Sanjiv Das, Kris Mitchener, Angela Vossmeyer, 11 March 2019

The Global Crisis brought attention to how connections among financial institutions may make systems more prone to crises. Turning to a major financial crisis from the past, this column uses data from the Great Depression to study risk in the commercial banking network leading up to the crisis and how the network structure influenced the outcomes. It demonstrates that when the distribution of risk is more concentrated at the top of the system, as it was in 1929, fragility and the propensity for risk to spread increases.

Natasha Kalara, Lu Zhang, Karen van der Wiel, 09 March 2019

The Global Crisis has profoundly changed the financial landscape, including firm financing. This column examines the development of various channels of firm financing before and after the crisis among four groups of EU countries, the US, and Japan. While bank finance and, to some extent, equity finance are under pressure, alternative finance, although small, seems to be on the rise.

Gaston Gelos, Federico Grinberg, Shujaat Khan, Tommaso Mancini-Griffoli, Machiko Narita, Umang Rawat, 28 February 2019

There is little evidence on whether deteriorating household balance sheets in advanced economies have made monetary policy less effective since the Global Crisis. Using US household-level data, this column shows that the responsiveness of household consumption to monetary policy has in fact diminished since the crisis, and that households with the highest indebtedness responded the most to monetary policy shocks. Since the distribution of debt did not change after the crisis, this suggests that household debt did not contribute to lessening the effects of monetary policy over time. 

Sebnem Kalemli-Ozcan, 13 February 2019

Şebnem Kalemli-Özcan of the University of Maryland talks about debt overhang as a big contributor to the low investment that persists in Europe ten years after the crisis, and why a big data approach is the best way to solve the problem.

Giancarlo Corsetti, Aitor Erce, Timothy Uy, 13 February 2019

During the euro area crisis, management of official loan maturities emerged as a critical item in the discussion on which instruments and strategies are most effective at ensuring debt sustainability. Using a theoretical model calibrated to Portugal and cross-country data, this column shows that lengthening loan maturities and managing debt repayment flows has substantial effects on sustainability. It also unveils a key policy trade-off in official lending between increasing the amount of safe debt (immune from rollover risk) and strengthening the incentive to default in response to negative shocks to fundamentals.

Dirk Schoenmaker, 08 February 2019

Leveraged finance is booming, just as it was in the run-up to the Global Crisis. As before, central banks are bystanders, with only banking instruments for macroprudential policy. this column argues there are unused regulatory powers that can rein in investment funds. A cross-sectoral approach would help to rein in the current unsustainable levels of leveraged finance.

Nicholas Crafts, 15 January 2019

Brexit in 2019 and the banking crisis in 2007 to 2009 are usually seen as unrelated events. This column argues that they are in fact closely connected. The austerity policies embarked on in response to the fiscal damage resulting from the banking crisis triggered the protest votes of left-behind voters, which at the margin allowed Leave to win the referendum vote. The implication is that the economic costs of the banking crisis are much larger than is usually supposed.

Ashoka Mody, Milan Nedeljkovic, 14 January 2019

The ECB’s actions in the wake of the Global Crisis have been described as hesitant, relative to other central banks. Based on analysis of financial markets' response to the ECB's interventions during the euro crisis, this column argues that central bank interventions are effective if they clearly signal a commitment to reinvigorating the economy and if they address the source rather than the symptom of financial stress. The ECB did not follow these principles, limiting its ability to improve financial market sentiment. 

Mathias Hoffmann, Egor Maslov, Bent Sørensen, Iryna Stewen, 10 January 2019

Bank-to-bank lending in the euro area has increased, direct cross-border lending has not. The column shows that dependence on domestic banks reduces risk-sharing in a crisis, reducing GDP growth in affected country-sectors. Benefits from banking integration are only robust to global shocks if banking integration takes the form of cross-border lending to firms and households.

Emmanuel Dhyne, Jozef Konings, Jeroen Van den bosch, Stijn Vanormelingen, 07 January 2019

Although information technology has reshaped the way businesses operate, measuring IT capital in firms is challenging. Using an exceptionally rich firm-level dataset from Belgium, this column finds that large firms benefit more from IT than small firms, and that IT explains about 10% of the productivity dispersion. IT has contributed to Belgian GDP and productivity growth prior to the Global Crisis, but the recession seems to have led firms to forgo investment in IT. Achieving optimal IT investment levels could reinvigorate productivity growth.

Sharmin Sazedj, João Amador, José Tavares, 24 December 2018

When appointing a CEO, firms can choose a newcomer or someone who has been at the firm for a long time. Using data on Portuguese firms in the wake of the Global Crisis, this column finds no performance gap between newcomers and experienced CEOs in the period prior to the crisis. During the crisis, however, firms run by newcomer CEOs outperformed those run by experienced insiders. Newcomers attain higher productivity by making different decisions regarding personnel, expenditure, investment, and international trade. 

João Granja, Christian Leuz, Raghuram Rajan, 04 December 2018

Risk taking was pervasive during the Global Crisis even in the most unlikely areas, such as stretching to lend at a distance. Using US data, this column examines the degree to which competition amongst lenders interacts with the cyclicality in lending standards using a simple and policy-relevant measure, the average physical distance of borrowers from banks’ branches. It finds that distances widen considerably when credit conditions are lax and shorten considerably when credit conditions become tighter. A sharp departure from the trend in distance between banks and borrowers is indicative of increased risk taking. 

Tobias Adrian, John Kiff, 01 December 2018

The financial system has undergone far-reaching changes since the 2008 Global Crisis. This column casts those changes in terms of shifts in the way financial intermediaries manage their balance sheets, and also discusses the regulatory reform agenda and reviews the impact of regulations on market liquidity and credit availability. The current evidence suggests that the financial system has become safer, at limited unintended cost.

Laurence Kotlikoff, 28 November 2018

The general consensus on what caused the Great Recession can be summed up as “bad banks full of bad bankers did bad things”. This column argues, however, that this narrative doesn’t fit the facts. And worse, it diverts attention from the real problem, which was regular use of a bad banking system – a banking system built to fail.

Daniel Calvo, Juan Carlos Crisanto, Stefan Hohl, 23 November 2018

A well designed financial supervisory architecture is essential for the effective functioning of any financial system. Using a survey of 82 jurisdictions, this column describes the state of financial supervisory models around the world and highlights the key institutional changes after the Global Crisis. It finds that the prevailing financial supervisory model continues to be sectoral, but that there have been incremental but important changes within existing models. Central banks have acquired more financial oversight responsibilities after the Global Crisis, and many jurisdictions have enhanced or are in the process of enhancing their consumer/investor protection supervision.

Pierluigi Bologna, Arianna Miglietta, Anatoli Segura, 29 October 2018

Proponents of contingent convertible bonds, or CoCos, argue that they are effective instruments for bank recapitalisation. Sceptics argue that they introduce too much complexity, with potentially destabilising consequences. This column addresses this dispute empirically, using the dynamics of the CoCo market in 2016. The CoCo market at the time exhibited adverse dynamics that can’t be explained by banks’ fundamentals. Though some of this instability may have been transitory, the findings imply that the market should be monitored as it develops.

Nauro Campos, Paul De Grauwe, Yuemei Ji, 10 October 2018

The tragedy of structural reforms is that they have been captured by policymakers. This column argues that the incessant repetition of the ‘must-reform’ mantra as a solution to the crisis has discouraged academic economists from embracing it as the important research topic it clearly is, and attempts to address the lack of adequate knowledge which makes the implementation of reforms more difficult and limits their effectiveness. 

Lucia Alessi, Peter Benczur, Francesca Campolongo, Jessica Cariboni, Anna Rita Manca, Balint Menyhert, Andrea Pagano, 26 September 2018

Over recent decades, scholars and policymakers have been exploring how to make economies more resilient to potential shocks. This column investigates which EU members showed resilience during the Global Crisis and attempts to identify characteristics associated with resilience. The results reveal a lot of heterogeneity amongst countries, and those that are more resilient in the short run are not necessarily those with superior recoveries down the line. Further analyses show that social expenditures, political stability, and competitive wages are important for impact, medium-run, and ‘bounce forward’ resilience, respectively. 

Diane Coyle, 25 September 2018

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