Do financial institution managers only owe enforceable duties of loyalty, competence and care to their stockholders and explicit creditors, but not to taxpayers or government supervisors? This column argues that in the current information and ethical environments, regulating accounting leverage cannot adequately protect taxpayers from regulation-induced innovation. We ought to aim for establishing enforceable duties of loyalty and care to taxpayers for managers of financial firms. Authorities need to put aside their unreliable, capital proxy: they should measure, control, and price the ebb and flow of safety-net benefits directly.
Edward J Kane, Wednesday, January 30, 2013
Biagio Bossone, Tuesday, January 22, 2013
Has unconsidered use of technology and exasperated market competition carried finance way afar from its original purpose, i.e. to serve the economy? This column offers a set of simple suggestions for complex interventions on the financial regulatory world. It suggests incentives be designed to lead financial institutions to place people’s real economic needs at the core of their mission, thus humanising finance.
Takeo Hoshi, Sunday, December 23, 2012
Rejigging financial regulation is in vogue. But, in the world of international finance, how well do different regulatory systems join up? This column argues that the US Dodd Frank Act and Basel III are, in part, incompatible and that harmonising them may lead to unintended consequences. The US ought to tread carefully here but should also try hard to maintain the spirit of better financial regulation.
Joseph Noss, Rhiannon Sowerbutts, Sunday, June 17, 2012
A credible threat of failure is an integral part of any industry. But this does not always apply to banks as failure may result in unacceptable economic costs. As a result, unprecedented amounts of public money have been used to avert bank failure. This column explains why the subsidy arises, why it is a public policy concern, and how it can be quantified.
Hamid Mehran, Alan Morrison, Joel Shapiro, Friday, April 6, 2012
A recent op-ed by a former Goldman Sachs employee has led to an outcry over two important themes which came to the fore during the crisis, ie corporate culture and incentives. This column argues that neither regulation nor market forces has put either of these issues to rest. It adds that bank complexity and the too-big-to-fail policy both serve to undermine market discipline.
Jacopo Carmassi, Stefano Micossi, Wednesday, March 28, 2012
Excessive risk-taking by large banks was among the main causes of the 2008–09 financial crisis. This column argues that the antidote to excessive risk-taking should come from the elimination of the subsidies of the banking charter and the implicit promise of bailout in case of major losses, and the introduction of strong incentives for management and shareholders to preserve the capital of their bank. This requires deep changes in Basel prudential rules.
Francesco Columba, Alejo Costa, Cheng Hoon Lim, Friday, March 16, 2012
In the wake of the 2008 financial crisis, there has been burgeoning interest in macroprudential policy as an overarching framework to address the stability of the financial system as a whole rather than only its individual components. This column, based on a new dataset from 49 countries, shows that some macroprudential instruments are effective in reducing procyclicality in the financial system, and thus systemic risks.
Viral Acharya, Robert Engle, Matthew Richardson, Wednesday, March 14, 2012
The effective regulation of banks requires identification of systemically important financial institutions. This column discusses a method to estimate the capital that a financial firm would need to raise if we have another financial crisis. This measure of capital shortfall is based on publicly available information but is conceptually similar to the stress tests conducted by US and European regulators.
Jakob de Haan, Mark Mink, Thursday, February 23, 2012
Since 2010, Eurozone countries have engaged in unprecedented rescue operations to avoid contagion from a potential Greek sovereign default. This column argues that news about Greek public finances does not affect Eurozone bank stock prices, while news about a Greek bailout does. This suggests that markets consider news about a Greek bailout to be a signal of Eurozone countries’ willingness to use public funds to combat the financial crisis.
Andrea F Presbitero, Gregory F Udell, Alberto Zazzaro, Sunday, February 12, 2012
Understanding credit crunches is a major concern for policymakers. This column suggests that the severity of a credit crunch in a specific area depends on the hierarchical structure of the banks operating in that credit market. It explores the Italian case and shows that, in the months following the collapse of Lehman Brothers, banks retracted disproportionally from markets that are more distant from their headquarters.
Christian Schmieder, Heiko Hesse, Benjamin Neudorfer, Claus Puhr, Stefan W Schmitz, Wednesday, February 1, 2012
The global financial crisis has shown that neglecting liquidity risk comes at a substantial price. This column presents a new framework to run system-wide, balance sheet data–based liquidity stress tests. The liquidity framework includes a module to simulate the impact of bank-run type scenarios, a module to assess risks arising from maturity transformation and rollover risks, and a framework to link liquidity and solvency risks.
Morris Goldstein, Wednesday, January 11, 2012
Throughout the European debt soap opera, Europe’s leaders have expressed their willingness to “do whatever it takes” to restore stability and save the euro. This column argues that, too often, policymakers have in fact been “doing whatever it takes” to serve the banks.
Nicolas Véron, Thursday, December 22, 2011
Despite emergency summits and last-minute reforms, there is still a large question mark hanging over the euro. This column argues that a chief cause of this is the management of Europe’s banks. It epitomises many of the contradictions at the heart of the Eurozone and unless resolved could be the cause of a slow and painful death of the single currency.
Vincent O'Sullivan, Stephen Kinsella, Saturday, December 17, 2011
The capital shortfall at EU banks is 8% higher than originally thought, according to the latest assessment from the European Banking Authority. This column examines the evolution of loan-to-deposit ratios in big European banks. It says banks have been buying back their debt securities, hoarding profits, limiting bonuses, and deleveraging. However, write-downs of sovereign debt have largely offset these efforts.
Christina Wang, Thursday, December 8, 2011
The financial system is like an organ in the body of the economy. But is it the heart or the appendix? This column, part of the Vox Debate on whether we need a financial sector, argues that we should measure the value banks create through their management of risk, not simply their bearing of risk. Under this measure, banks may well be less valuable to the economy.
Damiano Sandri, Ashoka Mody, Wednesday, November 23, 2011
European policymakers are confronting a heightened crisis characterised by a perverse and seemingly intractable interplay between sovereign debt pressures and financial-sector fragilities. This column argues that the payoffs from strengthening banks’ balance-sheets can still be large and, therefore, fiscal support is merited. But a more resolute strategy for winding down banks is also needed.
Viral Acharya, Dirk Schoenmaker, Sascha Steffen, Tuesday, November 22, 2011
The lack of market confidence in European banks is fed by the uncertainty about Eurozone sovereign debt. This column argues governments and banking supervisors should agree a recapitalisation package well before Christmas. It adds that the required amount to be raised by each bank should be presented as a euro amount and not as a ratio so as not to tempt banks to cut down assets instead of raising capital.
Charles A.E. Goodhart, Tuesday, August 30, 2011
The calls for better bank regulation are many. This column argues that regulators have the concepts right, but the mechanisms are in need of repair.
Jon Danielsson, Monday, June 27, 2011
A debate is raging on capital adequacy requirements for banks. The UK wants to be allowed to “top up” the agreed levels, i.e. to impose stricter capital standards than the EU minimum. This column argues the UK is right, and that the German and French opposition might be motivated by weaknesses in their banking systems.
Ruediger Fahlenbrach, Robert Prilmeier, René M Stulz, Friday, May 27, 2011
Crises are a regular event in financial markets. But do banks that have been hit particularly hard in one crisis learn from the experience and suffer less in future crises? This column suggests not. It shows that banks particularly hard hit by the 1998 financial crisis were also badly affected by the recent financial crisis. It blames the high-risk business models on which these banks rely.