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Accounting, Prudential Regulation and Financial Stability
Author: Claudio E. V. Borio
Publisher:
Published: 2013
Total Pages: 38
ISBN-13:
DOWNLOAD EBOOK →What information about the financial condition of firms is conducive to efficient and stable operation of the financial system and of the economy more broadly? In this essay, we outline the contours of an ideal set of such information, identify existing gaps and propose a way forward to fill them. We argue that an ideal set should comprise two dimensions. As regards financial characteristics, it should cover three different types, viz: estimates of the current financial condition (first-moment information); estimates of risk profiles (risk information); and measures of the uncertainty surrounding both kinds of estimate (measurement error information). As regards the object of the analysis, it should cover information about both the individual firm (micro information) and, suitably aggregated, the system as a whole (macro information). So far, efforts have mainly focused on micro information and, within it, on estimates of the current financial condition; by contrast, risk information has drawn attention only more recently and measurement error information has been largely neglected. We also note that, as regards micro information, significant differences in perspective between accounting standard setters and prudential supervisors have come to light. We examine the reasons for these differences and propose ways in which they could be reconciled. We propose a strategy based on two principles: first, in the long term, the decoupling of the objective of accurate financial reporting about the firm from that of instilling the desired degree of prudence in its behaviour; and second, a parallel process towards that objective so that at all points the prudential authorities can neutralise any undesirable implications for financial stability of changes in financial reporting standards. We stress that close cooperation between accounting standard setters and supervisory authorities is called for both in developing the final set of information and in implementing it.
Fair Value Accounting, Transparency, and Financial Stability
Author: Lucas Mahieux
Publisher:
Published: 2019
Total Pages: 47
ISBN-13:
DOWNLOAD EBOOK →Prudential regulation of financial institutions relies on asset values measured based on accounting standards. This paper examines how this regulation affects financial institutions' incentives to use Level 2 versus Level 3 fair value reporting and how their endogenous choice affects systemic risk and the informativeness of financial institutions' financial statements. Crucially, Level 3 reporting allows financial institutions to use their private information, whereas Level 2 fair values are measured using publicly observable inputs. My analysis of the Level 3 reporting externalities highlights an interesting tradeoff between transparency and financial stability. Relative to Level 2 reporting, Level 3 reporting reduces the consistency and comparability of financial statements but can decrease systemic risk. Furthermore, manipulation makes Level 3 reporting less desirable, which may in turn increase systemic risk. The model reconciles the conflicting empirical evidence on the role of fair value accounting during the 2007-08 financial crisis, and provides new policy implications.
Global Financial Regulation
Author: Howard Davies
Publisher: John Wiley & Sons
Published: 2013-05-08
Total Pages: 180
ISBN-13: 0745655882
DOWNLOAD EBOOK →As international financial markets have become more complex, so has the regulatory system which oversees them. The Basel Committee is just one of a plethora of international bodies and groupings which now set standards for financial activity around the world, in the interests of protecting savers and investors and maintaining financial stability. These groupings, and their decisions, have a major impact on markets in developed and developing countries, and on competition between financial firms. Yet their workings are shrouded in mystery, and their legitimacy is uncertain. Here, for the first time, two men who have worked within the system describe its origins and development in clear and accessible terms. Howard Davies was the first Chairman of the UK's Financial Services Authority, the single regulator for the whole of Britain's financial sector. David Green was Head of International Policy at the FSA, after spending thirty years in the Bank of England, and has been closely associated with the development of the current European regulatory arrangements. Now with a revised and updated introduction, which catalogues the changes made since the credit crisis erupted, this guide to the international system will be invaluable for regulators, financial market practitioners and for students of the global financial system, wherever they are located. The book shows how the system has been challenged by new financial instruments and by new types of institutions such as hedge funds and private equity. Furthermore, the growth in importance of major developing countries, who were excluded for far too long from the key decision-making for a has led to a major overhaul. The guide is essential reading for all those interested in the development of financial markets and the way they are regulated. The revised version is only available in paperback.
Achieving Financial Stability: Challenges To Prudential Regulation
Author: Douglas D Evanoff
Publisher: World Scientific
Published: 2017-09-22
Total Pages: 385
ISBN-13: 9813223413
DOWNLOAD EBOOK →The Great Financial Crisis of 2007-2010 exposed the existence of significant imperfections in the financial regulatory framework that encouraged excessive risk-taking and increased system vulnerabilities. The resulting high cost of the crisis in terms of lost aggregate income and wealth, and increased unemployment has reinforced the need to improve financial stability within and across countries via changes in traditional microprudential regulation, as well as the introduction of new macroprudential regulations. Amongst the questions raised are:
Prudential Supervision
Author: Frederic S. Mishkin
Publisher: University of Chicago Press
Published: 2009-02-15
Total Pages: 378
ISBN-13: 0226531937
DOWNLOAD EBOOK →Since banking systems play a crucial role in maintaining the overall health of the economy, the adverse effects of poorly supervised systems may be quite severe. Without some form of vigilant external oversight, banking systems could fall prey to excessive risk taking, moral hazard, and corruption. Prudential supervision provides that oversight, using government regulation and monitoring to ensure the soundness of the banking system and, by extension, the economy at large. The contributors to this thoughtful volume examine the current state of prudential supervision, focusing on fundamental issues and key pragmatic concerns. Why is prudential supervision so important? What kinds of excess must it guard against? What particular forms does it take? Which of these are the most effective deterrents against mismanagement and system overload in today's rapidly shifting financial climate? The contributors foresee a continued movement beyond simple regulatory rules in banking and toward a more active evaluation and supervision of a bank's risk management practices.
Financial System Standards and Financial Stability
Toward a Framework for Financial Stability
Author: Mr.Carl-Johan Lindgren
Publisher: International Monetary Fund
Published: 1998-01-23
Total Pages: 98
ISBN-13: 9781557757067
DOWNLOAD EBOOK →This study outlines the broad principles and characteristics of stable and sound financial systems, to facilitate IMF sruveillance over banking sector issues of macroeconomic significance and to contribute the general international effort to reduce the likelihood and diminish the intensity of future financial sector crises.
Financial Regulation
Author: Ester Faia
Publisher: Cambridge University Press
Published: 2015-08-14
Total Pages: 375
ISBN-13: 1316033635
DOWNLOAD EBOOK →The 2007 to 2009 financial crisis resulted in the re-emergence of the debate on financial regulation and its relationships with other macroeconomic policies, particularly monetary policy. In Europe, the financial crisis was followed by the sovereign debt crisis, as the bail-out of the financial sector put strains on public finances in several countries. The sequence of events called for a strengthening of the union, ranging from a common framework for supervisory policy that could minimize the risk of unforeseen bank or country defaults to a common resolution mechanism that could set equal rules across countries and reduce ex-ante mis-incentives to risk-taking and moral hazard. This analysis of the state of and prospects for financial regulation examines the lending and saving behavior of banks and households as well as their borrowing activities in order to understand the conflicting priorities and complicated decisions involved in the development and implementation of financial legislation.
Financial Regulatory Reform
Author:
Publisher:
Published: 2009
Total Pages: 92
ISBN-13:
DOWNLOAD EBOOK →This report details the proposed reforms by the US Dept of Treasury to meet the following five key objectives: (1) Promote robust supervision and regulation of financial firms, (2) Establish comprehensive supervision of financial markets, (3) Protect consumers and investors from financial abuse, (4) Provide the government with the tools it needs to manage financial crises (5) Raise international regulatory standards and improve international cooperation.
