KREDIT und KAPITAL - Issue 3/1992


Contents


Articles

Spahn, Heinz-Peter
Die ECU-Wirtschaft. Ein Modell zu den Konsequenzen der Europäischen Währungsunion

Hackmann, Johannes
Die Überwindung von Kapitalfehlallokationen durch eine Besteuerung von Sollzinseinkommen

Diehl, Markus
Handelsbeschränkungen und "finanzielle Protektion". Zur sektoralen Struktur von Finanzmarktregulierungen am Beispiel Brasilien und Peru

Freimann, Eckhard
Ungedeckte Zinsparität im Europäischen Währungssystem

Oberman, Raoul
Zinsrisikopotentiale. Kennziffer für das Risikomanagement von Zinsinstrumenten


Reports

Wiebke, Harald
Internationale Aktivitäten zur Harmonisierung bankaufsichtlicher Eigenkapitalvorschriften: Eine Zwischenbilanz. Eigenkapitalunterlegung der Risikoaktiva (Teil II)


Book Reviews

Theurl, Theresia
Eine gemeinsame Währung für Europa (Heinrich Tragseiler)

Peters, Edgar E.
Chaos and Order in the Capital Markets (Beate Reszat)


Summaries

Spahn, Heinz-Peter
"The ECU-Economy - Modelling the Implications of European Currency Union "

The consequences of the transition of the EMS into a European Currency Union are analysed by use of a macroeconomic two-country model and a game-theoretic approach as to economic policy decisions. Supply-side distinctions of both countries, modelled by a different path of wage costs, lead to country-specific rates of interest and inflation in the EMS, but result in divergent paths of income and employment in the ECU-system. Although the European Central Bank is equipped with the same utility function as the German Bundesbank inflation and interest rates are higher as compared to the German ease. Enduring disparities in the countries' welfare promote European structural and redistributional policies with questionable results.

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Hackmann, Johannes
"Overcoming Misallocations of Capital by Means of a Tax on Potential Interest Earnings"

Real existing income taxes presumably cause significant misappropriations of capital funds. These misallocations can largely be traced to the income tax practice, as opposed to the public finance idea of income taxation. Real income taxes commonly do not subject the income equivalent of consumption capital (imputed rent) to taxation. The same is true for some capital income (interest income). By modifying the conventional income tax with a Potential interest tax component, the misappropriation of capital funds can be avoided. The modification exists in adding a Potential interest income to the conventionally defined income tax base. The Potential income equates basically to the capital income that the taxpayer would have earned had he not consumed. The modified income tax tends to combine the efficiency advantages of an expenditure tax roughly with the equity advantages of the income tax. Compared to the expenditure tax it also features further advantages.

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Diehl, Markus
"Trade Restrictions and "Financial Protection" - The sectoral Structure of Financial Market Regulations Demonstrated by the Brazilian and Peruvian Examples -"

In many countries distortions through the foreign trade regime are accompanied by regulations of the financial sector, which may also benefit particular economic sectors. In order to analyse possible causal relations, this paper develops a method to measure the degree of protection in financial markets. Decisions in corporate finance can be simulated on industry level under (hypothetical) undistorted capital market conditions. The difference to the observed capital structure may then be interpreted as the outcome of governmental regulation. Empirical analysis for the case of long-term bank credits in Brazil and Peru lend some support to the hypotheses, that there is parallel influence on trade policy and financial market regulations in Brazil in contrast to compensatory influence in Peru.

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Freimann, Eckhard
"Uncovered Interest Parity in the European Monetary System"

This study examines the impact of exchange rate coordination on the uncovered interest parity relationship. For this purpose, I tested uncovered interest parity for the EMS currencies: Dutch Guilder, Italian Lira and French Franc and the non EMS currencies: US Dollar, Pound Sterling and Swiss Franc over the period April 1979 to October 1990. All exchange rates are quoted against the German Mark. To grasp the impact of enhanced exchange rate coordination over time, the sample is split up into two sub-samples. The sub-samples were chosen in such a way that in the first period, exchange rate parity changes in the EMS occurred frequently while in the second period changes were made less frequently and to a lesser extent.

The a priori assumption that uncovered interest parity holds better in a coordinated market than in a non coordinated market is not supported by the empirical evidence. While I cannot reject the zero hypothesis of uncovered interest parity for any non-EMS currency, I have to reject the zero hypothesis for all three EMS currencies. Splitting the sample and testing only one sub-sample does not change the results. The results of this study suggest that exchange rate coordination has no effect on the uncovered interest parity.

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Oberman, Raoul
"Interest Rate Variation Risk Potential - a Concept for Managing the Interest Rate Variation Risk of Interest Rate-linked Financial Instruments"

The experience of recent years has taught us that the instruments hitherto available for managing interest variation risks - interest variation balance sheets, elasticity concepts, duration hedging concepts - are no longer appropriate for measuring adequately the interest exposure associated with new interest rate-linked financial instruments such as interest rate swaps, interest rate futures and interest rate options. For, interest rate options are characterized by two factors requiring fundamental rethinking about the methods for measuring the interest rate variation risk: The yield on interest rate options is asymmetrically distributed, and the price of interest rate options is determined only in part by the yield curve. Based on a present of the shortcomings of traditional measurement methods, the present contribution introduces a new ratio-based concept, i. e. the interest rate variation risk potential, which takes account also of modern interest rate-linked financial instruments and allows reliable forecasting of the interest exposure attaching to portfolios put together at discretion. This concept allows the potential loss in value of portfolios to be described, i. e. a potential loss which is not likely to be surpassed with probability factor being assumed for a specified period. The resultant ratio is calculated on the basis of the chance-constrained programming concept and stochastic simulation runs. This new ratio offers visible advantages over the present risk management instruments: It takes account of non-parallel changes in the yield curve as well as of interrelationships between behavioural characteristics of the interest rate-linked instruments and possible interest developments. At the same time, it allows a consolidated assessment of the totality of the individual risks involved, independently of the number of interest rate-linked financial instruments of a portfolio. This permits also the residual risks that have dodged duration hedging hitherto to be estimated in quantitative terms.

This contribution ends on an outlook on the large variety of applications of the above described ratio (optimization of portfolios, use as control1ing instrument) as well as an other unsettled issues.

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Reports

Wiebke, Harald
"International Activities to Harmonize Banking Supervision Regulations Concerning Bank Capital: An Interim-State Report - Part 2: Equity Capital Requirements in Respect of Risky Lendings"

The Committee on Banking Supervision of the Bank for International Settlements ("Cooke" Committee) adopted a recommendation concerning the equity capital credit institutions are required to hold in respect of lendings exposed to the risk of being lost. This recommendation provides for a differentiating risk assessment of all asset positions and all transactions off the balance sheet as a function of the contracting partner' s creditworthiness. According to the recommendation, the desired standard level of equity at the base of all risky transactions is 8 % (4 % of which must be core capital). Worldwide acceptance of this concept allows a level playing field to be created for all market participants. The EC solvency Directive largely conforms to the "Basel model" as regards its aims and systematics as well as its contents. It must have been cast into national law by 1 January 1993 which requires certain adaptations of Principle I pertaining to Section10 of the Credit Act.

The interest variation and other price risks represent risks for banks and securities houses because of the trend towards securitization and of the trade in derivative instruments. Covering the price risk is one of the foremost aims of the Interim-State Report submitted by the Basle Committee in 1990 as well as of the EC's draft capital adequacy Directive. The latter distinguishes between the foreign exchange risk, the "position risk" in respect of fixed-interest securities and shares, the counterparty/ settlement risk as well as other (operational) risks. The equity capital provisions the Directive requires to have been met in respect of exposures apply both to the trading book of securities houses and to credit institutions.

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