Peik Granlund

Bio: Peik Granlund is an academic researcher from Bank of Finland. The author has contributed to research in topics: Bank rate & Official cash rate. The author has an hindex of 5, co-authored 5 publications receiving 106 citations.

Supervisory approaches and financial market development: Some correlation-based evidence

Abstract: The aim of this article is to investigate different types of supervisory approaches used in a number of financial markets, as well as their relation to market development. The focus is on certain major features of supervisory legislation. The supervisor's mandate, the enforcement arsenal, the level of supervisory independence and the number of regulatory powers given to the supervisor constitute the areas analysed. Financial market development, in turn, is perceived as the level of market growth, profitability (RoE), market values (P/E) and risk (beta/volatility). The markets investigated comprise banks, investment firms, investment fund companies and listed companies in the United States, United Kingdom, Sweden, Finland, Poland and Estonia during the years 1996–2005. Supervisory features are quantified and compared with financial market development using an ordinal correlation-based approach. The analysis suggests that there are distinctive differences between supervisory regimes. In addition, deviating from previous research results, certain regime features seem to correlate with financial market development. Strong legal obligations for the supervisor to develop legislation correlate significantly with higher company market values (better future prospects). Emphasizing economic aspects in the formulation of FSA objectives corresponds with higher market profitability. Furthermore, severe monetary sanctions applicable to company directors significantly (albeit negatively) correlate with market growth. Unexpectedly, the same is true for a high degree of supervisory independence. Although results call for further scientific support, they nevertheless add to the current debate on how the financial crisis should shape supervisory approaches. Thus far, G-20 measures have aimed to increase market stability and confidence, mainly by introducing new supervisory structures, more advanced reporting/enforcement procedures and better accounting standards. In this respect, the analysis calls for a certain degree of cautiousness. Depending on how supervision is made more stringent, effects on market development cannot be ruled out.

Regulatory choices in global financial markets : restoring the role of aggregate utility in the shaping of market supervision

Abstract: In financial market studies, public supervision has rarely been found to have any effects on financial market development. This is true, even though the primary objective of supervisory legislation is the limitation of market failures and externalities. Studies conducted by eg the World Bank and La Porta & al imply that whereas private enforcement contributes to financial market development, there is limited evidence that public supervision does the same. The objective of the paper is to empirically investigate the relation between public supervision and financial market development. This is done by focusing on major legislative features directing the supervisor and hence affecting market participant activities. The markets investigated comprise banks, investment firms, investment fund companies and listed companies in the United States, United Kingdom, Sweden, Finland, Poland and Estonia for the years 1996 to 2005. The results suggest that certain features of public supervision correlate with financial market development. Strong legal obligations for the supervisor to develop legislation correlate significantly with higher company market values. Emphasizing economic aspects in the formulation of supervisory objectives corresponds with higher market profitability. Furthermore, severe monetary sanctions applicable to company directors correlate negatively with market growth. Unexpectedly, the same is true for a high degree of supervisory independence. The results imply links between public supervision and financial market development in a manner not always in line with previous research. Why this is the case, requires further investigation. One possible explanation may be methodological, based on the fact that in the present study legislative features are perceived in a conceptual rather than a technical manner. Keywords: financial institution, regulation, supervision, utility JEL classification numbers: G28, K23, O16

Economic Evaluation of Bank Exit Regimes in US, EU and Japanese Financial Centres

Abstract: This paper evaluates bank exit regimes in selected financial centres using econometric methods. The focus is on bank exit regimes applicable to commercial banks in New York, London, Frankfurt, Helsinki and Tokyo in 1998-2002. Bank exit regimes are studied from the perspective of bank creditors and bank shareholders. In order to apply econometric methods, the exit regimes are indexed and then evaluated by comparing them with market indicators that reflect the interests of bank creditors and shareholders. These market indicators comprise bank refinancing costs and bank growth rates. In other words, two specific questions are addressed: (1) Do differences in bank exit regimes of significance to bank creditors explain differences in bank refinancing costs? (2) Do differences in bank exit regimes significant to bank shareholders explain differences in bank growth? The study shows that in those financial centres where the probability of bailout is higher, refinancing costs for banks are lower.

Economic evaluation of bank exit regimes in US, EU and Japanese financial centres

Abstract: This paper evaluates bank exit regimes in selected financial centres using econometric methods. The focus is on bank exit regimes applicable to commercial banks in New York, London, Frankfurt, Helsinki and Tokyo in 1998–2002. Bank exit regimes are studied from the perspective of bank creditors and bank shareholders. In order to apply econometric methods, the exit regimes are indexed and then evaluated by comparing them with market indicators that reflect the interests of bank creditors and shareholders. These market indicators comprise bank refinancing costs and bank growth rates. In other words, two specific questions are addressed: (1) Do differences in bank exit regimes of significance to bank creditors explain differences in bank refinancing costs? (2) Do differences in bank exit regimes significant to bank shareholders explain differences in bank growth? The study shows that in those financial centres where the probability of bailout is higher, refinancing costs for banks are lower.

Bank exit legislation in US, EU and Japanese financial centres

Abstract: This paper analyses bank exit (ie reorganisation and liquidation) legislation in selected financial centres: New York, London, Frankfurt, Helsinki and Tokyo. The focus is on bank exit legislation applicable to commercial banks. The legislation is analysed from the perspective of bank stakeholders, ie bank creditors, depositors and bank shareholders. The analysis is restricted to those legislative provisions that provide security and rights for stakeholders in case of bank exit. In addition to current conditions, the paper covers the main legislative changes of the latter part of the 1990s.

Staggered prices and trend inflation: some nuisances

Abstract: Most of the papers in the sticky-price literature are based on a log-linearization around the zero inflation steady state, a simplifying but counterfactual assumption.This paper shows that when trend inflation is considered, both the long-run and the short-run properties of DGE models based on the Calvo staggered price model change dramatically.It follows that results obtained by models log-linearized around a zero inflation steady state are quite misleading.Furthermore, the same is not true for models based on the Taylor staggered price model, which is robust to changes in trend inflation.As a conclusion, the Taylor model is to be preferred, unless one is willing to index nominal variables.

Adverse selection and financing of innovation: is there a need for R&D subsidies?

Abstract: We study the interaction of private and public funding of innovative projects in the presence of adverse-selection based financing constraints. Government programs allocating direct subsidies are based on ex ante screening of the subsidy applications. This selection scheme may yield valuable information to market-based financiers. We find that under certain conditions, public R&D subsidies can reduce the financing constraints of technology-based entrepreneurial firms. First, the subsidy itself reduces the capital costs related to the innovation projects by reducing the amount of market-based capital required. Second, the observation that an entrepreneur has received a subsidy for an innovation project provides an informative signal to the market-based financiers. We also find that public screening works more efficiently if it is accompanied with subsidy allocation.

The Anatomy of Corporate Law: A Comparative and Functional Approach

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Determinants of the Loan Loss Allowance: Some Cross-Country Comparisons

Abstract: This paper analyses the determinants of banks' loan loss allowances for samples of US banks and three non-US samples: a group of 21 countries, Canada and Japan. The model includes fundamental (or non-discretionary) determinants of the allowance such as non-performing loans, and discretionary determinants such as income before the loan loss provision. The results suggest that the loan loss allowance is sensitive to pre-provision income in almost all samples. However, the results also suggest that some variables thought to reflect fundamental factors in US analysis, such as net chargeoffs, are not significant factors for non-US banks.

European Banking Integration: Don't put the Cart before the Horse

Abstract: This paper reviews the progress in European banking integration over the last twenty years, and evaluates the current system of banking supervision and deposit insurance based on "home country" control. The public policy implications to draw from the paper are threefold: First, after a relatively slow start, European banking integration is gaining momentum, in terms of cross-border flows, market share of foreign banks in several domestic markets, and cross-border M&As of significant size. If this trend continues, the issue of adequate supervision and safety nets in an integrated European banking market will become even more pressing. Second, although until recently banks have relied mostly on subsidiary structures to go cross-border, this is changing with the recent creation of the European company statute, which facilitates cross-border branch banking. A review of the case of the Scandinavian bank, Nordea Bank AB, helps to understand some remaining barriers to integration, and the supervisory issues raised by branch banking. Third, it is argued that the principle of "home country" supervision is unlikely to be adequate in the future for large international banks. Because the closure of an international bank would be likely to have cross-border spillovers, and because some small European countries might be unable to finance the bail-out of their very large banks, centralization, or at least Europe-wide coordination, of the decision to close or bail-out international banks is needed. This raises the issue of European funding of bail-out costs, European banking supervision, and European deposit insurance.