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.

Stephen Cecchetti, Kim Schoenholtz, 18 January 2017

‘Too big to fail’ is an enduring problem for financial authorities and regulators. While forbidding government bailouts may be a popular move, the strategy lacks credibility. This column examines the proposals of the Minneapolis Plan to End Too Big to Fail. The plan has many virtues that tackle systemic problems and that build on the Dodd-Frank Act’s crisis prevention and management tools. However, further analysis of the plan is still needed to ensure that its measures aren’t circumvented.

Christian Thimann, 10 October 2014

Regulation of the global insurance industry, an emerging challenge in international finance, has two central objectives: strengthening the oversight of insurance companies designated ‘systemically important’; and designing a global capital standard for internationally active insurers. This column argues that it is a Herculean task because the business model of insurance is less globalised than other areas in finance; because global regulators have less experience of insurance than banking where global standards have been pursued for a quarter of a century; and because, as yet, there is limited research-based understanding of the insurance business and its interactions with the financial system and the real economy. But in the aftermath of the global financial crisis and the AIG disaster, regulators are under strong pressure to make progress.

Dirk Schoenmaker, Arjen Siegmann, 27 February 2013

So far, discussions around Europe’s prospective banking union have focused only on the supervision of banks. This column argues that policymakers must also think about the resolution of banks in distress. While national governments confine themselves to the domestic effects of a banking failure, a European Resolution Authority could incorporate domestic and cross-border effects. A cost-benefit analysis of a hypothetical resolution of the top 25 European banks shows that the UK, Spain, Sweden, and the Netherlands would be the main winners.

Ata Bertay, Asli Demirgüç-Kunt, Harry Huizinga, 02 August 2012

Bank bonuses may not have changed much in the last few years, but their owners have. This column asks whether government-owned banks may bring stability to the supply of credit over the business cycle and especially at a time of financial crisis.

Viral Acharya, Philipp Schnabl, Itamar Drechsler, 15 April 2012

The deadliest aspect of the Eurozone crisis is the tripwire linking the riskiness of banks and governments. This column provides evidence of the link and explains how it arose. It argues that given the near-chaos-like interaction, the zero risk weights on sovereign bonds should be revisited.

Philip Lane, 07 October 2011

Philip Lane talks to Viv Davies about Ireland’s export-led recovery; they also discuss the interplay between banking and sovereign risk in Europe. Lane presents his and other economists’ proposals for European Safe Bonds and a reform agenda for the Eurozone. The interview was recorded on 05 October 2011. [Also read the transcript.]

Tim Besley, Maitreesh Ghatak, 27 August 2011

As we approach three years since the fall of Lehman Brothers, the incentives that led the financial sector to take on too much risk still exist. This column argues that they will remain so long as governments continue to provide an implicit guarantee that banks will be bailed out. To tackle this, the authors dare to propose a tax on bonuses.

Albert Marcet, 04 March 2011

Albert Marcet of the London School of Economics explains to Viv Davies why predictions of potential Spanish sovereign default are misguided. Marcet presents his views on Spain’s fiscal sustainability, its unemployment and housing problems, the autonomous regions and the recapitalisation of the cajas. He also discusses debt and fiscal coordination in the eurozone and comments on his new role as scientific chair of the Euro Area Business Cycle Network (EABCN). The interview was recorded in London in February 2011. [Also read the transcript]

Kevin O'Rourke, 14 January 2011

Kevin O’Rourke of Trinity College Dublin talks to Viv Davies about Ireland in crisis and explains how it moved so suddenly from being the ‘Celtic Tiger’ economy to financial meltdown. O’Rourke describes Ireland’s reaction to the bailout, outlines the potential implications for the country and discusses the shortcomings of the European policy response. The interview was recorded by telephone on 13 January 2011. [Also read the transcript]

Guillermo de la Dehesa, 11 January 2011

The past year has plunged the Eurozone into crisis with many fearing for what 2011 has in store. In this column the CEPR Chairman argues that to prevent the Eurozone’s sovereign debt crisis from becoming a self-fulfilling contagion, the bailouts should not go beyond Ireland; they should not be extended to Portugal even less so to Spain. It outlines 10 reasons why.

Michael Bordo, 23 April 2010

Michael Bordo of Rutgers University compares US banking panics in the early 1930s with panics in the shadow banking system and the repo market in 2007 and in investment banks and the universal banking system after Lehman failed. He argues that the bailouts of ‘too big to fail’ banks may lead to future crises, and discusses possible remedies. The interview with Romesh Vaitilingam was recorded at a conference on ‘Lessons from the Great Depression for the Making of Economic Policy’ in London in April 2010.

Paul Seabright, 19 February 2010

Paul Seabright of the Toulouse School of Economics talks to Viv Davies about a new CEPR report, Bailing out the Banks, which analyses state-supported schemes for financial institutions in the current crisis and the need to reconcile the potentially conflicting policy goals of financial stability and competition in the banking industry. The interview was recorded in London in February 2010.

Thorsten Beck, Diane Coyle, Mathias Dewatripont, Xavier Freixas, Paul Seabright, 18 February 2010

This new CEPR report focuses on two specific aspects of the policy response to the crisis: financial regulation and competition policy.

Thorsten Beck, Mathias Dewatripont, Xavier Freixas, Paul Seabright, Diane Coyle, 18 February 2010

Billions have been spent saving European banks. Should these bailouts be subject to the usual competition rules or should stability be allowed to trump ‘business as usual’? This column introduces a new CEPR report “Bailing out the Banks: Reconciling Stability and Competition” that argues for a more subtle reaction. Competition policy is critical even in crises but the rules applied must recognise the special features that mark a crisis-struck banking sector.

Mariassunta Giannetti, Andrei Simonov, 23 September 2009

Is there any evidence that bank bailouts will improve the real economy? This column uses micro-level evidence from the Japanese banking crisis to assess bank recapitalisation efforts. It says that bailouts do increase lending, but banks continue to lend to low-quality borrowers, and borrowers may hold the cash on their balance sheets rather than investing or hiring.

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