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This paper contributes to the debate on the adequate regulatory treatment of non-bank financial intermediation (NBFI). It proposes an avenue for regulators to keep regulatory arbitrage under control and preserve sufficient space for efficient financial innovation at the same time. We argue for a normative approach to supervision that can overcome the proverbial race between hare and hedgehog in financial regulation and demonstrate how such an approach can be implemented in practice. We first show that regulators should primarily analyse the allocation of tail risk inherent in NBFI. Our paper proposes to apply regulatory burdens equivalent to prudential banking regulation if the respective transactional structures become only viable through indirect or direct access to (ad hoc) public backstops. Second, we use insights from the scholarship on regulatory networks as communities of interpretation to demonstrate how regulators can retrieve the information on transactional innovations and their risk-allocating characteristics that they need to make the pivotal determination. We suggest in particular how supervisors should structure their relationships with semi-public gatekeepers such as lawyers, auditors and consultants to keep abreast of the risk-allocating features of evolving transactional structures. Finally, this paper uses the example of credit funds as non-bank entities economically engaged in credit intermediation to illustrate the merits of the proposed normative framework and to highlight that multipolar regulatory dialogues are needed to shed light on the specific risk-allocating characteristics of recent contractual innovations.
n today’s world, the transfer of laws and regulations between different legal systems is commonplace. The global spread of stewardship codes in recent years presents a promising, but yet untested, terrain to explore the diffusion of such norms. This paper aims to fill this gap. Employing the method of content analysis and using information from 41 stewardship codes enacted between 1991 and 2019, we systematically examine the formal diffusion of these stewardship codes. While we find support for the diffusion story of the UK as a stewardship norm exporter, especially in former British colonies in Asia, we also find evidence of diffusion from transnational initiatives, such as the EFAMA and ICGN codes, as well as regional clusters. We also show that the UK Stewardship Code of 2020 now deviates from these current models; thus, it remains to be seen how far a second round of exportation of the revised UK model into the transnational arena will follow.
We present novel evidence on the value of cross-border political access. We analyze data on meetings of US multinational enterprises (MNEs) with European Commission (EC) policymakers. Meetings with Commissioners are associated with positive abnormal equity returns. We study channels of value creation through political access in the areas of regulation and taxation. US enterprises with EC meetings are more likely to receive favorable outcomes in their European merger decisions and have lower effective tax rates on foreign income than their peers without meetings. Our results suggest that access to foreign policymakers is of substantial value for MNEs.
In times of crisis, governments have strong incentives to influence banks’ credit allocation because the survival of the economy depends on it. How do governments make banks “play along”? This paper focuses on the state-guaranteed credit programs (SGCPs) that have been implemented in Europe to help firms survive the COVID 19 crisis. Governments’ capacity to save the economy depends on banks’ capacity to grant credit to struggling firms (which they would not be inclined to do spontaneously in the context of a global pandemic). All governments thus face the same challenge: How do they make sure that state guaranteed loans reach their desired target and on what terms? Based on a comparative analysis of the elaboration and implementation of SGCPs in France and Germany, this paper shows that historically-rooted institutionalized modes of coordination between state and bank actors have largely shaped the terms of the SGCPs in these two countries.
This paper studies a household’s optimal demand for a reverse mortgage. These contracts allow homeowners to tap their home equity to finance consumption needs. In stylized frameworks, we show that the decision to enter a reverse mortgage is mainly driven by the dierential between the aggregate appreciation of the house price and principal limiting factor on the one hand and the funding costs of a household on the other hand. We also study a rich life-cycle model that can explain the low demand for reverse mortgages as observed in US data. In this model, we analyze the optimal response of a household that is confronted with a health shock or financial disaster. If an agent suers from an unexpected health shock, she reduces the risky portfolio share and is more likely to enter a reverse mortgage. On the other hand, if there is a large drop in the stock market, she keeps the risky portfolio share almost constant by buying additional shares of stock. Besides, the probability to take out a reverse mortgage is hardly aected.