Bank Risk, Governance and Regulation by Elena Beccalli, Federica Poli

By Elena Beccalli, Federica Poli

This booklet offers study from prime researchers within the eu banking box to discover 3 key components of banking. In financial institution chance, Governance and rules, the authors behavior micro- and macro- point research of banking hazards and their determinants. They discover parts reminiscent of credits caliber, financial institution provisioning, deposit warrantly schemes, company governance and value of capital. The publication then is going directly to examine assorted elements of the connection among financial institution probability administration, governance and function. finally the ebook explores the law of systemic hazards posed through banks, and examines the results of novel regulatory units on financial institution behavior and profitability. The examine during this publication makes a speciality of points of the eu banking method; but it additionally deals wider perception into the worldwide banking area and gives comparisons to overseas banking platforms. The research presents in-depth perception into many components of financial institution threat, governance and legislation, earlier than eventually addressing the query: which banking concepts are literally possible?

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Such a relation is, arguably, particularly concerning during periods of distress when provisions sharply rise and banks are forced to raise their capital levels, both as a sound managerial practice but also because of being forced by regulators. Credit Quality, Bank Provisioning and Systematic Risk 31 Following the crisis, supervisors have been requesting banks to increase their capital base. The banks are concerned about a potential increase in the weighted average cost of capital following a strengthening of the capital base due to higher levels of Tier 1 capital, supposedly more expensive than other sources of funds.

To some extent, therefore, provisions can be used for earning management purposes and, in particular, earnings smoothing (reducing volatility in earnings). On the other hand, provisioning, together with capital requirements, has to do with the coverage of credit risk. There are convincing arguments, therefore, to think of provisioning as having an impact on systematic risk. Capital requirements themselves, which are designed to cover unexpected losses, are expected to have an impact on systematic risk and this might be particularly true during a crisis given the shortage of reserves that is due to the procyclical behaviour of provisioning.

Corporate-risk based variables could be grouped in several blocks of variables, a wealth of which characteristic the banking business or, at least, have paramount implications for banks. Major risk factors are obviously related to the asset side of the balance sheet. Assets’ composition, however, depends on the specific bank’s business model and its diversification. Banks largely operating according to a traditional business model are supposedly exposed to different risk events than are banks having a more market-oriented business model.

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