Financial regulation and banking

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.

Taneli Mäkinen, Lucio Sarno, Gabriele Zinna, 11 September 2019

During the recent financial crises, government guarantees helped reduce the funding costs of banks by providing them with insurance, thus curbing panic in banking systems and financial markets. This column argues, however, that these beneficial effects can be attenuated when guarantees are risky in the sense that they offer weaker protection in recessions, when the guarantor is more vulnerable, or the guarantees are less certain. Using a large international panel of banks, a significant risk premium is found to be associated with implicit government guarantees.

Tobias Adrian, Tommaso Mancini-Griffoli, 09 September 2019

New entrants are vying to occupy the space once used by paper bills. This column, part of the VoxEU debate on the future of digital money, proposes a simple framework to make sense of who is attempting to pry our wallets open. It argues that the adoption of new digital means of payment could be rapid and bring significant benefits to customers and society, but that the risks must be tackled with innovative approaches and heightened collaboration across borders and sectors. One approach is for central banks to engage in a public–private partnership with fintech firms to provide a safe, liquid, and digital alternative to cash: synthetic central bank digital currency.

Thorsten Beck, Consuelo Silva-Buston, Wolf Wagner, 04 September 2019

Following the Global Crisis, countries have significantly increased their efforts to cooperate on bank supervision, the prime example being the euro area’s Single Supervisory Mechanism. However, little is known about whether such cooperation helps improve the stability of the financial system. Using panel data for a large sample of cross-border banks, this column examines whether a higher incidence of supervisory cooperation is associated with higher bank stability. It finds that supervisory cooperation is effective, working through asset risk, but not for very large banks, which are the ones that pose the highest risk to financial stability.

Barry Eichengreen, 04 September 2019

The repercussions and regulatory impact of Facebook’s proposed Libra currency are still unclear. This column, part of the VoxEU debate on the future of digital money, assesses the information as yet made available about Libra, including the implications for its exchangeability, scalability, privacy, and security. It is clear the design of the currency is yet to be finished, and many questions remain about its governance and structure.

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