This paper examines the cyclical behaviour of country-level macro-financial variables under EMU. Monetary union strengthened the covariation pattern between the output cycle and the financial cycle, while macro-financial policies at national and area-wide levels were insufficiently counter-cyclical during the 2003-2007 boom period. We critically examine the policy reform agenda required to improve macro-financial stability.
Philip R. Lane, Sunday, August 23, 2015 - 00:00
Charles A.E. Goodhart, Enrico Perotti, Thursday, September 10, 2015 - 00:00
In the last century, real estate funding by banks grew steadily. This column argues that the unprecedented expansion of banking in mortgage lending resulted in a high degree of maturity mismatch. The solution to this problem should focus on greater maturity matching, and not using insured deposits. One avenue to do so is by securitising mortgages with little maturity transformation. Another is to create intermediaries providing mortgage loans where the lender shares in the appreciation, while assuming some risk against the occasional bust.
Gaston Gelos, Hiroko Oura, Saturday, July 25, 2015 - 00:00
The growth of the asset management industry has raised concerns about its potential impacts on financial stability. This column assesses the systemic risk created by fund managers’ incentive problems and a first-mover advantage for end investors. Fund flows and fund ownership affect asset prices, and fund managers’ behaviour can amplify risks. This lends support to the expansion and strengthening of industry oversight, both at the individual fund and market levels.
Gaston Gelos, Frederic Lambert, Sunday, May 17, 2015 - 00:00
Since the Global Crisis, international banks have reduced cross-border lending but continued to lend through their branches and affiliates overseas. This column argues that the observed shift was to a significant extent driven by regulatory changes. It should improve financial stability in host countries of foreign banks.
Rabah Arezki, Olivier Blanchard, Tuesday, January 13, 2015 - 00:00
Alan Moreira, Alexi Savov, Tuesday, September 16, 2014 - 00:00
James Boughton, Monday, September 15, 2014 - 00:00
Jussi Keppo, Josef Korte, Sunday, September 7, 2014 - 00:00
Gaston Gelos, Hiroko Oura, Saturday, August 23, 2014 - 00:00
The landscape of portfolio investment in emerging markets has evolved considerably over the past 15 years. Financial markets have deepened and become more internationally integrated. The mix of global investors has also changed, with more money intermediated by mutual funds. This column explains that these changes have made capital flows and asset prices in these economies more sensitive to global financial shocks. However, broad-based financial deepening and improved institutions can enhance the resilience of emerging-market economies.
Linda Goldberg, Signe Krogstrup, John Lipsky, Hélène Rey, Saturday, July 26, 2014 - 00:00
The dollar’s dominant role in international trade and finance has proved remarkably resilient. This column argues that financial stability – and the policy and institutional frameworks that underpin it – are important new determinants of currencies’ international roles. While old drivers still matter, progress achieved on financial-stability reforms in major currency areas will greatly influence the future roles of their currencies.
Gabriel Chodorow-Reich, Sunday, July 27, 2014 - 00:00
The monetary policies implemented by the Federal Reserve since late 2008 have raised concerns about the risk taking of financial institutions. This column discusses the effect of some of these policies on life insurance companies and market mutual funds. While the effect on life insurance companies has been stabilising, money market funds did not actively reach for yield.
Markus K Brunnermeier, Yuliy Sannikov, Tuesday, June 3, 2014 - 00:00
Eurozone monetary policy transmission is broken. A key aspect of this is the failure of credit to get to small and medium enterprises, and consumers. This column uses the ‘I theory of money’ to diagnosis the problem and propose ‘prudently designed’ asset-backed securitisation as the cure. This would transform illiquid SME and consumer loans into a liquid asset class that would broaden the transmission mechanism while providing a lasting intermediation market for this segment in the Eurozone.
Mark Mink, Jakob de Haan, Saturday, May 24, 2014 - 00:00
To date, much uncertainty exists about how large the spillovers would be from the default of a systemically important bank. This column shows evidence that the market values of US and EU banks hardly respond to changes in the default risk of banks that the Financial Stability Board considers globally systemically important (G-SIBs). However, changes in all G-SIBs’ default risk explain a substantial part of changes in bank market values. These findings have implications for financial-crisis management and prevention policies.
Dennis Reinhardt, Steven Riddiough, Wednesday, May 7, 2014 - 00:00
Cross-border funding between banks collapsed following the bankruptcy of Lehman Brothers, but the withdrawal of funding was not uniform across countries. This column argues that the composition of cross-border bank-to-bank funding can help to explain why. Interbank funding between unrelated banks is particularly vulnerable to global shocks, but intragroup funding between related banks can act as a stabilising force, particularly for advanced economies with a high share of global parent banks. Policymakers should look at disaggregated cross-border bank-to-bank flows, as doing otherwise could result in a misleading assessment of financial stability risks.
Martin Brown, Stefan Trautmann, Razvan Vlahu, Thursday, April 10, 2014 - 00:00
Contagious bank runs are an important source of systemic risk. However, with observational data it is near-impossible to disentangle the contagion of bank runs from other potential causes of correlated deposit withdrawals across banks. This column discusses an experimental investigation of the mechanisms behind contagion. The authors find that panic-based deposit withdrawals can be strongly contagious across banks, but only if depositors know that the banks are economically related.
Rhiannon Sowerbutts, Ilknur Zer, Peter Zimmerman, Saturday, April 5, 2014 - 00:00
Inadequate disclosure by banks increased funding costs and contributed to the recent crisis. This column presents quantitative indices to measure progress of disclosure between banks and over time. Internationally, disclosure has improved since 2000. However, more information alone is not sufficient to solve the problem. More needs to be done to ensure that the information provided is useful to investors, and that investors are incentivised to use this information. The ongoing reform agenda aims to address this.
Willem Buiter, Monday, January 16, 2012 - 00:00
The global crisis inaugurated a new era for central banks in the advanced economies, when their conventional role as interest rate-setters and lenders and market makers of last resort expanded. Central banks have become the custodians of stability for financial markets – a role for which they lack both democratic accountability and political legitimacy, argues Willem Buiter in DP8780. He decries the new “perverse division of labour” between central banks and fiscal authorities and appeals for a reassessment of this pathological arrangement.
Iman van Lelyveld, Marco Spaltro, Thursday, October 27, 2011 - 00:00
The dissent brewing throughout Europe hinges on the question of whether the financial burdens of the Eurozone crisis should be shared between weak and strong. This column presents a new paper arguing that the wealthier, more stable economies don’t have much choice.
Barry Eichengreen, Eswar Prasad, Raghuram Rajan, Tuesday, September 20, 2011 - 00:00
Central banks have massively broadened their remit in recent crisis-laden years, but the standard analytic framework – ‘flexible inflation targeting’ – has not changed. This column argues that it is time to properly flesh out an alternative framework. Financial stability should be an explicit mandate of central banks, and international coordination among central banks should be boosted by forming a small group of systemically significant central banks that regularly meets and issues reports to the G20 on their financial-stability policies.
Itai Agur, Maria Demertzis, Thursday, January 13, 2011 - 00:00
What institutions should be responsible for financial stability? Do governments need distinct regulators for distinct objectives or should central banks pursue both price stability and financial stability? This column argues that monetary policy inevitably will involve considerations of financial stability due to its effects on banks' risk taking and says that central banks should embrace this dual role.