Working paper series / Institute for Monetary and Financial Stability
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22
This paper explores the relationship between equity prices and the current account for 17 industrialized countries in the period 1980-2007. Based on a panel vector autoregression, I compare the effects of equity price shocks to those originating from monetary policy and exchange rates. While monetary policy shocks have a limited impact, shocks to equity prices have sizeable effects. The results suggest that equity prices impact on the current account through their effects on real activity and exchange rates. Furthermore, shocks to exchange rates play a key role as well. Keywords: current account fluctuations, equity prices, panel vector autoregression
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Corporate borrowers care about the overall riskiness of a bank’s operations as their continued access to credit may rely on the bank’s ability to roll over loans or to expand existing credit facilities. As we show, a key implication of this observation is that increasing competition among banks should have an asymmetric impact on banks’ incentives to take on risk: Banks that are already riskier will take on yet more risk, while their safer rivals will become even more prudent. Our results offer new guidance for bank supervision in an increasingly competitive environment and may help to explain existing, ambiguous findings on the relationship between competition and risk-taking in banking. Furthermore, our results stress the beneficial role that competition can have for financial stability as it turns a bank’s "prudence" into an important competitive advantage.
23
I. EINLEITUNG II. VORSCHLAG DER WIRTSCHAFTSRECHTLICHEN ABTEILUNG ZUM 67. DEUTSCHEN JURISTENTAG 1. Darstellung und Begriffsbestimmung 2. Begründung III. BEDEUTUNG DES AUßERBÖRSLICHEN HANDELS IN DEUTSCHLAND IV. RECHTSVERGLEICHENDE BETRACHTUNG VON AKTIEN- UND KAPITALMARKTRECHT 1. Deutschland a) Organisation des Kapitalmarktes b) Differenzierung im Rahmen des Aktienrechts 2. Großbritannien a) Organisation des Kapitalmarktes b) Differenzierungen im „Companies Act 2006“ 3. USA a) Rechtsquellen des Kapitalgesellschafts- und Kapitalmarktrechts b) Organisation des Kapitalmarktes c) Kapitalgesellschaftsrecht V. STELLUNGNAHME 1. Anknüpfung der vorhandenen Regelungen an die Kapitalmarktorientierung 2. Verwischung der Grenzen zwischen Aktien- und Kapitalmarktrecht 3. Missbrauchsgefahr durch selbstbestimmte Wahl der Satzungsstrenge 4. Bisherige Reformansätze im deutschen Schrifttum 5. Die Abkehr von einer Differenzierung im Aktienrecht in der aktuellen Reformdiskussion 6. Ökonomische Analyse des Aktienrechts („Opt-In-Modell“) VI. FAZIT: Der Deregulierungsansatz, der eine Differenzierung zwischen börsen- und nichtbörsennotierten Aktiengesellschaften vorsieht, ist nicht zu befürworten. Vor dem Hintergrund der rechtsvergleichenden Betrachtung der Beispiele Großbritannien und der USA stellt sich vielmehr eine kapitalmarktorientierte Differenzierung der Anlegerschutzbestimmungen des Aktienrechts als vorzugswürdig dar. Die Anknüpfung von Deregulierungsmaßnahmen an das Kriterium der Kapitalmarktorientierung findet sich im Ansatz auch im bereits geltenden deutschen Recht. So enthält sowohl das Aktienrecht als auch das Kapitalmarktrecht entsprechend differenzierende Regelungen. Zudem weisen auch aktuelle nationale Gesetzesvorhaben und die Entwicklungen im europäischen Gesellschaftsrecht Tendenzen zu einer Abgrenzung nach dem Kriterium der Kapitalmarktferne oder -offenheit auf. Auch birgt der enge Anwendungsbereich der zwingenden Anlegerschutznormen des Aktienrechts auf börsennotierte Aktiengesellschaften erhebliche Missbrauchsrisiken. Aktiengesellschaften könnten in den außerbörslichen Handel wechseln, um in den Genuss von Deregulierungen und geringeren Transparenz- und Anlegerschutzanforderungen zu kommen. Letztlich folgt der Vorzug einer kapitalmarktorientierten Differenzierung auch aus der aktuellen Diskussion um Reformansätze zur Steigerung der Wettbewerbsfähigkeit des deutschen Gesellschafts- und Kapitalmarktrechts. Die in diesem Zusammenhang geforderte Aufhebung der Satzungsstrenge bei gleichzeitiger Normierung entsprechender Informations- und Anlegerschutzpflichten im Kapitalmarktrecht würde dazu führen, dass an bestehende Differenzierungen des Kapitalmarktrechts angeknüpft werden könnte.
21
The risk of deflation
(2009)
This paper was prepared for the meeting on Financial Regulation and Macroeconomic Stability: Key issues for the G20, organised by the CEPR and the Reinventing Bretton Woods Committee, London, 31 January 2009. Introduction: The onset of financial instability in August 2007, which quickly spread across the world, raises a number of questions for policy makers. First, what are the roots of the crisis? Many factors have been emphasized in the debate, including the opacity of complex financial products; the excessive confidence in ratings; weak risk management by financial institutions; massive reliance on wholesale funding; and the presumption that markets would always be liquid. Furthermore, poorly understood incentive effects – arising from the originate-to-distribute-model, remuneration policies and the period of low interest rates – are also widely seen as having played a role. Second, how can a repetition of the crisis can be avoided? Much attention is being focused on regulation and supervision of financial intermediaries. The G-20, at its summit in November 2008, noted that measures need to be taken in five areas: (i) financial market transparency and disclosure by firms need to be strengthened; (ii) regulation needs to be enhanced to ensure that all financial markets, products and participants are regulated or subject to oversight, as appropriate; (iii) the integrity of financial markets should be improved by bolstering investor and consumer protection, avoiding conflicts of interest, and by promoting information sharing; (iv) international cooperation among regulators must be enhanced; and (v) international financial institutions must be reformed to reflect changing economic weights in the world economy better in order to increase the legitimacy and effectiveness of these institutions. Third, how can the consequences for economic activity be minimized? Many of the adverse developments in financial markets – in particular the collapse of term interbank markets – reflect deeply entrenched perceptions of counterparty risk. Prompt and far-reaching action to support the financial system, in particular the infusion of equity capital in financial institutions to reduce counter-party risk and get credit to flow again, is essential in order to restore market functioning. A particular risk at present is that the rapid decline in inflation in many countries in recent months will turn into deflation with highly adverse real economic developments. This background paper considers how large the risk of deflation may be and discusses what policy can do to reduce it. It is organized as follows. Section 2 defines deflation and discusses downward nominal wage rigidities and the zero lower bound on interest rates. While these factors are frequently seen as two reasons why deflation can be associated with very poor economic outcomes, they should not be overemphasized. Section 3 looks at the current situation. Inflation expectations and forecasts in the subset of economies we look at (the euro area, the UK and the US) are positive, indicating that deflation is not expected. This does not imply that the current concerns of deflation are unwarranted, only that the public expects the central bank to be successful in avoiding deflation. The section also looks at the evolution of headline and “core” inflation, focusing on data from the US and the euro area. Section 4 reviews how monetary and fiscal policy can be conducted to ensure that deflation is avoided. Section 5 briefly discusses special issues arising in emerging market economies. Finally, Section 6 offers some conclusions. An Appendix discusses deflation episodes in the period 1882-1939.
20
This paper examines the sustainability of the currency board arrangements in Argentina and Hong Kong. We employ a Markov switching model with two regimes to infer the exchange rate pressure due to economic fundamentals and market expectations. The empirical results suggest that economic fundamentals and expectations are key determinants of a currency board’s sustainability. We also show that the government’s credibility played a more important role in Argentina than in Hong Kong. The trade surplus, real exchange rate and inflation rate were more important drivers of the sustainability of the Hong Kong currency board.
35
This paper considers a firm that has to delegate to an agent, such as a mortgage broker or a security dealer, the twin tasks of approaching and advising customers. The main contractual restriction, in particular in light of related research in Inderst and Ottaviani (2007), is that the firm can only compensate the agent through commissions. This standard contracting restriction has the following key implications. First, the firm can only ensure internal compliance to a "standard of sales", in terms of advice for the customer, if this standard is not too high. Second, if this is still feasible, then a higher standard is associated with higher, instead of lower, sales commissions. Third, once the limit for internal compliance is approached, tougher regulation and prosecution of "misselling" have (almost) no effect on the prevailing standard. Besides having practical implications, in particular on how to (re-)regulate the sale of financial products, the novel model, which embeds a problem of advice into a framework with repeated interactions, may also be of separate interest for future work on sales force compensation. JEL Classification: D18 (Consumer Protection), D83 (Search; Learning; Information and Knowledge), M31 (Marketing), M52 (Compensation and Compensation Methods and Their Effects).
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This paper presents a novel model of the lending process that takes into account that loan officers must spend time and effort to originate new loans. Besides generating predictions on loan officers’ compensation and its interaction with the loan review process, the model sheds light on why competition could lead to excessively low lending standards. We also show how more intense competition may fasten the adoption of credit scoring. More generally, hard-information lending techniques such as credit scoring allow to give loan officers high-powered incentives without compromising the integrity and quality of the loan approval process. The model is finally applied to study the implications of loan sales on the adopted lending process and lending standard.
32
We present a simple model of personal finance in which an incumbent lender has an information advantage vis-a-vis both potential competitors and households. In order to extract more consumer surplus, a lender with sufficient market power may engage in "irresponsible"lending, approving credit even if this is knowingly against a household’s best interest. Unless rival lenders are equally well informed, competition may reduce welfare. This holds, in particular, if less informed rivals can free ride on the incumbent’s superior screening ability.
33
We analyze how two key managerial tasks interact: that of growing the business through creating new investment opportunities and that of providing accurate information about these opportunities in the corporate budgeting process. We show how this interaction endogenously biases managers toward overinvesting in their own projects. This bias is exacerbated if managers compete for limited resources in an internal capital market, which provides us with a novel theory of the boundaries of the firm. Finally, managers of more risky and less profitable divisions should obtain steeper incentives to facilitate efficient investment decisions.
30
This paper shows that active investors, such as venture capitalists, can affect the speed at which new ventures grow. In the absence of product market competition, new ventures financed by active investors grow faster initially, though in the long run those financed by passive investors are able to catch up. By contrast, in a competitive product market, new ventures financed by active investors may prey on rivals that are financed by passive investors by “strategically overinvesting” early on, resulting in long-run differences in investment, profits, and firm growth. The value of active investors is greater in highly competitive industries as well as in industries with learning curves, economies of scope, and network effects, as is typical for many “new economy” industries. For such industries, our model predicts that start-ups with access to venture capital may dominate their industry peers in the long run. JEL Classifications: G24; G32 Keywords: Venture capital; dynamic investment; product market competition