Financial markets

Jon Danielsson, 15 November 2017

Artificial intelligence is increasingly used to tackle all sorts of problems facing people and societies. This column considers the potential benefits and risks of employing AI in financial markets. While it may well revolutionise risk management and financial supervision, it also threatens to destabilise markets and increase systemic risk.

Juergen Braunstein, Marion Laboure, 11 November 2017

Despite specialised press coverage, little is known about the potential wider socioeconomic implications of digital wealth management solutions. This column examines how ‘robo-advisors’ offer an opportunity to democratise finance and decrease wealth inequality. These algorithmic investment advisors stand to disrupt the wealth management sector through their ‘low-cost, accessible to most’ business models. However, the entrance of traditional wealth managers into the robo-advisor market could threaten this disruption.

Stephen Cecchetti, Kim Schoenholtz, 03 November 2017

Black Monday has been referred to as the first contemporary global financial crisis. This column reviews key aspects of the 1987 crash and discusses the subsequent steps taken to improve the resilience of the financial system. It also highlights a key lingering vulnerability – the lack of a mechanism for managing the insolvency of critical payment, clearing, and settlement institutions.

Alejandro Justiniano, Giorgio Primiceri, Andrea Tambalotti, 31 October 2017

The US witnessed an unprecedented boom in mortgage debt and house prices in the early 2000s, which precipitated the crisis in 2007. This column documents a sudden, large and persistent fall in the spread of mortgage over Treasury rates in the summer of 2003. It argues that the emergence of this ‘conundrum’ marked a crucial turning point in the dynamics of the boom, with the resulting easier credit conditions in the subprime market in particular leading to the origination of mortgages that defaulted progressively more frequently down the road.

Benjamin Bernard, Agostino Capponi, Joseph Stiglitz, 18 October 2017

Worried about the cost of public bailouts, governments have proposed bail-ins whereby banks contribute to rescuing their debtors. This column analyses the conditions under which bail-in strategies can be credibly implemented, showing that this heavily depends on the network structure. While earlier work has suggested that denser networks are socially preferred to more sparsely connected networks, the opposite holds in the presence of the government’s strategic intervention.

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