Thorsten Beck, Mathias Dewatripont, Xavier Freixas, Paul Seabright, Diane Coyle, 18 February 2010

Billions have been spent saving European banks. Should these bailouts be subject to the usual competition rules or should stability be allowed to trump ‘business as usual’? This column introduces a new CEPR report “Bailing out the Banks: Reconciling Stability and Competition” that argues for a more subtle reaction. Competition policy is critical even in crises but the rules applied must recognise the special features that mark a crisis-struck banking sector.

Charles Goodhart, Dimitri Tsomocos, Udara Peiris, Alexandros Vardoulakis, 18 February 2010

The global financial crisis has led many to propose regulatory measures that will reduce the idiosyncratic and systemic risk of banks. This column argues in favour of the suggestion by the Bank for International Settlements to block banks from paying dividends to shareholders or bonuses if their capital levels fall below a minimum threshold.

Avinash Persaud, 10 February 2010

Policymakers and commentators have recently argued for downsizing banks that are “too big to fail.” This column argues that the logic is based on an illusion. A 2006 list of institutions considered “too big to fail” would not have included Northern Rock, Bear Sterns, or even Lehman Brothers. Instead, regulators should aim to make the financial system less sensitive to error in the markets’ estimate of risk.

Marco Pagano, Alessandro Beber, 06 February 2010

Did the bans on short selling achieve their stated purpose of restoring order to the stock market and limiting unwarranted drops in prices? This column presents new evidence from 30 countries arguing that the effect on stock prices was at best neutral, the impact on market liquidity was clearly detrimental – especially for small-cap and high-risk stocks, and that the ban slowed down price discovery.

Javier Santiso, Rolando Avendaño, 03 February 2010

Are sovereign wealth funds substantially different in their investment choices from other types of institutional investor? This column compares the holdings of two groups of sovereign and mutual funds – and finds a few differences. Contrary to popular belief, evidence suggests that sovereign and mutual funds’ investments do not differ when looking at the political profile of targeted countries.

Alberto Giovannini, 30 January 2010

Alberto Giovannini highlights some fundamental characteristics of the recent financial crisis and identifies ways to make the financial system stronger.

Hans Gersbach, 01 February 2010

Should monetary policy and banking regulation be conducted by separate bodies? This column proposes a new policy framework whereby the central bank chooses short-term interest rates and the aggregate equity ratio while banking regulation and supervision, including the determination of bank-specific capital requirements, would be left to separate bank-regulatory authorities.

Alberto Giovannini, 30 January 2010

The debate over reform of the financial system has intensified even as the crisis has started to recede. This Policy Insight argues that too much investment activity has been able to operate without detection by regulators. To prevent a repeat crisis, regulators must have an informational advantage over market participants to assess the weaknesses in the financial system as they develop.

Richard Levich, Momtchil Pojarliev, 29 January 2010

Regulators understand the potential threat of crowded trades, but they also recognise the difficulty of tracking them. This column suggests a new approach for regulators to monitor crowdedness of selected trades. Fund managers and financial regulators could use data on crowdedness to assess the risk that a financial market may enter an asset bubble.

Deniz Igan, Prachi Mishra, Thierry Tressel, 27 January 2010

Should the political influence of large financial institutions take some blame for the financial crisis? This column presents evidence that financial institutions lobbying on mortgage lending and securitisation issues were adopting riskier lending strategies. This contributed to the deterioration in credit quality and to the build-up of risks prior to the crisis.

Axel Leijonhufvud, 23 January 2010

What happened to the capitalist system where everyone was supposed to pay for their own mistakes? Bankers have been playing “I win, you lose” with the general public. This column suggests a return to double liability for bank managers in an attempt to change the game to “If I lose, then I have to pay.”

Martin Cihák, Erlend Nier, 07 January 2010

The global financial crisis forced governments facing failing financial institutions to choose between disorderly bankruptcies and costly injections of public funds. This column argues that special resolution regimes are a better alternative. It analyses their structure and function and argues EU member states ought to introduce and strengthen such regimes.

Nathan Porter, TengTeng Xu, 23 December 2009

China’s financial liberalisation remains incomplete. The behaviour of short-term market-determined interest rates is influenced by regulated rates. This column says that China should further liberalise its retail interest rates to allow all interest rates to better reflect liquidity conditions and the scarcity of capital.

Jonathan Portes, 19 December 2009

A strong financial sector is essential to a modern economy, but private actions can impose enormous costs on taxpayers; a balance must be struck. This column explains why the UK Government believes that there is a case for increasing the costs of risk-taking to banks and their shareholders while reducing those borne by taxpayers.

Nicholas Dorn, 18 December 2009

Many observers blame regulatory failure for the financial crisis, arguing for closer international coordination of national regulation. This column argues for the opposite. Regulatory convergence creates instability. Instead, regulatory diversity is needed to reduce market herding and the resulting systemic risks. This diversity can be achieved through stronger democratic oversight of regulators.

Avinash Persaud, 30 October 2009

Avinash Persaud, chairman of Intelligence Capital, talks to Romesh Vaitilingam about financial regulation after the crisis, including whether it is feasible and desirable to introduce a ‘Tobin tax’ on financial transactions. The interview was recorded at the Global Economic Symposium in Schleswig-Holstein in September 2009.

Guillermo Calvo, 27 October 2009

How did turmoil in the US subprime mortgage market ignite a global crisis? This column explains how emerging markets’ voracious appetite for international reserves coupled with record-low US policy interest rates and lax financial regulation to produce the large-scale creation of quasi-money subject to self-fulfilling-expectations runs. The theory suggests significant changes in Fed and regulatory policy are needed.

Jeffry Frieden, 16 October 2009

Jeffry Frieden, professor of government at Harvard University, talks to Romesh Vaitilingam about global economic governance – including the world trading system, financial regulation and the G-20 – and their interactions with domestic politics, particularly in the United States. The interview was recorded at the Global Economic Symposium in Schleswig-Holstein in September 2009.

Donato Masciandaro, Marc Quintyn, 01 August 2009

This column examines the white paper on financial supervision issued by the Obama administration in mid-June. It focuses on the proposal’s preference for interagency cooperation over supervisory consolidation and warns that such an approach, while politically expedient, risks worse governance outcomes.

Guillermo Calvo, Rudy Loo-Kung, 29 June 2009

The financial sector is prone to crises, which are typically associated with serious effects on output and employment. This column weighs the costs and benefits of financial deregulation that spurs temporarily high growth that then collapse and suggests that bubbles may be socially efficient.

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