The post-financial crisis macroprudential regulatory policy and the future of banking. Back to a public utility?

Table of Contents

1. A BANKING UTILITY

2. HISTORY OF BANKING

3. BANKING REGULATION

4. MACROPRUDENTIAL TOOLS & CAPITAL ADEQUACY

5. THE GLOBAL FINANCIAL CRISIS

6. REGULATORY RESPONSES

6.1 BIS, Basel Committee and the Accords

6.2 Basel III

7. BANCO ESPÍRITO SANTO

8. NOVO BANCO

9. “BEFORE AND AFTER”

10. BACK TO THE DRAWING BOARD?

Research Objectives and Themes

This research paper examines whether large banks, under pressure from rigorous capital adequacy requirements and deleveraging, will transition into low-risk, basic banking entities, effectively operating as public utilities. The study employs historical and qualitative analysis of regulatory reforms post-2007-2008 and conducts a comparative case study of Banco Espírito Santo and its successor, Novo Banco.

• The impact of stringent prudential regulation on banking business models.
• The effectiveness of macroprudential policies in mitigating systemic risk.
• Comparative analysis of a failed universal bank versus a deleveraged bridge bank.
• The future of universal banking and the debate over regulatory barriers like the Glass-Steagall Act.

Excerpt from the Book

Summary of Chapters

A BANKING UTILITY: Introduces the research question regarding whether strict regulation forces banks to become public utilities and outlines the qualitative methodology used.

HISTORY OF BANKING: Provides a historical overview of banking institutions from their origins in Italy to the development of modern universal banking.

BANKING REGULATION: Explores the theory of free market economies versus the necessity of regulation to ensure market stability and prevent abuse.

MACROPRUDENTIAL TOOLS & CAPITAL ADEQUACY: Details the instruments used to mitigate systemic risk, with a primary focus on capital adequacy requirements.

THE GLOBAL FINANCIAL CRISIS: Analyzes the causes of the 2007-2008 financial crisis, highlighting the roles of subprime lending, securitization, and failures in regulatory oversight.

REGULATORY RESPONSES: Reviews the major regulatory legislative responses, including Dodd-Frank and the Basel Accords, aimed at strengthening the global financial system.

BANCO ESPÍRITO SANTO: Traces the history and eventual bankruptcy of the Portuguese banking giant due to excess leverage and fraudulent accounting.

NOVO BANCO: Examines the creation of the bridge bank Novo Banco as a resolution measure following the failure of BES.

“BEFORE AND AFTER”: Compares the business models and risk profiles of BES and Novo Banco to assess the shift in banking operations.

BACK TO THE DRAWING BOARD?: Discusses the unintended consequences of regulatory reforms and questions the future viability of universal banking models.

Keywords

Macroprudential Regulation, Capital Adequacy, Banking Reform, Global Financial Crisis, Basel III, Banco Espírito Santo, Novo Banco, Systemic Risk, Universal Banking, Glass-Steagall Act, Prudential Supervision, Financial Stability, Bridge Bank.

Frequently Asked Questions

What is the core focus of this research paper?

The paper investigates whether increasing prudential regulation, particularly capital adequacy requirements, is forcing large banks to shrink their operations and become basic public utilities.

What are the primary thematic areas covered?

The study covers the evolution of banking, the history of financial crises, macroprudential regulatory tools, and the practical application of bank resolution mechanisms using the Portuguese banking sector as a case study.

What is the primary objective of this work?

The primary goal is to evaluate if modern banking regulations significantly alter bank business models, potentially leading to a return to a simpler, more constrained form of banking.

Which scientific methodology is utilized?

The author employs historical and qualitative research methods, combining a technical review of Basel III regulations with a comparative case study of BES and Novo Banco.

What topics are addressed in the main body?

The main body examines the 2008 global financial crisis, the shift from micro to macroprudential regulation, and detailed analysis of the regulatory standards that followed, culminating in the case study of the BES collapse.

Which keywords best describe the work?

Macroprudential Regulation, Capital Adequacy, Systemic Risk, Universal Banking, and Bank Resolution.

What role did the "Dono Disto Tudo" play in the failure of BES?

Ricardo Salgado, known as "Dono Disto Tudo," was central to the bank's expansion and its eventual collapse, as his influence facilitated an opaque structure characterized by excess leverage and fraudulent accounting.

How does Novo Banco represent a shift in the banking model?

Novo Banco functions as a "good bank" bridge institution, focusing on retail and corporate activities with a deleveraged balance sheet, which contrasts sharply with the risky universal banking model of its predecessor, BES.