Why fiscal sustainability matters

Willem Buiter 10 January 2014

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Does fiscal sustainability matter only when there is a fiscal house on fire, as was the case with the Greek sovereign insolvency in 2011–12? Far from it.

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Topics:  Financial markets Global crisis International finance Macroeconomic policy

Tags:  eurozone, sovereign debt, capital flows, financial crisis, credit booms, fiscal policy, emerging markets, global financial crisis, banking, banks, Eurozone crisis, Currency wars, fiscal sustainability, banking union, sovereign debt restructuring, balance-sheet recession

Gambling for resurrection in Iceland

Friðrik Már Baldursson, Richard Portes 06 January 2014

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The demise of the three large Icelandic banks, just after the fall of Lehman Brothers, was a key event in the spread of the financial crisis. A couple of weeks before its collapse in October 2008, Kaupthing bank announced that the Qatari investor Sheikh Mohammed Bin Khalifa Bin Hamad al-Thani had bought a 5.01% stake. This briefly boosted market confidence in Kaupthing (Financial Times 2008). What market participants did not know was that Kaupthing illegally financed the deal, which was without risk to al-Thani.

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Topics:  Financial markets

Tags:  Iceland, financial crisis, moral hazard, banking, banks, gambling for resurrection

Dark side of housing-price appreciation

Indraneel Chakraborty, Itay Goldstein, Andrew MacKinlay 25 November 2013

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Policymakers around the world often worry about decreases in real-estate prices and other asset prices, and take measures to prevent them. For example, in the aftermath of the financial crisis, the Federal Reserve has engaged in large-scale asset purchases – especially of mortgage-backed assets – to support the housing market and, in turn, the overall economy.

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Topics:  Financial markets Monetary policy

Tags:  housing, Federal Reserve, investment, asset prices, banks, lending, real estate

Good corporate governance is bad for bank capitalisation

Deniz Anginer, Asli Demirgüç-Kunt, Harry Huizinga, Kebin Ma 10 November 2013

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A failing bank can be defined as one that has insufficient capital. Bank capitalisation strategies thus are crucial in determining the probability of a bank failure. Confirming this, Berger and Bouwman (2013) find that higher levels of pre-crisis capital increase a bank’s probability of survival during a banking crisis. Beltratti and Stulz (2012) and Demirguc-Kunt, Detragiache and Merrouche (2013) find that banks that were better capitalised before the crisis had a better stock-market performance during the crisis.

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Topics:  Financial markets

Tags:  corporate governance, bank capitalisation, banks

A game changer: The EU banking recovery and resolution directive

Thomas Huertas, María J Nieto 19 September 2013

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To end moral hazard and “too big to fail”, investors, not taxpayers, should bear the loss associated with bank failures. Recently, ECOFIN took a major step in this direction. It agreed a common position with respect to the Banking Recovery and Resolution Directive. If confirmed in the trialogue with the Commission and the European Parliament, the Directive will:

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Topics:  Financial markets

Tags:  moral hazard, Too big to fail, banks

How much capital should banks have?

Lev Ratnovski 28 July 2013

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There is an active debate on how much capital banks should have. Yet establishing an 'optimal' level of bank capital is more art than science. Any conclusion is model-specific and contains a degree of judgement. The purpose of this column is to contribute to the debate by offering one more benchmark.

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Topics:  Financial markets

Tags:  banks, BASEL III, capital ratios

Supranational supervision: How much and for whom?

Thorsten Beck, Wolf Wagner 20 July 2013

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The question of how to regulate and supervise banks across countries has taken the centre stage in the debate on the reform of the banking sector. The failure of internationally active financial institutions, such as Lehman Brothers, and cross-border banks, such as Fortis, Dexia or the Icelandic banks, played a prominent role during the Global Crisis. As a consequence, there is a growing recognition that Memorandums of Understanding and Supervisory Colleges are not sufficient to deal with large and systemically important cross-border financial institutions.

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Topics:  International finance

Tags:  banks, supranational regulation, regulatory cooperation

Everything the IMF wanted to know about financial regulation and wasn’t afraid to ask

Sheila Bair 09 June 2013

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I was honoured when the IMF asked me to moderate the Financial Regulation panel at this year’s Rethinking Macro II conference. And while naturally, I delivered one of the more enlightening and thought-provoking policy discussions of the conference, I did fail in my duties as moderator to make sure my panellists covered all the excellent questions our sponsors submitted to us.

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Topics:  Financial markets

Tags:  financial regulation, banks, capital ratios

New challenges for bank competition policy

Lev Ratnovski 02 June 2013

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Bank competition policy has been a focus of much research and policy debate. The reason for this is the special nature of banks. In the non-financial sector, competition policy mainly focuses on efficiency (competitive pricing). Yet for banks there is another relevant dimension: systemic risk. When the degree of competition adversely affects banks’ risk-taking incentives, bank competition policy should have a macroprudential component.

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Topics:  Competition policy Global crisis International finance

Tags:  banking, banks, Competition policy, Basel

Hair of the dog that bit us: New and improved capital requirements threaten to perpetuate megabank access to a taxpayer put

Edward J Kane 30 January 2013

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This column is a lead commentary in the VoxEU Debate "Banking reform: Do we know what has to be done?"

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Topics:  International finance

Tags:  financial regulation, global crisis, Too big to fail, banks, Finance, taxpayers

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