Requiring minimum levels of long-term debt Proposals to require large financial firms to hold minimum levels of long-term debt are offered as a way to facilitate the orderly resolution of such firms. Carlton and Jeffery M. Although the characteristics of the financial sector may limit the relevance of conclusions from IO research in other sectors, they do not limit the relevance of the questions about industry structure and relationships asked by IO economists.
Although existing Industrial social regulation and market structure work is again scant, one often hears the suggestion that complexity and agency problems may lead to diseconomies for financial firms under certain circumstances, a proposition that should be considered alongside the hypotheses for positive scale and scope effects.
And, as with policy-relevant areas in which considerable work has already been done, we will never have all the analysis we might like before deciding whether to act and, if so, how. Similarly, a client may lower its transactions costs by using a single firm for both advising and financing.
Archived September 5,at the Wayback Machine. I have only grazed the surface of useful work that may spring from this hybrid subdiscipline.
For example, numerous papers suggest that the very large balance sheets of very large financial firms tend to be highly correlated, such that a shock to certain asset classes is likely to reverberate quickly on the balance sheets of most large firms as fire sales and subsequent mark-to-market effects affect even stronger firms.
A recent study conducted on behalf of The Clearing House tackles some of these questions. Scale economies exist where average costs decline as a product or service is provided in larger quantities. As a result, regulators often encourage competition whenever practicable.
The relative dearth of work that would help answer these questions can be attributed to a number of factors. The determination of this limit would presumably be based on a number of considerations, including an evaluation of the capacity of the U. Return to text 8. The first function is to remedy anticompetitive conductsuch as collusion.
Like a capital surcharge for the largest, most complex institutions, these costs will fall only on the largest institutions.
Reprinted in WilliamsonThe Mechanisms of Governance, p. Return to text 3.
This problem of sample size is exacerbated by the fact that there has been tremendous growth in the size, complexity, and concentration of the financial sector over the past 15 years or so. I will begin by briefly explaining why this agenda is both important and challenging.
Application of the perspective to the proposal for a nondeposit liability cap revealed a number of important questions, an analysis of which could help determine the elements of such a proposal that would be most effective, identify costs, and possibly suggest alternative means to the same policy goals.
The Mechanisms of Governance, "Prologue", pp. The Promise and Challenge of an IO Research Agenda for the Financial Industry The value of an IO research agenda for shaping a regulatory system to protect financial stability lies both in ascertaining costs that may result from specific regulatory measures and in revealing industry dynamics that may suggest how regulatory measures may be more effective.
Application to Specific Policy Proposals To illustrate more concretely how analysis of scope and scale economies is relevant to the development of a regulatory system designed to safeguard financial stability, I want to turn to three proposals currently being debated in policy circles: Second is the question of scale and scope economies associated with nondeposit funding, the answer to which would help determine the limit at which significant social benefits might be lost, to be balanced against the avoidance of social costs arising from systemic events.
But conventional IO-type analysis, which would tend to interpret lower funding costs as evidence of scale economies, is potentially misleading. Return to text Last Update: If analysis finds scale and scope economies unlikely to be realized beyond a certain level of activity, then policymakers would have a point of reference for setting the cap.
These somewhat abstract concerns tend to determine some but not all details of a specific concrete market system where buyers and sellers actually meet and commit to trade. A firm could shrink its balance sheet by shedding less profitable assets of its choosing.
And large balance sheets would appear to enable banks to diversify or hedge their positions and to access a variety of funding sources, thereby reducing their cost of capital. The elements of Market Structure include the number and size distribution of firms, entry conditions, and the extent of differentiation.
In sum, the IO-finance perspective could contribute significantly to an elaboration and evaluation of this policy proposal. Return to text 4. Third, even if appropriate data become available, it may be quite difficult to isolate costs for particular banking activities, given the number of products and activities offered by even moderately complex financial institutions.This book aims to provide a thoroughly updated overview and evaluation of the industrial organization of banking.
It examines the interplay among bank behaviour, market structure, and regulation from the perspective of a variety of public policy issues, including bank competition and risk, market discipline, antitrust issues, and capital regulation.
POLICY RESEARCH WORKING PAPER The Structure, Regulation, Comipany pension funds can and Performance make important contributions to retirement income and to o Pension Funds capital market development.
But they need to be regulated in Nine Industrial Countries andsupervisedtoavoid fraud; protect the interests of.
David B. Smith This is a book about the application of economic theory to a unique form of social control - public utility regulation. A central theme of this work is to examine the role that economics has played in shaping the rationale and direction of regulatory practices.
This study documents the presence of local protectionism and quantifies its impacts on market competition and social welfare in the context of China's automobile market, the largest automobile market in the world. In this course we will emphasize the importance of market structure and industrial performance, including the strategic interaction of firms.
We will examine the behavior of individual markets in some detail, focusing on cost analysis, the determinants of market demand, investment behavior, market power, and the implications of government. (a) determining whether an industry should be judged by its structure or by its behavior, (b) defining the scope and size of the dominant firm's market, (c) and deciding how strictly to enforce the antitrust laws.Download