The Oxford Handbook of Banking PDF
Preview The Oxford Handbook of Banking
the oxford handbook of BANKING This page intentionally left blank the oxford handbook of ....................................................................................................................................................................... B A N K I N G ....................................................................................................................................................................... Edited by ALLEN N. BERGER PHILIP MOLYNEUX and JOHN O. S. WILSON 1 3 GreatClarendonStreet,Oxfordox26dp OxfordUniversityPressisadepartmentoftheUniversityofOxford. ItfurtherstheUniversity’sobjectiveofexcellenceinresearch,scholarship, andeducationbypublishingworldwidein Oxford NewYork Auckland CapeTown DaresSalaam HongKong Karachi KualaLumpur Madrid Melbourne MexicoCity Nairobi NewDelhi Shanghai Taipei Toronto WithoYcesin Argentina Austria Brazil Chile CzechRepublic France Greece Guatemala Hungary Italy Japan Poland Portugal Singapore SouthKorea Switzerland Thailand Turkey Ukraine Vietnam OxfordisaregisteredtrademarkofOxfordUniversityPress intheUKandincertainothercountries PublishedintheUnitedStates byOxfordUniversityPressInc.,NewYork #OxfordUniversityPress2010 Themoralrightsoftheauthorshavebeenasserted DatabaserightOxfordUniversityPress(maker) Firstpublished2010 Allrightsreserved.Nopartofthispublicationmaybereproduced, storedinaretrievalsystem,ortransmitted,inanyformorbyanymeans, withoutthepriorpermissioninwritingofOxfordUniversityPress, orasexpresslypermittedbylaw,orundertermsagreedwiththeappropriate reprographicsrightsorganization.Enquiriesconcerningreproduction outsidethescopeoftheaboveshouldbesenttotheRightsDepartment, OxfordUniversityPress,attheaddressabove Youmustnotcirculatethisbookinanyotherbindingorcover andyoumustimposethesameconditiononanyacquirer BritishLibraryCataloguinginPublicationData Dataavailable LibraryofCongressCataloginginPublicationData LibraryofCongressControlNumber: 2009934149 TypesetbySPIPublisherServices,Pondicherry,India PrintedinGreatBritain onacid-freepaperby CPIAntonyRowe,Chippenham,Wiltshire ISBN 978–0–19–923661–9 1 3 5 7 9 10 8 6 4 2 For Mindy (Allen N. Berger) For Delyth, Alun, Gareth, Gethin, Catrin, Lois, and Rhiannon (Philip Molyneux) For Alison, Kathryn, Elizabeth, and Jean (John O. S. Wilson) This page intentionally left blank reface P .......................................... Whenwecommencedthisprojectatthestartof2007,banksaroundtheworldwere postingrecordproWtsandmajorrisksappearedtohaveabated.Thegeneralmacro- economic environment embodied in rising stock markets and buoyant economic growthprovidedthebedrockforthestrongperformanceweobservedatthattime. Since then things have changed completely! During the Wrst half of 2007, followingincreasesininterestrates,therateofUSsubprimemortgagedelinquen- cies increased, prices of mortgage-backed securities were reduced, and the cost of insuring these securities against default increased. The turmoil that then hit the global Wnancial system has been unprecedented. There have been widespread government bank bailouts, recapitalization plans, liquidity injections, and credit guarantee schemes aVecting many countries. The cost of all this activity has been enormous. InApril 2009, theIMF statedthat USWnancialinstitutions werelikely to incur $2.7 trillion of losses from the global crisis, part of a worldwide total expectedtotop$4trillion.Globalbankingsectorinstabilityandgridlockinmany other Wnancial markets have raised profound concerns about the stability of the Wnancialsystem andthebusiness modelsused bybankswithinthe system. Aswecompletedthehandbookinearly2009,bankingsystemsinmanycountries (particularly in the US, UK, Germany, Spain, Ireland, Iceland, and throughout central and eastern Europe) remained in a state of crisis, threatening capacity to perform eVective intermediation functions for many years to come. Government intervention in banking continues via the purchases of impaired assets, recapita- lizationsoftroubledbanks,andinjectionsofliquidity intothesystem.Academics andpolicymakerscontinuetodebateproposalstoWxtheWnancialsystem.Reforms thathavebeenorarelikelytobeadoptedinthecomingmonthsinclude:extending thecoverageofbankregulation;increasingcapitalrequirements;designingcounter- cyclicalcapitalrequirements;enhancingregulationandsupervisionofbankliquid- ity; enhanced supervision of credit rating agencies; codes covering executive pay and beneWts; improving arrangements for regulation of the activities of cross- border banks; and a shift in focus from micro- to macro-prudential supervision. IflessonsarelearnedfromtheongoingWnancialcrisis,thereislittledoubtthatthe bankingindustrywhichemergesintheyearstocomewillbeverydiVerentfromthe onewe observedatthe beginningof 2007. Thishandbookprovidesthereaderwithacomprehensiveoverviewandanalysis of banking. The authors of the following 36 chapters comprise a collection of viii preface leading academics and policymakers in the Weld. These authors emanate from universitiesintheUnitedStates,Europe,SouthAmerica,andAsia;theUSFederal Reserve System; the OYce of the Comptroller of Currency; the European Central Bank; the Bank of Thailand; the World Bank; the International Monetary Fund; and the World Trade Organization. The book strikes a balance among abstract theory, empirical research, practitioner analysis, and policy-related material. DiVerent chapters in the handbook have diVerent emphases on these four ingre- dients.Wehopethatthecontributionscontainedinthishandbooksetthestagefor futureresearch andpolicydebatefor manyyears tocome. cknowledgments A ................................................................................................. Firstly,andmostimportantlywewishtothankthecontributorstothehandbook. We are delighted to have brought together such an outstanding set of research experts from academic and policy arenas across Europe, North America, South America, and Asia. These experts have shown a high level of commitment and perseverance to the project from beginning to end. Without their expertise, dedication, andeYciency inproducingscholarlybankingchaptersthishandbook would never havebeen possible. The production of this handbook has also relied heavily on the exceptional enthusiasmandcommitmentofOxfordUniversityPress,mostnotablySarahCaro, publisherforEconomicsandFinancewhowascrucialinhelpinguskick-startthe project. Oxford University Press delegates and a number of anonymous referees alsoplayedanimportantroleinadvisingontheshapeofthehandbookatitsearly stages.WewouldalsoliketoacknowledgethehelpandadviceofAimeeWrightand Jen Wilkinson, Assistant Commissioning Editors who worked closely with us throughout the entire production process. Harriet Ayles, Emma Hawes, Lianne Slavin,andLucyGostwickalsoplayedacrucialroletowardtheendoftheproject. Our proofreader, Michael Janes, also provided invaluable service toward the Wnal stages oftheproject. We would also like to acknowledge the support of our home institutions: the MooreSchool ofBusiness at Universityof SouthCarolina; the Business School at Bangor University;andthe ManagementSchoolatUniversityof StAndrews. Anumberofindividualsprovidedcommentstousonthecontentandstyleon parts of the handbook, including Barbara Casu, Mark Flannery, Claudia Girar- done,JohnGoddard,DickHerring,EdKane,DonalMcKillop,JoePeek,andLarry White. Abig thankyougoestothem. Finally,wewouldliketothankourfamiliesandfriendsfortheirencouragement and patience over the last three years while completing this handbook. Their support is muchappreciated.
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