Conventional banks which once were competing with non-banking financial institutions and capital markets today face the new challenge of being reintermediated by Islamic banks. Earlier academic research has been debating over disintermediation and reintermediation of conventional banks, but consistently failed to address reintermediation through Islamic banks as a possibility. This study, however, fills the void by addressing the novel possibility of reintermediation "within" the banking sector and is the first attempt to analyze and compare Islamic and conventional banks from the perspective of reintermediated financial markets. After identifying the reintermediation trends led by Islamic banks we investigate several bank specific financial and non-financial characteristics that might have enabled Islamic banks to emerge as an important player in reintermediated financial markets. By keeping our focus on slightly modified version of CAMELS framework where 'S' represents "Service Quality" we find that along with better capitalization (C) and improved liquidity (L), better service quality (S) is another distinguished feature of Islamic banks that might be linked with their high degree of intermediation.
In this study we hypothesise that more frequent extreme negative daily equity returns result in higher tail risk, and this subsequently increases firms' likelihood of entering financial distress. Specifically, we investigate the role of Value-at-risk and Expected Shortfall in aggravating firms' likelihood of experiencing financial distress. Our results show that longer horizon (three-and five-year) tail risk measures contributes positively toward firms' likelihood of experiencing financial distress. Additionally, considering the declining number of bankruptcy filings, and increasing out-of-court negotiations and debt reorganisations, we argue in favour of penalising firms for becoming sufficiently close to bankruptcy that they have questionable going-concern status. Thus, we propose a definition of financial distress contingent upon firms' earnings, financial expenses, market value and operating cash flow.
This study explores the effects of information asymmetry and arranger reputations on syndicated loan structures. The moral hazard problem arising from information asymmetries between borrowers and a syndicate can be overcome only by the most reputable arrangers. When arrangers have an information advantage over participants, both moral hazard and adverse selection problems appear. However, the adverse selection problem arises only when lowreputation arrangers lend to opaque borrowers.
Abstract. We evaluate multiple market-based measures for US and eurozone individual bank tail risk and banksystemic risk. We apply statistical extreme value analysis to the tails of bank equity capital losses to estimate the likelihood of individual institutions' financial distress as well as individual banks' exposure to each other ("contagion risk") and to global shocks ("extreme systematic" risk). The estimation procedure presupposes that bank equity returns are "heavy tailed" and "tail dependent" as identifying assumption. We also assess to what extent magnitudes of tail risk and systemic risk have been altered by the global financial crisis. Using both US and eurozone banks allows one to make a cross-atlantic comparison of the financial systems' riskiness and financial stability. For Europe we assess the relative importance of cross-border bank spillovers as compared to domestic bank spillovers. The results suggest, inter alia, that both tail risk and systemic risk in the US are higher than in the eurozone. We cannot generally conclude that domestic eurozone spillover risk dominates cross-border eurozone spillover risk. Finally, tail risk and systemic risk have increased over time on both sides of the Atlantic.
This study gives an overview of bank taxation as an alternative to prudential regulations or non-revenue taxation. We review existing bank taxation with a view to eliminating distortions in the tax system, which have incentivized banks to engage in risky activities in the past. We focus particularly on 'too big to be allowed to fail' banks, which have been enjoying a competitive advantage over their smaller counterparts. We furthermore analyze taxation of financial instruments trading and taxation of banking products and services and their ability to finance resolution mechanisms for banks and to ensure their stability. In this respect, we put forward the following arguments: (1) that a financial transaction tax is economically inefficient and potentially costly for the economy and may not protect taxpayers; (2) that a bank levy is perhaps good for financial stability to finance resolution mechanisms, but that it poses the threat of double taxation, together with the proposed Basel III liquidity ratios; and (3) that we support the elimination of exemption from value added tax (VAT) for financial services in order to provide banks with a level playing field, whilst retaining exemption for basic payments services. This is expected to improve efficiency because it might stop the wasteful use of financial services. To avoid distortions, VAT should be applied to all financial services, including complex ones such as derivatives. VAT might reduce bank lending because of higher costs for customers, but arguably there was over-borrowing prior to the financial crisis.
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