Panagiotis K. Staikouras

A Theoretical and Empirical Review of the EU Regulation on Credit Rating Agencies: In Search of Truth, Not Scapegoats

The undergoing financial turbulence has raised significant concerns over the role that credit rating agencies (CRAs) played in the inception, magnification and expansion of the crisis. In response, the EU legislature has adopted Regulation 1060/2009, which, for the first time, set out a legally binding pan‐European authorization regime for CRAs, which issue ratings that have been used by EU‐based financial institutions. As the turmoil turned into an unprecedented Eurozone debt crisis, EU politicians have been calling for tighter regulation of the credit rating industry. Drawing on the relevant empirical and theoretical research and building upon a comparative study of the corresponding US framework, the paper discusses critically the principles underlying EU Regulation 1060/2009 and the most recent suggestions for its reform. The paper argues that although, overall, the EU Regulation seems to be a well‐balanced instrument in the sense that it introduces the essential checks upon CRAs’ behavior while avoiding excessive regulatory intervention, more fine‐tuning is needed in certain fields, including, rating shopping, financial ties with rated entities, abuse of inside information, transparency and CRAs’ accountability.

Universal Banks, Universal Crises?: Disentangling Myths from Realities in Quest of a New Regulatory and Supervisory Landscape

The recent financial turmoil has instigated intense debate on the relationship between universal banking and financial stability. Employing legal and financial analysis and drawing on available empirical evidence, this paper critically analyses the arguments for and against universal banking, concluding that it resembles a double-edged knife: it presents opportunities but also bears risks. In this context, a case is made against the complete separation of banking and investment and in favour of a more fine-tuned regulatory regime. The paper suggests that, first and foremost, policy makers need to curb the systemic and systematic risk of large universal banks. From this perspective, the paper suggests that, alongside proportionate regulatory intervention for universal banks constituting systemically important institutions (ie stricter capital, liquidity and risk management requirements, adoption of a special resolution regime and a prompt corrective action procedure), enhancing supervisory effectiveness and market transparency should be top priority in the reform agenda.

Corporate Governance and Investor Protection in Greece: Regulatory and Supervisory Reform from a Law and Finance Perspective

The paper employs law and finance analysis to critically discuss the quality of corporate governance and investor protection in Greece. The paper argues that the Greek corporate governance framework is fragile not only because investor protection standards are inconsistent and insufficient, but also because institutional inefficiencies undermine the effectiveness of enforcement mechanisms. The paper recognises that institutional reform should proceed in tandem with regulatory and supervisory modernisation. Nonetheless, acknowledging that the former requires significant political commitment and takes time, several proposals with a more immediate and direct effect on improving the investor protection regime are made. In particular, the paper: (a) favours the streamlining of minimum, legally binding, bright-line corporate governance norms reflecting internationally accepted standards in conjunction with a ‘comply or explain’ approach, while also considering the upgrading of corporate gatekeepers’ liability — especially that of accountants and lawyers; (b) argues for the enhancement of private enforcement as a supplement to public enforcement mechanisms; and (c) supports the shifting of supervisory and enforcement attention to corporate managers’ liability.

The new market abuse regime in Greece: A step towards increased market transparency or a new source of confusion?

The Greek insider trading and market manipulation (market abuse) regime is in the process of transformation by the new Code on Capital Market, which internalises the provisions of the 2003 Market Abuse Directive. The new market abuse prohibition follows an effect‐oriented approach, which, in conjunction with the application of strict administrative law sanctions, is likely to expand the scope of liability. Though, however, the new market abuse regime will facilitate the prosecution of insiders and manipulators, a number of issues are left open to discussion. Consequently, supervisory authorities and courts are required to display particular care in the interpretation and application of the new regime in order to ensure effective enforcement.

Supervisory Enforcement Actions and Depositors’ Reaction: Monitoring, Running, or Living a Quiet Life?

Public announcement of formal enforcement actions against banks for safety and soundness reasons may enhance effective depositor monitoring or cause depositors to overreact, leading to disruptive runs. We test these competing hypotheses, using hand-collected data on enforcement actions and bank-quarter or branch-year data on deposits and other bank characteristics from 2000 through 2014. Our baseline results show that total deposits at punished banks decrease by 9.5% in the post-enforcement year, with uninsured deposits declining by 20% and insured deposits falling by 7.9%. These findings survive in a large battery of robustness tests and highlight that enforcement actions enhance rational depositor monitoring over and above punished banks’ financial condition.

Dismantling the EU insider dealing regime: the Supreme Court of Greece's muddled interpretation of “inside information”

In Case 317/2014, the Supreme Court of Greece ruled that information contained in a domestic banks (non-binding and binding) offer for the acquisition of a Turkish bank was not precise enough to qualify as inside information. The article argues that the Courts line of reasoning is misguided in at least three core respects: first, it neglects the Committee of European Securities Regulators advice and guidance as well as the relevant EU Court of Justice case law; second, it fails to incorporate the interpretative assistance offered by empirical research on the market effects of M&As and the price impact of relevant pre-announcement information; and third, it has a contagious, distortive effect on the effective implementation of the insider dealing prohibition. As a result, the Supreme Courts ruling fails to interpret the national law in light of the wording and purpose of the EU insider dealing regime so as to achieve the objectives and result sought by Directive 2003/6/EC.