As the recent Financial Stability Board decision on loss-absorbing capital shows, repairing the financial system is still a work in progress. This column reviews the author’s new book on the matter, Reinventing Financial Regulation: A Blueprint for Overcoming Systemic Risks. It argues that financial institutions should be required to put up capital against the mismatch between each type of risk they hold and their natural capacity to hold that type of risk.
Avinash Persaud, Friday, November 20, 2015 - 00:00
Robert Z. Lawrence, Thursday, October 15, 2015 - 00:00
The US debate over income inequality in the 1980s and 1990s focused on the growing disparity between the earnings of the skilled, the unskilled and the super-rich. After the global crash, the decline in labour’s share of national income has been added to these concerns. This column presents an alternative explanation for this decline, arguing that limited substitution possibilities between capital and labour combined with the acceleration in the pace of labour-augmenting technical change raises the effective labour-capital ratio. The policy implications of this alternative explanation are profoundly different from those currently circulating.
Nicola Borri, Pietro Reichlin, Tuesday, September 8, 2015 - 00:00
Some argue that the increasing wealth-to-income ratios observed in many advanced economies are determined by housing and capital gains. This column considers the growing wealth-to-income ratio in an economy where capital and labour are used in two sectors: construction and manufacturing. If productivity in manufacturing grows faster than in construction – a ‘housing cost disease’ – it has adverse effects on social welfare. Concretely, the higher the appreciation of the value of housing, the lower the welfare benefit of a rising labour efficiency in manufacturing.
Jon Danielsson, Eva Micheler, Katja Neugebauer, Andreas Uthemann, Jean-Pierre Zigrand, Monday, February 23, 2015 - 00:00
Loukas Karabarbounis, Brent Neiman, Tuesday, November 25, 2014 - 00:00
Christian Thimann, Friday, October 17, 2014 - 00:00
Jesper Roine, Henry Ohlsson, Daniel Waldenström, Friday, August 8, 2014 - 00:00
The extent to which lifetime incomes are determined by inherited wealth is a politically sensitive issue, but long-run evidence on this question is limited. This column presents evidence on Swedish inheritance flows since the early 19th century. Despite a long history of aristocracy, accumulated capital was small relative to income in pre-industrial Sweden. In more recent times, Sweden stands out as a country where the return of capital has not automatically translated into a return of inherited wealth.
Odran Bonnet, Pierre-Henri Bono, Guillaume Camille Chapelle, Étienne Wasmer, Monday, June 30, 2014 - 00:00
Thomas Piketty’s claim that the ratio of capital to national income is approaching 19th-century levels has fuelled the debate over inequality. This column argues that Piketty’s claim rests on the recent increase in the price of housing. Other forms of capital are, relative to income, at much lower levels than they were a century ago. Moreover, it is rents – not house prices – that should matter for the dynamics of wealth inequality, and rents have been stable as a proportion of national income in many countries.
Barry Eichengreen, Andrew K Rose, Thursday, June 5, 2014 - 00:00
Since the global financial crisis of 2008–2009, opposition to the use of capital controls has weakened, and some economists have advocated their use as a macroprudential policy instrument. This column shows that capital controls have rarely been used in this way in the past. Rather than moving with short-term macroeconomic variables, capital controls have tended to vary with financial, political, and institutional development. This may be because governments have other macroeconomic policy instruments at their disposal, or because suddenly imposing capital controls would send a bad signal.
Alex Edmans, William Mann, Saturday, February 15, 2014 - 00:00
All firms need capital. Much research addresses the choice between issuing various types of securities – for example, between issuing debt and equity. However, another method of financing has received relatively little attention – selling non-core assets, such as property, divisions, or financial investments. This article explains the conditions under which an asset sale is the preferred means of raising capital, and highlights how a manager should go about deciding between selling assets and issuing securities.
Viral Acharya, Robert Engle, Matthew Richardson, Wednesday, March 14, 2012 - 00:00
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.
Raihan Zamil, Saturday, May 7, 2011 - 00:00
How much capital should banks hold to cover their risk? This column argues that the preoccupation with capital rules misses a more fundamental concern. No amount of feasible regulatory capital can be an appropriate substitute for robust asset selection and valuation standards of banks.