Hans Gersbach, 06 October 2021

Since the financial crisis of 2007/08, bank equity regulation has been tightened. This is one reason why broad money supply reacted only weakly to the enormous expansion of the monetary base. With the publication of a new CEPR Policy Insight, this updated column from February 2021 argues that the process of tightening bank equity regulation has come to an end and will not have the same disinflationary effects after the pandemic. The large reserve balances held by banks may become a greater concern and pose larger inflation risks in the years to come. 

Miguel Ampudia, Skander Van den Heuvel, 17 July 2019

The effects of interest rate surprises on banks are different when nominal interest rates are very low. This column reveals how, in ‘normal’ times, policy rate announcements that are below market expectations tend to boost banks’ stock prices on average. When interest rates are very low, however, there is a reversal of this effect, with negative rate surprises reducing banks’ stock prices. This negative impact is larger for banks whose funding relies more on retail deposits than on other sources of funding.

Charles Calomiris, 28 November 2013

There is widespread agreement that government protection of banks contributed to the financial crisis, leading to proposals to require banks to finance a larger share of their portfolios with equity instead of debt – thus forcing shareholders to absorb losses instead of taxpayers. This column argues that equity ratios relative to asset risk are what matter, not equity ratios per se. Although higher equity requirements for banks may be desirable, the costs of reduced loan supply should be taken into account.


CEPR Policy Research