Current issues and perspectives of risk-centered regulation of consolidation processes in the banking industry

On June 15–17, 2017, the Second World Congress of Comparative Economics ‘1917–2017: Revolution and Evolution in Economic Development’ took place in St. Petersburg, Russia. The Congress was organized by the European Association for Comparative Economic Studies (EACES), the Association for Comparative Economic Studies (ACES), the Japan Association for Comparative Economic Studies (JACES) and the Korean Association for Comparative Economic Studies (KACES) in association with the Italian Association for Comparative Economic Studies (AISSEC), the Society for the Study of Emerging Markets (SSEM), the Chinese Economists Society (CES) and the European Association for Evolutionary Political Economy (EAEPE) in cooperation and with the support of National Research University Higher School of Economics (HSE), Saint Petersburg branch.

Eduard Dzhagityan, Associate Professor, School of World Economy, HSE, Moscow, delivered a speech and presentation at the Congress on topic: “Perspectives of risk-centered regulation of banking consolidations” at the section on macroeconomic theory, regulation and policy (in collaboration with the Italian Economic Association). This is author’s further research of a principally new vision and concept of financial regulation of the M&A processes in the banking sector based on quantitative standards with risk-centered specifics. The M&A regulation pursues the objective to not only minimization of the number and the volume of unsuccessful, abandoned, and failed banking consolidations, but also to secure sustainable post-M&A synergy and integration, which is one of the fundamental factors of the stress resilience of the banking sector and broader financial stability.

On how the trilemma of bank consolidations (quantitative and qualitative aspects of the M&A deals, and post-M&A short-termism) is solved will depend the extent to which the post-M&A banks are stress resilient enough to meet the rigorous requirements of the post-crisis banking regulation. More specifically, failure of the cross-border banking M&A will inevitably put additional barriers to the process of internationalization of banking regulation, and at the same time will encourage regulatory arbitrage (the use of advantages stemming from the differences in national regulatory regimes) thus exacerbating instability and spurring crises in the financial system.

Efforts on minimization of the adverse externalities over consolidation processes in the banking sector should be supported by the interdisciplinary approach in identification and evaluation of the consolidation risks keeping in mind interconnectedness of banks not only within the financial sector, but beyond it as well. This very approach that will also embed the tools of macroprudential regulation will expand understanding of the sources and sorts of systemic and micro-level risks, as well as to enhance the accuracy and objectivity of their assessment and their effect on banking activity. This in turn will improve the risk management process, which will help to maintain the risks at a level safe enough for the M&A deal making and post-M&A accomplishment, including those for post-M&A synergetic effect.