Alan Moreira, Alexi Savov, 16 September 2014

The prevailing view of shadow banking is that it is all about regulatory arbitrage – evading capital requirements and exploiting ‘too big to fail’. This column focuses instead on the tradeoff between economic growth and financial stability. Shadow banking transforms risky, illiquid assets into securities that are – in good times, at least – treated like money. This alleviates the shortage of safe assets, thereby stimulating growth. However, this process builds up fragility, and can exacerbate the depth of the bust when the liquidity of shadow banking securities evaporates.

Jon Danielsson, Kevin James, Marcela Valenzuela, Ilknur Zer, 08 June 2014

Risk forecasting is central to financial regulations, risk management, and macroprudential policy. This column raises concerns about the reliance on risk forecasting, since risk forecast models have high levels of model risk – especially when the models are needed the most, during crises. Policymakers should be wary of relying solely on such models. Formal model-risk analysis should be a part of the regulatory design process.

Enrico Perotti, 16 January 2014

The ‘shadow banking’ sector is a loose title given to the financial sector that exists outside the regulatory perimeter but mimics some structures and functions of banks. CEPR Policy Insight 69 looks into what we have learned about shadow banking since the Global Crisis.

Olivier Blanchard, Jonathan D. Ostry, Atish R. Ghosh, 20 December 2013

The world has just been through a period of unprecedented macro policy activism. More is set to come as central banks exit unconventional policies, governments fix their fiscal positions, and financial regulations are reformed. These national policies have undeniable international spillovers. This column argues that the setting is ripe for more cooperation and suggests some ways forward, even if international macro policy coordination may continue to be heard about more often than it is seen.

The Editors, 20 December 2013

Maintaining financial stability is a major concern and central banks have been increasingly involved in assuring it. This column introduces a CEPR Policy Insight written by Italy’s central bank governor on the post-Crisis role of central banks in financial regulation and supervision.

Vincent Brousseau, Alexandre Chailloux, Alain Durré, 09 December 2013

In the aftermath of the LIBOR scandal, it is important to re-establish a credible reference rate for the pricing of financial instruments and of wholesale and retail loans. The new candidate must meet the five criteria suggested by the Bank for International Settlements – reliability, robustness, frequency, availability, and representativeness – in all circumstances. This column argues that strengthening governance and/or adopting a trade-weighted reference rate is probably the fastest approach, but not necessarily sufficient for a resilient reference rate in the long run.

Javier Villar Burke, 14 November 2013

This column discusses the concept of leverage, its components and how to measure and monitor it. It proposes the marginal leverage ratio – a valuable supplement to the traditional absolute leverage ratio – as an early warning tool to signal episodes of excessive leverage and to determine if and how banks deleverage. By capturing the dynamics of leveraging-deleveraging cycles better than the absolute leverage ratio, the marginal leverage ratio provides an indication of risk that a stable absolute leverage ratio can conceal.

Clemens Bonner, Sylvester Eijffinger, 14 October 2013

Liquidity requirements like the Basel III Liquidity Coverage Ratio are aimed at reducing banks’ reliance on short-term funding. This may have implications for the implementation of monetary policy, which usually operates through short-term interbank interest rates. This column looks at how banks reacted to the Dutch quantitative liquidity requirement. The authors conclude that liquidity requirements will only reduce overnight interest rates if they cause an aggregate liquidity shortage.

Sheila Bair, 09 June 2013

Does anybody have a clear vision of the desirable financial system of the future? This column has one. It gives simple answers to 12 simple questions panellists at a recent IMF conference failed to answer.

Nicolas Véron, 05 March 2013

The EU was once a champion of global financial regulatory convergence. What happened? This column argues that the EU should drop its lacklustre inertia and pursue Basel III because, in the end, it’s in its interests to comply. EU policymakers ought to aim at enabling the adoption of a Capital Requirements Regulation that would be fully compliant with Basel III.

Edward Kane, 30 January 2013

Do financial institution managers only owe enforceable duties of loyalty, competence and care to their stockholders and explicit creditors, but not to taxpayers or government supervisors? This column argues that in the current information and ethical environments, regulating accounting leverage cannot adequately protect taxpayers from regulation-induced innovation. We ought to aim for establishing enforceable duties of loyalty and care to taxpayers for managers of financial firms. Authorities need to put aside their unreliable, capital proxy: they should measure, control, and price the ebb and flow of safety-net benefits directly.

Viral Acharya, T Sabri Öncü, 14 January 2013

Internationally prominent economists and politicians have been pushing for effective implementation and better coordination of the new financial regulations currently under construction across the globe. This columns argues that at a time of crisis, financial regulators were forced to act on systemically important assets and liabilities, rather than just on the individual financial institutions holding them. A key turning point towards better regulation will be when we recognise the need for such action ahead of time, building the essential infrastructure that ensures excessive risk-taking is discouraged.

Laurence Kotlikoff, 26 October 2012

The UK’s Independent Commission on Banking set out to make banking safer, to ensure that what just happened won’t happen again, and to change both the structure and regulation of banking as needed. But this column argues that the Commission fails to achieve any of these aims. It instead proposes a new way to make the financial system and wider economy safer.

Laura Kodres, 15 October 2012

While financial reform is underway around the world, this column argues that much more needs to be done.

Donato Masciandaro, Marc Quintyn, 14 October 2012

Supervisory failures were key to the 2008 financial crisis. This column argues that supervisory governance has improved but that more is needed. The reforms should include a separation of macro- and micro-supervision since this allows for checks and balances that complement and strengthen governance.

Johan Hombert, Adrien Matray, 12 October 2012

Innovation is the heart of economic growth. This column presents evidence that the structure of a nation’s banking sector matters for innovation. The authors present evidence that when the banking market is very competitive and dominated by large banks, lenders are less able to fund innovation, as lending relationships can no longer be sustained.

Arnoud Boot, Lev Ratnovski, 08 October 2012

Liikanen, Vickers, and Volcker all question current banking-trading links. This column offers analytic scaffolding for thinking about the separation of banking and trading. Banking generates low risk returns from relationship-based activities; trading generates high-risk returns from short-term concentrated positions. The two are linked since trading allows banks to profit from the ‘spare’ banking capital, but deeper financial markets magnify problems of managing and regulating trading by banks.

Thorsten Beck, Tao Chen, Chen Lin, Frank Song, 02 October 2012

Even before the crisis, many economists warned that financial innovation has a dark side. This column uses new cross-country data on financial innovation and provides evidence that financial innovation can lead to more volatility, more fragility, and more severe losses. But it also finds evidence of improved growth opportunities, better financing, and increased R&D expenditure.

Jacopo Carmassi, Carmine Di Noia, Stefano Micossi, 20 September 2012

The European Commission’s latest proposals for financial regulation are seen by many as the first steps towards a banking union. This column argues that there are a number of issues that need to be exposed and debated in public before the Commission decides on anything.

Vincent O'Sullivan, Stephen Kinsella, 20 September 2012

The European Commission is planning a shake-up in financial supervision in Europe. This column argues that time will tell whether or not this is a good idea – for now all we have for certain is uncertainty.

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