Denefa Bostandzic, Felix Irresberger, Ragnar Juelsrud, Gregor Weiss, 15 January 2018

Since the financial crisis, curbing systemic risk has become a key objective for policymakers around the world. This column sheds light on how successful capital requirements are in terms of reducing systemic risk, in the context of the European banking sector. Results show that an increase in capital requirements in Europe lead to heightened measures of systemic risk, in opposition to the goals of the exercise. This does not imply, however, that capital requirements are welfare decreasing.

Timotej Homar, Sweder Van Wijnbergen, 13 February 2016

It has been claimed that recessions as a result of a financial crisis tend to last longer than normal recessions. This column asks whether early intervention to help distressed banks during financial crises is effective in mitigating the consequences of financial distress. The evidence suggests that decisive and early recapitalisation of banks can shorten recessions by several years and help speed up recovery. 

Morris Goldstein, 18 November 2014

Results from last month’s EU-wide stress test are reassuring, especially for countries at Europe’s core. This column warns against a rosy interpretation. The test relies on risk-weighted measures of bank capital ratios that have been shown to be less predictive of bank failure than unweighted leverage ratios – a metric already adopted by the US Fed and Bank of England. In addition, many experts recommend much higher leverage ratios than currently required. The ECB must do more to fix undercapitalisation.

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