Çağatay Bircan, Orkun Saka, 10 May 2019

Government ownership of banks can help solve credit market failures and stabilise the supply of credit over the business cycle. However, it can also end up serving political interests and lead to a misallocation of financial resources. This column provides new evidence that state-owned banks systematically engage in tactical redistribution of credit in line with the political incentives of those in power. Analysing the geographical distribution of all lending and economic activity in Turkey, it shows that the central government may use commercial lending by state-owned banks to support allies in local elections.

Giancarlo Corsetti, Aitor Erce, Timothy Uy, 13 February 2019

During the euro area crisis, management of official loan maturities emerged as a critical item in the discussion on which instruments and strategies are most effective at ensuring debt sustainability. Using a theoretical model calibrated to Portugal and cross-country data, this column shows that lengthening loan maturities and managing debt repayment flows has substantial effects on sustainability. It also unveils a key policy trade-off in official lending between increasing the amount of safe debt (immune from rollover risk) and strengthening the incentive to default in response to negative shocks to fundamentals.

Olena Havrylchyk, 11 December 2018

Lending-based crowdfunding platforms represent an opportunity for financial intermediation that is less leveraged, less prone to runs, and easier to resolve. This column reviews the regulatory regimes for such platforms in OECD countries and the European Commission’s proposal for the EU-wide passporting regime. Regulation requires a balance to be struck between a flexible approach that allows experimentation and strong supervision to address market failures. 

Laura Straeter, Jessica Exton, 23 September 2018

Although money may be a taboo topic amongst friends, one’s social networks can offer help in times of personal financial straits. This column examines people’s willingness to borrow money from or lend to close friends for everyday purchases and finds that friends are much more willing to lend than to ask to borrow, and that this gap between borrower and lender widens as requests are repeated. Ensuring that there is occasion for reciprocation and using technological tools to regulate the peer-to-peer loan may help improve this suboptimal informal lending market.

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.

S. M. Ali Abbas, Daniel Hardy, Jun Kim, Alex Pienkowski, 06 June 2017

The theoretical benefits of state-contingent debt instruments for sovereigns – such as GDP-linked and extendible bonds – have been advocated by academics for several decades, but only recently have the practical constraints and considerations been explored in detail. This column summarises this more recent work, highlighting key findings on instrument design and on broader market development prospects. 

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.

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The conference, jointly organised with Horizon 2020 ADEMU and The European Stability Mechanism (ESM), aims to bring together leading scholars to discuss theoretical and empirical issues in sovereign debt sustainability. In particular, we are interested in papers that deal with debt maturity structure, official lending, crisis resolution frameworks, and multiple equilibria, among others. The goal is to identify priorities for both future research and policy-making as it relates to recent developments in the Euro Area and multilateral lending frameworks. The conference will be structured to facilitate interaction and discussion among leading academics and policymakers. 

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.

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.

Giorgio Barba Navaretti, Giacomo Calzolari, Alberto Pozzolo, 18 November 2015

Small and medium-sized enterprises are supposed to be the key to growth, everywhere. These enterprises are risky, and when they are so important to the well-being of an economy, someone must bear the risk of funding them. This column argues that there is a real need for policymakers to focus on how we finance SMEs, as getting the institutions and structures right can pay dividends in the long run.

Chun Chang, Kaiji Chen, Daniel Waggoner, Tao Zha, 01 August 2015

China’s spectacular growth over the 2000s has slowed since 2013. The driving force behind the country’s growth was investment, so the key to understanding the slowdown lies in understanding what sustained investment in the past. This column shows how a preferential credit policy promoting heavy industrialisation explains the trends and cycles in China’s macroeconomy over the past two decades. This policy was not without negative consequences, particularly in terms of the distortions it introduced for business finance. Going forward, China needs to focus on creating the right incentives for banks to make loans to small productive businesses.

Giorgio Barba Navaretti, Giacomo Calzolari, Alberto Pozzolo, 08 July 2015

Capital requirements for banks have been raised since the Global Crisis in order to increase their resilience during periods of distress. This column introduces a new online journal, the first issue of which publishes a set of articles that studies the trade-off between hedging systemic risk and expanding lending to the real economy. 

Clemens Jobst, Stefano Ugolini, 23 June 2015

Central banks today provide liquidity exclusively through purchases of (mostly) government bonds and through collateralised open-market operations. This column considers the evolution of liquidity provision by central banks over the past two centuries, and argues that there are alternative approaches to those that are focused on today. One such alternative is a revival of the 19th century practice of uncollateralised lending. This would discourage market participants from relying on informational shortcuts, and reduce the likelihood that informational shocks trigger collateral crises.

Jon Danielsson, Eva Micheler, Katja Neugebauer, Andreas Uthemann, Jean-Pierre Zigrand, 23 February 2015

The proposed EU capital markets union aims to revitalise Europe’s economy by creating efficient funding channels between providers of loanable funds and firms best placed to use them. This column argues that a successful union would deliver investment, innovation, and growth, but it depends on overcoming difficult regulatory challenges. A successful union would also change the nature of systemic risk in Europe.

Philippe Karam, Ouarda Merrouche, Moez Souissi, Rima Turk, 02 February 2015

In the wake of the Crisis, policymakers have introduced liquidity regulation to promote the resilience of banks and lower the social cost of crisis management. This column shows that a funding liquidity shock, manifested as lower access to wholesale sources of funding following a credit rating downgrade, translates into a significant decline in both domestic and foreign lending. Liquidity self-insurance by banks mitigates the impact of a credit rating downgrade on lending.

James Wang, 30 December 2014

Many lenders hire loan officers to screen soft information that may otherwise be ignored by credit scoring. However, in addition to their compensation costs, loan officers may have characteristics, such as being overly cautious, that could distort their decisions. This column documents the performance of loan officers using data from a Chinese lender. Despite the distortions, the loan officers contribute three times their pay in annual profits above what the lender could have earned by itself, even with the benefit of hindsight.

Neil Kay, Gavin Murphy, Conor O'Toole, Iulia Siedschlag, Brian O'Connell, 29 June 2014

Small and medium-size enterprises (SMEs) often report difficulties in obtaining external finance. Based on new research, this column argues that these difficulties are not due to greater financial risks associated with SMEs. Instead, they are the result of imperfections in the market for external finance that negatively affect smaller and younger enterprises. The same research has shown that these types of firms are also the most reliant on external finance to support their investment and growth.

Peter Koudijs, Hans-Joachim Voth, 12 April 2014

Human behaviour in times of financial crises is difficult to understand, but critical to policymaking. This column discusses new evidence showing that personal experience in financial markets can dramatically change risk tolerance. A cleanly identified historical episode demonstrates that even without losses, negative shocks not only modify risk appetite, but can also create ‘leverage cycles’. These, in turn, have the potential to make markets extremely fragile. Remarkably, those who witnessed this episode but were not directly threatened by it, did not change their own behaviour. Thus, personal experience can be a powerful determinant of investors’ actions and can eventually affect aggregate instability.

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Events

  • 17 - 18 August 2019 / Peking University, Beijing / Chinese University of Hong Kong – Tsinghua University Joint Research Center for Chinese Economy, the Institute for Emerging Market Studies at Hong Kong University of Science and Technology, the Guanghua School of Management at Peking University, the Stanford Center on Global Poverty and Development at Stanford University, the School of Economics and Management at Tsinghua University, BREAD, NBER and CEPR
  • 19 - 20 August 2019 / Vienna, Palais Coburg / WU Research Institute for Capital Markets (ISK)
  • 29 - 30 August 2019 / Galatina, Italy /
  • 4 - 5 September 2019 / Roma Eventi, Congress Center, Pontificia Università Gregoriana Piazza della Pilotta, 4, Rome, Italy / European Center of Sustainable Development , CIT University
  • 9 - 14 September 2019 / Guildford, Surrey, UK / The University of Surrey

CEPR Policy Research