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Unintended Consequences of the Global Derivatives Market Reform

Author

Listed:
  • Pauline Gandré

    (Ecole Normale Supérieure (ENS) de Lyon; University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE))

  • Mike Mariathasan

    (KU Leuven- Faculty of Economics & Business)

  • Ouarda Merrouche

    (University of Lausanne)

  • Steven Ongena

    (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR))

Abstract

We investigate regulatory arbitrage during the G20’s global derivatives market reform. Using hand-collected data on staggered reform progress, we find that banks shift their trading towards less regulated jurisdictions. The result is driven by agenda items – such as the promotion of central clearing – that are costly, but do not directly benefit banks. We further document that subsidiaries in jurisdictions with more reform progress shift to riskier portfolios. Alleviating endogeneity concerns we show that reform progress is primarily driven by structural (time-invariant) factors.

Suggested Citation

  • Pauline Gandré & Mike Mariathasan & Ouarda Merrouche & Steven Ongena, 2020. "Unintended Consequences of the Global Derivatives Market Reform," Swiss Finance Institute Research Paper Series 20-02, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2002
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    References listed on IDEAS

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    More about this item

    Keywords

    Bank regulation; Regulatory arbitrage; OTC Markets; Derivatives; Cross-border financial institutions; Financial risk;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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