Financial markets

Stefano Micossi, 08 October 2019

One important conclusion of Robert Shiller’s influential 2015 book, Irrational Exuberance, is that bubbles are random exogenous phenomena that cannot be foreseen and do not depend on macroeconomic policies. This column introduces a new CEPR Policy Insight which throws light on the root causes of speculative fevers in asset markets and related financial booms and busts. It shows empirical evidence indicating that Shiller may have overlooked the role that lax monetary policy played in triggering financial bubbles in the 2000s by offering investors a perverse promise of ever-increasing asset prices.

Fernando Eguren Martin, Matias Ossandon Busch, Dennis Reinhardt, 08 October 2019

One of the markets banks use to fund lending in foreign currencies – namely, using FX swaps to fund FX lending synthetically – has seen large dislocations in its pricing since the Global Crisis. This column documents that such dislocations affect the supply of cross-border FX credit of UK-based banks. Access to foreign relatives matters as banks employ their internal capital markets to shield themselves from the effects, while banks outside the UK not affected by changes to synthetic funding costs are an important source of (partial) substitution.

Patrizia Baudino, Raihan Zamil, 30 September 2019

Non-performing assets are a double-edged sword. On the one hand, they often trigger episodes of financial crises. On the other, once a crisis erupts, market participants must have confidence in banks’ reported asset quality metrics in order to regain faith in the financial system. This column shows that accounting standards and prudential frameworks to identify and measure non-performing assets vary widely across countries. This presents a challenge for comparing credit risk across banks and countries, for which the column proposes a range of policy options. 

Tara Rice, Kathryn Petralia, 24 September 2019

On 24 September the CEPR launched the latest Geneva Report on the world economy, called Banking disrupted? Financial intermediation in an era of transformational technology. Tim Phillips asks Tara Rice and Kathryn Petralia, two of the authors, whether fintechs and cryptocurrencies signal the beginning of the end for banks.

Stephen Cecchetti, Kim Schoenholtz, 12 September 2019

Most financial experts know that LIBOR will likely cease at the end of 2021. Yet, it remains by far the most important global benchmark interest rate, forming the basis for an estimated $400 trillion of contracts. This column examines the US dollar LIBOR transition process, highlighting both the substantial progress and the major obstacles that still lie ahead. Regulators in the US and elsewhere are well aware of the risks of delay and are now pushing hard for LIBOR users – especially financial institutions and markets under their supervision – to prepare for a world without LIBOR.

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