Financial regulation and banking

Ester Faia, Sébastien Laffitte, Gianmarco Ottaviano, 20 September 2018

There is a general consensus that lax monetary policy and banking globalisation were two critical factors behind the Global Crisis. This column explores how banks’ decisions to enter foreign markets impacted their individual and systemic risk. Results from a sample of European banks suggest that banks’ foreign expansions decreased risk from both an individual and systemic viewpoint. The findings cast doubt on the idea that banking globalisation was one of the culprits behind the crisis.

Jon Danielsson, Robert Macrae, 12 September 2018

Financial policy is determined in multiple domains by separate government authorities. This column explores the hierarchical ranking of these domains and authorities. On top is the authority in charge of fiscal policy, followed by those running monetary, microprudential, and finally macroprudential policies. This ranking can cause conflicts in terms of policy effectiveness and legitimacy.

Vincent Bouvatier, Gunther Capelle-Blancard, Anne-Laure Delatte, 11 September 2018

Tax havens are estimated to concentrate 8% of global private financial wealth, reducing annual global tax revenues by about $200 billion. This column uses new country-by-country regulatory data on the foreign commercial presence of EU banks and compares it against gravity model predictions to examine the contribution of EU banks to tax evasion. It finds that bank activity in tax havens is three times larger than what is predicted by the gravity model, and that British and German banks are particularly present in tax havens. 

Tim Jackson, Laurence Kotlikoff, 30 August 2018

Financial crises have historically been triggered by news of financial malfeasance. Some economists advocate greater opacity for bankers to ensure investors keep the faith. This column models bankers as including a share of malfeasants who steal or lose investors’ money. Within this framework, deposit insurance makes matters worse and private monitoring fails due to free riding. The optimal policy is identified as full financial disclosure, which weeds out crooked bankers. 

Stephen Cecchetti, Kim Schoenholtz, 28 August 2018

We are constantly bombarded by reports of how blockchain technology will change the world. This column describes the technology, the problem it is designed to solve, and the impact it might have on finance. Conceivably, a blockchain system could securely track the ownership of every financial instrument and exposure in the global economy. While this is a very tall order, it would be truly revolutionary. In practice, however, we are still a long way off.

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