International investment law – 1C
Setting priorities
When is regulation useful?
Financial regulation is justified on consequentialist grounds
Benefit cost-analysis
o Provides rational process for intervention
o And for setting priorities
Also, in principle for handling clashes -
Conflicting regulatory goals
Portfolio regulation of collective investment vehicles
o Protects investors in individual firm
o But may increase correlation of investment behaviour across system,
implications for market efficiency, systemic stability?
Fostering competition in financial services
o May increase propensity to risk-taking by banks and problems of contracting
failure for investors?
For example, splitting up of the financial services authority in the UK
Financial conduct authority; concerned with consumer protection (low rates of
lending)
Prudential regulation authority; focuses on financial stability (high rates)
Could lead to institutional frictions:
o How will they share information?
Boundary issues
There is danger that in a heavily regulated banking sector, activity will shift and be
conducted in less regulated parts of the financial system (shadow banking)
“Shadow banking ads usually defined, comprises a diverse set of institutions and markets
thast collectively carry out traditional banking functions but do so outside, or in ways only
loosely linked to the traditional system of regulated depository institutions – Ben Barnanke
2012 – an example is cryptocurrency.
Iceland owned homage to many banks due to it’s lack of financial regulation, therefore led
to the effects when banks went bust – increased living costs.
Arbitrage
Bank capital requirements
Securitization removed debt from bank balance sheets
Capital requirements applied less stringently to collective investment vehicles
In some cases, internal transfer from banking book to trading book
Credit ratings of securitizations
Credit ratings are less granular than underlying data
High concentration of ratings forecasts just above threshold for next lowest class
Setting priorities
When is regulation useful?
Financial regulation is justified on consequentialist grounds
Benefit cost-analysis
o Provides rational process for intervention
o And for setting priorities
Also, in principle for handling clashes -
Conflicting regulatory goals
Portfolio regulation of collective investment vehicles
o Protects investors in individual firm
o But may increase correlation of investment behaviour across system,
implications for market efficiency, systemic stability?
Fostering competition in financial services
o May increase propensity to risk-taking by banks and problems of contracting
failure for investors?
For example, splitting up of the financial services authority in the UK
Financial conduct authority; concerned with consumer protection (low rates of
lending)
Prudential regulation authority; focuses on financial stability (high rates)
Could lead to institutional frictions:
o How will they share information?
Boundary issues
There is danger that in a heavily regulated banking sector, activity will shift and be
conducted in less regulated parts of the financial system (shadow banking)
“Shadow banking ads usually defined, comprises a diverse set of institutions and markets
thast collectively carry out traditional banking functions but do so outside, or in ways only
loosely linked to the traditional system of regulated depository institutions – Ben Barnanke
2012 – an example is cryptocurrency.
Iceland owned homage to many banks due to it’s lack of financial regulation, therefore led
to the effects when banks went bust – increased living costs.
Arbitrage
Bank capital requirements
Securitization removed debt from bank balance sheets
Capital requirements applied less stringently to collective investment vehicles
In some cases, internal transfer from banking book to trading book
Credit ratings of securitizations
Credit ratings are less granular than underlying data
High concentration of ratings forecasts just above threshold for next lowest class
