Capital adequecy and capital regulation of US credit unions.
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The article examines the determinants of capital-assets ratios for credit unions in the United States, before and after the implementation of current framework for capital adequacy regulation in the year 2000. Credit unions appear to hold capital in excess of what is required by current capital regulation. The fact that credit unions take longer than banks to accumulate net worth might have encouraged a more prudent, pro-cyclical approach to capital provisioning. In general they entered the crisis in a stronger position to absorb unforeseen losses than many banks.Keywords:
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Credit crunch
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This Economic Letter shows that, in contrast to banks, larger credit unions, on average, have decidedly lower average costs and higher net incomes, as we might expect in the presence of important economies of scale. It further notes that these economies of scale put pressure on the credit union industry to continue consolidating into fewer, larger credit unions. It also describes how some recent legislation may have further added to the pressures on both the banking and credit union industries to consolidate.
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Whether and to what extent tougher bank regulation weighs on economic growth is an open empirical question. Using data from 28 manufacturing industries in 50 countries, we explore the extent to which cross-country differences in bank liquidity and capital levels were related to differences in sectoral activity around the period of the global financial crisis. We find that industries which are more dependent on external finance, in countries where banks had higher liquidity and capital ratios, performed relatively better during the crisis, with regard to investment rates and the creation of new enterprises. This relationship, however, exists only for bank-based systems and emerging market economies. In the pre-crisis period, we find only a marginal link to bank capital. These findings survive a battery of robustness checks and provide some solid support for the tighter prudential measures introduced under Basel III.
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Our research addresses the issue of the likely nature of financial system activities by the end of 2011. Our specific focus is on the banking industry, although our analysis begins by considering the likely role of banks relative to other credit providers in the financial system. We employ a simple, straightforward methodology, relying mostly on Flow of Funds data to develop a broad, “bird’s eye” view of past and likely future banking industry activity. Conceptually, our main tack is to ask what banking industry activity would look like by 2012, were the industry to return to the trends underway before the housing price bubble took hold (i.e., pre-2001/2002). Using that artifice to approximate reasonably stable banking activity, we calculate the nature of banking activity across four dimensions: 1) credit extension and other asset-side activities; 2) funding (i.e., liability-side activities), and in particular whether projected funding is likely to be adequate to support projected credit extension; 3) banks’ capital position, were they to maintain at least the historically high tangible equity capital-to-assets ratios attained by the end of 2009; and 4) banks’ earnings prospect, and whether in particular earnings are likely to support necessary capital accumulation.
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Financial institutions' reform is one of the critical issues in the reform of China's banking industry.To enforce the regulation of China's banking industry on the basis of capital adequacy rate is very important to the healthy development of this industry.The lack of capital is a serious problem faced up by commercial banks,and it can not be solved in the present framework.It is advanced in this paper that issuing Subordinate Debt is a new and effective way for commercial banks to raise capital.
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The global financial crisis produced an important agreement among regulators in 2010-11 to raise capital requirements for banks to protect them from insolvency in the event of another emergency. In this book, William R. Cline, a leading expert on the global financial system, employs sophisticated economic models to analyze whether these reforms, embodied in the Third Basel Accord, have gone far enough. He calculates how much higher bank capital reduces the risk of banking crises, providing a benefit to the economy. On the cost side, he estimates how much higher capital requirements raise the lending rate facing firms, reducing investment in plant and equipment and thus reducing output in the economy. Applying a plausible range of parameters, Cline arrives at estimates for the optimal level of equity capital relative to total bank assets. This study also challenges the recent much finance literature, which holds that in advanced countries banking sectors are already too large and are curbing growth.
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Financial fragility
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Korean Abstract: 자본시장의 복합화, 세계화, 대형화가 진행되는 과정에서는 자본시장 불안정성, 변동성의 증폭과 전이가 대규모로 급속하게 진행될 가능성이 더욱 증가하게 되었다. 본 연구는 은행중심 시장에 비해 자본시장 중심 시장에서는 시장참여자들간 시장참여유인, 시장 규제의 정도, 시장에서의 위험 수용 행태 등에 따라 시스템리스크 발생 및 전이 경로 등이 다르게 나타날 뿐 아니라 그 대응방안 또한 달라질 수 밖에 없다는 이론적, 실증적 연구를 고찰하고 이에 따른 정책적 방안을 제시한다. 뮤추얼펀드의 자금흐름과 자본시장의 불안정성의 상호 관계를 살펴보기 위해 국내 펀드시장 현황을 간략하게 살펴보고, 금융시장 불안성에 있어서의 헤지펀드의 역할에 대해 논의해 본다. 금융기관의 부실이 다른 금융기관과 금융시스템에 미치는 파급효과를 사전적, 사후적으로 차단한다면 금융기관의 부실이 시스템리스크로 진행될 가능성은 대폭 축소될 것이다. 이를 위해 사전적으로 금융기관에 대한 감독과 모니터링을 통해 부실 발생 가능성을 감소시키고 부실 징후가 포착된 금융기관에 대한 조치를 신속히 취함으로써 부실 규모가 확대되는 것을 방지하는 정책적 수단에 대한 논의를 제시한다.English Abstract: Globalization of capital markets coupled with increased size and complexity of operations of financial institutions makes it more likely that instability and volatility starting in one market would be transmitted to other markets with increased magnitude. This paper studies the causes and contagion process of systemic risk that can occur in the capital market, and investigates how they are different from that start in the financial market dominated by the banking sector. Capital markets are distinguished from the banking sector in many respects including incentives and risk aversion of market participants, and regulation. We reviewed theoretical and empirical studies on the causes of systemic risk that can originate from capital markets, and propose policy measures that can possibly prevent the occurrence of systemic risk and minimize its effect once it starts. The Korean mutual fund market will be reviewed to explore the relationship between fund flows and capital market instability, and discuss the possible ole of hedge funds in causing the current financial crisis. Systemic risk can greatly reduced if the financial distress suffered by a financial institution is effectively prevented from transferring to other institutions. We discuss the policy measures that can improve the regulation and monitoring of financial institutions for early detection of insolvency and prompt corrective actions.
Investor Protection
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Shareholder Value
Asia-Pacific
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Value (mathematics)
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