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This paper examines blanket guarantee, deposit insurance and restructuring decisions with respect to a multinational bank (MNB) using Nash bargaining when the threat of a bank panic motivates countries to make decisions quickly. Failure of the bank would unevenly distribute externalities across countries, influencing the restructuring incentives. In equilibrium, the bank is either liquidated or one of the countries – or both – recapitalizes it. A partition of the recapitalization costs is sensitive to the country-specific benefits and costs from recapitalization, panic and liquidation. The home regulator benefits from the advantage that it is the only entity that can legally liquidate the MNB. Rational expectations regarding the bargaining result affect the incentives to declare a blanket guarantee.

If combining insurance and banking services generates scope economies in terms of monitoring the customers, competition in the financial markets becomes more intense after financial conglomeration. The pro-competitive effect reduces the prices of the financial services, increases monitoring and improves financial stability. Increased monitoring allows financial regulators apply lower capital requirements for financial conglomerates.

A topical concern in public policy debate is that the current capital adequacy regulation designed for stand-alone financial institutions exhibits several weaknesses due to the emergence of large financial institutions combining several activities under common control. This paper will address these concerns in the framework for capital regulation of financial institutions proposed in the economic literature. It will first describe the potential reasons that led to the emergence of financial conglomerates. Secondly, it will consider the theoretical background for the regulation of financial institutions, especially insurance and banking companies. Finally, it will use this framework to examine the limitations of the current regulatory framework in controlling the risks in financial conglomerates. The conclusions of the paper give little support for the view that regulatory approach should be modified toward harmonisation.

This study deals with the matter to what extent the costs of the EU Emission Trade System (EU ETS) end up in the electricity prices. The study encompasses both a theoretical and an empirical review of electricity price formation. It includes an econometric analysis of electricity price formation and the impact of EU ETS on power prices. On the basis of the econometric analysis is concluded that cost compensation due to EU ETS is indeed occurring. On average, about 75% to 95% of a price change in EU ETS is passed on to the Finnish NordPool spot price. The analysis also shows that the degree of utilisation of generation capacity (and hence the network loads) have an effect on electricity prices. This hints at possible market imperfections and can aggravate the price effects of EU ETS.

This paper studies the competitive and efficiency implications of financial conglomeration driven by cost-efficiency gains in monitoring credit and insurance customers. The analysis shows that conglomeration is conducive to tougher competition in the credit market and increases profit in insurance. The aggregate profit in the financial sector does not increase, because the conglomerates pass the cost-efficiency gains on to the borrowers in full. More competitive market for financial services also reduces the aggregate risk in the financial markets, indicating that capital requirements in both sectors should be lower in the presence of financial conglomerates.