Minouche Shafik, 22 November 2016

The spread of financial shocks globally has caused some to argue that capital accounts should be more closed, thereby shrinking the opportunities available to global savers and borrowers alike. That would put further downward pressure on interest rates in surplus economies, and upward pressure on borrowing costs in economies where the greatest opportunities lie. This column argues that by acting in their local interest, domestic macroprudential policymakers can safeguard against the risk of financial instability spilling across borders, while continuing to allow capital to flow to where it is of most use.

Bálint Horváth, Harry Huizinga, Vasso Ioannidou, 31 July 2015

When banks invest heavily in sovereign debt, and in domestic sovereign debt in particular, the result is a debt home bias. This column presents evidence of a partially voluntary and partially involuntary sovereign debt home bias among large European banks. This bias is stronger if the sovereign is risky and shareholder rights are strong or the government has a positive ownership in the bank. Also, banks with a strong home bias are valued positively by the stock market.

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