When banks invest heavily in sovereign debt, and in domestic sovereign debt in particular, the result is a debt home bias. This column presents evidence of a partially voluntary and partially involuntary sovereign debt home bias among large European banks. This bias is stronger if the sovereign is risky and shareholder rights are strong or the government has a positive ownership in the bank. Also, banks with a strong home bias are valued positively by the stock market.
Bálint Horváth, Harry Huizinga, Vasso P. Ioannidou, Friday, July 31, 2015 - 00:00
Georg Ringe, Jeffrey N. Gordon, Wednesday, January 28, 2015 - 00:00
Thorsten Beck, Monday, November 10, 2014 - 00:00
Nadege Jassaud, Thursday, October 30, 2014 - 00:00
Charles Wyplosz, Friday, September 12, 2014 - 00:00
Clemens Bonner, Thursday, February 6, 2014 - 00:00
Liquidity risks can be a primary source of bank failures. As such, there are arguments not to rely on a single metric for providing supervision. This column describes research on detailed cases of failed and near-failed institutions, which helps highlight gaps in current practices of liquidity stress testing. It also gives guidance on how to design liquidity stress tests. Deposit insurance coverage, the heterogeneity of lending commitments, distinction between different types of repos, committed facilities, and derivative transactions should receive increased attention when designing liquidity stress tests.
Daniel C Hardy, Heiko Hesse, Saturday, April 20, 2013 - 00:00
The IMF has recently argued that Europe’s financial sector has done much to address the recent financial crisis. This column argues that vulnerabilities remain, and calls for intensified efforts. Europe-wide stress tests will play a crucial role: selective asset-quality reviews and a high degree of transparency would add credibility and reduce uncertainty. Europe-wide stress tests will need to focus on structural, cross-border, and funding-related issues.
Christian Schmieder, Heiko Hesse, Benjamin Neudorfer, Claus Puhr, Stefan W Schmitz, Wednesday, February 1, 2012 - 00:00
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.
Marco Onado, Andrea Resti, Wednesday, December 7, 2011 - 00:00
The newborn European Banking Authority has been fiercely criticised in the few months of its life. This column argues that most of the criticisms have been driven by lobbying interests more than by noble worries on the future of the European economy. It adds that the current market turmoil requires a pan-European guarantee scheme for banks, a ‘big bazooka’ for sovereign debt which does not boil down to a pop gun, and stronger bank supervision at the EBA level.
Marco Onado, Tuesday, August 16, 2011 - 00:00
The July stress-test results for European banks have prompted a downward spiral of bank stock prices. This column argues that it is time we called the situation a solvency problem and policymakers started getting serious.
Viral Acharya, Friday, June 17, 2011 - 00:00
Viral Acharya of New York University talks to Viv Davies about capital requirements and measuring systemic risk. Acharya describes the development of the NYU Stern systemic risk rankings of US financial institutions and what he considers to be the dismal failure of the Basel risk-weight approach to addressing systemic risk. He cautions against the blanket call for more capital and instead recommends for more capital against systemic risk contributions of financial firms. He also discusses the shadow banking sector and how banking risk and sovereign risk are becoming dangerously intertwined. The interview was recorded in London on 2 June 2011. [Also read the transcript]
Adrian Blundell-Wignall, Patrick Slovik, Tuesday, September 14, 2010 - 00:00
Despite the encouraging results from the stress tests of the EU’s banking sector, market confidence in the financial system remains subdued. This column argues that while most of the sovereign debt held by EU banks is on their banking books, the EU stress test only considered their smaller trading book exposures. Market participants do not have the luxury of being so selective.
Viral Acharya, Friday, August 20, 2010 - 00:00
Viral Acharya talks to Viv Davies about the Dodd-Frank Act and his recent work on capital requirements, market-based measures of systemic risk and stress tests. He highlights the new NYU Stern Systemic Risk Rankings of US financial institutions, which use the Marginal Expected Shortfall (MES) as its basis. Acharya discusses the shortcomings of the Basel III proposals and compares the recent European stress tests with those undertaken in the US. He highlights the importance of international coordination in the areas of derivatives, and agrees that financial reform compliance will require a cultural shift in the banking system.
Xavier Freixas, Friday, August 13, 2010 - 00:00
Xavier Freixas talks to Viv Davies about the outcome of the recent stress tests undertaken by European banks. Freixas explains his view of the purpose of the tests and why he considers they were successful in spite of criticisms regarding their lack of robustness. He discusses the impact of the tests on the Spanish cajas and the Spanish banking system, and comments on the surge in investment in the activities of European banks following the results of the tests.
Daniel Gros, Friday, July 2, 2010 - 00:00
Daniel Gros of CEPS talks to Viv Davies about Vox's latest eBook, which brings together the views of leading economists on what more needs to be done to rescue the Eurozone. While not excluding the possibility of a breakup of the eurozone, Gros discusses a potential solution for Greece and the key role of the proposed stress tests on European banks, warning that the "devil is in the detail". The interview was recorded in late June 2010.
Roger M. Kubarych, Monday, May 4, 2009 - 00:00
The financial crisis is not over but it seems less scary since the US stock market decided that most big banks will survive. This column provides a current scoreboard of the crisis game and reminds everybody that the underlying problems are hardly resolved. A lot of banks sorely need capital and need to raise it relatively cheaply.
Ricardo Caballero, Monday, April 20, 2009 - 00:00
The approaching release of stress-test results is accompanied by widespread fears that the tests are not rigorous enough. This column argues that a modification to the Capital Assistance Programme would neutralise these concerns. Banks should hold the capital implied by the central scenario, and buy government insurance to cover more extreme outcomes, thus taking the aggregate risk off the leveraged institutions and breaking the link between bad economic news and the financial sector’s health.