Главная страница Случайная страница
Разделы сайта
АвтомобилиАстрономияБиологияГеографияДом и садДругие языкиДругоеИнформатикаИсторияКультураЛитератураЛогикаМатематикаМедицинаМеталлургияМеханикаОбразованиеОхрана трудаПедагогикаПолитикаПравоПсихологияРелигияРиторикаСоциологияСпортСтроительствоТехнологияТуризмФизикаФилософияФинансыХимияЧерчениеЭкологияЭкономикаЭлектроника
University of Amsterdam and CEPR
|
|
The financial sector has become increasingly complex in terms of its speed and interconnectedness. Market discipline won’t stabilise financial markets, and complexity makes regulating markets more difficult. It advocates substantial intervention in order to restructure the banking industry, address institutional complexity, and correct misaligned incentives. The financial services sector has gone through unprecedented turmoil in the last few years. We see fundamental forces that have affected the stability of financial institutions. In particular, information technology has led to an enormous proliferation of financial markets, but also opened up the banks’ balance sheets by enhancing the marketability of their assets. As a matter of fact, a fundamental feature of recent financial innovations – securitisation, for example – is that they are often aimed at augmenting marketability. Such marketability can augment diversification opportunities, but it also creates systemic risk via herding behaviour and interconnectedness.More fundamentally, when markets exist for all kinds of real and financial assets of a firm, a firm can more easily change the direction of its strategy. This might be good, but could also lead to more impulsive decision making.
The latter refers to the tendency to follow current fads. We see the complexity of the financial sector (the fluid nature of the sector and difficulties in timely intervention by supervisors) and the systemic risk that has mushroomed as the two key issues that need to be addressed. Endogenous developments in the industry itself may not lead to less complex institutions. Market discipline – as we will argue next – also cannot be expected to be effective. The important question then is how to deal with this complexity. We will argue that imposing structural measures on the business models of banks might be needed to contain possibly destabilising market forces and improve the effectiveness of supervision.
3.2 Dealing with complexity
From a regulator’s perspective, complexity worsens externalities that one might want to contain. Complexity may also put bank supervisors in a dependent position; eg how is timely intervention possible if the complexity of the institution cannot be grasped by supervisors? And a complex financial institution may have many linkages with the financial system at large that are difficult to discern. This may augment concerns about banks being too big, or rather too interconnected, to fail. One is tempted to conclude that one way of dealing with the complexity is to disentangle activities and put them in separate legal structures (‘subsidiaries’). Those subsidiaries could deal on an arms-length basis with each other, with each being adequately capitalized without recourse to each other. This would resemble the non-operating holding company structure that the OECD has promoted in some studies (Blundell-Wignall et al 2009). With such a structure supervisors could possibly more easily (and more quickly) target, ie rescue, systemically important parts of a financial institution in case of distress; other parts could be sold or dismantled. One could also choose a more radical approach and force a bank to break up or limit its range of activities. Actually, the UK government’s Independent Commission on Banking, the Vickers Committee, advocates some structural remedies, particularly ‘ring-fencing’ the more locally oriented retail-banking operations. In terms of actually implementing new policies, the US appears to be in the lead with the Volcker Rule (part of the Dodd-Frank Act) that seeks to prohibit the involvement of banks in proprietary trading, and limits their investments and sponsorship in hedge funds, private equity and derivative activities.
From a policy perspective it is then hard to defend the desirability of very complex institutions considering the difficulty of timely intervention in such institutions. And more limited commercial banking institutions without much exposure to the financial markets and primarily financed by deposits (contrary to less stable wholesale financing) might be better at safeguarding core-commercial banking functions.
|
|