Stephen Cecchetti, Kim Schoenholtz, 22 February 2018

Investment is shifting from tangible physical assets to intangible goods like software, data, and R&D. This column analyses the impact of this shift on the structure of firm financing. The financial system’s shift from public to private equity is, on the whole, an encouraging reflection of its response to the changing needs of the economy.

Andrea Polo, 12 February 2018

European banks have responded in different ways to monetary interventions in the last few years. In this video, Andrea Polo discusses the central role monetary policy has taken in Europe, along with its limitations. While the ECB has created substantial liquidity through quantitative easing, these large injections of liquidity may not have been fully passed on to the real economy. This video was recorded at the RELTIF book launch held in London in January 2018.

Martin Brown, Ioanna S Evangelou, Helmut Stix, 01 February 2018

A cornerstone of new bank resolution policies across the world is the introduction of bail-ins to redistribute the costs of bank failures from taxpayers to bank creditors. This column uses the bail-in of two banks in Cyprus to examine how bank depositors react to this way of resolving a crisis. In the short run, customers who experienced deposit or bond bail-ins increased their holdings of cash and reduced deposits, while those who faced only an equity bail-in did not change their behaviour. In the medium run, confidence in the banking system among all depositors remained low.

Gauti Eggertsson, Ragnar Juelsrud, Ella Getz Wold, 31 January 2018

Economists disagree on the macroeconomic role of negative interest rates. This column describes how, due to an apparent zero lower bound on deposit rates, negative policy rates have so far had very limited impact on the deposit rates faced by households and firms, and this lower bound on the deposit rate seems to be causing a decline in pass-through to lending rates as well. Negative interest rates thus appear ineffective in stimulating aggregate demand.

Stefan Avdjiev, Bilyana Bogdanova, Patrick Bolton, Wei Jiang, Anastasia Kartasheva, 22 December 2017

The promise of contingent convertible capital securities as a bail-in solution has been the subject of considerable theoretical analysis and debate, but little is known about their effects in practice. This column reviews the results of the first comprehensive empirical analysis of bank CoCo issues. Among other things, it finds that the propensity to issue a CoCo is higher for larger and better-capitalised banks, and that their issue result in statistically significant declines in issuers' CDS spreads, indicating that they generate risk-reduction benefits and lower the costs of debt.

Thomas Huertas, 03 November 2017

What does the future of banks and financial institutions look like? In this video, Thomas Huertas talks about the regulatory environment and advances in technology. This video was recorded at the "10 years after the crisis" conference held in London, on 22 September 2017.

Thorsten Beck, 24 April 2017

Nine years after the onset of the Global Crisis, the problem of non-performing assets is still acute in the Eurozone. This column takes stock of the different proposals to deal with the issue. It argues that a Eurozone-level asset management company can resolve bank fragility and spur economic recovery, but warns that lack of political will and legal barriers can impede the creation of such an agency. 

Marco Onado, 21 February 2017

European banks have not recovered from the Global Crisis, in part due to heavy provisions for non-performing loans. This column argues that a comprehensive approach to the issue in Europe could address market inefficiencies and reduce bad loans to bearable levels. The establishment of a European scheme to securitise non-performing loans should form one of the next steps towards recovery.

Kristin Forbes, Dennis Reinhardt, Tomasz Wieladek, 23 December 2016

Globalisation is in retreat, but while the slowdown in trade is widely recognised, what is more striking is the collapse of global capital flows. This column shows how banking deglobalisation is a substantial contributor to the sharp slowdown in global capital flows. It finds that certain types of unconventional monetary policy, and their interactions with regulatory policy, can have important global spillovers. Policies designed to support domestic lending may have had the unintended consequence of amplifying the impact of microprudential capital requirements on external lending.

Claudia Buch, Matthieu Bussière, Linda Goldberg, 09 December 2016

The Global Crisis has triggered substantive policy responses, but assessing the impacts of these and the effects on the real economy is a challenging task. This column discusses the work of the International Banking Research Network in examining international spillovers of prudential instruments through credit provision by banks. It finds that prudential instruments sometimes spill over across borders through bank lending, and that international spillovers vary across prudential instruments and are heterogeneous across banks. There appears to be no one channel or even direction of transmission that dominates spillovers.

Peter Cziraki, Christian Laux, Gyöngyi Lóránth, 26 October 2016

Banks' payout decisions at the beginning of the financial crisis of 2007-2009 were particularly controversial as the crisis eroded the capital of many banks. Concerns were raised that banks may have engaged in wealth transfer to shareholders, or that they may have been reluctant to reduce dividends to avoid negative signalling. This column examines these arguments using a large dataset on US bank holding companies. Cross-sectional tests do not provide clear-cut evidence of active wealth transfer. Similarly, the evidence on signalling is mixed.

Ross Levine, Chen Lin, Wensi Xie, 07 October 2016

Many policies have been put in place to constrain the expansion of banks across economic borders, in part to avoid them becoming too big and interconnected to fail. However, some argue that such expansion can reduce risk. This column evaluates the impact of geographic expansion on the cost of a bank’s interest-bearing liabilities. Geographic diversification materially lowers bank holding companies’ funding costs, suggesting there is a real cost of restricting banks from using geographic expansion to diversify their risks.

Louis Nguyen, Jens Hagendorff, Arman Eshraghi, 30 September 2016

Banks are regularly under scrutiny for their professional and ethical behaviour. This column assesses the role of boards in monitoring and advising conduct, and offers new insights for how to structure bank boards to prevent misconduct. Conventional board measures such as board independence and financial expertise have no measurable impact on misconduct being committed or detected. Instead, governance metrics revolving around CEO connections warrant more attention from regulators, investors, and governance activists.

Markus K Brunnermeier, Sam Langfield, Marco Pagano, Ricardo Reis, Stijn Van Nieuwerburgh, Dimitri Vayanos, 20 September 2016

The Eurozone lacks a safe asset that is provided by the region as a whole. This column highlights why and how European Safe Bonds, a union-wide safe asset without joint liability, would resolve this problem, and outlines steps to put them into practice. For given sovereign default probabilities, these bonds would be as safe as German bunds and would approximately double the supply of euro safe assets. Moreover, owing to general equilibrium effects, they would weaken the diabolic loop between sovereign risk and bank risk.

Marco Buti, José Leandro, Plamen Nikolov, 25 August 2016

The fragmentation of financial systems along national borders was one of the main handicaps of the Eurozone both prior to and in the initial phase of the crisis,  hindering the shock absorption capacity of individual member states. The EU has taken important steps towards the deeper integration of Eurozone financial markets, but this remains incomplete. This column argues that a fully-fledged financial union can be an efficient economic shock absorber. Compared to the US, there is significant potential in terms of private cross-border risk sharing through the financial channel, more so than through fiscal (i.e. public) means.

Laurence Ball, 24 August 2016

Much of the damage from the Great Recession is attributed to the Federal Reserve’s failure to rescue Lehman Brothers when it hit troubled waters in September 2008. It has been argued that the Fed’s decision was based on legal constraints. This column questions that view, arguing that the Fed did have the legal authority to save Lehman, but it did not do so due to political considerations.

Priyank Gandhi, Hanno Lustig, Alberto Plazzi, 21 August 2016

Governments and regulators are commonly assumed to offer special protection to the stakeholders of large financial institutions during financial crises. This column measures the ex ante cost of implicit shareholder guarantees to financial institutions in crises, and suggests that such protection affects small and large financial institutions differently. The evidence suggests that in the event of a financial crisis, stock investors price in the implicit government guarantees extended to large financial institutions, but not to small ones. 

Claudio Raddatz, Sergio Schmukler, Tomás Williams, 12 August 2016

The categorisation of countries into relevant international benchmark indices affects the allocation of capital across borders. The reallocation of countries from one index to another affects not only capital flows into and out of that country, but also the countries it shares indices with. This column explains the channels through which international equity and bond market indices affect asset allocations, capital flows, and asset prices across countries. An understanding of these channels is important in preventing a widening share of capital flows being impacted by benchmark effects.

Toshihiro Okubo, Tetsuji Okazaki, Eiichi Tomiura, 19 July 2016

In the context of increased global trade and accompanying competition, firms are increasingly engaged in industrial clusters. This column uses firm-level transaction data to analyse the impact of firms’ relationships with financial institutions on their networking within clusters. Firms participating in government-supported cluster programmes increase their transaction networks significantly faster than those not in clusters. The column also finds that firms with expanding networks are mainly financed by regional banks, not national or global ones.

Giudici Paolo, Laura Parisi, 28 August 2017

In the European single resolution framework, there are three potential paths for failing banks: bail-in, private intervention, or liquidation. This column proposes combining a new market-based early warning measure of credit risk based on CDS spreads to investigate potential losses and systemic contagion for each path. Applying this to Italy's banking system suggests that private intervention and a bail-in minimise losses compared to liquidation, and, bail-in slightly reduces contagion effects compared to private intervention.