banking

The missed opportunity and challenge of capital regulation

Capital regulation is critical to address distortions and externalities from intense conflicts of interest in banking and from the failure of markets to counter incentives for recklessness. The approaches to capital regulation in Basel III and related proposals are based on flawed analyses of the relevant tradeoffs. The flaws in the regulations include dangerously low equity levels, a complex and problematic system of risk weights that exacerbates systemic risk and adds distortions, and unnecessary reliance on poor equity substitutes.

Regulatory failure and regulatory change in the banking sector

"In this short note I make some simple points about what went wrong with regulation of financial institutions before the financial disasters of 2007–8 and what has happened – and what should have happened – since. The problems were largely with banks and so most of what I will say is about them. I will make some general points, but at times I will say things that are somewhat more specific to the UK."

Bank Diversification and Valuation: International Evidence

Using a panel of the largest 800 banks from 31 OECD countries between 1998-2012 we investigate whether the diversity of financial institutions affects their valuations. That is whether banks with more diversified operations trade at a premium (reduce risk) or discount (are too complex). We look at both asset diversity and income diversity and price to book and Tobin's q as measures of value. Looking at the whole set we find that it is difficult to empirically verify the role of bank diversity on bank valuations.

Is UK Banking Reform heading in the right direction?

 

Financial crises are like wars; the winners write the history. In the UK the winners are the Treasury and the Bank of England armed with the ultimate weapon of the public purse. There will be no public enquiry into the cause of the crisis or the performance of our public institutions responsible for financial system stability. All this matters because without learning from past mistakes we are condemned to repeat them.