Qing Hu, Ross Levine, Chen Lin, Mingzhu Tai, 18 July 2020

The financial conditions facing parents can have effects on children’s education outcomes, both in terms of schooling and parental support at home. This column presents evidence from the US, arguing that changes in banking regulation across states can cause changes in the experience of children through a number of channels. These effects are not uniform across household income brackets and can be mitigated when there are other family members such as grandparents that are able to help children with their personal development.

Thorsten Beck, Orkun Saka, Paolo Volpin, 10 July 2020

A rapidly expanding literature has shown the importance of political economy factors for legislative and regulatory actions in the financial sector and ultimately financial sector stability and efficiency. This column reports on recent research in this field, presented at the first London Political Finance, including work on financial fragility leading to the rise of right-wing extremist parties, private interests in financial regulation, financial gains from political connections, political beliefs and financial decisions and the role of media in financial decisions.  It lays out some of the important takeaways and suggests directions for further research that can shed light on the remaining issues.

Laura Kodres, 28 April 2020

Amid the uncertainty of the COVID-19 pandemic, the movements in equity markets’ around the world have mirrored the spread of the virus and its virulence. Attempts to limit market crashes, volatility, and financial contagion have taken a number of different forms. This column explores the two main policy responses available to financial market regulators – bans on short sales versus circuit breakers – and reviews them in the context of some ‘best practices’ for market regulation.

Ester Faia, Maximilian Mayer, Vincenzo Pezone, 26 April 2020

Directors of corporations often sit on several boards at once. This column asks whether this connectivity is beneficial for firm value (due to a wider network of knowledge sharing), or if it is simply crony-capitalism built on a deep exclusivity at the board level. Exploiting data from Italy, the authors suggest that network centrality may not always translate into a gain for consumers, and that policymakers must be cautious in accommodating the appropriate reactions for cases that may have different implications for consumer welfare.

Nicola Pierri, Yannick Timmer, 18 April 2020

Technology adoption in lending can enhance financial stability through the production of more resilient loans. Motivated by the recent surge of FinTech lending, this column analyses the implications of lenders' information technology adoption for financial stability. Banks that adopted IT more intensely before the Global Crisis were significantly more resilient when the shock hit. These banks had significantly fewer non-performing loans, and issued more loans during the crisis itself. Loan-level analysis indicates that high IT adoption banks issued mortgages with better performances and did not offload low-quality loans.

Ozlem Akin, José M. Marín, José-Luis Peydró, 18 March 2020

There is a broad discussion surrounding the excessive risk-taking by banks and whether this constitutes a reliable early warning signal for future banking problems. This column presents evidence that many top executives of US banks sold their own shares in the buildup to the Global Crisis. This trends appears to be stronger for banks with higher real estate exposure, and weaker for independent directors or middle officers. Although the top bankers in riskier banks sold more shares, thus furthering their own interests, they did not reduce bank risk exposure.

Martin Hodula, 16 March 2020

The shadow banking system has become an important source of funding worldwide for the real economy over the last two decades. Europe is no exception, though research on shadow banking there has been relative scarce. This column shows that European shadow banking is highly procyclical, intertwined with insurance corporations and pension funds, and a terminal station for regulatory arbitrage. It also discusses the existence of two main motives that explain the growth of shadow banking, both prior and post-Global Crisis: a funding-cost motive and a search-for-yield motive. 

Anat Admati, 06 December 2019

Anat Admati discusses what’s needed to get financial regulation that works.

Aerdt Houben, Janko Cizel, Jon Frost, Peter Wierts, 05 November 2019

Macroprudential policies are being implemented around the globe. A key question is whether these policies prompt substitution toward the non-bank financial sector. This column presents compelling evidence of such ‘waterbed effects’ after macroprudential policy action. Substitution towards non-bank credit is stronger when policy measures applied to banks are binding and are implemented in countries with well-developed financial markets. While systemic risks may nonetheless decline, waterbed effects highlight the importance of developing macroprudential policies beyond banking. 

Patrick Bolton, Stephen Cecchetti, Jean-Pierre Danthine, Xavier Vives, 03 June 2019

While the decade since the Global Crisis has seen clear improvements in financial regulation and supervision, there is still work to be done in several crucial areas, and political constraints may bite.This column introduces the first report in a new series on ‘The Future of Banking’, which tackles three important areas of post-crisis regulatory reform: the Basel III agreement on capital, liquidity and leverage requirements; resolution procedures to end ‘too big to fail’; and the expanded role of central banks with a financial stability remit.

Francesco Franzoni, 03 June 2019

The asset management industry has become increasingly concentrated in recent decades. Regulators are concerned about the systemic risks this may pose. Using data from the US, this column suggests that the increased concentration has led to more volatile prices of stocks held by large institutional investors. This poses challenges for regulators trying to weigh price efficiency and economies of scale.

Timur Kuran, Jared Rubin, 28 April 2018

Poor people pay much more for credit than wealthier people because they are believed to be more likely to default, but this might not always be the case if the enforcement of repayment is biased in favour of wealthy people. This column uses evidence from Ottoman Istanbul to show that where courts favoured the rich and wealthy, these groups faced higher relative borrowing costs. Those with the greatest capacity to invest in capital and entrepreneurial activities thus paid the most for credit, possibly contributing to the slowdown of economic growth in the region.

Thomas Huertas, 03 November 2017

What does the future of banks and financial institutions look like? In this video, Thomas Huertas talks about the regulatory environment and advances in technology. This video was recorded at the "10 years after the crisis" conference held in London, on 22 September 2017.

Christian Thimann, 20 October 2017

What are the signs of a crisis? In this video, Christian Thimann discusses the roles of geopolitics, demographics and the state of financial regulations. This video was recorded at the "10 years after the crisis" conference held in London, on 22 September 2017.

Xavier Vives, 06 December 2016

As with previous systemic crises, the 2007-2009 crisis has created regulatory reform, but is it adequate? This column argues that prudential regulation should consider interactions between conduct – capital, liquidity, disclosure requirements, macroprudential ratios – and structural instruments, and also coordinate with competition policy. Though recent reforms are a welcome response to the latest crisis, we do not know how effective they will be in future.

Domenico Lombardi, Pierre Siklos, 07 November 2016

After the 2008 Global Crisis, there has been progress towards a system-wide regulatory architecture that includes a national macroprudential authority. This column describes a ‘capacity indicator’ that measures the state of macroprudential policies worldwide, including the features policymakers believe constitute a successful macroprudential policy regime. Eventually this index may be used to establish whether these macroprudential policy innovations have been successful.

Holger Görg, Christiane Krieger-Boden, Peter Nunnenkamp, 23 August 2016

In theory, firms in developing countries benefit from viable, well-used, stable, and efficient local financial markets as a source of investment for local firms. Financial markets in the home countries of multinationals can also act as a source of FDI to the developing world when local financial markets are weak. This column discusses recent empirical data that support both arguments, and argues that advocates of tighter regulation for financial markets should consider the wider impact on developing country economies.

Priyank Gandhi, Hanno Lustig, Alberto Plazzi, 21 August 2016

Governments and regulators are commonly assumed to offer special protection to the stakeholders of large financial institutions during financial crises. This column measures the ex ante cost of implicit shareholder guarantees to financial institutions in crises, and suggests that such protection affects small and large financial institutions differently. The evidence suggests that in the event of a financial crisis, stock investors price in the implicit government guarantees extended to large financial institutions, but not to small ones. 

Tobias Adrian, Nellie Liang, 14 August 2016

Recent research into how monetary policy frameworks incorporate risks to financial stability has shown that policy affects both financial conditions and financial vulnerabilities that amplify negative shocks. This column argues that looser monetary policy improves financial conditions, but can in some situations worsen vulnerabilities through incentives for financial sector risk-taking and non-financial sector borrowing. Policymakers face an intertemporal trade-off between financial conditions and vulnerabilities which may impact a cost-benefit analysis of monetary policy.

Claudio Raddatz, Sergio Schmukler, Tomás Williams, 12 August 2016

The categorisation of countries into relevant international benchmark indices affects the allocation of capital across borders. The reallocation of countries from one index to another affects not only capital flows into and out of that country, but also the countries it shares indices with. This column explains the channels through which international equity and bond market indices affect asset allocations, capital flows, and asset prices across countries. An understanding of these channels is important in preventing a widening share of capital flows being impacted by benchmark effects.

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