Thesis (M.B.A.)--University of Hong Kong, 1996. / Includes bibliographical references (leaf 76-79).

by Poon Kai Leung, James. / Thesis (M.B.A.)--Chinese University of Hong Kong, 1992. / Includes bibliographical references (leaves 85-86). / ABSTRACT --- p.i / TABLE OF CONTENTS --- p.iii / LIST OF TABLES --- p.v / LIST OF FIGURES --- p.vi / PREFACE --- p.vii / CHAPTER / Chapter 1. --- INTRODUCTION --- p.1 / Review of the Economic and Banking Environment --- p.1 / Objectives and Scope of the Project --- p.6 / Research Methodology --- p.8 / Limitations --- p.11 / Chapter 2. --- THE BANKING SYSTEM： AN OVERVIEW --- p.18 / Banking Structure --- p.18 / Function and Operation --- p.19 / Interbank Ownership --- p.20 / Representative Offices --- p.20 / Legislative Framework --- p.21 / Commissioner of Banking --- p.22 / Banking Associations --- p.23 / Interest Rate Rules --- p.24 / Chapter 3. --- OVERVIEW OF INSTRUMENTS USED IN TRADE FINANCING --- p.26 / Letter of Credit --- p.26 / Shipside bond/Shipping Guarantee --- p.35 / Trust Receipt --- p.36 / Chapter 4. --- ORGANIZATIONAL STRUCTURE --- p.38 / Credit and Marketing Department --- p.39 / Operations Department --- p.42 / Treasury Department --- p.43 / Modified Organizational Structure --- p.44 / Chapter 5. --- CREDIT POLICY AND PROCEDURES --- p.48 / Principles of Lending and Risk Assessment --- p.48 / Guidelines in Credit Reporting --- p.55 / Financial Statement Analysis --- p.61 / Assessment of Credit Limits --- p.66 / Chapter 6. --- MARKETING / LENDING OF TRADE FINANCING --- p.70 / Objectives --- p.71 / Preparation --- p.73 / Implementation --- p.73 / Follow-up --- p.74 / Chapter 7. --- SUMMARY AND CONCLUSION --- p.76 / APPENDIX --- p.79 / BIBLIOGRAPHY --- p.85

published_or_final_version / Business Administration / Master / Master of Business Administration

This dissertation investigates the capacity of states to limit regulatory circumvention in financial markets. The recent financial crisis has confirmed the widespread abuse of regulatory frameworks by the banks to their advantage, testing the limit of the permitted. The loophole behaviour of financial market actors, exploiting the rigidity of rules is unstoppable, given the impossibility to specify all possible events in rules. This essential fact of financial market regulation in itself is not the topic of this dissertation. The question instead is, given these conditions, how can state agencies limit this behaviour? By investigating the evolving regulatory treatment of a segment of the shadow banking sector driven by regulatory arbitrage in four different countries, this dissertation seeks to establish a comparative answer. In the investigated case of off-balance sheet financing, regulatory arbitrage occurred at the overlap of banking regulation and accounting regulation, a strategic location chosen to escape regulation. Asset-Backed Commercial Paper conduits, the financial innovation studied were structured at the margins of existing accounting regulation to avoid on-balance sheet status. They were also structured to be at the margins of banking regulation, in order to avoid regulatory costs. As they were structured just outside the margins of global banking accords, they were forcing regulators to take a national regulatory stance in the regulation of a global market. These constructs were "stitched on the edge" of existing regulation, always seeking to exploit weaknesses of regulation and of the gatekeepers seeking to enforce it. Auditors didn't have a weapon against new constructs as the rules were missing and national regulators had difficulties dealing with these new constructs because they were not regulated globally. The "cutting edge" of financial innovation in this case referred to the edges of regulation. How did state regulator react to this game of the tortoise and the hare? How can we explain the relatively successful regulation of this sector in two countries (Spain and France) and its failure in Germany and the Netherlands? The fourth chapter investigates the dialogue between audited and auditors regarding off-balance sheet decisions and ask how the auditors' voice in this realm could be strengthened in order to limit regulatory circumvention. Strengthening the negotiation power of the auditor through principles based accounting standards is identified as an important tool to contain regulatory arbitrage in the dialogue between banks and their auditors. The fifth chapter asks why we see the introduction of such accounting rules and their use for banking regulation in France and Spain, whereas they are either not introduced at all or not used for banking regulation in the two other cases. It is shown that the engagement of the banking regulator is a decisive intervening variable in the process. It is pointed out that the reconfiguration of national accounting standards setting networks amidst the transnational pressures emanating from an international standard setting body had a strong impact on the differential capability of banking regulators to influence this process. In the sixth chapter, the monitoring and enforcement of auditing decisions in the different countries are investigated, showing that principles based standards without strong regulatory monitoring and intervention was prone to failure. It is shown that the absence or engagement of banking regulators in these processes made a difference as to how prudently banking conglomerates demarcated their balance sheets and represented the risks they were taking. The seventh chapter finally situates the national evolution of regulatory treatments in the (lagging) international response to regulatory arbitrage in the field of securitization. It makes the point that deficiencies in the regulation of the sector were known internationally almost a decade before new international regulation was enforced and shows that in the interim period concerns over national competitiveness often inhibited the stringent regulation of this global market on a national level. The findings of the study reveal the necessary legal capacities and technical capabilities regulators need to hold to spot regulatory circumventions at the margins and at the overlap of regulations. They point to a holistic approach to regulation, which does not only include the application of rules to certain data material but also the control of the construction of that data material itself. It also brings to the fore the tensions between the national and the global level of regulation located at the edges between the two. In these interstices, we can find permitted/ approved regulatory arbitrage as national regulators choose to protect the competitiveness of their banks in a global market, rather than imposing a prudent view nationally.

This thesis develops a range of prediction models for the purpose of predicting the acquisition of commercial banks in the European Union using publicly available data. Over the last thirty years, there have been approximately 30 studies that have attempted to identify potential acquisition targets, all of them focusing on non-bank sectors. We consider that prediction models developed specifically for the banking industry are essential due to the unusual structure of banks' financial statements, differences in the environment in which banks operate and other specific characteristics of banks that in general distinguish them from non-financial firms. We focus specifically on the EU banking sector, where M&As activity has been considerable in recent years, yet academic research relating to the EU has been rather limited compared to the case of the US. The methodology for developing prediction models involved identifying past cases of acquired banks and combining these with non-acquired banks in order to evaluate the prediction accuracy of various quantitative classification techniques. In this study, we construct a base sample of commercial banks covering 15 EU countries, and financial variables measuring capital strength, profit and cost efficiency, liquidity, growth, size and market power, with data in both raw and country-adjusted (i.e. raw variables divided by the average of the banking sector for the corresponding country) form. In order to allow for a proper comparative evaluation of classification methods, we select common subsets of the base sample and variables with high discriminatory power, dividing the sample period (1998-2002) into training sub-sample for model development (1998-2000), and holdout sub-sample for model evaluation (2001-2002). Although the results tend to support the findings of studies on non-financial firms, highlighting the difficulties in predicting acquisition targets, the prediction models we develop show classification accuracies generally higher than chance assignment based on prior probabilities. We also consider the use of equal and unequal matched holdout samples for evaluation, and find that overall classification accuracy tends to increase in the unequal matched samples, implying that equal matched samples do not necessarily overstate the prediction ability of models. The main goal of this study has been to compare and evaluate a variety of classification methods including statistical, econometric, machine learning and operational research techniques, as well as integrated techniques combining the predictions of individual classification methods. We found that some methods achieved very high accuracies in classifying non-acquired banks, but at the cost of relatively poor accuracy performance in classifying acquired banks. This suggests a trade-off in achieving high classification accuracy, although some methods (e.g. Discriminant) performed reasonably well in terms of achieving balanced overall classification accuracies of above chance predictions. Integrated prediction models offer the advantage of counterbalancing relatively poor performance of some classification methods with good performance of others, but in doing so could not out-perform all individual classification methods considered. In general, we found that the outcome of which method performed best depended largely on the group classification accuracy considered, as well as to some extent on the choice of the discriminatory variables. Concerning the use of raw or country-adjusted data, we found no clear effect on the prediction ability of the classification methods.