Regulation

When you are looking for an assessment of the effectiveness of financial sector regulations, an economic foundation for new regulations or an evaluation of the implications of regulation for your industry, I can help you.

Examples of recent projects:

  • the development of macroprudential instruments for the mortgage and stock market risks
  • an assessment of the effectiveness of a leverage ratio,
  • an evaluation of too big to fail regulations,
  • the appraisal of the effects of Solvency II on the behavior of insurers.

Food for thought:

The privatization of profits and the socialization of losses resulted in risky behavior of the financial sector, increasing debt of the public sector and a lack of trust in the financial sector by the household sector. Ending the moral hazard behavior of systemic institutions has become a major policy task. In my paper Leverage and Risk Taking under Moral Hazard, I assess different policy measures like introducing a leverage ratio to limit risks for the financial system.

 

The financial crisis has changed the way regulators assess risks. One example is macroprudential regulation which relates risk factors to underlying fundamentals. In my paper a Model of Mortgage Losses and its application for macroprudential policies (see also), I develop a theoretical model of mortgage loss rates that evaluates their main underlying risk factors. The model can be used for macroprudential instruments like stress tests, countercyclical buffer, and setting risk weights for mortgages with different loan-to-value and loan-to-income ratios. It can also complement the risk management of financial institutions. The same applies for my model on stock market risks.

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© Dr. Christian Hott