Implementation of Basel III in the US will bring back the regulatory arbitrage problems under Basel I

Takeo Hoshi 23 December 2012

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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:  regulation, banks, Basel, Dodd-Frank, Finance

The implicit subsidy of banks

Joseph Noss, Rhiannon Sowerbutts 17 June 2012

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The experience of the crisis has revealed that a credible threat of failure does not always exist for banks. While equity holdings were severely diluted through state intervention, debt holders of some failed banks did not incur losses and were guaranteed by governments. To the extent that neither banks nor their creditors paid for this guarantee, it can be considered an implicit subsidy.

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Topics:  Financial markets

Tags:  UK, banks, implicit subsidy

The impact of corporate governance in financial institutions

Hamid Mehran, Alan Morrison, Joel Shapiro 06 April 2012

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A recent op-ed by former Goldman Sachs employee Greg Smith has led to an outcry over Goldman Sachs’ perceived mistreatment of their customers. This illustrates two important themes in the financial sector, both of which came to the fore during the crisis, ie corporate culture and incentives. Obviously, neither regulation nor market forces has put either of these issues to rest. In this column, we look at both through the lens of corporate governance and we highlight the contribution of recent research to these topics.

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Topics:  Financial markets

Tags:  corporate governance, banks, too-big-to-fail

Time to set banking regulation right

Jacopo Carmassi, Stefano Micossi 28 March 2012

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Excessive leverage and risk-taking by large international banks were among the main causes of the 2008–09 financial crisis and the ensuing sharp drop in economic activity and employment. Enormous costs were borne by taxpayers and societies at large. In reaction, world leaders and central bankers undertook to overhaul banking regulation, including by rectifying the failed Basel prudential rules with the new Basel III Accord. Many scholars have commented on the proposed reforms, especially the US’s Dodd-Frank Act (eg Acharya and Richardson 2011).

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Topics:  Financial markets

Tags:  banking regulation, banks, BASEL III

Macroprudential policy: What instruments and how to use them? Lessons from country experiences

Francesco Columba, Alejo Costa, Cheng Hoon Lim 16 March 2012

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Macroprudential policy is quickly gaining traction in international circles as a useful tool to address system-wide risks in the financial sector (see for example Borio 2011, Galati and Moessner 2011, Viñals 2010, 2011). Yet the analytical and operational underpinnings of a macroprudential framework are not fully understood and the effectiveness of the instruments is uncertain. In a recent IMF working paper (Lim et al 2011), we assess the effectiveness of macroprudential instruments using three different approaches.

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Topics:  Financial markets

Tags:  banks, systemic risk, Macroprudential policy

Capital shortfall: A new approach to ranking and regulating systemic risks

Viral Acharya, Robert Engle, Matthew Richardson 14 March 2012

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The most severe impacts of the financial crisis of 2007–09 arose immediately after the failure of Lehman Brothers on 15 September 2008. It is natural to wonder whether the US should have arranged for an orderly rescue of Lehman as it did for Fannie Mae and Freddie Mac the week before and as it did for AIG, Merrill Lynch, Citigroup, Bank of America, Morgan Stanley, Goldman Sachs, Washington Mutual, and Wachovia as well as many smaller and foreign banks over the next days and weeks. How much capital would have been necessary ex post to arrange such an orderly rescue?

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Topics:  Financial markets International finance

Tags:  banks, systemic risk, capital

Contagion during the Greek sovereign debt crisis

Jakob de Haan, Mark Mink 23 February 2012

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In the course of 2010, the financial problems of Greece became so severe that the Eurozone countries together with the IMF agreed to provide emergency loans for a total amount of €110 billion, to be disbursed over the period May 2010 through June 2013. In addition, the European Financial Stability Facility was created, which issues bonds fully guaranteed by Eurozone countries and, after an enlargement in 2011, can provide up to €440 billion in financial support to distressed member states.

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Topics:  Financial markets International finance

Tags:  banks, Greece, sovereign default, news

Home bias and the credit crunch: Evidence from Italy

Andrea F Presbitero, Gregory F Udell, Alberto Zazzaro 12 February 2012

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The management of the Eurozone sovereign debt crisis will have significant effects on the stability of national banking systems, as argued in some recent Vox columns (Acharya et al 2011, Wyplosz 2011). The interaction between the debt crisis and banking risk will likely affect bank capital positions and might also affect bank liquidity and the fragility of the interbank markets.

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Topics:  Financial markets

Tags:  Italy, Credit crunch, banks, cross-border banking

Next-generation system-wide liquidity stress testing

Christian Schmieder, Heiko Hesse, Benjamin Neudorfer, Claus Puhr, Stefan W Schmitz 01 February 2012

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Bank liquidity was traditionally viewed as of equal importance to solvency. Liquidity risks are inherent in maturity transformation, ie the usual long-term maturity profile of banks’ assets and short-term maturities of liabilities. Banks have commonly relied on retail deposits, and, to some degree, on long-term wholesale funding as supposedly stable sources of funding. Yet, attention to liquidity risk diminished in recent decades and was symbolised by the absence of consideration of liquidity risk in the 1988 Basel I framework (Goodhart 2008).

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Topics:  Financial markets

Tags:  liquidity, banks, stress tests

Stop coddling Europe’s banks

Morris Goldstein 11 January 2012

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After initial denials, Europe’s leaders have started to acknowledge that IMF Chief Christine Lagarde was right. Through their statements and decisions, policymakers are showing their agreement with her assessment in August 2011 at the Federal Reserve’s Jackson Hole symposium that there was an urgent need for recapitalisation of Europe’s banks (Lagarde 2011).

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Topics:  EU policies International finance Politics and economics

Tags:  ECB, IMF, financial regulation, banks, Eurozone crisis, EFSF, euro bonds

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