Xavier Vives, 18 September 2010

With the recent wave of bank bailouts and mergers, competition in the sector has surely been affected. This column introduces a new Policy Insight arguing that a trade-off between regulation and competition in the banking sector, while complex, does exist. The optimal policy requires coordination between regulation and competition policy depending on the level of competition in the market.

Xavier Vives, 12 August 2010

CEPR Policy Insight 50 models the trade-off between competition and stability in the banking sector. Competition might increase instability through two channels: by exacerbating the coordination problem of depositors/investors on the liability side and fostering panics; and by increasing incentives to take risk, and thus the raising probability of failure. Regulation can alleviate this competition-stability trade-off, but the design of optimal regulation has to take into account the intensity of competition.

Charles Goodhart, 10 June 2010

As a consensus among academics begins to emerge over counter-cyclical financial regulation, former Bank of England Monetary Policy Committee member Charles A E Goodhart outlines why he is sceptical about “conditional convertibles” or CoCos – a form of debt that is “quasi-automatically” transformed into equity when banks get into trouble. Goodhart argues that CoCos would make the system more complex, potentially leading to problematic market dynamics.

Peter Praet, Gregory Nguyen, 16 April 2010

The global crisis has called into question the efficacy of regulation in all affected markets – none more so than the EU. This column argues that the time when each European country can have a different resolution framework has come to an end and the EU’s resolution framework is still in need of major reform.

Dirk Schoenmaker, 19 December 2009

Current practice of national crisis resolution is threatening the EU’s single banking market. The financial trilemma suggests that policymakers can only choose two out of the following three objectives: financial stability, financial integration, and national financial policies. This column argues that EU burden-sharing rules among governments can save the single market.

Charles Goodhart, 17 December 2009

The structure of contracts in financial markets is deeply rooted in history. This column retraces the origins of financial contracting and explains why mutual fund banking proposals are wrong headed. It proposes to shift more of the functions of our current banking system away from limited liability back into partnerships. This would involve requiring hedge funds to be entirely separated from banks.

Giorgio Barba Navaretti, Giacomo Calzolari, Guido Ferrarini, Alberto Pozzolo, 08 April 2009

The crisis has brought multinational banks and their cross-border activities to the forefront of European regulatory concerns. This column argues that such banks are critical to successful EU financial integration and says that the appropriate response is to establish multinational regulation to match multinational banks. It proposes a European System of Banking Supervision and harmonisation of regulating banking groups.

Hans-Werner Sinn, 04 April 2009

Banks’ balance sheets need to be fixed, but they cannot be allowed to shrink themselves back to health – instead of accepting government money – because that would severely harm the economy. This column proposes that any bank that cannot privately find at least 4% equity capital and a tier-one ratio of 8% must let the state supply the required capital and become a partner.

Jon Danielsson, 25 March 2009

Many are calling for significant new financial regulations. This column says that if the “regulate everything that moves” crowd has its way, we will repeat past mistakes and impose significant costs on the economy, to little or no benefit. The next crisis is years away – we have time to do bank regulation right.

Alberto Giovannini, 22 November 2008

Simplicity and transparency, two major causalities of recent financial market changes, are essential to restoring trust in financial markets. This column suggests that distinguishing two types of financial intermediaries – client servicers and capital managers – would be a big step in the right direction. Today’s lack of distinction means one set of regulations is applied to the two very different functions.

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