Andrew Ellul, Chotibhak Jotikasthira, Anastasia Kartasheva, Christian Lundblad, Wolf Wagner, 05 June 2018

Systemic risk analyses have largely focused on the linkages among financial institutions’ funding arrangements, but there are increasing connections between insurers and the rest of the financial system. This column explores how systemic risk can originate from insurers’ business models. In the event of negative asset shocks, insurers’ collective allocation to illiquid bonds leads to an amplification of system-wide fire sales. These dynamics can plausibly erase up to 20-70% of insurers’ aggregate equity capital.

Charles Goodhart, 25 October 2017

How did banks respond to regulations following the crisis? Charles Goodhart stresses the need to incorporate the financial system in macroeconomic models. This video was recorded at the "10 years after the crisis" conference held in London, on 22 September 2017.

Hester Peirce, 10 April 2017

If the financial system doesn’t work, the rest of the economy doesn’t work. In this video, Hester Peirce discusses how the regulators’ role needs to be adjusted. This video was recorded at the American Economic Association in Chicago in January 2017.

Stephen Cecchetti, Kim Schoenholtz, 18 January 2017

‘Too big to fail’ is an enduring problem for financial authorities and regulators. While forbidding government bailouts may be a popular move, the strategy lacks credibility. This column examines the proposals of the Minneapolis Plan to End Too Big to Fail. The plan has many virtues that tackle systemic problems and that build on the Dodd-Frank Act’s crisis prevention and management tools. However, further analysis of the plan is still needed to ensure that its measures aren’t circumvented.

Jon Danielsson, Morgane Fouché, Robert Macrae, 10 June 2016

The threat to the financial system posed by cyber risk is often claimed to be systemic. This column argues against this, pointing out that almost all cyber risk is microprudential. For a cyber attack to lead to a systemic crisis, it would need to be timed impeccably to coincide with other non-cyber events that undermine confidence in the financial system and the authorities. The only actors with enough resources to affect such an event are large sovereign states, and they could likely create the required uncertainty through simpler, financial means. 

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. 

Christina Wang, 08 December 2011

The financial system is like an organ in the body of the economy. But is it the heart or the appendix? This column, part of the Vox Debate on whether we need a financial sector, argues that we should measure the value banks create through their management of risk, not simply their bearing of risk. Under this measure, banks may well be less valuable to the economy.

Events

CEPR Policy Research