Lars Frisell, 07 November 2012

Measuring financial risk is difficult. But what lessons, if any, have we learnt from the current crisis? This column argues against a move to leverage ratios and instead proposes continuing to measure financial risk (despite the difficulties), but with higher capital charges for banks. Focusing on the basics can only bolster central banks’ ability to fulfil their duties – looking for imbalances, and promptly tackling them with informed decisions.

Ian Tonks, 08 January 2012

Ever since the fall of Lehman Brothers, it has been a popular view – and one increasingly held by officials – that banker bonuses are at least partly to blame. This column compares executive pay in banks with other companies and finds, contrary to the growing consensus, that the financial sector differs not so much in its reward for taking risks, but in its reward for expansion.

Jeffrey Frankel, Carlos Vegh, Guillermo Vuletin, 23 June 2011

With the ongoing financial turmoil in Europe, many emerging market countries are now deemed less risky than so-called “advanced” countries. This column examines why this is the case and finds that the cyclicality of a country’s fiscal policy – a sign of its riskiness – is inversely correlated with the quality of the country’s institutions.

Enrico Perotti, Mark Flannery, 09 February 2011

Contingent Convertible (CoCo) bonds have been suggested as a way to ensure that banks keep aside enough capital to help them through financial crises. This column proposes a market-triggered CoCo buffer to maintain risk incentives during periods of high leverage. It argues that this will also activate risk information discovery through the market prices of bank securities and increase activism by outside shareholders.

Dimitri Vayanos, Denis Gromb, 10 April 2010

Why do financial market anomalies arise and persist? This column summarises a new thread in financial economics – the "limits of arbitrage" literature – explaining how financial institutions sometimes lack the capital needed to arbitrage away anomolies. This new approach has far-reaching implications for our understanding of how financial markets work and how they should be regulated.

Avinash Persaud, 13 June 2009

There is a strong consensus that banks had insufficient reserves set aside for a rainy day and that they should be required to hold more capital. This column says we should differentiate institutions less by what they are called and more by how they are funded. Encouraging individual risks to flow to those who can absorb them would make the system safer and introduce new players with risk capacities.

Jon Danielsson, Con Keating, 25 May 2009

Bank bonuses have been blamed for contributing to the crisis, and regulators and politicians are now demanding changes in compensation arrangements. Most of these calls are based on a misconception of the nature of financial risk, an inflated view of the efficacy of risk models, and an incorrect view of the incentive issues facing financial institutions. This column proposes reforms that would discipline senior managers by exposing them to the dangers of junior managers’ risk taking.

Jon Danielsson, 25 March 2009

Many are calling for significant new financial regulations. This column says that if the “regulate everything that moves” crowd has its way, we will repeat past mistakes and impose significant costs on the economy, to little or no benefit. The next crisis is years away – we have time to do bank regulation right.

Hyun Song Shin, 18 March 2009

Did securitisation disperse risks? This column argues that it undermined financial stability by concentrating risk. Securitisation allowed banks to leverage up in tranquil times while concentrating risks in the banking system by inducing banks and other financial intermediaries to buy each other’s securities with borrowed money.

Monika Bütler, 13 February 2009

Pension system reforms have increased individual choice and individual risk. This column says that the current crisis proves that those reforms exposed individuals to too much risk. It argues for greater use of intergenerational transfers and says that it would be better if retirement plans were treated as insurance rather than pure investment decisions.

Jon Danielsson, 05 January 2009

Much of today’s financial regulation assumes that risk can be accurately measured – that financial engineers, like civil engineers, can design safe products with sophisticated maths informed by historical estimates. But, as the crisis has shown, the laws of finance react to financial engineers’ creations, rendering risk calculations invalid. Regulators should rely on simpler methods.

Roland Spahr, 18 November 2008

Globally integrated countries have suffered heavily from highly volatile stock markets during the current crisis. This column argues that globalised countries enjoy lower stock market risk in good times, but they suffer just as much in crises. Moreover, the transition to openness breeds financial instability. Policymakers need ways to manage these risk concerns.

Thomas Dohmen, Armin Falk, David Huffman, Uwe Sunde, 05 July 2008

Departing from the practice of treating attitudes as a black box, economists are beginning to study the process through which attitudes are formed. New evidence shows that parents pass on risk and trust attitudes to their children, with important implications for understanding persistent differences in economic outcomes across and within countries.

Momtchil Pojarliev, Richard Levich, 16 February 2008

Professional currency trading managers earn large fees. This column summarises research evaluating their performance and identifies a select group of traders whose achievements may warrant their wages.

Richard Portes, 22 January 2008

Recent financial market troubles highlight a number of problems with the credit ratings agencies. This column argues only a few of the proposed policy solutions are likely to be both feasible and helpful.

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