International finance

Thorsten Beck, 24 April 2017

Nine years after the onset of the Global Crisis, the problem of non-performing assets is still acute in the Eurozone. This column takes stock of the different proposals to deal with the issue. It argues that a Eurozone-level asset management company can resolve bank fragility and spur economic recovery, but warns that lack of political will and legal barriers can impede the creation of such an agency. 

Thomas Gehrig, Maria Chiara Iannino, 21 April 2017

The first Basel Accord initiated what has become a three decade-long process of regulatory convergence of the international banking system. This column argues that by trying to regulate minimal capital standards, the Basel process itself contributed to an ever-increasing shortfall in aggregate bank capital. Consequently, European banks have become increasingly exposed to systemic risk, suggesting that expansive monetary policy could adversely affect the resiliency of banks. 

Marcus Miller, Sayantan Ghosal, 17 April 2017

Lacking some supra-national, overseeing authority, sovereigns in default typically renegotiate with their creditors. In these negotiations, the owed principal typically receives a ‘haircut’. This column explores whether overburdened sovereign debtors can strategically leverage delay as they bargain with their creditors. Under asymmetric information, a delay in the form of offers that the debtor knows won’t be accepted can work out in the debtor’s favour. The findings suggest that strategic delay can be used to show where restructuring is necessary.

Stijn Claessens, Neeltje van Horen, 10 April 2017

Foreign banks can be important for trade. They can increase the availability of external finance for exporting firms and help overcome information asymmetries. This column shows that firms in emerging markets tend to export more when foreign banks are present, especially when the parent bank is headquartered in the importing country. In advanced countries, where financial markets are more developed and information is more readily available, the presence of foreign banks does not play such a role. Financial globalisation through the local presence of foreign banks can thus positively affect real integration.

Emine Boz, Luis Cubeddu, Maurice Obstfeld, 09 March 2017

After intensifying through the 2000s until the Global Crisis, the ‘uphill’ flow of capital from poor to rich countries decelerated and has recently reversed. This column documents that saving shifts by China, commodity-exporting emerging and developing economies, and advanced economies played key roles in accounting for the apparently puzzling pattern in the pre-crisis decade. Ongoing policy uncertainties in advanced economies mean large and persistent downhill flows of capital are unlikely in the near term. Going forward, capital flows to emerging and developing economies will need to be supported by policies that enhance the benefits of inflows, temper capital flow volatility, and improve the resilience and depth of domestic financial markets.

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