Abstract
Post-crisis, macro-prudential ideas have challenged the epistemic authority of private risk management technologies, declaring them to be pro-cyclical contributors to systemic risk. This discursive challenge has been most critical of the shadow banking system, where private risk management instruments are central. This challenge, however, has not been translated into regulatory tools which reflect these convictions. This paper studies this process of discursive challenge to (failed) regulatory intervention for the case of the repo-market, the heart of the current shadow banking system. It traces regulatory efforts on the global and EU level from regulatory statements to (lack of) action, documenting both the persistent articulation of macro-prudential ideas challenging private risk-management systems and timid to no regulatory intervention. It links this hiatus to international coordination problems, the need for macro-prudential action to span regulatory communities, involving banking and financial market authorities and disagreements between micro- and macro-prudentially oriented regulators. The lack of evidence and the difficulty to generate it are identified as major impediments for regulatory consensus, further aggravated by ambiguities about the goals of anti-cyclical regulation. Beyond governance problems and the persistent appeal of private risk-management systems, the paper thus points to difficulties operationalizing macro-prudential ideas as a major explanatory factor.
Zusammenfassung
Seit der Finanzkrise stellen makroprudenzielle Ideen die epistemische Autorität privater Risikomanagement-Technologien in Frage, da diese als pro-zyklische Verstärker von systemischem Risiko ausgemacht werden. Eine solche Kritik ist für das Schattenbankensystem besonders problematisch, da in diesem Bereich private Risikomanagement-Technologien von zentraler Bedeutung sind. Trotz einer solchen Problematisierung konnten sich jedoch diese Überzeugungen nicht in regulatorische Instrumente übersetzen. Vor diesem Hintergrund untersucht der Artikel diesen Prozess der diskursiven Diskreditierung und der fehlenden Umsetzung in regulatorische Maßnahmen für den Markt für Rückkaufvereinbarungen (Repos), dem Herz des gegenwärtigen Schattenbankensystems. Die regulatorischen Bemühungen werden auf globaler sowie auf EU Ebene nachgezeichnet, um sowohl die stete Artikulierung von makroprudenzieller Kritik als auch die nicht erfolgte oder sehr zurückhaltende Intervention zu dokumentieren. Diese Lücke zwischen theoretischen Überlegungen und praktischem Handeln wird auf Probleme der internationalen Koordination, den Bedarf eines gemeinsamen regulatorischen Vorgehens von Banken- als auch Finanzmarktautoritäten für makroprudendenzielle Interventionen sowie Meinungsverschiedenheiten zwischen mikro- und makroprudenziell orientierten Regulatoren zurückgeführt. Fehlende Beweise für prozyklische Effekte und die Schwierigkeiten, diese zu generieren, werden als zentrale Hinderungsgründe identifiziert, welche die epistemische Autorität makroprudenzieller Regulierungen schwächt. Neben den Problemen der internationalen Koordination und dem fortwährenden positiven Nimbus privater Risikomanagement-Technologien, stellt dieser Artikel vor allem die Probleme bei der Operationalisierung von solchen Ideen heraus.
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Notes
Being a market of global or at least regional reach, we ignore national solutions which the general literature as well as our interviewees largely saw as pointless.
Baker (2013) in this respect speaks even of an ideational shift in regulatory discourse, a third order change in Hall’s terminology (1993).
These interviews were conducted within central banks, at conferences, but also over the phone from May 2015 to September 2016 and lasted between 30 and 95 min. For more information, s. Table 1 in the appendix.
This recommendation applied both to direct bilateral repos, as well as to repos cleared through central counterparties (CCPs), whose increasing use, should be seriously considered due to their mitigating effect on counterparty risk (CGFS 2010, p. IX).
CCPs were recommended as they mitigate the risks of contagion and interconnectivity in the financial system in a straightforward, mechanical manner, substituting one bilateral trade with two trades with the CCP. However, recent research in this area (Friedrich and Thiemann 2018) stressed that the substantial shift of OTC business to CCPs, combinded with an increasing competition among clearing houses, also raises concerns over regulatory and supervisory arbitrage.
The calibration of the minimum haircuts in 2013, for example were based on only three data points for 17 large banks and broker-dealers (FSB 2015a, p. 14).
Such as balance sheet constraints imposed upon balance sheets of banks.
Its challenge to pro-cyclical risk management practices ended in minimum haircuts, which most of the time do not pose any constraint to the market. Limits to re-hypothecation and re-use of collateral, which builds the cornerstone of the private risk management system have not been imposed.
The ESRB is a EU-level consultative body focused on macro-prudential supervision and systemic risks, which brings together banking and market regulators in Europe.
As shown in Fig. 4 in the appendix, the overall percentage of bilateral trades cleared through CCPs rose to about 65% in 2015, a development largely caused by the structural changes to the regulation of banks and their broker dealer desks. This is in contrast to the US, where the triparty repo-market dominates (Adenbaum et al. 2016).
Background conversations in the ESRB point to the need for treaty changes on the EU level in this respect.
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Appendix
Appendix
Breakdown of total secured market. (Source: ECB 2015, p. 16)
Overview of regulatory Milestone
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Thiemann, M., Birk, M. & Friedrich, J. Much Ado About Nothing? Macro-Prudential Ideas and the Post-Crisis Regulation of Shadow Banking. Köln Z Soziol 70 (Suppl 1), 259–286 (2018). https://doi.org/10.1007/s11577-018-0546-6
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DOI: https://doi.org/10.1007/s11577-018-0546-6