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.
Christina Wang, 08 December 2011
Damiano Sandri, Ashoka Mody, 23 November 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, 22 November 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, 30 August 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, 27 June 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, 27 May 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.
Shekhar Aiyar, 12 May 2011
It is widely believed that banks played a central role in the Great Recession, but where is the smoking gun? This column presents evidence from the UK confirming the conventional wisdom. It finds that banks transmitted the unprecedented external funding shock by cutting back on domestic lending.
David Miles, Gilberto Marcheggiano, Jing Yang, 11 April 2011
The authors of CEPR DP8333 assess the optimal level of equity for banks to hold, taking into account costs and benefits both private and social. After considering these overall economic (or social) costs, the authors conclude that desirable equity levels for banks are far higher than actual levels or even target levels under Basel III.
Harry Huizinga, Asli Demirgüç-Kunt, 18 March 2011
Today's big banks are enormous. By 2008, 12 banks worldwide had liabilities exceeding $1 trillion. This column, using data on banks from 80 countries over the years 1991-2009, provides new evidence on how large banks differ in terms of their risk and return outcomes and investigates how market perceptions of bank risk are affected by bank size. It concludes that policies should reward bank managers for keeping their banks safe rather than for making them big.
Biagio Bossone, 18 December 2010
How do banks and capital markets interact? This column brings together evidence to show that banks and capital markets, rather than simply being competitors, are in fact complements to each other – a finding that has implications for policy.
Fenghua Song, Anjan Thakor, 01 December 2010
Banks and capital markets are often viewed as competitors within the financial system, with some suggesting that each develops at the expense of the other. This column argues that banks and markets exhibit three forms of interaction. They compete, they complement each other, and they coevolve.
Thorvaldur Gylfason, 30 April 2010
What brought down Iceland’s banks? This column examines the revelations from the latest report from the Icelandic parliament, raising the possibility that the collapse of Iceland’s three largest banks is the result of “control fraud” where shareholders stole from their own bank in the same way as those convicted of looting from the American saving and loan banks in the late 1980s.
Jorge Ponce, 16 January 2010
What government agency should decide lender-of-last-resort policy? This column discusses the optimal allocation of decision-making authority, suggesting that the central bank decide emergency loans and the deposit insurance agency guarantee them. But providing greater liquidity assistance will also require punishment to deter moral hazard problems.
Heiko Hesse, Tigran Poghosyan, 27 October 2009
Bank balance sheets in oil-exporting economies have been hard hit recently. This column provides the first empirical evidence linking oil prices to bank performance in such economies. It suggests that easily observed oil prices could inform macro-prudential regulation in these countries and mitigate pro-cyclical bank lending.
Harry Huizinga, Luc Laeven, 07 October 2009
The financial crisis has reinvigorated a debate on the effectiveness of our accounting and regulatory frameworks. This column shows that banks, hoping to preserve their book capital, use accounting discretion to systematically understate the impairment of their real-estate-related assets. But the accounting reforms announced thus far are exacerbating the gap between book and market values.
Thorsten Beck, Maria Soledad Martinez Peria, 28 September 2009
Remittances impact development along a number of dimensions including poverty alleviation, education, and entrepreneurship. However, such transactions are expensive. This column shows that a bigger stock of migrants and more competition are associated with lower transaction costs. It says policymakers should focus on improving competition in the remittance market, as regulations have only a limited effect.
Thorsten Beck, Patrick Behr, Andre Güttler, 28 August 2009
Does gender matter in banking? This column presents evidence from an Albanian bank that it does. Female loan officers build better portfolios, such that loans to borrowers working with a female are significantly less likely to incur arrears.
Rocco Huang , Lev Ratnovski, 25 August 2009
Why have Canadian banks fared better during the crisis than their OECD peers? This column attributes their stability to their reliance on depository funding rather than more risky wholesale funding. It recommends a Pigouvian tax penalising banks using excessive short-term wholesale funding.
Marc Flandreau, Norbert Gaillard, Sebastian Nieto-Parra, Juan H. Flores, 21 August 2009
How would financial markets assess complicated structured products in the absence of ratings agencies? This column uses the history of emerging economies’ government debt to argue that investment banks used to win market share by building a reputation for quality products. It says that ratings agencies insulated investment banks from reputational rewards and freed them to deal in junk.
Hans Gersbach, 08 August 2009
The crisis is a brutal reminder of the fragility of banks. This column suggests that managers of large banks be obliged to act as insurers against systemic crises. This would create incentives for them to be concerned about the stability of the banking system as a whole.