Jane Kelly, Julia Le Blanc, Reamonn Lydon, 25 November 2018

Loan-to-value limits and other borrower-based macroprudential measures are now used in two-thirds of advanced economies. This column uses survey data to document changes in credit standards in a cross-section of countries in the run-up to, and aftermath of, the financial crisis. There is clear evidence of laxer credit standards in countries that experienced a real estate boom-bust, and a significant tightening after the bust. The results imply that compared to earlier years, younger and lower-income borrowers have to save for longer before buying.

Björn Richter, Moritz Schularick, Ilhyock Shim, 21 September 2018

Central banks have increasingly relied on macroprudential measures to manage the financial cycle, but their effects on the core objectives of monetary policy to stabilise output and inflation are largely unknown. This column shows that the output costs of changes in maximum loan-to-value ratios are rather small, especially in advanced economies. At the same time, such policies successfully reduce household and mortgage credit growth. The results suggest that central banks could be in a position to use macroprudential instruments to manage financial booms without interfering with the core objectives of monetary policy in a major way. 

Eugenio Cerutti, Stijn Claessens, Luc Laeven, 18 September 2018

The Global Crisis was a catalyst for the adoption of macroprudential policies around the world. Using newly updated data, this column examines the adoption of macroprudential policy instruments from 2000 to 2017. Since 2015, advanced economies have on average been using more instruments than emerging economies and low-income countries. While some instruments seem to be effective, it remains to be seen whether this suite of policies can deliver overall financial stability.

Jon Danielsson, Robert Macrae, 12 September 2018

Financial policy is determined in multiple domains by separate government authorities. This column explores the hierarchical ranking of these domains and authorities. On top is the authority in charge of fiscal policy, followed by those running monetary, microprudential, and finally macroprudential policies. This ranking can cause conflicts in terms of policy effectiveness and legitimacy.

Jon Danielsson, 03 July 2018

Jin Cao, Valeriya Dinger, 03 May 2018

The effectiveness of monetary policy in dictating banking activities is one of the keys to understanding how efficient monetary policy is in tuning the real economy. This column uses data on Norwegian banks to show that efficiency may be eroded by international financial flows in a small open economy. This raises several challenges for central banks and financial regulatory agencies in such economies.

Irina Stanga, Razvan Vlahu, Jakob de Haan, 15 March 2018

Mortgage delinquency triggered the liquidity crisis that turned into the Global Crisis. Ten years on, mortgage lending still accounts for a large share of both household debt and banks’ assets. This column examines the incidence of mortgage arrears using a dataset for 26 countries from 2000 to 2014. The results show that higher unemployment is associated with an increase in defaults, while higher house prices have a strong negative association with defaults. The analysis suggests that dealing effectively with mortgage default requires a mix of prudential regulation and institutional design improvements.

Natalia Tente, Natalja von Westernhagen, Ulf Slopek, 06 December 2017

Regulators are still debating the amount of capital needed to support bank losses in a financial crisis. This column presents a new, pragmatic stress-testing tool that can answer the question under macroeconomic stress scenarios. The method models inter-sector and inter-country dependence structures between banks in a holistic, top-down supervisory framework. A test of 12 major German banks as of 2013 suggests that while there is enough capital in the system as a whole, capital allocation among the banks is not optimal.

Yener Altunbaş, Mahir Binici, Leonardo Gambacorta, Andres Murcia, 05 December 2017

The main objective of macroprudential tools is to reduce systemic risks – in particular, the frequency and depth of financial crises. Most studies look at the impact of macroprudential measures on credit growth, focusing on country-wide data or bank-level information. This column presents new evidence using credit registry data at the bank-firm level to evaluate the impact on bank risk measures. Results show that macroprudential tools help stabilise credit cycles and contain bank risk.

Yener Altunbaş, Simone Manganelli, David Marques-Ibanez, 14 November 2017

Prudential supervision of banks has increasingly relied on capital requirements. But bank capital played a relatively minor role in predicting bank solvency during the Global Crisis, except for scarcely capitalised banks. This column argues that while capital is a helpful tool to support bank financial stability, it is complex for supervisors to calibrate it precisely. Macroprudential authorities should be able to complement capital-based tools with additional, borrower-based prudential instruments.

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This advanced course focuses on financial and prudential aspects of the shadow banking sector, with some attention to its legal underpinnings.

This course will focus on:
- Shadow banking as a financial segment that expands and contracts credit outside the regulatory perimeter.
- Key elements of shadow banking regulation, emerging issues related to macro-prudential policy.
- European (as well as some US) legislation on insurance companies, money mutual funds and central clearing platforms for derivatives.
- Review of typical shadow banking funding and lending strategies.

Course Instructors: Enrico Perotti, Bart Joosen and Roger Laeven (University of Amsterdam); Iman van Lelyveld (Free University of Amsterdam and DNB)
Area: Financial Stability and Regulation
Level: Intermediate

Further information and registration: http://fbf.eui.eu/training/regulation-shadow-banks/
Registration deadline: 9 October 2017

Ed Balls, Anna Stansbury, 01 May 2017

Until recently, the independence granted to the Bank of England 20 years ago had gone unchallenged. But the financial crisis has raised questions over whether central bank independence is necessary, feasible, and democratic. This column revisits the relationship between inflation and the operational and political independence of the central bank in advanced economies. The findings support the Bank of England model of monetary policy independence: fully operationally independent, but somewhat politically dependent. To make operational independence work, however, further reforms are needed to the model in both monetary–fiscal coordination and macroprudential policy.

Domenico Lombardi, Pierre Siklos, 11 April 2017

Macroprudential policies increasingly lie at the heart of how central banks jointly manage of price and financial stability. However, consensus over best practice has yet to emerge. This column presents an improved indicator to measure individual economies’ macroprudential policy capacity. Improvements include incorporating the shadow banking sector, and distinguishing the types of institutions that wield authority. Results suggest that improvements continue to be made with respect to the development of an international financial system with improved resilience to shocks. 

Aida Caldera, Alain de Serres, Filippo Gori, Oliver Röhn, 28 March 2017

Severe recessions have been frequent among OECD countries over the past four decades. This column explores the implications of various broad types of policy to minimise the risk and frequency of such episodes for the trade-off for the growth-fragility nexus. Product and labour market policies improve growth but are essentially neutral with regards to economic risks, while better quality institutions increase both growth and economic stability. Macroprudential and financial market policies, on the other hand, entail a trade-off between growth and risk.

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The conference will last for a day and a half and we envisage that it will consist of twelve papers with discussants. We are looking for high quality research papers in macroeconomics that may help to guide macroeconomic and/or macroprudential policy. We are particularly interested in models that explore the role of behavioural economics and models of multiple equilibrium. Papers may be theoretical or empirical and preference will be given to papers that are imaginative and in an early stage of development. 

Keynote speakers: James Bullard (President, St Louis Federal Reserve), Andy Haldane (Bank of England) and Michael Woodford (Columbia)

The deadline for paper submissions is 31 March 2017

Lars E.O. Svensson, 24 January 2017

The IMF and the Federal Open Market Committee have both suggested that the costs of ‘leaning against the wind’ exceed the benefits. This column responds to claims that the results of the author's research backing up this conclusion could be overturned. It argues that the alternative assumptions necessary to overturn the result are unrealistic, and that the finding that the costs of the policy exceed the benefits therefore seems to be robust.

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.

Xavier Vives, 06 December 2016

As with previous systemic crises, the 2007-2009 crisis has created regulatory reform, but is it adequate? This column argues that prudential regulation should consider interactions between conduct – capital, liquidity, disclosure requirements, macroprudential ratios – and structural instruments, and also coordinate with competition policy. Though recent reforms are a welcome response to the latest crisis, we do not know how effective they will be in future.

Domenico Lombardi, Pierre Siklos, 07 November 2016

After the 2008 Global Crisis, there has been progress towards a system-wide regulatory architecture that includes a national macroprudential authority. This column describes a ‘capacity indicator’ that measures the state of macroprudential policies worldwide, including the features policymakers believe constitute a successful macroprudential policy regime. Eventually this index may be used to establish whether these macroprudential policy innovations have been successful.

Paul Tucker, 28 September 2016

The objective of financial stability policy is unclear. Is it the resilience of the financial system, avoiding the costs of systemic collapse, or managing the credit cycle, containing the costs of resource misallocation and over-indebtedness? This column argues that the answers have serious implications for what can decently be delegated to independent ‘macroprudential authorities’, but have barely been debated in those terms.

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