Financial regulation and banking

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.

Sergei Guriev, Danny Leipziger, Jonathan D. Ostry, 17 October 2017

Globalisation and technological change present policymakers with tremendous challenges in sustaining benefits while containing the dislocations and polarisation that are plaguing many countries. This column argues that the answer is not to roll back these forces, but rather to redouble efforts to make globalisation genuinely inclusive. This involves thinking hard about the design and rules governing globalisation itself, including with respect to finance, but also with respect to trade. It also necessitates a recalibration of national economic policies that affect who benefits and who pays, and a host of complementary policies to mitigate exclusion and allow citizens to bounce back when dislocations occur.

Paolo Buccirossi, Giovanni Immordino, Giancarlo Spagnolo, 11 October 2017

Schemes that reward whistleblowers who provide evidence of corporate fraud have been effective in the US, but have generally been resisted in Europe. This column argues that a policy that trades off rewards to those who blow the whistle against punishment for fabricating evidence would increase both detection of, and punishment for, fraud. This will only be effective, however, if whistleblowers are protected from retaliation and the policy also invests in making court findings more accurate.

Louis Nguyen, Jens Hagendorff, Arman Eshraghi, 02 October 2017

We know that managerial traits help explain firm performance, but we don't know whether the cultural heritage of those managers has a role in shaping performance through their behaviour. This column uses a novel dataset of bank CEO ancestry to argue that descendants of recent immigrants outperform their peers when competition is high. Banks led by CEOs whose cultural heritage emphasises restraint, group-mindedness, and long-term orientation are safer, more cost efficient, and are associated with more cautious acquisitions.

Stephen Cecchetti, Kim Schoenholtz, 27 September 2017

Financial firms have paid fines totalling more than $9 billion for manipulating LIBOR, yet this flawed benchmark has not been replaced. This column argues that there are reduced incentives for banks to participate in setting the LIBOR rate, and so the potential of, and incentives for, manipulation remain. Although LIBOR is unsustainable, international regulators are working to produce more robust alternatives and to smooth the transition.

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