Arnoud Boot, 25 October 2011

The financial sector has become increasingly complex in terms of its speed and interconnectedness. This column says that market discipline won’t stabilise financial markets, and complexity makes regulating markets more difficult. It advocates substantial intervention in order to restructure the banking industry, address institutional complexity, and correct misaligned incentives.

Jean-Louis Arcand, Enrico Berkes, Ugo Panizza, 07 April 2011

Over the last three decades the US financial sector has grown six times faster than nominal GDP. This column argues that there comes a point when the financial sector has a negative effect on growth – that is, when credit to the private sector exceeds 110% of GDP. It shows that, of the advanced countries currently suffering in the fallout of the global crisis were all above this threshold.

Santiago Carbó-Valverde, Edward Kane, Francisco Rodríguez Fernández, 22 March 2011

The problem of banks being too big to fail haunts discussions of regulation. This column provides new evidence on the implicit support provided to banks deemed too-difficult-to-fail and too-difficult-to-unwind in Europe and the US. It finds that regulators could be doing a much better job.

Harry Huizinga, Asli Demirgüç-Kunt, 18 March 2011

Today's big banks are enormous. By 2008, 12 banks worldwide had liabilities exceeding $1 trillion. This column, using data on banks from 80 countries over the years 1991-2009, provides new evidence on how large banks differ in terms of their risk and return outcomes and investigates how market perceptions of bank risk are affected by bank size. It concludes that policies should reward bank managers for keeping their banks safe rather than for making them big.

Enrico Perotti, Javier Suarez, 16 March 2011

How to regulate systemic risk? This column presents a new CEPR discussion paper assessing the performance of Pigouvian taxes and quantity-based regulations in containing the social costs of high-risk banking. It finds that, depending on how banks differ, the socially efficient solution may be attained with Pigouvian taxes, quantity regulations, or a combination of both.

Heiko Hesse, Brenda González-Hermosillo, 10 March 2011

Just how much systemic risk remains in the advanced economies? This column uses Markov-switching techniques to examine volatility in equity, interbank, sovereign credit-default swaps, and foreign-exchange markets. It finds that while overall systemic stress emanating from interbank spreads and foreign-exchange volatility has subsided, there are still pockets of systemic risk, particularly in sovereign credit default swaps and equity markets – and this is especially the case for Europe’s periphery.

Viral Acharya, Thomas Cooley, Robert Engle, Matthew Richardson, 27 February 2011

As part of the US policy response to the global crisis, the Dodd-Frank Financial Reform Act calls for regulators to identify systemically risky financial firms – the sort that took the US financial crisis global. But how to identify these firms remains unclear. Some claim the task is impossible. This column begs to differ and names the 10 most systemically risky financial firms in the US.

Beatrice Weder di Mauro, Ulrich Klüh, Marco Wagner, Hasan Doluca, 26 June 2010

As G20 leaders meet to discuss financial reform, this column argues that it is not too late for an international solution. It says that the EU and US should lead the way with a tax on systemically important financial institutions. Beyond internalising the costs of systemic risk, such a levy would make an international agreement more likely and raise substantial funds.

Anne Sibert, 16 January 2010

Economists largely neglected systemic risk in the financial sector. This column discusses how governments should gather data about systemic risk and assess its implications. It says the new European Systemic Risk Board is far from the ideal – it is too big, too homogeneous, and lacks independence.

Viral Acharya, 04 September 2009

Financial institutions enjoy a large number of government guarantees. This column says that we ought to be charging banks for such subsidies and doing so in a way that promotes financial stability. It uses the example of demand deposit insurance in the US to explore the poor design of funding for such guarantees.

Leonardo Felli, Luca Anderlini, 22 August 2009

Like flights, securities can be non-stop (direct claims) or they can involve (sometimes many) intermediate stops (indirect claims). How should we measure the vulnerability of different securities to "systemic risk"? This column proposes a simple index to capture the important information of interest to both regulators and investors.

Amadou Sy, 25 July 2009

Current efforts to regulate credit rating agencies focus on micro-prudential issues and aim at reducing conflicts of interest and increasing transparency and competition. Yet, the current crisis has shown that credit ratings can have systemic effects. This column says that policymakers should assess how credit ratings downgrades can endanger financial stability and take appropriate macro-prudential measures.

Stephen Cecchetti, 18 July 2009

The current financial crisis has been the most challenging for policymakers around the world. This column introduces the 79th Annual Report of the Bank for International Settlements, discusses the risks posed by the massive policy initiatives undertaken in response to the crisis, and offers suggestions for systemic reforms.

Heiko Hesse, Brenda González-Hermosillo, 21 April 2009

This column examines the use of key global market conditions to assess financial volatility and the likelihood of crisis. Using Markov regime-switching analysis, it shows that the Lehman Brothers failure was a watershed event in the crisis, although signs of heightened systemic risk could be detected as early as February 2007.

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