scholarly journals The New EU Remuneration Policy as Good but Not Desired Corporate Governance Mechanism and the Role of CSR Disclosing

2021 ◽  
Vol 13 (10) ◽  
pp. 5476
Author(s):  
Luis Porcuna Enguix
Keyword(s):  
Financial Stability ◽  
Global Financial Crisis ◽  
Unintended Consequences ◽  
Governance Mechanism ◽  
Risk Appetite ◽  
Bank Managers ◽  
Remuneration Policy ◽  
European Banking ◽  
Csr Disclosure

The recent global financial crisis (GFC) has put under scrutiny the sound remuneration policy and consequently the incentives design that influences risk-taking by managers in the banking industry to be a politically charged variable. In particular, this paper analyzes the new EU remuneration regulation of bank executive compensation and the role of corporate social responsibility (CSR) on this. Though all the EU efforts put into remuneration practices suggest commitment in aligning risk, performance, and compensation and aim at easing bank managers’ risk appetite for variable payments, the new regulation might drive unintended consequences, creating adverse selection problems in EU banks and hidden compensation habits that lower transparency, thus threatening financial system’s sustainability. Focusing on European Banking Authority (EBA) reports spanning from 2010 to 2017, the data reveals increasing values on the fixed component, less involvement in bank discipline by economic agents, and a potential for accounting-based incentives compensation that might reinforce attitudes towards building countercyclical buffers and smoothing earnings. As well, the new regulation might reduce the number of best-performing bank managers in the Eurozone, since “bad risks” are accepted to the detriment of “good risks,” which might stimulate their migration. In contrast, CSR investment is supposed to offset such practices and incentives that harm EU financial stability. As a result, policymakers, banks, and regulators should promote the transparency of CSR disclosure.

scholarly journals Exploring the Role of Islamic Fintech in Combating the Aftershocks of COVID-19: The Pen Social Innovation of the Islamic Financial System

2021 ◽  
Vol 7 (2) ◽  
pp. 136
Author(s):  
Mustafa Raza Rabbani ◽  
Abu Bashar ◽  
Nishad Nawaz ◽  
Sitara Karim ◽  
Mahmood Asad Mohd. Ali ◽  
...  
Keyword(s):  
Financial Services ◽  
Open Innovation ◽  
Financial Stability ◽  
Social Innovation ◽  
Global Financial Crisis ◽  
Financial System ◽  
Real Economy ◽  
Business Context ◽  
The World

The purpose of the current study is to investigate the role of the Islamic financial system in recovery post-COVID-19 and the way Fintech can be utilized to combat the economic reverberations created by COVID-19. The global financial crisis of 2008 has established the credentials of the Islamic financial system as a sustainable financial system which can save the long run interests of the average citizens around the world while adding value to the real economy. The basic ethical tenets available in the Islamic financial system make it more suited and readymade to fight the economic aftershocks of a pandemic like COVID-19. The basic principles of ethical Islamic finance have solid connections to financial stability and corporate social responsibility within the wide-reaching business context. With the emergence of Financial technology (Fintech) it has provided a missing impetus to the Islamic financial system to compete on equal ground with its conventional counterpart and prove its mettle. The study uses discourse analysis along with the content analysis to extract content and draw a conclusion. The findings of the study indicate that COVID-19 pandemic has provided the opportunity for the social and open innovation to grow and finance world have turned to open innovation to provide a speedy, timely, reliable, and sustainable solution to the world. The findings of the study provide significant implications for governments and policy makers in efficient application of Fintech and innovative Islamic financial services to fight the economic consequences of the COVID-19 pandemic.

scholarly journals A new paradigm of modern central banking

2013 ◽  
Vol 2 (2) ◽  
pp. 75-78
Author(s):  
Aleksandra Szunke
Keyword(s):  
Monetary Policy ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Central Banks ◽  
Central Banking ◽  
First Century ◽  
Financial Instability ◽  
New Paradigm ◽  
The Global Financial Crisis

The changes in the modern monetary policy, which took place at the beginning of the twenty-first century, in response to the global financial crisis led to the transformation of the place and the role of central banks. The strategic aim of the central monetary institutions has become preventing financial instability. So far, central banks have defined financial stability as a public good, which took care independently of other monetary purposes (Pyka, 2010). Unconventional monetary policy resulted in changes the global central banking. The aim of the study is to identify a new paradigm of the role and place of the central bank in the financial system and its new responsibilities, aimed at countering financial instability.

Money laundering and financial stability: does adverse publicity matter?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Bahriye Basaran-Brooks
Keyword(s):  
Money Laundering ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Banking System ◽  
Public Confidence ◽  
Content Type ◽  
Reputational Risk ◽  
The Global Financial Crisis ◽  
The Impact

Purpose Already suffering reputational damage from the global financial crisis, banks face a further loss of trust due to their poor money laundering (ML) compliance practices. As confidence-driven institutions, the loss of reputation stemming from inadequate compliance with regulations and policies labels banks as facilitators of crime and destroys public trust both in the bank itself, peer banks and the wider banking system. Considering the links between financial stability and adverse publicity about banks, this paper aims to critically examine the implications of ML-specific bank information on financial stability. Design/methodology/approach This paper adopts a content analysis and a theoretical discussion by critically evaluating the role of bank compliance information on stability with references to recent case studies. Findings This paper establishes that availability of information regarding a bank involved in or facilitating ML might pose a threat to financial stability if bank counterparties cut their ties with the bank in question and when bank stakeholders show a strong and sudden negative reaction to adverse publicity. Though recent ML scandals have not caused immediate instability, general loss of confidence associated with reputational risk have had a destabilising effect on affected banks’ capital and liquidity. Originality/value There has been surprisingly little discussion to date on the impact of publicly available bank information on financial stability and public confidence within the ML compliance framework. This paper approaches the issue of publicly available banking compliance information solely through the prism of public confidence and reputational risk and its impact on macro-stability by examining recent ML scandals.

scholarly journals The role of corporate governance in reducing the global financial crisis implications in light of the Central Bank of Jordan

2020 ◽  
Vol 15 (3) ◽  
pp. 10-19
Author(s):  
Fouzan AL Qaisi
Keyword(s):  
Financial Crisis ◽  
Central Bank ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Capital Adequacy ◽  
Capital Adequacy Ratio ◽  
Study Results ◽  
Dependent Variables ◽  
The Global Financial Crisis

The study aims to test the role of the measures implemented by the Central Bank of Jordan to reduce the effect of financial crisis on the Jordanian banks, using two independent variables (loans and advances rate, overnight deposit window), which are the actions of the Central Bank of Jordan, and four dependent variables (liquidity ratio, ROA ratio, capital adequacy ratio, non-performing loans ratio), which are financial stability indicators for the banks for six years (2005–2011). To get the study results, these data are measured and analyzed using SPSS (Statistical Package for Social Sciences). It was found that the actions of the Central Bank of Jordan (loans and advances rate, overnight deposit window rate): have a statistically significant impact on the non-performing loans ratio (2005–2011); do not have a statistically significant impact on the capital adequacy ratio (2005–2011); have a statistically significant impact on ROA ratio (2005–2011); do not have a statistically significant impact on the liquidity ratio (2005–2011).

scholarly journals Investors’ expectations around quantitative easing: does liquidity injection affect European banks equally?

2021 ◽  
Author(s):  
Sara Longo ◽  
Antonio Parbonetti ◽  
Amedeo Pugliese
Keyword(s):  
Financial Stability ◽  
Global Financial Crisis ◽  
Capital Requirements ◽  
Quantitative Easing ◽  
Regulatory Capital ◽  
Fine Grained ◽  
Asset Portfolio ◽  
European Banks ◽  
The Global Financial Crisis

AbstractThe role of liquidity in the banking industry is increasingly under the spotlight since the Global Financial Crisis (GFC) in 2007. Prior evidence offers contrasting findings on the role played by liquidity in banks: whilst it ensures systemic financial stability, at the same time it raises agency costs. Notwithstanding this, European banks benefited from a generous liquidity injection following the launch of the Quantitative Easing (QE) programme by the European Central Bank (ECB) in 2015–2016. We leverage on the release of the QE and investigate whether investors’ reactions to the announcements of new liquidity injections vary according to bank-level characteristics of the European banks: namely, their financial soundness, asset portfolio quality and the level of transparency. Our findings document an overall negative market reaction to the QE announcements; at a more fine-grained level of analysis we highlight that banks falling short of the regulatory requirements are not expected to benefit from additional liquidity. This study contributes to the literature on the role of liquidity in banks by showing important boundary conditions to the beneficial role of liquidity in banks, that is—because of the regulatory capital requirements—liquidity is only valuable to investors if it can be reinvested once constraints are overcome.

scholarly journals Bank Governance and Systemic Stability: The 'Golden Share' Approach

2017 ◽  
Author(s):  
Saule T. Omarova
Keyword(s):  
Corporate Governance ◽  
Financial Crisis ◽  
Board Of Directors ◽  
Public Interest ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Golden Share ◽  
Starting Point ◽  
Bank Governance

68 Alabama Law Review 1029 (2017)The global financial crisis of 2008-2009 has sharply reframed the debate on the role of bank corporate governance as a mechanism of systemic crisis prevention. Among other things, it revealed how often the incentives of bank managers and shareholders to maximize short-term private gains are perfectly aligned as a matter of internal governance, but work directly against the broader public interest in preserving long-term financial stability. This Article accepts the existence of that built-in potential conflict as the critical starting point for answering the central question of post-crisis bank governance: How do we ensure that the board of directors of a privately-owned banking institution consistently and effectively acts in a manner that serves the overarching public interest in preventing systemic financial crises?The Article offers an unorthodox solution to this problem: in lieu of “improving” or “tweaking” existing standards and procedures that determine board composition or guide specific board actions, it advocates a fundamental structural reconfiguration of bank governance. Specifically, the Article proposes a special “golden share” regime that would grant direct but conditional management rights to a designated government representative on the board of each systemically important banking organization. The goal of the proposed regime is to create a powerful organizational node of public-interest-driven management, which would operate as a dynamic and flexible internal “emergency brake” on individual banks’ activities presenting significant systemic stability concerns. In effect, this mechanism would enable the federal government to accept the role of the “manager of last resort” of a systemically significant financial firm—but only temporarily, and only when it is necessary to preempt or reverse emerging threats to the financial system’s continuing operation.Importantly, the proposed regime is neither a nationalization measure nor an institutionalized bank bailout. Its overarching purpose is not to put the government in charge of private firms but, on the contrary, to steer the firms toward self-correcting and preventative actions necessary to avoid that undesirable result. In that sense, the golden share regime operationalizes a novel approach to bank—and, more broadly, systemically important financial institution (“SIFI”)—corporate governance as an inherently hybrid public–private process.Keywords: banks, bank governance, bank directors, financial stability, systemic risk, financial crisis, SIFI governance, corporate governance, golden share, government stake, board of directors, fiduciary duty, financial institutions, manager of last resort, crisis management

scholarly journals Promoting Bank Stability through Compensation Reform: Lessons from Iceland

2015 ◽  
Vol 11 (2) ◽  
pp. 333 ◽  
Author(s):  
Jay Cullen ◽  
Guðrún Johnsen
Keyword(s):  
Financial Institutions ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Banking System ◽  
Compensation Reform ◽  
European Banking ◽  
Economic Analyses ◽  
The Global Financial Crisis ◽  
Considerable Body ◽  
The Eu

This article argues that the program of compensation reform at financial institutions – despite recent wide-ranging changes – remains incomplete. A considerable body of theoretical and empirical research has been developed which, for the most part, suggests that compensation incentives embedded in compensation contracts at banks encouraged risk-taking behaviour which contributed to the Global Financial Crisis. Extensive reforms to compensation rules at financial institutions have been implemented across the globe, including increased use of deferral, mandatory capping of bonuses and the introduction of claw-back powers. Relying on observations on the failures of Icelandic and UK banks, and legal and economic analyses of compensation reforms in each jurisdiction, this paper argues that some elements of the Icelandic and UK reform programs ought to be transposed to the EU level. Arguably, these recommendations will help improve the resilience of the European banking system and contribute to greater financial stability.

Leverage, investment, and recovery from a financial crisis: the role of debt overhang

2019 ◽  
Vol 37 (1) ◽  
pp. 143-159
Author(s):  
Andreas Kuchler
Keyword(s):  
Panel Data ◽  
Financial Crisis ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Slow Recovery ◽  
Content Type ◽  
Debt Overhang ◽  
Macroeconomic Volatility ◽  
The Global Financial Crisis

Purpose Private investment in advanced economies contracted sharply during the downturn that followed the global financial crisis. A substantial debt overhang has been one proposed explanation for this development. This paper evaluates the role of debt overhang for the slow recovery in investment in Denmark, a country in which levels of private debt rapidly increased before the crisis. Design/methodology/approach Based on firm-level panel data, this paper evaluates the links between debt and investment dynamics for individual firms during the downturn that followed the global financial crisis. Findings High leverage contributed to a slow recovery in investment during the downturn that followed the financial crisis, in particular for small and medium-sized enterprises. The effect cannot solely be attributed to mean reversion in investment. Research limitations/implications Results point to the existence of a separate leverage or “balance sheet” channel with implications for macroeconomic volatility and financial stability. Practical implications Macroprudential or microprudential measures to counteract the build-up of excess leverage during upswings may contribute to reducing macroeconomic volatility and improving financial stability. Originality/value In contrast to previous studies, the panel dimension of data is used to take mean reversion in investment into account. The large, nationally representative panel data set allows to assess the macroeconomic relevance of the results, as well as enables subsample splits which are used to gain insights into potential mechanisms through which debt overhang impacts investment.

scholarly journals International cooperation on financial market regulation

2021 ◽  
Author(s):  
Michael Abendschein ◽  
Harry Gölz
Keyword(s):  
Financial Market ◽  
Financial Stability ◽  
Financial Regulation ◽  
Global Financial Crisis ◽  
Local Level ◽  
Market Regulation ◽  
Financial Market Regulation ◽  
The Global Financial Crisis ◽  
Impure Public Good

AbstractAt the latest the global financial crisis has raised the awareness of the need for a globally coordinated financial market regulation. Even though the necessity to cooperate is widely acknowledged, cooperation is often limited in practice. This article characterizes the formation of self-enforcing international financial regulation agreements. Our analysis allows to evaluate the desirability and feasibility of cooperative solutions and explains the challenges associated with the process of cooperation. We model the cooperation of national financial regulators in a game-theoretical framework that considers financial stability to be an impure public good. Joint national supervisory effort is supposed to increase aggregate welfare in terms of a more stable financial system both on a global and on a local level by simultaneously generating incentives to free-ride. Our analysis in general indicates the difficulty of reaching a fully cooperative solution. In our basic version of the model we show that partial cooperation of two or three countries is stable and improves the welfare of all countries relative to the non-cooperative Nash equilibrium. Further analyses highlight the role of additional club benefits. When signatory countries of a coalition gain benefits over and above the joint welfare maximization, stable coalitions of any size become feasible.

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