financial regulation.docx

1、financial regulationIntroduction and PerspectivesFSA存在的意义：为了to make the new decision-making framework work in practice（例如：commitment to cost-benefit requirements），所以需要：1 need a clearer view of the economic case for regulation of financial markets, and 2 a rigorous approach to assessing whether that

2、case is met in relation to a particular set of institutions,这篇文章的主题：why regulation has welfare benefits, why it is rational for (particularly retail) consumers of financial services to demand regulation of financial services firms.关于who judge that there is a positive role and economic rationale for

3、regulation in finance 与those who argue that, at best, regulation does not enhance welfare and at worse is counter-productive,两种观点的区别：(1) how financial institutions and markets work and operate in practice,(2) the incentive structures faced by financial firms,(3) the extent of market imperfections an

4、d failures in the financial system and the power of regulation and supervision to address them, and(4) the extent to which financial products and contracts are significantly different from the generality of goods and services which are not regulated to anywhere near the same degree as financial inst

5、itutions.在深入讲之前，1 要分清regulation和monitoring的区别P6。 2 由于regulatory agencies是largely imposed by the regulator even though there may be a process of consultation，所以会产生一些问题：一些信息的缺失，顾客的不同要求不能被signalled。 3 正因为如此，会产生danger of regulation being over-demanded by consumers and over-supplied by regulators。例如：how

6、to guard against such demand- or supply-driven over-regulation.原理：regulation impose 各种cost，这些cost最后会反映在financial service的价钱上。如果regulation 是多余的，或着重在不重要的事务上，那么会产生avoidable cost 而且会大于regulation当初的成本。4 一般认为，regulation is about changing the behaviour of regulated institutions. 由此产生问题：the extent to which

7、behaviour is to be altered by way of externally imposed rules, or through creating incentives for firms to behave in a particular way. Incentive contract 的设置的好坏影响着regulated firms 的行为，也会产生副作用。一些人are sceptical of the benefits of regulation.因为他们觉得1 如果regulation有用，就不会有market failures and imperfections;2

8、 regulation 在实际中也解决不了此类问题，3 产生的成本比原来的的问题多很多，4 耗费很多不同成本。bank failures around the world就是a product of the poorly regulated and often distorted financial sectors in these countries。 原因有3：bad incentive structures, weak management and control systems within banks, and poor regulation, monitoring and supe

9、rvision.也有人认为 bank failures是因为 the indirectly malign effects of regulation.O b j e c t i v e s vs r a t i o n a l e观点：regulation serves the interest of governments, legislators and regulated financialfirms but is mostly detrimental to most consumers. 所以It needs to be emphasised, however, that many o

10、f the regulatory measures that Benston cites do not apply to the United Kingdom, either at all or to any significant extent.从此观点我们只要区别objectives of regulation (what outcome it is trying to secure), the rationale for regulation (why regulation is necessary if the objectives are to be achieved), and t

11、he reasons for regulation (why in practice regulation takes place).in the final analysis the three core objectives are:(1) to sustain systemic stability,(2) to maintain the safety and soundness of financial institutions, and(3) to protect the consumer.The economic rationale for regulation从7个方面解释：1.

12、Potential systemic problems associated with externalities (a particular form of market failure).2. The correction of other market imperfections and failures.3. The need for monitoring of financial firms and the economies of scale that exist in this activity.4. The need for consumer confidence which

13、also has a positive externality.5. The potential for Grid Lock, with associated adverse selection and moral hazard problems.6. Moral hazard associated with the revealed preference of governments to create safety net arrangements: lender of last resort, deposit insurance, and compensation schemes.7.

14、Consumer demand for regulation in order to gain a degree of assurance and lower transactions costs.Two generic types of regulation and supervision are identified:(i) prudential regulation, which focuses on the solvency and safety and soundness of financial institutions, and(ii) conduct of business r

15、egulation which focuses on how financial firms conduct business with their customers.为什么要customer protection？产生原因：1 institution 可能会fail 2 unsatisfactory conductFinancial firm的失败会对systemic stability, and cause loss to individual depositors有影响。所以更进一步说regulators are almost inevitably bound to have a pr

16、udential concern for the liquidity, solvency and riskiness of financial institutions. Prudential regulationWhy重要？because of imperfect consumer information, agency problems associated with the nature of financial institutionsbusiness, and because the behaviour of a financial firm after consumers have

17、 dealt with it affects the value of their stake in the firm.Conduct of business regulation怎么做？在于how financial firms conduct business with their customers。business regulation is designed to establish rules and guidelines about appropriate behaviour and business practices in dealing with customers.因此，

18、说回consumer protection in retail financial services，five alternative dimensions to a failed contract ：(i) the consumer receives bad advice - perhaps because an agency conflict isexploited;(ii) the supplying institution becomes insolvent before the contract matures;(iii) the contract turns out to be d

19、ifferent from what the consumer was anticipating;(iv) fraud and misrepresentation; and(v) the financial institution has been incompetent.the seven elements of the economic rationale for regulation in finance identified above1 Externalities: Systemic Issues为什么Systemic Issues are central to the regula

20、tion of banks。1 the pivotal position of banks in the financial system, especially in clearing and payments systems;2 the potential systemic dangers resulting from bank runs;3 the nature of bank (debt) contracts on both sides of the balance sheet;4 adverse selection and moral hazard associated with s

21、afety-net arrangements (lender-of-last-resort and deposit insurance).为什么bank 在经济中如此重要：1 they are the only source of finance for a large number of borrowers2 they manage the payments system3 banks are potentially subject to runs, which may have contagious effects.The externality is that the failure o

22、f an insolvent bank can cause depositors of other banks to withdraw deposits。为什么？ 1 banks offer debt contracts for liquid deposits that finance the acquisition of illiquid assets of uncertain value.2 a banks assets (loans) are valued more highly on a going-concern basis than on a liquidation or brea

23、k-up of the bank. In particular, failure or losses of one bank may cause outsiders to revise their view of the value of other banksassets3 If a bank is insolvent, those who withdraw first are paid in full whereas late-comers may not be able to be paid in full.4 the interconnectedness of banks (e.g.

24、in their gross positions with each other in clearing systems, in inter-bank deposits, etc.) is much greater than that in most other industries, which means that the failure of one bank can directly cause immediate losses to other, interconnected banks.为了应对bank failure， 一般会采取raise interest rates on b

25、ank deposits。但是，会产生1 reduce the banks yields from its assets because loan defaults may rise；2 can erode thebanks expected flow of profits。所以说 a rise in deposit interest rates may be taken tosignal a higher probability of the bank failing.Three counter-arguments（solvent banks are forced into insolven

26、cy）：(1) it is not rational for depositors to withdraw deposits from a solvent bank,(2) the existence of deposit insurance in particular removes the rationality of withdrawing deposits from banks, and(3) if a run to cash were to occur the systemic problem can easily be handled by the central bank ope

27、rating as a lender-of-last-resort to the system rather than individual banks: this injection of system-wide liquidity can be done through normal open market operations. These are considered in turn.(1) Solvent banks什么情况下会产生bank run：(i) depositors may not be certain that a bank is in fact solvent;(ii

28、) individual depositors may take a rational and informed view themselves but believe other depositors will not(iii) depositors may realise that a bank can get into difficulty if other depositors run;(iv) depositors might take the view that, while the probability of a bank failure is very low, it wou

29、ld nevertheless be very serious to them if it were to occur.With risk-aversion, and a relatively high ratio of bank deposits to total wealth, the threshold value of this probability is reduced yet further;(v) depositors might not be convinced either that there is a lender of last resort, or that it

30、will operate without friction.还有一种观点认为原因是：It is often the case that stock-market data reveal that bad news for one bank depresses other banks values also.Benston认为bank run 不会使solvent banks are forced into insolvency。While the probability that the failure of a single bank will induce a systemic probl

31、em may be very low, if it were to occur it would be serious, and the costs would be high.(2) Deposit insuranceBeston的观点是不一定都对，只在某种情况下适用。It is not the case in the UK or in Europe generally。 因为1 banks may be induced to take more risks and operate with less capital, and depositors might rationally seek

32、 high-risk banks as they receive a higher rate of interest in the event that the bank remains solvent but are compensated if the bank fails.2 if coverage is limited, the incentive in some circumstances for bank runs remains.就是说， 即使deposit insurance 可以减少bank failure的几率，it is still rational to withdraw deposits if the bank is perceived as being vulnerable. 就算when deposit insurance (or other compensation) is available, there are still problems for consumers: it can take time before redress is made, it may be percei