The Vickers Commission’s failure
Laurence J. Kotlikoff 26 October 2012
The UK’s Independent Commission on Banking set out to make banking safer, to ensure that what just happened won’t happen again, and to change both the structure and regulation of banking as needed. But this column argues that the Commission fails to achieve any of these aims. It instead proposes a new way to make the financial system and wider economy safer.
The UK is still reeling from the great financial crash. Real GDP remains below its 2007 level, the nation’s 8.4% unemployment rate is at a 16-year high, and youth unemployment is over 20% (BBC 2012). Over three million UK citizens can’t find work or have given up looking. Millions more are short on work – working part time or in jobs below, if not far below, their skill levels.
International finance Macroeconomic policy
UK, financial regulation, banking sector, Vickers Commission
Banks and cross-border capital flows: Policy challenges and regulatory responses
Markus K Brunnermeier, José De Gregorio, Philip Lane, Hélène Rey, Hyun Song Shin 07 October 2012
Many argue that the financial sector is in dire need of reform but there is always the danger of solving one problem by creating another. This column outlines the findings of the Committee for International Economic Policy and Reform. It takes stock of the traditional case for financial liberalisation and asks which principles have withstood the test of recent events and which ones now need re-thinking.
The textbook case for financial integration is well known. It allows capital to flow from capital-rich to capital-poor economies, where returns should be higher. These flows complement limited domestic saving in capital-poor countries and reduce their cost of capital, boosting investment and growth. Financial integration may also be a buffer against shocks and carry “collateral” or indirect benefits to do with managerial and organisational expertise, or better governance of local firms.
financial sector, banking sector
What is the contribution of the financial sector?
Andrew G Haldane, Vasileios Madouros 22 November 2011
While few would argue that the financial crisis has not brought the real economy down with it, there is considerably less clarity about what the positive contribution of the financial sector is during normal times. This lead commentary in the current Vox debate on the issue focuses on the value-added of risk and government subsidies in national accounting, and makes an important distinction between risk-taking and risk management.
There is no doubting the financial sector has a significant impact on the real economy. Financial crisis experience makes this only too clear.1 Financial recessions are both deeper and longer-lasting than normal recessions. At this stage of a normal recession, output would be about 5% above its pre-crisis level. Today, in the UK, it remains about 3.5% below. So this much is clear: Starved of the services of the financial sector, the real economy cannot recuperate quickly.
Global crisis International finance
financial crisis, financial sector, banking sector
Too much finance?
Jean-Louis Arcand, Enrico Berkes, Ugo Panizza 07 April 2011
Over the last three decades the US financial sector has grown six times faster than nominal GDP. This column argues that there comes a point when the financial sector has a negative effect on growth – that is, when credit to the private sector exceeds 110% of GDP. It shows that, of the advanced countries currently suffering in the fallout of the global crisis were all above this threshold.
The idea that a well-working financial system plays an essential role in promoting economic development dates back to Bagehot (1873) and Schumpeter (1911). Empirical evidence on the relationship between finance and growth is more recent.
Financial markets Global crisis Macroeconomic policy
financial regulation, banking sector, Too big to fail, systemic risk
Time for unorthodox monetary policy
John Muellbauer 27 November 2008
This column explains the logic behind a radically new form of monetary policy – a new central-bank tool for stabilising the credit cycle. By buying bank stocks and credit instruments at the bottom of the cycle and selling at the top, the new policy could moderate the boom-and-bust credit cycle independently of interest rate policy. The Fed action on 25 November is a good step in this direction.
The world economy is trapped in a dangerous global downward spiral of falling asset prices, shrinking credit, and rising bankruptcies, foreclosures and unemployment – all of which feed into more of the same – and drag commodity and now goods prices down with them.1 We were among the first to give a research-based warning of the coming price deflation in our 10 October 2008 column on VoxEU.org.2
monetary policy, financial markets, banking sector, global crisis
Involving European citizens in the benefits of the rescue plan: The political paradoxes of bank socialism
Tito Boeri 15 October 2008
Are EU citizens ready to accept the crisis rescue plan that makes massive transfers of resources from taxpayers to the banking sector? This column proposes three ways to share the rescue’s benefits with citizens: increased competition in the banking sector, tax reductions for low-wage earners, and temporary relief schemes for families with mortgage problems.
Leaders of the Eurozone finally agreed on a plan. It is a very ambitious rescue plan – as it should be – to stop the self-fulfilling prophecies that brought us to the brink of another Great Depression. But it should now be made acceptable to European citizens.
Financial markets Welfare state and social Europe
taxation, rescue plan, banking sector