Simon Wolfe

Internet banking market performance: Turkey versus the UK

Purpose – The purpose of this paper is to compare and evaluate the internet banking services of Turkey and the UK.Design/methodology/approach – The paper is based on an exploratory research for a sample of nine banks from each country, a web survey is conducted to collect data for each internet bank using an analytical framework based on a three dimensional model.Findings – It is found that Turkish banks offer a wider range of services from their internet branches compared to British banks, despite the fact that the UK has a more favourable environment for internet banking in terms of the level of sophistication of its banking sector and technological infrastructure. Furthermore, a key difference is observed in the approaches of banks towards the issue of “security”.Research limitations/implications – The findings of this paper are reached by the use of a simplified model that only focuses on the transaction side of internet banking. Therefore, further research could encompass other aspects from the provi...

Are More Competitive Banking Systems More Stable

This paper provides the first empirical analysis of the cross-country relationship between a direct measure of competitive conduct of financial institutions and banking system fragility. Using the Panzar and Rosse H-Statistic as a measure for competition in 38 countries during 1980-2003, we present evidence that more competitive banking systems are less prone to systemic crises and that time to crisis is longer in a competitive environment. Our results hold when concentration and the regulatory environment are controlled for and are robust to different methodologies, different sampling periods, and alternative samples.

Structural effects of asset-backed securitization

This paper analyses the potential changes in the operational structure of deposit-taking financial institutions that securitize assets. Findings indicate that banks can create an asset securitization pipeline structure that enables them to increase their return on capital. In other words, through securitization banks can expand their loan provision business without increasing their liabilities or their capital levels. Using a contingent claims model, four factors that impact on the banks decision to securitize are highlighted and analysed: (i) the level of deposit insurance; (ii) capital adequacy requirements; (iii) insolvency risk; and, (iv) the risk of credit enhancements. Furthermore, we identify key accounting and regulatory challenges that emerge for banks from the process of asset backed securitization.

Compliance: A review

Compliance is key to the operation and reputation of the financial services sector and is now completely embedded in the way financial services organisations carry on investment business. It is also fundamental to the Financial Services Authority (FSA) in seeking to achieve its regulatory objectives as set out in SS. 3‐6 of the Financial Services and Markets Act 2000. A great deal has been written on the topic of compliance and the core objective of this paper is to review and comment on the current approach to compliance which has evolved since the introduction of the Financial Services Act 1986. It notes the change of emphasis by the FSA from individual compliance competence to organisational compliance competence. It focuses on conduct of business regulation and highlights the importance of training and competence to compliance and explains how the regulatory approach has been changing from a rules‐based approach to a more flexible ethical one.

The compliance function in banks

The Basel Committee on Banking Supervision under the auspices of the Bank for International Settlements (BIS) published a consultation paper in late 2003 on the compliance function in banks. The aim of the consultation paper is to set out the views of banking supervisors and provide basic guidance for banks. Whereas there is no attempt to prescribe a uniform approach, a clear set of general principles is laid down for the role of the compliance function within banking organisations. Furthermore, recognition is given to the fact that diversity exists between banks with respect to their internal organisation of the compliance function and also to diversity in the legal and regulatory environment affecting the compliance function across jurisdictions. The core objectives of this paper are to examine the BIS approach to the compliance function and look at how this is likely to evolve. The authors draw on experience from the UK life assurance industry where substantial inroads have been made to embed a compliance competent culture within such types of financial institutions. A partnership approach is highlighted as essential to achieving a viable and meaningful compliance function. Finally, an ethical approach is explored as the possible future direction for banks. The first section reviews the new principles for the compliance function; the second section describes issues that arise; the third section analyses a partnership approach and explores an ethical approach; and the final section provides a summary and conclusion.

Equity Valuation Effects of the Issuance of Convertible Bonds: U.K. Evidence

The article compares the equity valuation effects of the convertible bonds, straight debt, and common equity offerings in the U.K. market. Our results on announcement dates are similar to those of studies in the U.S. in several respects. Convertible bond offerings have a significant negative impact on the underlying stock price; straight debt offerings are accompanied by a small negative stock price reaction; and rights issues have significantly negative valuation effects. A result that is at variance with U.S. results is that we find no stock price reaction on the issue date of convertible bonds.

The impact of environmental risk on the UK banking sector

The aim of this paper is to examine the tensions that face the UK banking sector in assessing and managing credit risks associated with actual or potential environmental damage arising from the activities of borrowers. It was found that banks were more concerned with the reputational effects associated with lending to a polluter than with credit risk assessment. Concern exists with the potential legal risks arising from the application of the principle of joint and several liability by courts in cases involving environmental damage caused by borrowers. The paper concludes that further research is required on the role of (a) the supply chain in credit risk assessment and (b) partnership contracts between borrower, lender and environmental agencies.

The impact of market power and funding strategy on bank-interest margins

This paper investigates the implications of market power and funding strategies for bank-interest margins, using a sample of 978 banks in 55 emerging and developing countries over an eight-year period, 2000–2007. We provide additional insight by examining the complex interlocking of three key variables that are important for regulators: the degree of market power, funding sources and bank performance. The results show that market power increases when banks use internal funding to diversify into non-interest income-generating activities. We also find that the high net-interest margins of banks in emerging and developing countries can be explained by the degree of market power, credit risk, and implicit interest payments. In addition, our results suggest that interest margins among banks with market power are significantly more sensitive to internally generated funds than they are to deposit and wholesale funding.

Ethical and Compliance-Competence Evaluation: A Key Element of Sound Corporate Governance

Motivated by the ongoing post-Enron refocusing on corporate governance and the shift by the Financial Services Authority (FSA) in the UK to promoting compliance-competence within the financial services sector, this paper demonstrates how template analysis can be used as a tool for evaluating compliance-competence. Focusing on the ethical dimension of compliance-competence, we illustrate how this can be subjectively appraised. We propose that this evaluation technique could be utilised as a starting point in informing senior management of corporate governance issues and be used to monitor and demonstrate key compliance and ethical aspects of an institution to external stakeholders and regulators.

A compliance competence partnership approach model

Purpose – Compliance competence is key to the operation and reputation of the financial services sector and is now completely embedded in the way financial services organisations carry on investment business. It is also fundamental to the Financial Services Authority (FSA) in seeking to achieve its regulatory objectives as set out in sections 3-6 of the Financial Services and Markets Act 2000. A great deal has been written on the topic of compliance and competence and the core objective of this paper is to offer a compliance competence model for financial institutions that recognises and highlights the importance of the regulator and the regulated working together as partners. Design/methodology/approach – A unique compliance competence partnership approach model, arising from case study research, is proposed and consists of three key elements: good compliance practice, good ethical practice and a positive FSA relationship. The three elements are represented as a tripod with three mainstays that are intrinsically linked. The mainstays are supported by cross-members that consist of underlying and intrinsic issues of compliance competence. Findings – The regulator and regulated need to work together in a proactive partnership. Organisation need to formulate a clear ethical policy involving employees from every aspect. Originality/value – The partnership approach model, advocated here, would create a real partnership between the FSA and its regulated organisations.