Essays in banking regulation [Elektronische Ressource] / vorgelegt von Maryam Kazemi Manesh

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Essays in Banking RegulationInauguraldissertationzur Erlangung des akademischen Gradeseines Doktors der Wirtschaftswissenschaftender Universit at Mannheimvorgelegt vonMaryam Kazemi ManeshJanuar 2011Dekan: Prof. Dr. Martin PeitzReferent: Prof. Dr. Ernst-Ludwig von ThaddenKorreferent: Prof. Dr. Ernst MaugTag der mundlic hen Prufung: 18. Februar 2011iiAcknowledgmentsAbove all, I would like to thank my supervisor Ernst-Ludwig von Thadden for theexcellent guidance and for the encouraging feedback he gave me on both the content ofmy research and the way of presenting it. His tight schedule notwithstanding, he wasaccessible and extremely supportive in all aspects related to the process of growing intoacademia.I would also like to thank my second supervisor Wolfgang Buehler for his insightfulcomments on the rst essay. I thank him for his kind availability and valuable supportsat the time I had just began my rst steps to writing this thesis.I very much enjoyed interacting with my colleagues at the Center for Doctoral Studiesin Economics. I would like to thank Michal Kowalik for his instructive comments on the rst and the second chapters of this thesis and the inspiring discussions about bankingtopics. I am especially grateful to Jennifer Abel-Koch and Edgar Vogel who not only ascolleagues helped for the study and writing the thesis but also as the best friends tookcare of me during hard times of settling down in my second home, Germany.

Informations

• Publié par: universitat_mannheim
• Publié le: 01 janvier 2011
• Nombre de lectures: 30
• Langue: Deutsch
• Poids de l'ouvrage: 1 Mo

Extrait

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Aboveall,IwouldliketothankmysupervisorErnst-LudwigvonThaddenforthe
excellentguidanceandfortheencouragingfeedbackhegavemeonboththecontentof
myresearchandthewayofpresentingit.Histightschedulenotwithstanding,hewas
accessibleandextremelysupportiveinallaspectsrelatedtotheprocessofgrowinginto
academia.

IwouldalsoliketothankmysecondsupervisorWolfgangBuehlerforhisinsightful
commentsonthefirstessay.Ithankhimforhiskindavailabilityandvaluablesupports
atthetimeIhadjustbeganmyfirststepstowritingthisthesis.

IverymuchenjoyedinteractingwithmycolleaguesattheCenterforDoctoralStudies
inEconomics.IwouldliketothankMichalKowalikforhisinstructivecommentsonthe
firstandthesecondchaptersofthisthesisandtheinspiringdiscussionsaboutbanking
topics.IamespeciallygratefultoJenniferAbel-KochandEdgarVogelwhonotonlyas
colleagueshelpedforthestudyandwritingthethesisbutalsoasthebestfriendstook
careofmeduringhardtimesofsettlingdowninmysecondhome,Germany.Also,I
thankBj¨ornSaßforthegreatcommentsoneditingthethirdchapter.MarionLehnert
andHelgaGebauergreatlysimplifiedmylifebytakingcareofalltheadministrative
duties.

ManyothercolleaguesandfriendshaveashareinthepleasanttimesIspentinMannheim,
especiallyHeikoKarle,SebastianK¨ohne,LisandraFlach,PetraLoerkeandAlessandra
Donini,aswellasMoritzKuhn,ChristophRotheandXiaojianZhaoforourmemorable
momentsofthefirstyearscourseworks.Iamalsoindebtedtoallmycheeringfriends
outsideuniversityforwhomIdidnotalwayshavethetimetheydeserved.

Mywarmestthanksandlovegotomyfamily,whoalwaysinspiredandencouragedme
fromthefarhomelandandborewithmyabsencetheseyears,andtoHenningforbeing
thereformeandforallthehappymomentsinthepastbusymonths.

iii

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ductiontroIn1

2ASwitchingModelinBanking
2.1Introduction..................................
2.2TheModel...................................
2.2.1NoAssetSubstitution........................
2.2.2ComparisonoftheTwoRegimes..................
2.3SwitchingStrategiesinaCrossingCase...................
2.3.1TheSwitchingModel.........................
2.3.2TheOptimalStopping-SwitchingModel..............
2.4QuantificationoftheOptimalStrategies..................
2.4.1TwoAlternativeCases........................
2.4.1.1CostlessSwitching.....................
2.4.1.2TooCostlySwitching....................
2.5NumericalExamples.............................
2.5.1GeneralCase:TwoSwitches.....................
2.5.2ACostlessSwitch...........................
2.5.3TooCostlySwitch..........................
2.6Conclusion...................................
Appendix......................................
Figures........................................

3SwitchingModelsforBanking:IsGamblingforResurrectionValid?
3.1Introduction..................................

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CONTENTS

3.2TheOne-PeriodModelwithDiscreteReturn................
3.3TheTwo-PeriodModelwithDiscreteReturn................
3.3.1NoRiskofInsolvency.........................
3.3.2OperatingunderRiskofBankruptcy................
3.4NumericalExamples.............................
3.4.1BankruptcyatFailure........................
3.4.2SolvencyatFailure..........................
3.5EndogenousReinvestment..........................
3.6Conclusion...................................
Appendix......................................

TheTheoriesofBankRegulationandSystemicFailures
4.1Introduction..................................
4.2TheBasicModel:FailuresinBanks.....................
4.2.1TheMoralHazard..........................
4.2.2DepositInsuranceandtheMoralHazard..............
4.2.3IntroducingtheRegulatoryActions.................
4.3TheResolutionofIndividualBankFailures.................
4.3.1TheTime-InconsistencyProblem..................
4.3.2OptimalLiquidityProvision.....................
4.3.3TakeoverasanIncentivesForRiskReduction...........
4.4RegulatingSystemicRisk..........................
4.4.1ContagionandTooMuchRelatedBanks..............
4.4.2TooManyToFail...........................
4.5Macro-PrudentialRegulationPolicies....................
4.5.1DealingwithTMTF.........................
4.5.2TooRelatedToFailandCapitalAdequacy.............
4.5.3TBTFandSystemicTaxing.....................
4.5.4Market-BasedSystemandOtherAlternatives...........
4.6RegulatoryPoliciesintheRecentCrisis...................
4.7Conclusion...................................

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1Chapter

Inductiontro

Bankingregulationhasdrownspecialattentionofpolicymakers,institutionsandthe
economistssinceyears.Theintegrationofbanksandfinancialmarketsmadefinancial
stabilityextremelydependentonthebankingsystems.Thesystemiccrisesinthepast
decadesmotivatedformsofregulationwhicharemorecloselyassociatedwithprevention
thanwithcompensation.Theneedtoincreasestabilityandtohelpprotecttheinter-
nationalfinancialsystemledtotheBankforInternationalSettlements(BIS)Accordin
1988andtheUnitedStatesofAmerica’snewFederalDepositInsuranceCorporation
ImprovementActof1991.Thesuccessoraccord,BaselII,introducedin2004,aimedto
improveupontheriskinsensitivityoftheBaselI.However,therecentcrisisraisednew
challengesforbankingregulationinadditiontowhathadbeenconsideredpreviously.
Thebankingtheoryandinparticularthetheoriesofbankingregulationhavefocused
ontheriskinessofbanks’portfolio.Therisk-takingbehaviorofbanksanddifferent
situationsofmoralhazardproblemhavebeenthemainconcentration.Thisthesisisa
collectionofthreeessayswhichapplyadifferentperspectivetoquestionsintheliterature
ofbankingregulation.Chapterstwoandthreeanalyzetherisk-takingbehaviorofabank
whichcanchoosebetweentworegimesofoperation.Chapterfouraddstheregulatorinto
thesetupandsurveysthebankingtheoriesforregulatingnotonlyanindividualbank
butalsosystemicrisk-takingamongbanks.Inthefirsttwochapters,twoportfolios
differentintheirexpectedreturnandtherisklevelareavailabletothebank.When
thebankchangestheportfolioitiscalledregimeswitching.Bothchaptersstudythe
bank’srisk-returnpreferencesintheabsenceofoutsiderintervention.Whileinchapter
twotherelationshipbetweenthecash-flowandtheregimechoiceisinvestigatedin
acontinuoustimesetup,inchapterthreetheanalysisiscarriedoutadiscretetime
setup.Theregimechoiceisexaminedwithrespecttothecapitallevelinstaticandalso
dynamicsetups.Moreover,chapterthreequestionsthestandardtheoryof“gamblingfor
resurrection”.Chapterfourcoversregulatorypoliciestocontrolabank’sriskoffailure

1

2

CHAPTER1.ODUCTIONINTRandcollectsmacro-prudentialregulatoryproposalsfordifferentrisk-takingissuesina
system.bankingTheliteraturegenerallydefinesabank-regulatorgame.Thebankoptimizesitsequity
value.Theregulatorplaysasasocialplanerandoptimizesthesocialvalueofthebank,
includingboththeequityvalueanddepositsvalue.Thekeyfeatureisthattheregulator’s
decisionneedtobeincentivecompatiblefortheequityholders.Higherriskcanincrease
theequityvalueofthebankunderdistress.However,theriskyoperatingofthebank
mayhavenegativenetpresentvalue.Astrongregulatorforcesbank-closurebeforethe
bank’snetpresentvaluebecomesnegative.Incasethattheregulatorcancommittoa
policy,sheplaysfirstandannouncestheregulatorypoliciesandtheclosurethreshold.
Giventheclosurethreshold,thebankmakesthedecisionofcapitalstructure.The
bankingregulationtheoriessolvethegamebybackwardinductiontofindtheoptimal
olicies.pregulatoryIncontrasttomostofotherstudies,thisresearchallowsforregimeswitchingduring
abank’slifetime.Anagentchangesitsinvestmentportfoliodependingonpreferences
forriskandreturn,andthecash-flowoftheinvestment.Chaptertwoanalyzesthis
switchingbehaviorforabankoptimizingequityvalueonbehalfofitsshareholders.
Havingdeposits,thebankcanchooseoneofthetworegimesofoperationineachmoment
oftime.Ifthecash-flowisbelowthedepositpayment,thebankhastoinjectmoneyor
gobankrupt.However,bankruptcyandliquidatingassetsarecostlyinthesensethatthe
depositinsurerhastorepaytodepositors.Theriskierregimereturnsahigheroutcome
butwithlowerprobability.Thisregimeraisestheequityvaluewhenthecash-flowis
low.Sincetheequityvalueisstillpositive,thebankhasthechancetooperatewith
lowcash-flow,whatcreatesrisk-incentivesforthebankunderdistress.Nevertheless,the
switchinginvolvessomecostanditisnotalwaysarationaldecisiontobearthiscost
toincreasetherisk.Forahighlevelofthecash-flow,thebankisabletopaythecost.
Thus,thebankswitchestothelessriskyprojects(whatoffersahigherexpectedreturn
withlessuncer