Abstract
In response to the crisis tighter legislation and regulations have been introduced. But new rules and laws will also be evaded. Indeed the creativity that financial institutions demonstrate can even increase the risks that the new rules were designed to manage. This chapter discusses several issues: Should supervisors be seeking solutions in the form of new legislation and regulations? What are the limitations and unintended consequences of such an approach? And what can supervisors do to ensure that these ‘unintended consequences’ are recognised and managed? Is there a role for the financial sector in this process?
Contributions by Boubacar Camara, Jean-Baptiste Haquin, Laurent Mercier, Emmanuel Point and Martin Rose from ACP are gratefully acknowledged.
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Notes
- 1.
See Commission Bancaire (2007).
- 2.
See also Viñals and Fiechter (2010).
- 3.
A detailed description of the activity of the ACP is provided in its annual report (http://www.acp.banque-france.fr/uploads/media/2012-ACP-annual-report.pdf). For a description of the evolution in Europe, see ECB (2010).
- 4.
Eichengreen and Dincer (2011) analyse a cross-section of countries relating the structure of bank supervision to financial markets outcomes.
- 5.
See BCBS (2010).
- 6.
See Kremp and Sevestre (2011).
- 7.
- 8.
On December 8th 2011, the European Banking Authority (EBA) published a recommendation stating that national supervisory authorities should require the banks in the sample to strengthen their capital positions by building up an exceptional and temporary capital buffer against sovereign debt exposures to reflect market prices as of end of September. In addition, banks were required to establish an exceptional and temporary buffer such that the Core Tier 1 capital ratio reaches a level of 9% by the end of June 2012.
- 9.
It is reasonable to think that banks reduced their sovereign exposures also in response to market pressures.
- 10.
The French regulation relating to liquidity was reviewed in 2009, introducing a standard and an advanced approach for liquidity risk.
- 11.
The second banking coordination directive of 1999 made universal banking the norm in the European Union by introducing a single banking license valid throughout the European Union, and limiting product-mix restrictions to those imposed by home regulators (Morrison 2010).
- 12.
French banks were previously banned from paying interests on sight deposits.
- 13.
See Rapport annuel de l’observatoire de l’épargne réglementée (2011).
- 14.
French housing loans are a low-risk asset class. See Enquête annuelle sur le financement de l’habitat en 2011, ACP, Analyses et synthèse – July 2012.
- 15.
For a progress report, see BCBS (2012b).
- 16.
The conjunction of several factors has contributed to the emergence of the financial crisis: overreliance on external ratings, flawed rating models, insufficient investors diligence, moral hazard, and inadequate accounting methods.
- 17.
See The G20 Seoul Summit Leaders’ Declaration, 11–12 November 2010.
- 18.
Article 4 of CRR under consideration states that ‘credit institution’ means an undertaking the business of which is to receive deposits or other repayable funds from the public and to grant credits for its own account.
- 19.
Draft CEIOPS’ Advice for Level 2 Implementing Measures on Solvency II on the procedure to be followed for the approval of an internal model: General provisions and some specificities related to partial internal model (26 March 2009). Article 3.3 states that many companies suggested during the preparation of the stock-taking exercise that they would welcome a period of engagement with supervisory authorities prior to the submission of their formal application, to enable them to develop and refine their internal model practices in preparation for meeting Solvency II requirements.
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Nouy, D. (2013). Unintended Consequences of Supervision. In: Kellermann, A., de Haan, J., de Vries, F. (eds) Financial Supervision in the 21st Century. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-36733-5_4
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