Luis Garicano, Jesus Saa-Requejo, Tano Santos, 06 October 2020

One lasting effect of the Global Crisis and the Covid-19 crisis will be a large increase in general government debt worldwide. This may lead to a scenario of ‘fiscal dominance’, in which expansionary fiscal policies are combined with accommodating monetary policies to alleviate the debt burden. This column argues that such a situation would put central banks in a precarious position of having to contain inflationary pressures and maintain financial stability. Expanding the independence of central banks and reaffirming the commitment to fighting inflation may be necessary in case of an unexpected inflation shock. 

Signe Krogstrup, Andreas Kuchler, Morten Spange, 02 October 2020

Negative policy rates are controversial and raise questions about their transmission to the economy and financial markets. This column presents emerging evidence from Denmark, where the central bank's objective of maintaining a fixed exchange rate against the euro means that the key policy rate has been negative almost continuously since 2012. Recent and ongoing analyses suggest that the transmission is working well under negative rates, although pass-through to bank lending rates appears to be slower compared with periods of positive policy rates.

David Martinez-Miera, Rafael Repullo, 06 August 2020

The question of whether low interest rates foster or hamper financial stability has recently received ample attention both from policy as well as the academic circles,  leading to the development of a large, mostly empirical, literature on the topic. This column presents a framework to analyse the relevance of the financial sector’s market structure in answering this question. It shows that in markets with low competition lower safe rates result in less risk-taking by financial intermediaries, while in highly competitive markets lower safe rates result in higher risk-taking.

Henk Jan Reinders, Dirk Schoenmaker, Mathijs van Dijk, 13 July 2020

The severe economic impact of the COVID-19 pandemic could threaten financial stability. Since accounting-based methods report loan losses with a delay, this column adopts a real-time, market-based assessment of the impact on corporate loan portfolios. Using European stock market data, it estimates that the market-implied losses for euro area banks could reach over €1 trillion, or, depending on the scenario, 7-43% of available bank capital.

Arnoud Boot, Elena Carletti, Hans‐Helmut Kotz, Jan Pieter Krahnen, Loriana Pelizzon, Marti Subrahmanyam, 25 April 2020

The involvement of the EU in fighting the detrimental consequences of the Covid crisis has to be increased. This column expands on an earlier proposal for a European Pandemic Equity Fund – a programme of government assistance for firms hurt by the crisis in the EU – and discusses the principles and conditions relevant for the operationalisation of such a fund.

Enrico Perotti, 27 March 2020

Enrico Perotti tells Tim Phillips that while regulatory reform means that banks are unlikely to be at risk, the coronavirus shock poses a serious liquidity risk for the shadow banking sector, where significant funding has been extended on the basis of cash flow rather than real collateral. Avoiding financial panic is key, and will require liquidity support as well as targeted fiscal measures.

Enrico Perotti, 27 March 2020

Years of quantitative easing by the ECB have suppressed sovereign yields to historic lows. This has contributed to a shadow banking boom, as market participants invested heavily in various private asset constructions. This column argues that the coronavirus shock poses a serious liquidity risk for the shadow banking sector, where significant funding has been extended on the basis of cash flow rather than real collateral. Avoiding financial panic is key, and will require liquidity support as well as targeted fiscal measures. 

Arnoud Boot, Elena Carletti, Hans‐Helmut Kotz, Jan Pieter Krahnen, Loriana Pelizzon, Marti Subrahmanyam, 25 March 2020

The COVID-19 pandemic has massive detrimental economic effects and demands immediate policy actions to prevent a financial or debt crisis. This column argues that while the fiscal policy responses in Europe have some merit in the short term, they put financial stability in the longer run at risk. It calls for a coordinated long-term fiscal plan at the pan-European level to complement national measures. 

Martin Hodula, 16 March 2020

The shadow banking system has become an important source of funding worldwide for the real economy over the last two decades. Europe is no exception, though research on shadow banking there has been relative scarce. This column shows that European shadow banking is highly procyclical, intertwined with insurance corporations and pension funds, and a terminal station for regulatory arbitrage. It also discusses the existence of two main motives that explain the growth of shadow banking, both prior and post-Global Crisis: a funding-cost motive and a search-for-yield motive. 

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The question whether active portfolio management can systematically improve a portfolio’s return has been debated for long. The rise of low-cost ETFs, FinTech and AI has been reinforcing pressures on active portfolio managers to prove the value for money of their service. At the same time, the financial crisis and the rise of populist policies have highlighted the importance and the potential benefits for portfolio performance from anticipating low-probability high-impact events. Furthermore computer trading and AI-assisted portfolio analysis and investment strategies are making fast progress, reducing the cost of “active” management strategies in the future. From a financial stability perspective, the widespread use of similar passive management strategies or similar forms of portfolio investment algorithms may generate synchronous behaviour, reinforce price fluctuations and pose risks to financial stability. The large scale of ETF markets may also make potential instability from this sector systemically important.

Anil Kashyap, Benjamin King, 28 October 2019

There are still remarkable gaps in the data available on the overall structure of the financial systems of major economies. This column presents rough estimates for the UK and the US that suggest some surprising structural differences between the two systems and which point to areas where better measurement is needed. The authors note that there is a strong case for policymakers to think about the system as an interconnected whole, rather than as a set of distinct sectors to be regulated in isolation.

Miguel Ampudia, Thorsten Beck, Andreas Beyer, Jean-Edouard Colliard, Agnese Leonello, Angela Maddaloni, David Marques-Ibanez, 20 September 2019

The decade since the Global Crisis has seen notable changes in the architecture of supervision, with separation of responsibility for monetary and financial stability having been reversed in many countries on the one hand, and a move towards more cross-border cooperation between supervisors on the other. This column discusses these two trends in Europe, where responsibility for supervision of the largest banks is housed in the same authority with responsibility for monetary policy, the ECB. It argues that the Single Supervisory Mechanism is a good reflection of the subtle economics of supervisory architecture and the many trade-offs that have to be taken into account.

Thorsten Beck, Consuelo Silva-Buston, Wolf Wagner, 04 September 2019

Following the Global Crisis, countries have significantly increased their efforts to cooperate on bank supervision, the prime example being the euro area’s Single Supervisory Mechanism. However, little is known about whether such cooperation helps improve the stability of the financial system. Using panel data for a large sample of cross-border banks, this column examines whether a higher incidence of supervisory cooperation is associated with higher bank stability. It finds that supervisory cooperation is effective, working through asset risk, but not for very large banks, which are the ones that pose the highest risk to financial stability.

Patrick Bolton, Stephen Cecchetti, Jean-Pierre Danthine, Xavier Vives, 03 June 2019

While the decade since the Global Crisis has seen clear improvements in financial regulation and supervision, there is still work to be done in several crucial areas, and political constraints may bite.This column introduces the first report in a new series on ‘The Future of Banking’, which tackles three important areas of post-crisis regulatory reform: the Basel III agreement on capital, liquidity and leverage requirements; resolution procedures to end ‘too big to fail’; and the expanded role of central banks with a financial stability remit.

Thorsten Beck, Liliana Rojas-Suarez, 04 May 2019

The Global Crisis originated in the financial systems of advanced countries, so it is unsurprising that the Basel III international standards focused on the stability needs of these countries. This column assesses the implications of Basel III for emerging markets and developing economies. It also outlines the recommendations from a task force of current and former senior officials from central banks in these countries on how to make Basel III work for them.  

David Martinez-Miera, Rafael Repullo, 27 March 2019

Various factors have been advanced as possible causes of the build-up of risks leading to the Global Crisis, and multiple policies have been put forward to address them. This column discusses the effectiveness of monetary policy and macroprudential policy in responding to the build-up of risks in the financial sector. While both policies are useful, macroprudential policy is more effective in terms of financial stability and can lead to higher welfare gains.

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Submissions are sought on the following themes:
• Digital currencies, fintech, and technology
• Regulation, markets, and financial intermediation
• International economics
• Macroeconomics, monetary policy, macrofinance, monetary policy frameworks, and communication
• Inflation dynamics
• Policy lessons from the history of finance and central banking
The deadline for submissions is Saturday, February 2nd.
The meeting commences on Thursday, July 18 at the FRB New York, featuring presentations by Nellie Liang and Jeremy C. Stein, and John C. Williams.
The 31 contributed sessions take place on Friday and Saturday, July 19-20 at the Kellogg Center, SIPA, Columbia University. Contributed sessions are organized by BIS, FSB, IMF, SNB, FRB St. Louis, Bank of Israel, FRB Cleveland, ECB, Riksbank, FRB San Francisco, Norges Bank, Bank of Spain, Bank of Japan, Bank of Canada, Bank of Korea, OeNB, FRB Minneapolis, Bundesbank, Central Bank of Ireland, SAFE, CEPR, ABFER, and IBRN.

Meghana Ayyagari, Thorsten Beck, Maria Soledad Martinez Peria, 11 December 2018

Macroprudential tools have been implemented widely following the Global Crisis. Using data from 900,000 firms in 49 countries, this column finds that such policies are associated with lower credit growth during the period 2003-2011. The effects are especially significant for micro, small and medium-sized enterprises and young firms that are more financially constrained and bank dependent. The results imply a trade-off between financial stability and inclusion.

Alex Brazier, 26 October 2018

Thanks to transformative post-crisis reforms, the financial system is safer and simpler than it was a decade ago. But the structure of the system continues to evolve, partly in reaction to those reforms. Economies are now more reliant on market-based finance. This column argues that to deliver the macroprudential objective of a system that is able to serve households and businesses in bad times as well as good, policymakers must run stress simulations on systemic markets as well as systemic banks, and take pre-emptive corrective action where necessary.

Moreno Bertoldi, Paolo Pesenti, Hélène Rey, Petr Wagner, 20 July 2018

Ten years after the global crisis, transatlantic relationships are at a crossroads. This column summarises a conference jointly organised by the New York Fed, the European Commission, and CEPR at which the participants discussed the strength of current growth prospects and the likelihood of inflation remaining subdued in advanced economies, and whether the current regulatory and policy frameworks are well suited to supporting financial stability and growth. One conclusion was while an escalation in trade tensions between the US and EU would have significant economic consequences on both sides of the Atlantic, this is not a foregone conclusion and there is room to uphold and strengthen the transatlantic relationship.

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