International finance

Tamon Asonuma, Said Bakhache, Heiko Hesse, 04 July 2015

Home bias in banks’ holdings of domestic government debt could pose problems for financial stability and crisis management. This column discusses some of the determinants of this bias. Factors that increase macroeconomic instability are associated with higher home bias, while better investment opportunities in the private sector and better institutional quality reduce home bias.

Jon Danielsson, Ásdís Kristjánsdóttir, 11 June 2015

Iceland has just announced it is getting rid of its capital controls. This column argues that the government’s plan is a credible, efficient and fair plan to lift the costly and misguided controls.

Serkan Arslanalp, Reinout De Bock, Matthew Jones, 04 June 2015

Major advanced economies have made mixed progress in repairing the private sector’s balance sheets. This column explores private sector deleveraging trends and calls for a set of policies that will return debt to safer levels. Monetary policies should support private sector deleveraging and policymakers should not ignore the positive impact of debt restructuring and write-offs on non-performing loans.

Carmen Broto, Luis Molina, 21 May 2015

Credit ratings agencies have enormous power over countries in dire straits. But whether prevailing global economic conditions affect their assessments is rarely asked. This column suggests that credit ratings agencies overreact in downgrading countries credit ratings during times of economic crisis and instability, and underreact when upgrading during calmer times. This is bad news for policymakers who think that strong economic performance will get them back the credit rating they once took for granted.

Gaston Gelos, Frederic Lambert, 17 May 2015

Since the Global Crisis, international banks have reduced cross-border lending but continued to lend through their branches and affiliates overseas. This column argues that the observed shift was to a significant extent driven by regulatory changes. It should improve financial stability in host countries of foreign banks.

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