The EU has started conversations on a capital markets union, raising questions about integration of services such as finance. This column argues that regulated services are especially important for the European economy. Europeans will eventually be faced with a choice between maintaining sovereignty and building a single market. Whereas the ‘old’ single market in goods and unregulated services was satisfactorily addressed through standards harmonisation, the new single market challenge is all about regulatory enforcement institutions.
Nicolas Véron, 08 October 2015
Luis AV Catão, Rui C. Mano, 29 September 2015
Sovereign governments re-entering capital markets after debt renegotiations pay an interest rate premium for past defaults. This column presents new evidence that suggests earlier studies have underestimated this premium. This is partly due to the narrow credit history indicators used in previous studies as well as the narrow data coverage. Correcting for these problems, a sizeable and persistent default premium emerges, and one which rises on the duration of the default. The new findings are consistent with the view that financial markets help discipline governments and rationalise why governments try hard not to default.
Jon Danielsson, Eva Micheler, Katja Neugebauer, Andreas Uthemann, Jean-Pierre Zigrand, 23 February 2015
The proposed EU capital markets union aims to revitalise Europe’s economy by creating efficient funding channels between providers of loanable funds and firms best placed to use them. This column argues that a successful union would deliver investment, innovation, and growth, but it depends on overcoming difficult regulatory challenges. A successful union would also change the nature of systemic risk in Europe.
Kuniyoshi Saito, Daisuke Tsuruta, 14 November 2014
In Japan, loans with 100% guarantees account for more than half of all loans covered by public credit guarantee schemes, but banks claim that they do not offer loans without sufficient screening and monitoring even if the loans are guaranteed. This column presents evidence of adverse selection and moral hazard in Japanese credit guarantee schemes. The problem is less severe for loans with 80% guarantees.
Mathias Hoffmann, Bent E. Sørensen, 09 November 2012
How do members of existing monetary unions share risk? Drawing on a decade of research, this column argues that fiscal transfers in fact make a limited contribution to economic coherence. In the context of Europe’s current crisis, the evidence suggests that unfinished capital market integration must be completed if we wish to see adequate and effective risk sharing.
Ralph De Haas, Neeltje van Horen, 13 February 2011
Cross-border bank lending fell dramatically during the global crisis, but lending to some countries declined far more severely than to others. Recreating the monthly lending flows of the 118 largest international banks, this column finds that banks with head offices farther away from their customers are less reliable funding sources during a crisis, suggesting that the nationality of foreign banks matters.
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.
George Andrew Karolyi, René M Stulz, Craig Doidge, 23 September 2008
Foreign firms are increasingly delisting from US exchanges. Some blame the Sarbanes-Oxley Act for undermining US competitiveness. This column shows that there is little evidence that greater regulation hurt foreign listing in the US. The firms deregister after performing poorly.
Sebnem Kalemli-Ozcan, Bent E. Sørensen, 28 November 2007
Europe’s capital markets are far from integrated. Here is some very innovative research that combines financial integration measures with ‘social capital’. It turns out that the market fragmentation stems in a large part from a lack of trust and confidence in certain regions and nations – things that the EU cannot directly affect.