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efta court holds iceland was not required to ensure protection of depositors January 28, 2013

Posted by Bradley in : financial regulation, harmonization , add a comment

One might ask what is the point of harmonization of deposit protection at a minimum level to facilitate cross border banking if a bank’s home state doesn’t have to regulate banks properly to limit stresses on the deposit insurance system or really do anything to ensure that the deposit protection will in fact be available in the event of bank failure. But this is what the EFTA court has held in EFTA Surveillance Authority v Iceland:

the Court holds that the Directive does not envisage that the defendant itself must ensure payments to depositors in the Icesave branches in the Netherlands and the United Kingdom, in accordance with Articles 7 and 10 of the Directive, in a systemic crisis of the magnitude experienced in Iceland.

For the future the impact of the decision is limited by the fact that the rules relating to deposit guarantees have changed since the crisis.

imf paper on risk-weighted assets March 29, 2012

Posted by Bradley in : harmonization , add a comment

Vanessa Le Leslé & Sofiya Avramova, Revisiting Risk-Weighted Assets: Why Do RWAs Differ Across Countries and What Can Be Done About It?, IMF Working Paper WP/12/90 (Mar. 2012). Here’s the abstract:

In this paper, we provide an overview of the concerns surrounding the variations in the calculation of risk-weighted assets (RWAs) across banks and jurisdictions and how this might undermine the Basel III capital adequacy framework. We discuss the key drivers behind the differences in these calculations, drawing upon a sample of systemically important banks from Europe, North America, and Asia Pacific. We then discuss a range of policy options that could be explored to fix the actual and perceived problems with RWAs, and improve the use of risk-sensitive capital ratios.

The Basel Capital Adequacy regime is the most intense set of international standards for financial regulation we have. The paper illustrates that for a number of reasons even this regime does not fully harmonize the treatment of risk-weighted assets, partly because different countries have adopted different stages of Basel, and for other reasons. The authors caution that full harmonization might not in fact be ideal because it might lead to herd behavior but they illustrate that bottom line capital ratios disguise a wide range of behaviors with respect to holdings of assets.