Sanjiv Das, Kris Mitchener, Angela Vossmeyer, 11 March 2019

The Global Crisis brought attention to how connections among financial institutions may make systems more prone to crises. Turning to a major financial crisis from the past, this column uses data from the Great Depression to study risk in the commercial banking network leading up to the crisis and how the network structure influenced the outcomes. It demonstrates that when the distribution of risk is more concentrated at the top of the system, as it was in 1929, fragility and the propensity for risk to spread increases.

Stefano Micossi, Ginevra Bruzzone, Miriam Cassella, 06 June 2016

Following the financial crisis, the EU banking system is still plagued by widespread fragilities. This column considers the tools and legal provisions available to EU policymakers to address moral hazard and incentives encouraging excessive risk-taking by bankers. It argues that the new discipline of state aid and the restructuring of banks provide a solid framework towards these ends. However, the application of new rules should not lose sight of the aggregate policy needs of the banking system. 

Kris Mitchener, Gary Richardson, 28 May 2016

The Global Crisis emphasised the fragility of international financial networks. Despite this, there has been little historical research into how networks propagate financial shocks. This column explores how interbank networks transmitted liquidity shocks through the US banking system during the Great Depression. During banking panics, the pyramided-structure of reserves forced troubled banks to reduce lending, thus amplifying the decline in investment spending. 

Michael Bordo, 23 April 2010

Michael Bordo of Rutgers University compares US banking panics in the early 1930s with panics in the shadow banking system and the repo market in 2007 and in investment banks and the universal banking system after Lehman failed. He argues that the bailouts of ‘too big to fail’ banks may lead to future crises, and discusses possible remedies. The interview with Romesh Vaitilingam was recorded at a conference on ‘Lessons from the Great Depression for the Making of Economic Policy’ in London in April 2010.

Lorenzo Cappiello, Marco Protopapa, Christoffer Sørensen, Arjan Kadareja, 03 March 2010

How important is credit availability to the real economy? This column examines evidence from the Eurozone and suggests that a change in loan availability has a positive and statistically significant effect on GDP. This provides support for the policies taken by central banks to alleviate pressures on the banking system.

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