Joseph Noss, Priscilla Toffano, 06 April 2014

The impact of tighter regulatory capital requirements during an economic upswing is a key question in macroprudential policy. This column discusses research suggesting that an increase of 15 basis points in aggregate capital ratios of banks operating in the UK is associated with a median reduction of around 1.4% in the level of lending after 16 quarters. The impact on quarterly GDP growth is statistically insignificant, a result that is consistent with firms substituting away from bank credit and towards that supplied via bond markets.

Andrew Haldane, 17 January 2013

The Subprime Crisis became the Global Crisis when one too-big-to-fail bank was allowed to fail. This column argues that too-big-to-fail is far from gone despite years of reform efforts. It is important that it not be forgotten. Further analytical work, weighing the costs and benefits of different structural reform proposals, would help keep memories fresh and policies on the right track.

Luc Laeven, 25 October 2011

Recent financial regulatory reforms target banks’ risk-taking behaviours without considering their ownership and governance. This chapter argues that bank governance influences how regulations alter bank’s incentives. Banks with more powerful owners tend to take more risks, and greater capital requirements actually increase risk-taking in banks with powerful shareholders. Bank regulation should condition on bank governance.

Avinash Persaud, 23 September 2011

The financial crisis revealed substantive problems that need to be solved, especially in the banking sector. This column argues that Basel III, the new accord on international banking, is an overdue step in the right direction. It should be defended against attempts by bankers and their friends to cut it down, dilute it, and postpone it.

Enrico Perotti, 07 February 2010

Obama’s plans for bank taxation took markets, policymakers, and academics by surprise, leaving all parties now debating its merits. This column suggests an alternative. By raising a Pigouvian tax based on banks’ individual contribution to systemic-risk creation, the policy would target the externality caused by funding fragility while raising the cost of opportunistic risk creation in good times.

Ricardo Caballero, 17 November 2009

How should governments respond to sudden failure of the financial system? This column says that it is neither credible nor desirable to refuse to assist the private sector in financial crises. It makes the case for massive provision of credible public insurance and guarantees to financial transactions and balance sheets – a financial defibrillator to respond to sudden financial arrest.

Enrico Perotti, Javier Suarez, 07 November 2009

There is a post-crisis consensus on the need to address systemic liquidity risk and its role in propagating turmoil. This column, which accompanies the release of a new CEPR Policy Insight, refines the implementation details of a new macro-prudential tool – liquidity risk charges – to discourage systemic risk creation by banks.

Rafael Repullo, Jesús Saurina, Carlos Trucharte, 24 September 2009

One widespread concern about Basel II’s risk-sensitive bank capital requirements is that they may amplify business cycle fluctuations. This column argues that the best way to correct this procyclicality is to use a business cycle multiplier of the Basel II capital requirements that is increasing in the rate of growth of the GDP. Under such a scheme, riskier banks would face higher capital requirements without regulation exacerbating credit bubbles and crunches.

Charles Calomiris, 12 February 2009

The financial crisis happened because the rules of the game – shaped by government policy – promote the wilful undertaking of excessive, value-destroying risks by managers who were not effectively disciplined by shareholders. This column outlines the six key areas where regulatory reform is essential to preventing a repeat.

Hans Gersbach, 07 September 2011

Current regulation imposes fixed capital requirements on banks. However, this makes it impossible to use regulatory capital as a buffer against negative macroeconomic shocks. This column explains how this paradox could be resolved by basing capital requirements each year on average bank equity capital in the industry.

Jon Danielsson, 29 September 2008

Complex financial models and intricate assets structures meant extraordinary profits before the crisis. Markets for structured products became overly inflated as even the banks did not have a clear view of the state of their investments. Given complexity's role in today’s mess, future regulation should focus on variables that are easy to measure and hard to manipulate (e.g. leverage ratios).

Luc Laeven, Ross Levine, 29 September 2008

When the storm passes, bank regulation will top the global policy agenda. This column presents new evidence that a bank’s private governance structure influences its reaction to bank regulation. Since governance structures differ systematically across countries, one-size-fits-all regulation may be ineffective. Bank regulations must be custom-designed and adapted as financial governance systems evolve.

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