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Teoretiske begrunnelser for regulering av finansnæringen

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    Teoretiske begrunnelser for regulering av finansnæringen Teoretiske begrunnelser for regulering av finansnæringen Presentation Transcript

    • Resolving the financial crisis: Are the lessons of the Nordics being heeded?
      by
      Claudio Borio, Bent Vale and Goetz von Peter*
      Norges Bank conference: Government intervention and moral hazard in the financial sector.
      2 to 3 September 2010
      * Claudio Borio and Goetz von Peter are, respectively, Head of Research and Policy Analysis and Economist at the BIS. Bent Vale is Assistant Director at the Norges Bank. The views expressed are those of the authors and not necessarily those of the BIS or the Norges Bank.
    • Motivation and Roadmap
      Two years after the current crisis started; time for preliminary evaluation of resolution methods so far
      Nordic crises in the early 1990s as guide, widely regarded as best practice
      ROADMAP: 3 parts:
      A) What are the crisis resolution principles?
      Objective: minimise the present value of the losses associated with the crisis
      3 principles: timeliness, comprehensiveness, balance
      B) How do the two resolutions compare?
      Current vs Nordic resolutions against the 3 principles
      C) What explains the differences?
      Consider possible explanations in turn
      2
      2
    • The Principles
      Norges Bank Finansiell stabilitet
    • 4
      P1: Timeliness
      P1:Nature and size of the problem should be recognised early and intervention should follow quickly
      Why? Stabilise situation and avoid hidden deterioration
      Costs increase if agents operate under distorted incentives
      Bias towards inaction can be very strong (S&L, Japan)
      Early intervention requires supporting institutions
      Is the necessary legislation in place?
      If not, get it in place.
    • P2: Comprehensiveness
      P2: Intervention and resolution should be broad-ranging and in-depth
      Step 1: stabilise the system: ensure continued functioning
      Funding support (ELA, DI, DG, maybe blanket)
      Step 2: restructure balance sheets
      Address losses comprehensively.
      Recapitalise.
      Deal with bad assets, internal or AMCs (“bad banks”)
      Step 3: re-establish conditions for long-term profitability
      Reduce excess capacity (balance sheet, network)
      Promote operational efficiencies (business focus; cut costs)
      Limit competitive distortions
      Requirements:
      Minimise cost to taxpayers
      Forceful approach to deal with conflicts of interest
      Hence, some conditionality or public control
      5
    • P3: Balance
      P3: intervention should strike a balance between limiting the adverse impact on the real economy and containing moral hazard
      Why? Basic tension
      Intervention designed to restrict unfettered market forces
      Shielding stakeholders distorts incentives (moral hazard)
      Mechanisms to handle trade-off:
      Keep stakeholders (decision-takers) accountable
      Managers and shareholders first
      Debt holders as far as possible (s.t. contagion)
      Use strict conditionality for support
      Transfer control (with or without government ownership)
      Optimal balance depends on existing institutions and market conditions.
      6
      6
    • How do theresolutionscompare?
      Norges Bank Finansiell stabilitet
    • P1: Timeliness
      Two criteria for assessing timeliness of intervention: relative to
      Downleg of the financial cycle
      Insolvency of the institutions
      In current crisis, intervention took place earlier relative to financial cycle
      First systemic event occurred earlier relative to peaks
      Interventions followed systemic event more rapidly
      …by which time AP and CR had declined less
      Result: institutions now further away from insolvency
      Then: intervention to raise capital to regulatory minima
      Now: capital generally well above minima
      8
      8
    • 9
      9
    • P1: Timeliness
      10
    • P1: Timeliness
      Then:
      Quicktargetedinterventionafter 1st systemicevent
      General governmentcapitalinjection, oncommercial terms 1-13 monthsafter
      Asset Management Companies 4-15 monthsafter, Sweden and Finland only.
      Blanket guarantee 11-12 monthsafter, Sweden and Finland only.
      Now:
      General governmentcapitalinjections and debtguarantees just 1 monthafter 1st systemicevent.
      Norges Bank Finansiell stabilitet
    • P2: Comprehensiveness? Breadth vs depth
      Step 1: stabilising the financial system
      Both effective, but significant differences
      Then: little need for liquidity support and then only later in the crisis (together with blanket guarantees)
      Now: liquidity squeeze triggered the crisis and played central role since August 2007
      Blanket guarantees (then in FI and SE) vsextended DI + priced DG (today).
      Implicit guarantees to systemically important institutions (G7 Plan of Action, Oct08).
       Now even more (and earlier) to stabilise system (on funding side).
      12
      12
    • P2: Comprehensiveness? Breadth vs depth
      Step 2: restructuring balance sheets
      Then: prompt and thorough measures,
      Mainly individual targeted recapitalisations
      Losses fully recognized
      Disposal of bad assets (bank-specific AMCs FI SE after nationalisation).
      Restructuring effort to eliminate excess capacity
      Now: not as comprehensive
      Large recapitalisations largely matching past losses
      Loss recognition incomplete (except possibly US)
      Asset transfers barely started (few, stand-alone). But AMCs may not be that crucial.
      Little restructuring to eliminate xs capacity
       Considerable uncertainty about bank balance sheets remains
      Norges Bank Finansiell stabilitet
    • P2: Comprehensiveness?
      Now: these objectives have been far less prominent
      14
      14
    • P3: Balance?
      Nordics took a tougher stance in striking the balance between sustaining aggregate demand and containing moral hazard
      Mechanism 1: treatment of stakeholders
      Then: shareholders wiped out, some exceptions in SE and FI, (new legislation when required).
      Then: managers replaced, but debt holders made whole
      Now: shareholders and managers less affected (debt holders lost in LeBrand a few FDIC handled banks).
      Mechanism 2: conditions for support
      Then: tough restrictions; now: less so (see previous Table)
      Mechanism 3: less inhibited attitude towards public control or nationalisation in Nordics went hand-in-hand with tougher stance.
      15
      15
    • Summary evaluation and possible explanations
      Bottom line
      Response to current crisis prompter but less comprehensive and in-depth
      Funding side stabilised but less progress on asset side
      Cleansing of balance sheets slower
      Little attention to reducing excess capacity
      Less attention to avoiding competitive distortions (except EC)
      Higher priority to sustaining demand in the short-term than to adjustment in the financial sector and moral hazard
      Why? 4 candidate explanations
      16
      16
    • Whythedifferences
      Norges Bank Finansiell stabilitet
    • Macroeconomic conditions?
      Now: global and thus worse
      True: in hardest hit Nordic (Finland) can find at least one parallel….
      general capital injection with some attention to aggregate demand
      …But not whole story
      Programme in Finland was small in relation to total interventions (tougher) even as recession was much larger than current ones
      Sweden’s recession was very severe
      Nordics entered recession before the crisis and other macroeconomic policies were much more restrictive
      Less room for manoeuvre: external crisis, procyclical monetary policy regime (pegged exchange rates and full convertibility)
      If anything, incentive to be more lenient on repair side to compensate
      18
      18
    • International dimension of the crisis?
      Then: largely synchronous but purely domestic
      Resolution has been more complicated…
      No orderly resolution regime for large internationally active financial institutions in place
      Huge international spillovers, desire to protect national banks and avoid putting them at a competitive disadvantage (DI horserace)
      …encouraging leniency and caution, especially vis-à-vis international players
      But not whole story
      Similar treatment of purely domestic institutions too (e.g. Northern Rock)
      Pain of liquidating an international bank only partly felt at home.
      19
      19
    • Greater complexity?
      Extensive network interlinkages
      Greater complexity of the assets involved today is also part of the explanation
      Resolution made more complicated (information and incentive problems)
      Harder to value assets, harder to price and transfer to AMCs
      Harder to restructure and work out bad assets (securitisation chain)
      Greater opacity of system = stronger incentive to be cautious (post LeBr)?
      But not whole story
      Complexity an argument for nationalisation: Would have been simpler to transfer assets if institutions nationalised, as in Nordic case (making pricing irrelevant)
      Reduce informational asymmetries and conflicts of interest
      Fear of unpredictable responses is part and parcel of all crises
      Easy to overestimate specificity of current one
      20
      20
    • Accounting and dynamics of the crisis
      Nature of losses and accounting is a missing piece of the puzzle
      Now: first losses largely mark-to-market; Then: accrual on loan books
      Appeared earlier and caused major liquidity crisis (August 2007)
      Given large loan books, institutions crippled but not insolvent
      Two implications
      Reduced ability to enforce adjustment
      Harder to impose strict conditionality and intervene in depth in still solvent institutions (property rights)
      Reduced willingness and incentive as well
      Misinterpret crisis as purely a liquidity panic for long time
      Reinforced by other factors
      E.g. a deep-seated aversion to government ownership and control in some countries.
      21
      21
    • “Falling asset prices, deleveraging by some financial institutions and reduced risk appetite are creating illiquidity in credit markets and hampering price discovery. Prices in some credit markets have become detached from credit fundamentals due to unusually high discounts for illiquidity and uncertainty — the mirror image of the underpricing of risk during the upswing. As a result, mark-to-market losses on credit securities probably overstate the potential for future credit losses and the likely costs to the economy of the financial market disruption. This is lowering confidence and delaying the recovery of risk-taking.” (Bank of England (2008), p. 15)
      22
    • 23
      Conclusions
      Compared with crisis response in Nordics case, current one has been
      even prompter (P1), but less comprehensive and in-depth (P2) and less attentive to adjustment and moral hazard (P3)
      Reasons
      International dimension and complexity of instruments
      Nature of losses and accounting (key and unappreciated role)
      Implications
      Risk of short-termism in response
      Need to intensify efforts to encourage adjustment
      May need to nuance interpretation of P1
      Possible to intervene too early, unless tools and policies adjusted