As the recent Financial Stability Board decision on loss-absorbing capital shows, repairing the financial system is still a work in progress. This column reviews the author’s new book on the matter, Reinventing Financial Regulation: A Blueprint for Overcoming Systemic Risks. It argues that financial institutions should be required to put up capital against the mismatch between each type of risk they hold and their natural capacity to hold that type of risk.
Avinash Persaud, Friday, November 20, 2015 - 00:00
Jakob de Haan, Wijnand Nuijts, Mirea Raaijmakers, Friday, November 6, 2015 - 00:00
The Global Crisis revealed serious deficiencies in the supervision of financial institutions. In particular, regulators neglected organisational culture at the institutional level. This column reviews efforts since 2011 by De Nederlandsche Bank to oversee executive behaviour and cultures at financial institutions. These measures aimed at identifying risky behaviour and decision-making processes at a sufficiently early stage for appropriate countermeasures to be implemented. The findings show that regulators can play a larger part in securing the stability of the financial system by taking an active role in shaping institutional cultural processes.
Shekhar Aiyar, Anna Ilyina, Andreas Jobst , Thursday, November 5, 2015 - 00:00
European banks are struggling with high levels of non-performing loans. This column explores the channels through which persistently high non-performing loans hold down credit growth and economic activity. A survey of EU authorities and banks reveals that the loans are not written-off for a variety of deep-seated reasons, including legal and tax code issues. An agenda is proposed comprising tightened bank supervision, structural bankruptcy reforms, and the development of markets for distressed assets.
Matthew Jaremski, David C. Wheelock, Sunday, October 25, 2015 - 00:00
The US’s Federal Reserve System was established more than a century ago as a confederation of 12 regional districts. The selection of cities for each region’s Reserve Bank disproportionately favoured the Northeast and the state of Missouri, a fact that remains controversial to this day. This column describes how the existing banking infrastructure and population density at the time, guided the selection of these cities. Modern communication technology has reduced the need for physical proximity between Reserve and commercial banks. Debates about rezoning the Federal districts should therefore focus on the distribution of monetary policymaking authority.
Jon Danielsson, Morgane Fouché, Robert Macrae, Tuesday, October 20, 2015 - 00:00
There has always been conflict between macro- and microeconomic regulation. Microeconomic policy reigns supreme during good times, and macro during bad. This column explains that while the macro and micro objectives have always been present in regulatory design, their relative importance has varied according to the changing requirements of economic, financial and political cycles. The conflict between the two seems set to deepen and so, regardless of which ‘wins’, policymakers must not undermine the central bank's execution of monetary policy.
Philip R. Lane, Monday, September 7, 2015 - 00:00
In the lead up to the global financial crisis, there was a substantial credit boom in advanced economies. In the Eurozone, cross-border flows played an especially important role in the boom-bust cycle. This column examines how the common currency and linkages between member states contributed to the Eurozone crisis. A very strong relationship between pre-crisis levels of external imbalances and macroeconomic performance since 2008 is observed. The findings point to the importance of delinking banks and sovereigns, and the need for macro-financial policies that manage the risks associated with excessive international debt flows.
Charles A.E. Goodhart, Enrico Perotti, Thursday, September 10, 2015 - 00:00
In the last century, real estate funding by banks grew steadily. This column argues that the unprecedented expansion of banking in mortgage lending resulted in a high degree of maturity mismatch. The solution to this problem should focus on greater maturity matching, and not using insured deposits. One avenue to do so is by securitising mortgages with little maturity transformation. Another is to create intermediaries providing mortgage loans where the lender shares in the appreciation, while assuming some risk against the occasional bust.
Liangliang Jiang, Ross Levine, Chen Lin, Saturday, July 25, 2015 - 00:00
The Global Crisis has brought the ins and outs of bank stability to the attention of increasing numbers of academics and policymakers. But what is the impact of bank regulation and competition on bank opacity? This column presents one of the first evaluations of the impact of bank regulatory reforms on the quality of information disclosed by banks, which in turn helps us assess bank stability.
Esa Jokivuolle, Jussi Keppo, Xuchuan Yuan, Thursday, July 23, 2015 - 00:00
Bankers’ compensation has been indicted as a contributing factor to the Global Crisis. The EU and the US have responded in different ways – the former legislated bonus caps, while the latter implemented bonus deferrals. This column examines the effectiveness of these measures, using US data from just before the Crisis. Caps are found to be more effective in reducing the risk-taking by bank CEOs.
Stephen Kinsella, Hamid Raza, Gylfi Zoega, Saturday, July 4, 2015 - 00:00
Iceland and Ireland were both rocked by the fallout of the Global Crisis. This column argues that differences in currency arrangements affected the mechanisms of the boom and the collapse. Iceland’s banks collapsed because they did not have a lender of last resort in euros. Ireland did. But Iceland’s collapse and ensuing capital controls shifted the burden of debt restructuring onto foreign creditors to a much greater extent than in Ireland.
Sven Langedijk, Gaëtan Nicodème, Andrea Pagano, Alessandro Rossi, Saturday, July 4, 2015 - 00:00
Strengthening the banking sector through higher equity capital is one of the key elements of policies aiming to reduce the probability of crises. However, the ‘corporate debt bias’ – the tendency of corporate tax systems to favour debt over equity – is at odds with this objective. This column estimates the benefits for financial stability of eliminating the corporate debt bias. Fully removing the debt bias is estimated to reduce potential public finance losses by between 25 and 55% for the six large EU countries sampled.
Dirk Schoenmaker, Sunday, May 31, 2015 - 00:00
Debt financing amplifies the effects of asset prices fluctuations across the financial system and this can produce bubbles. Regulation therefore increasingly focusses on restricting debt financing. Although there is no silver bullet for making the financial system failure-proof, this column argues that policymakers should adopt an integrated and consistent macroprudential approach across the financial system in order to help prevent businesses moving to less-regulated pastures.
Xavier Vives, Tuesday, March 17, 2015 - 00:00
Piotr Danisewicz, Dennis Reinhardt, Rhiannon Sowerbutts, Thursday, March 5, 2015 - 00:00
Jon Danielsson, Eva Micheler, Katja Neugebauer, Andreas Uthemann, Jean-Pierre Zigrand, Monday, February 23, 2015 - 00:00
Georg Ringe, Jeffrey N. Gordon, Wednesday, January 28, 2015 - 00:00
Dirk Niepelt, Wednesday, January 21, 2015 - 00:00
Xavier Vives, Monday, December 22, 2014 - 00:00
Vincent Bouvatier, Anne-Laure Delatte, Sunday, December 14, 2014 - 00:00
Nadege Jassaud, Thursday, October 30, 2014 - 00:00