The U.S. Great Recession has pointed to the importance of the banking sector in originating, amplifying, and propagating financial shocks to the real side of the economy. In response to the downturn, there has been a great deal of new regulation to mitigate the effects of future financial crises. Quantitative structural models of the banking sector that avoid the Lucas critique are critical to conduct counterfactual policy to evaluate the effects of new regulation. One important factor in the effects of policy is banking industry market structure and competition among banks of different sizes. Regulation itself may effect market structure and the distribution of bank size. Understanding regulatory arbitrage and how competitiveness of the banking sector varies with changes in regulation is critical to understand the health of the financial system.

Anya Kleymenova, Andrew Rose, Tomasz Wieladek, 05 April 2016

Post-crisis banking is in trouble, with cross-border bank lending significantly slower than before. Many economists think that this is down to complications from government ownership. This column argues that although government ownership is not the only possible friction or reason for cross-border bank lending, it is an inhibitor of cross-border bank activity in both the UK and the US. If the same mechanism applies to other countries around the world, then global banking intermediation may rebound once again, once banks are privatised.

Jaap Bos, Ralph De Haas, Matteo Millone, 22 March 2016

Screening loan applicants is a key principle of sound banking, but it can be challenging when trustworthy information about applicants is not available. Many countries have therefore introduced credit registries that require banks to share borrower information. This column examines how the introduction of a new registry affected the functioning of the credit market in Bosnia and Herzegovina. Mandatory information sharing allowed loan officers to lend more conservatively at both the extensive and intensive margins. The improved credit allocation improved loan quality and lender profitability.

Di Gong, Harry Huizinga, Luc Laeven, 18 February 2016

Prior to the Global Crisis, banks could easily use off-balance sheet structures to lower their effective capitalisation rates. This column examines another way that US banks circumvented capital regulations – by maintaining minority-owned, non-consolidated subsidiaries. Had these subsidiaries been consolidated, average reported equity-to-assets ratios would have been 3.5% lower. These findings suggest that some US banks were actively misrepresenting the riskiness of their assets prior to the crisis.

Philippe Bacchetta, Ouarda Merrouche, 16 January 2016

Economists now tend to stress the role of global banks in the transmission of the Global Crisis. This column argues that the retrenchment of Eurozone banks opened regulatory arbitrage opportunities for US banks. The fact that US banks, and in particular the most risky US banks, fully exploited these opportunities had a salubrious effect on credit-constrained corporates and employment. It seems the move from Basel I to Basel II with risk-sensitive capital requirements amplifies the credit cycle.


The Cambridge Endowment for Research in Finance (CERF) welcomes submissions for its 2016 Corporate Finance Theory Symposium to be held in Cambridge UK, Cambridge Judge Business School,  16-17 September 2016.

The symposium covers all areas of theoretical corporate finance, including theory papers that combine corporate finance theory with a related area such as banking, market micro-structure, asset pricing, and financial accounting.

We expect to have about 9 papers (each with a discussant) and one keynote speech. This year’s keynote speaker will be Anjan Thakor, John E. Simon Professor of Finance,Director of the PhD Programme, and Director of the WFA Center for Finance and Accounting Research.

Cristina Arellano, Andy Atkeson, Mark Wright, 10 January 2016

In the recent crisis in Southern Europe both sovereign governments and private citizens faced increased borrowing costs on their external debt. By contrast, no spillover to private borrowers occurred from the recent US state government debt crisis. This column argues that this different experience stems from much weaker European protections from government interference – the risk that governments will encumber private debt contracts by redenominating the currency of the contract, imposing capital controls, or passing debtor relief legislation. 

Sumit Agarwal, Souphala Chomsisengphet, Neale Mahoney, Johannes Stroebel, 09 January 2016

During the Great Recession, governments famously (and in some cases, infamously) provided banks with lower-cost capital and liquidity so that they would lend, expanding economic activity. This column assesses the efficacy of these policies, estimating marginal propensities to consume and borrow between 2008-2012.

Daniel Gros, Willem Pieter De Groen, 15 December 2015

Banking policy remains of great importance in the aftermath of the Global Crisis. This column presents recent research on the ability of the Single Resolution Fund to weather any future crisis scenario imaginable. The fund will be built up gradually over the coming decade, but as the losses from any future banking crisis are also likely to arise over a long period of time, the Single Resolution Fund should be sufficient to deal even with a crisis of similar proportions to the last one.

Nikolaos Papanikolaou, Christian Wolff, 06 December 2015

In the years running up to the global crisis, the banking sector was marked by a high degree of leverage. Using US data, this column shows how, before the onset of the crisis, banks accumulated leverage both on and, especially, off their balance sheets. The latter activities saw an increase in maturity mismatch, raised the probability of bank runs, and increased both individual bank risk and systemic risk. These findings support the imposition of an explicit off-balance sheet leverage ratio in future regulatory frameworks.

Avinash Persaud, 20 November 2015

As the recent Financial Stability Board decision on loss-absorbing capital shows, repairing the financial system is still a work in progress. This column reviews the author’s new book on the matter, Reinventing Financial Regulation: A Blueprint for Overcoming Systemic Risks. It argues that financial institutions should be required to put up capital against the mismatch between each type of risk they hold and their natural capacity to hold that type of risk. 

Jakob de Haan, Wijnand Nuijts, Mirea Raaijmakers, 06 November 2015

The Global Crisis revealed serious deficiencies in the supervision of financial institutions. In particular, regulators neglected organisational culture at the institutional level. This column reviews efforts since 2011 by De Nederlandsche Bank to oversee executive behaviour and cultures at financial institutions. These measures aimed at identifying risky behaviour and decision-making processes at a sufficiently early stage for appropriate countermeasures to be implemented. The findings show that regulators can play a larger part in securing the stability of the financial system by taking an active role in shaping institutional cultural processes.

Shekhar Aiyar, Anna Ilyina, Andreas Jobst, 05 November 2015

European banks are struggling with high levels of non-performing loans. This column explores the channels through which persistently high non-performing loans hold down credit growth and economic activity. A survey of EU authorities and banks reveals that the loans are not written-off for a variety of deep-seated reasons, including legal and tax code issues. An agenda is proposed comprising tightened bank supervision, structural bankruptcy reforms, and the development of markets for distressed assets.

Matthew Jaremski, David Wheelock, 25 October 2015

The US’s Federal Reserve System was established more than a century ago as a confederation of 12 regional districts. The selection of cities for each region’s Reserve Bank disproportionately favoured the Northeast and the state of Missouri, a fact that remains controversial to this day. This column describes how the existing banking infrastructure and population density at the time, guided the selection of these cities. Modern communication technology has reduced the need for physical proximity between Reserve and commercial banks. Debates about rezoning the Federal districts should therefore focus on the distribution of monetary policymaking authority.

Jon Danielsson, Morgane Fouché, Robert Macrae, 20 October 2015

There has always been conflict between macro- and microprudential regulation. Microprudential policy reigns supreme during good times, and macro during bad. This column explains that while the macro and micro objectives have always been present in regulatory design, their relative importance has varied according to the changing requirements of economic, financial and political cycles. The conflict between the two seems set to deepen and so, regardless of which ‘wins’, policymakers must not undermine the central bank's execution of monetary policy.

Philip Lane, 07 September 2015

In the lead up to the global financial crisis, there was a substantial credit boom in advanced economies. In the Eurozone, cross-border flows played an especially important role in the boom-bust cycle. This column examines how the common currency and linkages between member states contributed to the Eurozone crisis. A very strong relationship between pre-crisis levels of external imbalances and macroeconomic performance since 2008 is observed. The findings point to the importance of delinking banks and sovereigns, and the need for macro-financial policies that manage the risks associated with excessive international debt flows.

Charles Goodhart, Enrico Perotti, 10 September 2015

In the last century, real estate funding by banks grew steadily. This column argues that the unprecedented expansion of banking in mortgage lending resulted in a high degree of maturity mismatch. The solution to this problem should focus on greater maturity matching, and not using insured deposits. One avenue to do so is by securitising mortgages with little maturity transformation. Another is to create intermediaries providing mortgage loans where the lender shares in the appreciation, while assuming some risk against the occasional bust.

Liangliang Jiang, Ross Levine, Chen Lin, 25 July 2015

The Global Crisis has brought the ins and outs of bank stability to the attention of increasing numbers of academics and policymakers. But what is the impact of bank regulation and competition on bank opacity? This column presents one of the first evaluations of the impact of bank regulatory reforms on the quality of information disclosed by banks, which in turn helps us assess bank stability.

Esa Jokivuolle, Jussi Keppo, Xuchuan Yuan, 23 July 2015

Bankers’ compensation has been indicted as a contributing factor to the Global Crisis. The EU and the US have responded in different ways – the former legislated bonus caps, while the latter implemented bonus deferrals. This column examines the effectiveness of these measures, using US data from just before the Crisis. Caps are found to be more effective in reducing the risk-taking by bank CEOs.

Stephen Kinsella, Hamid Raza, Gylfi Zoega, 04 July 2015

Iceland and Ireland were both rocked by the fallout of the Global Crisis. This column argues that differences in currency arrangements affected the mechanisms of the boom and the collapse. Iceland’s banks collapsed because they did not have a lender of last resort in euros. Ireland did. But Iceland’s collapse and ensuing capital controls shifted the burden of debt restructuring onto foreign creditors to a much greater extent than in Ireland.



CEPR Policy Research