040029 SE Seminar Basel Regulation and Bank Resiliency (MA) (2020S)

The Basel Process has become the central driver of regulating international banking markets since its inception in 1988. Despite a long process of refining the original regulation (Basel I and Basel II) the international banking system seemed not well prepared for the Great Financial Crisis in 2007/8. Accordingly, the system had to be improved by a list of urgent repair operations (Basel III). But reform continues beyond Basel III and the next steps of banking regulation are currently discussed under the heading of Basel IV.
The seminar discusses the underlying economic reasons for capital regulation. It tries to assess the current state of regulation and asks the questions for future directions regulation might have to go in order to render the global banking system more resilient.
While the seminar concentrates on providing a survey on the state of literature it also offers an opportunity for empirical evaluation of certain instruments and/or measure based on empirical data.
The Seminar is co-taught with Mag. Victoria Pagowski, a specialist for banking regulation and resolution at the Österreichische Genossenschaftsverband (ÖGV).

Topics:

1. The Basel Committee of Banking Supervision and the Origins of Capital Regulation
a. Objectives: Why is there a need to regulate bank capital?
b. The Political Process

2. Basel II and Elements of Self-Regulation
a. The pros and cons of self-regulation
b. The Market Test – The Great Financial Crisis

3. Basel III – Lessons Learned

a. Capital Buffers
i. (How) Do capital buffers affect bank valuation/resiliency?
ii. (How) Do capital buffers affect international competitiveness? (If so, which?)
iii. (Why) Is bank equity costly?
iv. Are issuances of own funds instruments more costly for smaller banks?
v. Are Austrian banks exposed to a high systemic risk?
vi. What are the drivers for significant institutions’ buffers in Austria?

b. Liquidity Buffers
i. (How) Do LCRs affect bank valuation/resiliency?
ii. (How) Do NSFRs affect bank valuation/resiliency?

c. Institution specific capital requirements
i. What are the risk drivers for the Pillar 2 Requirement?
ii. Does the Pillar 2 Requirement consider the diversity of the banking landscape?

d. Banking Recovery and Resolution
i. Is BRRD effective in crisis prevention?
ii. Are CoCos effective crisis-prevention instruments?
iii. Critical functions: substitutability of deposits?
iv. (Why) Can the access to capital markets for eligible liabilities be limited?

4. Basel IV - The Next Steps
a. Shadow banks and remaining “loopholes”?
b. Future challenges?

Predicting asset prices has always fascinated practitioners as well as academics. Despite the huge successes of simple models to explain the basic phenomena of asset prices, standard theories provide little guidance for a vast variety of practical challenges.

The tremendous post-crisis success of ETFs does generate the emergence of common ownership. Industry 4.0 and the digital economy deeply change the interconnection of productive firms as well as the relative allocation of labor and (machine) capital. Social security affects employee risk and the cost of labor. Will, and if so how will these developments affect asset prices?

Likewise, how can we attempt to understand the widely and robustly observed cyclicality in risk premia? How can bubbles emerge and which are the determinants that limit apparent (?) arbitrage opportunities?

Moreover, how are asset prices related to individual attitudes and behavior? Which are the determinants of trust and which are the asset pricing implications of breaking trust? Are environmental attitudes priced and (how) are environmentally friendly business models rewarded by the (anonymous) market?