Compliance with risk targets – will the Volcker Rule be effective?

Jussi Keppo, Josef Korte 07 September 2014

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Full compliance?

The Volcker Rule, passed as part of the Dodd–Frank Act in July 2010, has been appraised as one of the most important changes to banking regulation since the global financial crisis. By restricting banks’ business models and prohibiting allegedly risky activities, the rule ultimately aims at increasing resolvability and reducing imprudent risk-taking by banks, and therefore at increasing financial stability. This is done by banning banks from proprietary trading and limiting their investments in hedge funds and private equity.

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Topics:  Financial markets Microeconomic regulation

Tags:  banking, regulation, Volcker rule, Dodd–Frank, banking regulation, proprietary trading, risk, hedging, financial stability

Shadow banking and the global financial ecosystem

Zoltan Pozsar 07 November 2013

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Regulatory reform has focused on banks and how much liquidity and capital they should hold, rather than on the evolution of the broader financial ecosystem that banks are only a part of. However, understanding this ecosystem is imperative, as it can influence the types of activities banks engage in and the types of liabilities they issue.

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Topics:  Financial markets Microeconomic regulation

Tags:  risk, banking, shadow banking, intermediation

Towards a more procyclical financial system

Jon Danielsson 06 March 2013

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The Basel Committee and the European Banking Authority1 have recently noted that banks' risk models do not give the same risk assessments for the same assets. In other words, banks’ risk models are not the same, making use of different estimation horizons and model assumptions, whilst reflecting different preferences and specific institutional situations. Both authorities find this problematic and have expressed a desire to move towards the harmonisation of models across the industry.

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Topics:  International finance

Tags:  risk, risk models

Systemic risks in global banking: What available data can tell us and what more data are needed?

Eugenio Cerutti, Stijn Claessens, Patrick McGuire 17 December 2012

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 The starting point for systemic risk analysis for a single-country is typically the banking system1. A systemic risk analysis involves the use of disaggregated national bank data, including information on the composition of banks’ asset and liabilities, maturity and currency mismatches, and other balance sheet and income metrics.

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Topics:  Global crisis International finance

Tags:  risk, global crisis, banking

Don't expect too much from EZ fiscal union – and complete the unfinished integration of European capital markets!

Mathias Hoffmann, Bent E. Sørensen 09 November 2012

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The sovereign debt crisis apparently suggests that Eurozone economies should now move substantially closer towards fiscal union. Current policy discussions revolve much more around how such a fiscal union should be designed than whether fiscal union can solve Europe’s underlying problems of economic coherence. What can we expect from a fiscal union? Aren't private capital markets better suited to economic coherence?

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Topics:  EU policies International finance Monetary policy

Tags:  capital markets, risk, Risk sharing, Eurozone crisis, fiscal union, banking union

Why supervisors should continue measuring financial risks – the fallacy of simple rules

Lars Frisell 07 November 2012

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Measuring financial risk is notoriously difficult. But no more difficult than measuring any other risk. Take, for example, the risk of flooding. In order to calculate the optimal height of a seawall one must take into account the regular variation of the sea level caused by the moon’s gravity, the shape of the shoreline, the probability of extreme events such as hurricanes and tsunamis, alongside myriad other factors. Such deliberations – and experience - have resulted in very different structures of seawalls, from high-rising concrete walls to porous mounds.

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Topics:  Financial markets Global crisis Institutions and economics International finance

Tags:  risk, global crisis, global crisis debate, leverage ratios, capital charges

Bankers’ bonuses and the financial crisis

Ian Tonks 08 January 2012

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In the fallout from the financial crisis of 2007-8, a number of official policy documents have reported on its causes and have identified executive pay packets and bonuses in banks and financial institutions as being partly to blame.

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Topics:  Global crisis International finance

Tags:  risk, incentives, banker bonuses

Fiscal policy in developing countries: Escape from procyclicality

Jeffrey Frankel, Carlos A. Vegh , Guillermo Vuletin 23 June 2011

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Fiscal policy is taking centre stage. Among advanced countries, the news is bad; Europe’s periphery teeters, the UK slashes, the US deadlocks, Japan muddles. But in the rest of the world there is good news. In an historic reversal, many emerging market and developing countries have over the last decade achieved a countercyclical fiscal policy.

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Topics:  Global crisis Institutions and economics Macroeconomic policy

Tags:  risk, fiscal policy, spreads

CoCo design as a risk preventive tool

Enrico Perotti, Mark Flannery 09 February 2011

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The financial crisis saw local credit losses spread widely because bank capital was insufficient to cope with the accumulated credit risk, maturity mismatch, and contingent liquidity risk. Ultimately, short-term liability holders lost faith in some large banks’ ability to repay them. The resulting runs forced supervisors to step in with government support.

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Topics:  Financial markets

Tags:  financial crises, risk, Contingent convertible bonds, capital buffer

The “limits of arbitrage” agenda

Dimitri Vayanos, Denis Gromb 10 April 2010

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Each financial crisis reminds us that governments are vital to the functioning of financial markets – with the current crisis being a particularly painful reminder (see for example Boone and Johnson 2010, Dewatripont et al. 2009).

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Topics:  Financial markets International finance

Tags:  risk, law of one price, limits of arbitrage

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