1;14.4.1 General Elements;370
6.9.5;14.5 The Provisions of EMIR for CCPs;372
6.9.5.1;14.5.1 Corporate Governance of CCPs;374
6.9.6;14.6 Prudential Requirements for CCPs;378
6.9.7;14.7 Critical Considerations;382
6.9.8;14.8 Conclusions;384
7;Part III: Funding Innovation, Financing Growth;385
7.1;15: The Impact of Regulatory Capital Regulation on Balance Sheet Structure, Intermediation Cost and Growth;386
7.1.1;15.1 Novelties of Basel III (CRD IV/CRR) and Their Anticipated Effects on Lending;389
7.1.1.1;15.1.1 Capital Requirements;389
7.1.1.2;15.1.2 Overall Leverage;391
7.1.1.3;15.1.3 Liquidity Ratios;391
7.1.1.3.1;15.1.3.1 Short-Term Liquidity;392
7.1.1.3.2;15.1.3.2 Long-Term Liquidity;392
7.1.2;15.2 Regulatory Impact on Financing Businesses;392
7.1.2.1;15.2.1 Interest-Rate Reliant Impact Studies;393
7.1.2.2;15.2.2 New Theoretical Developments;394
7.1.3;15.3 What Is the Binding Constraint?;396
7.1.3.1;15.3.1 Unpalatable Empirical Facts;396
7.1.3.2;15.3.2 Theoretical Explanations;397
7.1.3.3;15.3.3 A Narrative Since the Crisis;399
7.1.4;15.4 From Prevision to Recommendations;400
7.1.4.1;15.4.1 Plausible Next Months;401
7.1.4.2;15.4.2 Tuning Regulation to Trigger Growth;401
7.1.5;15.5 Conclusion;402
7.1.6;References;403
7.2;16: Higher Quality Securitization;405
7.2.1;16.1 Introduction;405
7.2.2;16.2 Securitization;407
7.2.3;16.3 European Commission Proposal 2015/0226 (COD);409
7.2.3.1;16.3.1 Rationale, Concerns and Incentives;410
7.2.3.2;16.3.2 General Rules for all Securitizations;411
7.2.3.3;16.3.3 Additional Rules Specific to STS Securitizations;414
7.2.3.4;16.3.4 Issues Arising from the Regulation;415
7.2.4;16.4 Case Study: CLO: High Yield Corporate Financing;420
7.2.4.1;16.4.1 CLO Characteristics;420
7.2.4.2;16.4.2 Level of Risk Retention Capital;423
7.2.4.3;16.4.3 International Convergence;428
7.2.5;16.5 Insolvency Law Reform in Europe;430
7.2.5.1;16.5.1 Firms of Significant Size (Debt Could be Securitized);432
7.2.5.2;16.5.2 Small and Medium Businesses;433
7.2.6;16.6 Conclusion;433
7.2.7;16.7 Annex;434
7.3;17: Essay on the State of Research and Innovation in France and the European Union;436
7.3.1;17.1 Introduction;436
7.3.2;17.2 The Tools of Innovation and Economic Growth;438
7.3.2.1;17.2.1 The Legal Framework of Innovation;438
7.3.2.1.1;17.2.1.1 Public Research and Innovation Structures;438
7.3.2.1.2;17.2.1.2 Private Research and Innovation Structures;441
7.3.2.1.3;17.2.1.3 Business and Research Clusters (“Pôles de Compétitivité”);443
7.3.2.2;17.2.2 A Flawed System: Comparison with Other Developed Countries;444
7.3.3;17.3 The Financing of Innovation in Enterprises;446
7.3.3.1;17.3.1 Public Financing;446
7.3.3.2;17.3.2 Private Financing;450
7.3.3.2.1;17.3.2.1 Companies That Have Access to the Stock Market;450
7.3.3.2.2;17.3.2.2 Companies That Aren’t Listed on the Stock Market;454
7.3.3.2.3;17.3.2.3 The Case of the Start-Up Companies;459
7.3.3.3;17.3.3 European Financing;463
7.3.3.3.1;17.3.3.1 European Programmes;463
7.3.3.3.2;17.3.3.2 The European Investment Bank (EIB);464
7.3.4;17.4 Conclusion;467
7.3.5;References;470
8;Name Index;472
9;Subject Index;477

Über Autor(innen)

Raphael Douady is a French mathematician and economist.  He holds the Frey Family Endowed Chair of Quantitative Finance at Stony Brook University (SUNY), and is also the International Representative (and former Academic Director) of the Laboratory of Excellence on Financial Regulation (Labex ReFi, a joint initiative of Paris 1-Sorbonne University, ESCP-Europe, CNAM and ENA) and is affiliated with the French National Centre for Scientific Research (CNRS).  He co-founded fin-tech firms Riskdata (1999) and Datacore (2015).  He has more than twenty years of experience in the banking industry and thirty-five years of research in pure and applied mathematics.  His current research focus is systemic risk and the anticipation of financial market crises. His background in pure mathematics is in dynamical systems, chaos theory and symplectic geometry. He studied at Ecole Normale Supérieure in Paris and earned his PhD in mathematics in 1982 from the University of Paris 7.Clément Goulet graduated from Paris 1 Panthéon-Sorbonne University, France, in Applied Mathematics. He is now a Doctoral Researcher with LabEx RéFi, working on forecasting techniques in finance. He lectures at Paris 1 Panthéon-Sorbonne University, France, where he also runs a doctoral seminar.Pierre-Charles Pradier is a Lecturer at Paris 1 Panthéon-Sorbonne University, France. He has been the Dean of the Economics Department, before serving as Vice-Provost, then Dean of the National School of Insurance (ENAss/CNAM). He joined LabEx RéFi in 2010 to coordinate teaching programmes. He lectures on applied microeconomics, financial economics and statistics.