Banking regulation and the changing geography of off-balance sheet activities

Abstract

This paper investigates whether the substitute compliance framework under the new US regime for over-the-counter derivatives has stimulated regulatory arbitrage. Results point to increased post-regulatory concentration in exposure in those countries in which US banks comply with local derivative regulation.

Impact of Bank Regulatory Change and Bank Specific Factors Upon Off-Balance-Sheet Activities Across Commercial Banks in South Asia

“…The OBSA of commercial banks incorporate various types of contingent guarantees (e.g. letter of credit (LC) which is an underwritten insurance for payment to other banks and a commitment of lending to the customer), financial derivatives (e.g future, forward, option and swap: these are contracts or agreements which drive their value from underlying assets and are used to manage and mitigate different type of risks such as currency risk and forward exchange risk ) and various other loan commitments (the contractual commitment between bank and borrower to lend a certain amount at specified interest after a specific time period) (D'Avino, 2017).…”

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“…The recent episode of economic turmoil known as the subprime crisis has raised certain questions on the risk management techniques applicable in the global banking industry (D'Avino, 2017). One of the main reasons behind the subprime crisis was a special purpose vehicle (gendered through securitization of mortgage loans) which was designed to manage the future risk.…”