Bruno Biais, Jean-Charles Rochet, Paul Woolley, 25 March 2010

How does economic theory need to adjust in light of the global financial crisis? This column presents a new insight on how innovation leads to rent capture, which in turn is a sign of a potential crisis. This stems from asymmetric information in the financial sector. To avoid a repeat of the crisis, policymakers need to increase transparency.

Gilles Saint-Paul, Giancarlo Corsetti, John Hassler, Luigi Guiso, Hans-Werner Sinn, Jan-Egbert Sturm, Xavier Vives, Michael Devereux, 21 March 2010

Public distrust of bankers and financial markets has risen dramatically with the financial crisis. This column argues that this loss of trust in the financial system played a critical role in the collapse of economic activity that followed. To undo the damage, financial regulation needs to focus on restoring that trust.

Stefano Micossi, 16 March 2010

Policymakers and commentators have suggested that large banks should be broken up. This column argues that such an idea risks the very existence of a global financial system. It outlines an alternative framework in which deposit insurance should be covered by banks not taxpayers, banks should not be guaranteed a bailout, and regulators should be mandated to step in when the warning signs begin.

Claudio Raddatz, 15 March 2010

How did a seemingly small shock to the US financial markets manage to spread so far, so quickly? This column argues that the heavy reliance on short-term wholesale funding is to blame. It follows that the discussions of regulatory reform should focus on the risks associated with the liability structure of banks.

Hans-Werner Sinn, 04 March 2010

A return of the Glass-Steagall Act has been suggested by US policymakers and commentators as a way to reduce risk in financial markets. This column argues that the legacy of separate commercial and investment banks actually made the crisis worse. Europe should not follow these proposals but should instead concentrate on strengthening the capital reserves of its banks.

Simon Johnson, Peter Boone, 22 February 2010

Over the last 30 years, the US financial system has grown to proportions threatening the global economic order. This column suggests a ‘doomsday cycle’ has infiltrated the economic system and could lead to disaster after the next financial crisis. It says the best route to creating a safer system is to have very large and robust capital requirements, which are legislated and difficult to circumvent or revise.

Panicos Demetriades, Svetlana Andrianova, Anja Shortland, 20 January 2010

The nationalisation of banks as a result of the global economic crisis has been a source of controversy. This column argues that governments should not feel pressured to re-privatise the banks. Once the black sheep of high finance, government owned banks can reassure depositors about the safety of their savings and can help maintain a focus on productive investment in a world in which effective financial regulation remains more of an aspiration than a reality.

Paul Seabright, 19 February 2010

Paul Seabright of the Toulouse School of Economics talks to Viv Davies about a new CEPR report, Bailing out the Banks, which analyses state-supported schemes for financial institutions in the current crisis and the need to reconcile the potentially conflicting policy goals of financial stability and competition in the banking industry. The interview was recorded in London in February 2010.

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

This new CEPR report focuses on two specific aspects of the policy response to the crisis: financial regulation and competition policy.

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.”

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