Rabah Arezki, Patrick Bolton, 21 April 2021

Ensuring that developing countries remain able to access credit markets is vital for promoting growth and recovery post-pandemic. This column argues that urgent efforts by major economies to support regional development banks and preserve their financial standing will help limit the cost of rebuilding after the crisis, in turn helping preserve international capital markets in the short and medium run.  

Joshua Aizenman, Hiro Ito, Gurnain Kaur Pasricha, 08 April 2021

Facing acute strains in the offshore dollar funding markets during Covid-19, the Federal Reserve implemented measures to provide US dollar liquidity. This column examines how the Fed reinforced swap arrangements and established a ‘financial institutions and monetary authorities’ repo facility in response to the crisis. Closer pre-existing ties with the US helped economies access the liquidity arrangements. Further, the announcements of the liquidity expansion facilities led to appreciation of partner currencies against the dollar, as did US dollar auctions by foreign central banks. 

Giorgio Barba Navaretti, Alberto Pozzolo, 12 March 2021

It has been two years since Wirecard suddenly collapsed. Giorgio Barba Navaretti and Alberto Pozzolo explain to Tim Phillips why it is so hard to supervise global fintechs, and how regulators can do a better job next time.

Shusen Qi, Ralph De Haas, Steven Ongena, Stefan Straetmans, 03 March 2021

Digitalisation, FinTech, and the expansion of mobile banking have changed the way in which many banks operate on a day-to-day basis, including where they choose to have physical branches. This column explores the effect of digitalisation on the geography of banks, testing the effects of digital information-sharing on branch locations in Europe. findings suggest that information sharing has a strong positive effect on branch clustering, with banks more likely to open new branches in areas where they do not yet operate but where other banks are already present.

Dirk Niepelt, 05 February 2021

The role of central bank digital currency is increasingly being discussed, both in terms of its utility in monetary policy as well as the controversy of bank-level profit from money creation. This column presents a method for quantifying the funding cost reduction enjoyed by banks, highlighting that money creation substantially contributes to profits. This raises important questions for policymakers to address as they seek to optimise the deployment of digital currencies within financial institutions.

Hans Degryse, Mike Mariathasan, Thi Hien Tang, 29 January 2021

Frequent bailouts during the Global Crisis showed that governments cannot credibly commit not to support large financial institutions. This inability leads to moral hazard and motivated the Financial Stability Board’s framework for ‘global systemically important banks’. This column explores the net effects of this framework on the real economy, focusing on changes in corporate lending and the availability of credit as the basis to evaluate whether the framework is an effective way in which to reduce moral hazard and promote robust financial markets.

Mitsuhiro Osada, Kazuki Otaka, Satoko Kojima, Ryuichiro Hirano, Genichiro Suzuki, Nao Sudo, 26 January 2021

COVID-19 has brought about severe adverse effects on the economy around the globe, and Japan is no exception. This column introduces a model that maps cash shortages to firm's default probability, employing the balance sheet data of about 730,000 SMEs. It uses the model to assesses how a decline in sales due to Covid-19 increases the default probability of firms and how much the government's financial support mitigates a rise in that probability.

Arnoud Boot, Elena Carletti, Hans‐Helmut Kotz, Jan Pieter Krahnen, Loriana Pelizzon, Marti Subrahmanyam, 25 January 2021

Covid-19 has placed renewed pressure on the European banking sector as firms and households struggle to meet the costs imposed by the pandemic. This column provides a comparative assessment of the various policy responses to strengthen banks in light of the crisis. While the authors do not make a specific final recommendation, they review the different options suggested within current research and provide a criteria-based framework for policymakers to guide them in their decision making.

Giorgio Barba Navaretti, Giacomo Calzolari, Alberto Pozzolo, 22 November 2020

The default of Wirecard highlights several problems in the regulation and supervision of Fintech companies, with regulatory holes in investor protection, customer protection, and financial stability. This column argues that since Fintech companies can be very complex, their oversight requires understanding their business model and combining regulation and supervision based on both entities and activities. The global reach of Fintechs also calls for better coordination at the European level and beyond, but the authors do not see the need for new regulatory body to oversee Fintechs in Europe.

Puriya Abbassi, Falk Bräuning, 31 October 2020

The recent and persistent failure of covered interest parity is inconsistent with the standard view of international finance textbooks. Current thinking relates this violation mostly to supply-side effects. This column argues that demand effects associated with banks’ management of foreign exchange exposure are also an important but are often overlooked driver. This result has implications for the current policy debate concerning global funding and foreign exchange markets, as well as the important role of the US dollar in international finance and banking.

Christoph Basten, Steven Ongena, 15 August 2020

Recently, the debate around potential changes to financial intermediation with the introduction of new technology or FinTech has gained pace. Using data on bank responses to household mortgage applications through a Swiss web platform, this column contributes to the debate by showing how online platforms can allow smaller banks to expand to areas beyond their branch network. It finds enormous potential for web platforms to shake up local lending competition, open up new ways for geographical diversification, and facilitate automation of lending decisions.

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.

Fabiano Schivardi, Guido Romano, 18 July 2020

The COVID-19 crisis has induced a sharp drop in cash flow for many firms, possibly pushing solvent but illiquid firms into bankruptcy. This column presents a simple method to determine the number of firms that could become illiquid, and when. The authors apply this method to the population of Italian businesses and find that at the peak, around 200,000 companies (employing 3.3 million workers) could become illiquid due to a total liquidity shortfall of €72 billion euros. It is essential that policymakers shelter businesses by acting quickly, especially if there is a ‘second peak’ after the summer.

Thorsten Beck, Robin Döttling, Thomas Lambert, Mathijs van Dijk, 02 July 2020

Banks fulfil several key functions in the economy, from improving the allocation of capital by extending credit to facilitating consumption smoothing through saving and borrowing. The creation of liquidity lies at the centre of much of a bank’s operations. This column provides evidence that banks' liquidity creation is associated with higher economic growth across countries and industries, with important non-linear effects. Results suggest that in the new ‘knowledge economy’ banks will have a more limited role, compared to other types of financial intermediaries and markets.

Elena Carletti, Stijn Claessens, Antonio Fatás, Xavier Vives, 18 June 2020

The Covid-19 pandemic has induced a deep global economic crisis. While so far banks have shown their resilience, partly thanks to major reforms after the crisis of 2007-2009, the crisis will put them under stress. Moreover, the traditional banking model was already being challenged pre-Covid by three trends: persistently low interest rates, enhanced regulation, and increased competition from shadow banks and digital entrants. This column introduces the second report in the Future of Banking series from the IESE Business School and CEPR, which provides a perspective on how the current crisis and these trends will shape the future of the banking sector.

Çağatay Bircan, Ralph De Haas, Helena Schweiger, Alexander Stepanov, 03 June 2020

As lockdown measures continue, or are relaxed only gradually, many small businesses continue to experience significantly reduced turnover. This column reports on a firm-level analysis across 16 emerging markets, and three Western European comparator countries, in order to gauge the potential risks associated with debt-driven COVID-19 support. The overall goal is to prevent a wave of bankruptcies that could break valuable relationships between firms and their suppliers and employees. However, liquidity support in the form of additional bank lending may create debt-overhang problems in the future and therefore requires careful targeting.

Anil Ari, Sophia Chen, Lev Ratnovski, 30 May 2020

Non-performing loans are a crucial policy consideration, especially in times of wider economic crisis. This article uses a new database covering 88 banking crises since 1990 to draw lessons for post-COVID-19 resolution of non-performing loans.  Compared to the 2008 crisis, the pandemic poses some different challenges. Despite some respite from the credit-crash of 2008, policymakers today are faced with substantially higher public debt, less profitable banks, and often weaker corporate sector conditions, making resolution of non-performing loans even more challenging.

Johannes Bubeck, Angela Maddaloni, José-Luis Peydró, 23 April 2020

The way that banks in the euro area react to negative central bank interest rates may be closely linked to their individual funding structure. This column suggests that they do not generally pass negative rates on to their depositors, and that they search for yield by investing in riskier securities. New evidence suggests that their investments are directed more towards securities issued by the private sector and securities denominated in dollars.

Rodrigo Coelho, Fernando Restoy, Raihan Zamil, 11 April 2020

Regulatory divergence in the banking sector, including differences in how jurisdictions apply Basel III and other regulatory standards, could be a significant source of market fragmentation. Unwarranted divergence in prudential requirements may discourage cross-border activities, international capital flows, and global risk-sharing. This column identifies three main sources of regulatory fragmentation in the post-Basel III era and proposes policy measures to reduce excessive discrepancies in the application of global banking rules. Maintaining trust in banks’ financial health is crucial in periods of economic and financial disruption – such as the COVID-19 pandemic.

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.

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