This paper argues that the European banking crisis can in part be explained by a “carry trade” behavior of banks. The results are supportive of moral hazard in the form of risk-taking by under-capitalized banks to exploit low risk weights and central-bank funding of risky government bond positions.
Viral Acharya, Sascha Steffen, Sunday, April 21, 2013
Nadege Jassaud, Heiko Hesse, Saturday, April 13, 2013
The recent IMF assessment of Europe’s financial sector found that much has been achieved to address the recent financial crisis in Europe, but vulnerabilities remain, and intensified efforts are needed across a wide front, one of which being bank balance sheet repair. This column looks at progress with bank restructuring in Europe.
María J Nieto, Eugene N. White, Friday, March 22, 2013
The euro cannot have a centralised monetary authority and decentralised bank supervision. This column draws on US banking history, detailing how a banking crisis in the nineteenth century led to the creation of dual systems of bank supervision. The US system was imperfect, and the central role and powers of the ECB within the Single Supervisory Mechanism will be to limit the weaknesses of a dual system of supervision. Despite this, hazards remain. For those looking for a guide to the potential threats to financial stability under this system, understanding the US experience is relevant.
Itay Goldstein, Assaf Razin, Monday, March 11, 2013
Broadly speaking, there are three types of economic crisis: banking crises and panics, credit frictions and market freezes, and currency crises. This column argues that features from these types of crises have been at work and interacted with each other to shape the events of the last few years. From an extensive review of literature on these issues, it’s clear that the biggest challenge policymakers and economists face is in developing integrative models that better describing contemporary economic realities.
Joshua Aizenman, Ilan Noy, Wednesday, November 21, 2012
Are countries that have previously experienced banking crises less vulnerable to them in the future? This column argues that, in fact, previous crises might make future crises more likely. There isn’t much evidence of a learning process from past mistakes because the regulator often lags behind banking’s pace of innovation. Preparing to prevent the last crisis does not prevent the next and it seems that the ‘too big to fail’ doctrine provides cover for banks, delaying the day of adjustment.
Patrick Minford, Vo Phuong Mai Le, David Meenagh, Sunday, July 15, 2012
This paper adds the Bernanke-Gertler-Gilchrist model to a modified version of the Smets-Wouters model of the US in order to explore the causes of the banking crisis. The authors find that banking crises occur on average once every 40 years and around half are accompanied by financial crisis. Financial shocks on their own, even when extreme, do not cause crises, provided the government acts swiftly to counteract such a shock.
Jon Danielsson, Wednesday, October 26, 2011
Much of macroeconomic policymaking is trial and error. This column discusses calamitous error on the part of Iceland’s policymakers, in the hope that others can at least try something else.
Viral Acharya, Friday, September 23, 2011
Viral Acharya of New York University talks to Viv Davies about the recent report issued by the UK's Independent Commission on Banking. They discuss capital requirements and the proposal to ringfence bank’s retail versus investment activities. They also discuss the likely costs of the proposals and what the implications may be for competition in the banking sector. Acharya stresses in particular the importance of appropriate risk weights even with ringfencing, especially in context of the current Eurozone debt crisis. The interview was recorded on 16 September 2011. [Also read the transcript]
Thorvaldur Gylfason, Wednesday, August 19, 2009
Is Iceland perhaps too small to be sustainable as a sovereign state? This column argues there are many reason why small is beautiful. Even though they do not benefit from scale economies and large pools of talent, small countries with cohesive societies can be successful as long as they are open to the world. Still, Iceland stands to gain from joining the EU.
Lans Bovenberg, Coen Teulings, Saturday, April 4, 2009
Some analysts have argued that the European is poorly positioned to address the crisis since its economic integration has outpaced its integration of politics and governance. This column says that, in the face of the crisis, Europe must now decide between political integration and economic disintegration. It argues for EU-wide banking reforms, financial regulation, macroeconomic policies, and global coordination.
Emre Ergungor, Kent Cherny, Thursday, March 19, 2009
The way Sweden handled its 1990s banking crisis has been offered as a useful case study in resolving systemic banking crises. This column discusses the merits of the Swedish experience relative to ideal resolution strategies.
Patrick Honohan, Philip R. Lane, Saturday, February 28, 2009
Ireland’s huge exports to GDP ratio and privileged position in global supply chains helped it grow rapidly in the 1990s, but are now amplifying its downturn. This column argues that Ireland’s looming banking and public finance crises can be fixed. The government must find new sources of tax revenue and craft a package in which all social partners can claim ownership.
Charles Wyplosz, Tuesday, January 27, 2009
This column introduces the latest ICMB-CEPR Geneva Report – written this year by Markus Brunnermeier, Andrew Crockett, Charles Goodhart, Avinash Persaud, and Hyun Shin. The report discusses how world leaders should think about financial regulation reform, making a number of specific proposals.
Luigi Zingales, Monday, January 19, 2009
This Wednesday Mr Geithner will be confirmed as the new Secretary of Treasury. Never before in US history has this position been so important. Mr Geithner’s decisions in the next few weeks will have a dramatic impact on the length and the depth of this recession and will shape the financial sector for decades to come. This column offers the new arrival a few suggestions.
Hans-Werner Sinn, Wednesday, December 17, 2008
This column says the core of the crisis lies in the legal provisions of limited liability. Europe and the world need stricter rules for financial traffic which are vital for the functioning of the financial capital markets.