Global crisis

Taylor Begley, Amiyatosh Purnanandam, Kuncheng Zheng, 08 May 2015

A key regulatory response to the Global Crisis has involved higher risk-weighted capital requirements. This column documents systematic under-reporting of risk by banks that gets worse when the system is under stress. Thus banks’ self-reported levels of risk are least informative in states of the world when accurate risk measurement matters the most.

Jonathan Ashworth, Charles A.E. Goodhart, 28 April 2015

When panic strikes, people tend to withdraw cash. While there were upticks in currency-to-deposit ratios in the autumn of 2008 and early 2009, they were modest and very short-lived compared to the Great Depression. This column argues that leading central banks learnt from the 1930s mistakes and acted decisively to check the panic. Key policies were the existence and upgrading of deposit insurance schemes, massive liquidity injections, and rapid cutting of interest rates. The most important were the guarantees that the biggest banks wouldn’t fail.

Aqib Aslam, Samya Beidas-Strom, Daniel Leigh, Seok Gil Park, Hui Tong, 18 April 2015

Business investment in advanced economies contracted sharply during the global crisis and has recovered little since. This column argues that the main factor holding back investment is overall economomic weakness. In some countries other contributing factors include financial constraints and policy uncertainty. Fixing the investment dearth will require fixing the general weakness in economic activity.

Puriya Abbassi, Rajkamal Iyer, José-Luis Peydró, Francesc R. Tous, 10 April 2015

Recent initiatives like the Volcker rule seek to restrict securities trading by banks. Using German data, this column shows that during the Global Crisis security-trading activities by banks in the secondary market crowded out lending to non-financial firms, but also acted as risk absorbers in the securities market. Policymakers should carefully weigh the costs and benefits of securities trading regulations. Financial crises will occur again, so we need to be thoughtful about what may happen in the future if banks are restricted from trading in financial securities.

Puriya Abbassi, Falk Bräuning, Falko Fecht, José-Luis Peydró, 02 April 2015

The Global Crisis and subsequent sovereign debt crisis in the Eurozone severely distressed wholesale funding markets. This column argues that in the Eurozone, interbank funding conditions tightened particularly for cross-border borrowing. Moreover, during the worst moments of the crisis, the same borrower bank could pay different prices (up to 100 basis points) for identical loans during the same day. Non-standard monetary policy measures help mitigate these liquidity disruptions, with stronger effects in countries under distress.

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