Mattia Bevilacqua, Lukas Brandl-Cheng, Jon Danielsson, Jean-Pierre Zigrand, 28 January 2021

While the direct economic consequences of Covid-19 have been significant, the impact on the financial markets has been more nuanced. This column uses a unique data set on the financial markets’ fears and perceptions of long-run financial risk to identify how Covid-19, and particularly Fed policy responses to Covid-19, affected global market fears. While some Fed interventions had little or no impact on market fear, the most powerful were the US dollar swap lines, which strongly reduced the perceived likelihood of global market losses decades into the future. The results suggest that the Fed's relative global role has been strengthened, possibly at the cost of increased moral hazard.

Ozlem Akin, Christian Fons-Rosen, José-Luis Peydró, 29 October 2020

There are widespread concerns about potentially excessive connections between the financial sector and political institutions. Less is known about the intensity of information flows between the public and private sector. This column examines insider trading surrounding the largest bank bailout in history, the 2008 US Troubled Asset Relief Program. In politically connected banks, insider buying during the pre-TARP period is associated with increases in abnormal returns around bank-specific TARP announcements. Information transmission seems to be a third pillar of the mutually beneficial relationship between finance and politics, possibly allowing bankers to use their political connections for personal gain.

Charles Wyplosz, 04 June 2020

Within a few days of the publication of the first Vox eBook on Covid-19, the authorities came up with a raft of decisions that were coherent with the economists’ analyses. But there is a risk that moral hazard considerations derail the policy responses. This column, taken from the second Covid-19 eBook, argues that casting moral hazard aside will be the acid test of the ability of member countries of the euro area to coordinate in a meaningful way when needed.

Hamish Low, Luigi Pistaferri, 08 April 2020

Disability insurance programmes provide income replacement and medical benefits to workers who face major health shocks impeding their ability to work. The screening error of incorrect acceptance – where individuals who are not disabled are awarded benefits – and moral hazard have been well researched, but scant attention has been paid to incorrect rejection. Using US data, this column shows that the probability of being rejected when disabled varies with a host of observable characteristics. Most strikingly, truly disabled women are 20 percentage points more likely to be incorrectly rejected than observationally equivalent men.

Olena Havrylchyk, 11 December 2018

Lending-based crowdfunding platforms represent an opportunity for financial intermediation that is less leveraged, less prone to runs, and easier to resolve. This column reviews the regulatory regimes for such platforms in OECD countries and the European Commission’s proposal for the EU-wide passporting regime. Regulation requires a balance to be struck between a flexible approach that allows experimentation and strong supervision to address market failures. 

Joan Costa-Font, 04 October 2018

Many European countries are revisiting how best to finance long-term care, balancing financial sustainability and the economic welfare of households. Using examples of Spain and Scotland, this paper demonstrates that an expansion of public funding for long-term care has an effect on caregiving choices, household finances, and hospital care. Unconditional or cash subsidies may entail a ‘caregiving moral hazard’, but both cash and care subsidies can bring savings to the health system by reducing the frequency and intensity of hospitalisation. 

Dirk Schoenmaker, 17 April 2018

Deposit insurance, like any insurance scheme, raises moral hazard concerns. Such concerns arising from European deposit insurance can be alleviated through a country-specific component in the risk-based premium for deposit insurance and limits on sovereign bond exposures on bank balance sheets. This column, which forms part of VoxEU's Euro Area Reform debate, argues, however, that proposals to maintain national compartments in a new European Deposit Insurance Scheme are self-defeating, as such compartments can be destabilising in times of crisis.

Camille Landais, Arash Nekoei, J Peter Nilsson, David Seim, Johannes Spinnewijn, 03 February 2018

Unemployment insurance is compulsory in almost all countries, with no choice for workers over the level of coverage. But why restrict choice if it can improve the targeting of individuals who value the insurance the most? This column uses evidence from Sweden to examine whether the issue of adverse selection justifies a universal mandate for unemployment insurance. Workers who purchased more generous unemployment insurance were more than twice as likely to be unemployed in the following year. A universal mandate combats such adverse selection, but forces workers to buy insurance even when insurance costs are higher than the value they assign to it.

Niels Johannesen, Tim Stolper, 02 July 2017

Whistleblowing should improve immoral behaviour beyond the perpetrators exposed, according to standard economic theories of crime, but this has not always been the case. This column uses the example of offshore banking to examine whether whistleblowing successfully deters future immoral or criminal behaviour. Based on the evidence of the first whistleblowing event relating to tax evasion in 2008, an increase in the perceived probability of a leak should be expected to deter the demand and supply of criminal offshore banking services and reduce the earnings of offshore banks.


The objective of this course is to present empirical applications (as well as the research methodologies) of relevant questions for both banking theory and policy, mainly related to Systemic Risk, Crises, Monetary Policy and Risk taking behaviour. An important objective is to understand scientific papers in empirical banking; to accomplish this objective, emphasis is placed on illustrating research methodologies used in empirical banking and learning the application of these methodologies to selected topics, such as:

- Securities and credit registers; large datasets

- Fire sales, runs, market and funding liquidity, systemic risk

- Risk-taking and credit channels of monetary policy

- Moral hazard vs. behavioral based risk-taking

- Secular stagnation, banking and debt crises

- Interbank globalization, contagion, emerging markets, policy

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. 

Lars Feld, Christoph Schmidt, Isabel Schnabel, Volker Wieland, 07 September 2015

The Eurozone is weak. This column presents an analysis of its two prime weaknesses – the lack of economic and fiscal policy discipline leading to the build-up of huge public and private debt levels and a loss of competitiveness, and the lack of credible mechanisms for crisis response that would reign in moral hazard problems and establish market discipline. Completing the currency union’s architecture and achieving credibility for its rules are key, given the heterogeneity and rigidity of its member countries' economies.

Xavier Vives, 17 March 2015

The 2007–08 crisis revealed regulatory failures that had allowed the shadow banking system and systemic risk to grow unchecked. This column evaluates recent proposals to reform the banking industry. Although appropriate pricing of risk should make activity restrictions redundant, there may nevertheless be complementarities between these two approaches. Ring-fencing may make banking groups more easily resolvable and therefore lower the cost of imposing market discipline.

Dirk Niepelt, 21 January 2015

Recent experience with the zero lower bound on nominal interest rates, and the use of high-denomination notes by criminals and tax evaders, have led to revived proposals to phase out cash. This column argues that abolishing cash may be neither necessary nor sufficient to overcome the zero lower bound problem, and would severely undermine privacy. Allowing the public to hold reserves at central banks could reduce the need for deposit insurance, although the transition to the new regime and the effects on credit supply must be carefully considered.

Xavier Vives, 22 December 2014

Banking has recently proven much more fragile than expected. This column argues that the Basel III regulatory response overlooks the interactions between different kinds of prudential policies, and the link between prudential policy and competition policy. Capital and liquidity requirements are partially substitutable, so an increase in one requirement should generally be accompanied by a decrease in the other. Increased competitive pressure calls for tighter solvency requirements, whereas increased disclosure requirements or the introduction of public signals may require tighter liquidity requirements.

Claudio Michelacci, Hernán Ruffo, 18 November 2014

Like any insurance mechanism, unemployment benefits involve a trade-off between risk sharing and moral hazard. Whereas previous studies have concluded that unemployment insurance is close to optimal in the US, this column argues that replacement rates should vary over the life cycle. Young people typically have little means to smooth consumption during a spell of unemployment, while the moral hazard problems are minor – regardless of replacement rates, the young want jobs to improve their lifetime career prospects and to build up human capital.

Kuniyoshi Saito, Daisuke Tsuruta, 14 November 2014

In Japan, loans with 100% guarantees account for more than half of all loans covered by public credit guarantee schemes, but banks claim that they do not offer loans without sufficient screening and monitoring even if the loans are guaranteed. This column presents evidence of adverse selection and moral hazard in Japanese credit guarantee schemes. The problem is less severe for loans with 80% guarantees.

Bruno Biais, Jean-Charles Rochet, Paul Woolley, 21 August 2014

The Global Crisis has intensified debates over the merits of financial innovation and the optimal size of the financial sector. This column presents a model in which the growth of finance is driven by the development of a financial innovation. The model can help explain the securitised mortgage debacle that triggered the latest crisis, the tech bubble in the late 1990s, and junk bonds in the 1980s. A striking implication of the model is that regulation should be toughest when finance seems most robust and when innovations are waxing strongly.

Pierre-Cyrille Hautcoeur, Angelo Riva, Eugene White, 02 July 2014

The key challenge for lenders of last resort is to ameliorate financial crises without encouraging excessive risk-taking. This column discusses the lessons from the Banque de France’s successful handling of the crisis of 1889. Recognising its systemic importance, the Banque provided an emergency loan to the insolvent Comptoir d’Escompte. Banks that shared responsibility for the crisis were forced to guarantee the losses, which were ultimately recouped by large fines – notably on the Comptoir’s board of directors. This appears to have reduced moral hazard – there were no financial crises in France for 25 years.

Friðrik Már Baldursson, Richard Portes, 06 January 2014

In 2008, Icelandic banks were too big to fail and too big to save. The government’s rescue attempts had devastating systemic consequences in Iceland since – as it turned out – they were too big for the state to rescue. This column discusses research that shows how this was a classic case of banks gambling for resurrection.


CEPR Policy Research