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This paper evaluates the potential role of mandatory subordinated debt (MSD) in enhancing market discipline in emerging markets. The conceptual merits and key preconditions of MSD are first reviewed. Then, the extent to which emerging markets satisfy these preconditions—among them the...
Persistent link: https://www.econbiz.de/10014403477
The Basel Committee on Banking Supervision has proposed linking capital requirements for bank loans to ratings by commercial credit rating agencies. Estimates for 20 emerging market economies show that sovereign ratings react procyclically to crisis indicators. Ratings deteriorate if the real...
Persistent link: https://www.econbiz.de/10014399839
Persistent link: https://www.econbiz.de/10009419817
We show that distortion in the size distribution of banks around regulatory thresholds can be used to identify costs of bank regulation. We build a structural model in which banks can strategically bunch their assets below regulatory thresholds to avoid regulations. The resulting distortion in...
Persistent link: https://www.econbiz.de/10013170059
We present a semi-structural model of default risk, which is a function of loan and borrower characteristics, economic conditions, and the regulatory environment. We use this model to simulate bank credit losses for stress-testing purposes and to calibrate borrower-based macroprudential tools....
Persistent link: https://www.econbiz.de/10012301885
While deregulated financial markets and strong competition are commonly viewed as prerequisites for successful economic development, recent empirical evidence suggests that financial liberalization, if not well phased, can lead to costly financial crises. This paper focuses on the roles of...
Persistent link: https://www.econbiz.de/10014400696
The use of collateral has become one of the most widespread risk mitigation techniques. While it brings stabilizing effects to the individual lender we argue that it may exacerbate systemic risk through margin call activation. We show how a liquidity shock to the cash lender may propagate as a...
Persistent link: https://www.econbiz.de/10014397334
The paper finds that exchange rate flexibility in emerging market countries has increased over the past decade. This ""learning to float"" appears to have involved a strengthening of monetary and financial policy frameworks aimed at directly addressing the key vulnerabilities that give rise to...
Persistent link: https://www.econbiz.de/10014400849
Persistent link: https://www.econbiz.de/10009615568
Net capital flows to emerging Asia rebounded at a record pace following the global financial crisis, raising concerns …
Persistent link: https://www.econbiz.de/10014396568