Financial crisis
Book notes: Shadow banking in China, by Andrew Sheng and Ng Chow Soon
The authors dispel many myths about shadow banking in China – but may underestimate future risks, writes Michael Taylor
Non-linear shocks create asymmetric policy impacts – paper
Bank of England working paper shows a shock to mortgage spreads has more of an impact on the real economy during periods of recession, with implications for policy
Task force launches climate disclosure recommendations
Mark Carney says better information will allow investors to “back their convictions with their capital”; Mary Schapiro says businesses will take the lead, even if politicians will not
BoE studies effects of capital requirements on balance sheets
After the financial crisis, banks placed more emphasis on asset deleveraging and adjusted their capital management practices
BIS economists model benefits of leaning against the wind
Endogenous model of financial crises points to benefits of using monetary policy to lean against financial imbalances, in contrast to many other studies
RBS falls short in latest Bank of England stress tests
Three banks show signs of “capital inadequacies” in the latest round of tests, with RBS forced to review its capital plan; Carney says global and domestic risk remains “elevated”, prompting the FPC to leave its buffer unchanged
Cœuré spells out ECB’s stance on Greek reforms
The Greek government must reform the legal process and status of banks, senior ECB figure says
Banks have still not fixed ‘poisonous mix’ of problems – BIS’s Borio
Claudio Borio warns that in some respects, banks have still not solved the problems revealed by the 2008 crisis, which leaves them vulnerable
Swiss paper shows macro impacts on two safe-haven currencies
Authors surprised to find no significant impact on franc or yen stemming from euro crisis; foreign macroeconomic data has asymmetric impact
Eurozone banks vulnerable to global risk repricing, ECB warns
US elections have “aggravated” risk of global repricing, which could trigger contagion in eurozone financial system, Vítor Constâncio says
Australasia has avoided stagnation trend – RBNZ’s Bascand
Different household behaviour in Australia and New Zealand appears to have contributed to higher growth and investment
Demands on central banks have created critical juncture – El-Erian
Economist says burden placed on central banks has created economic and political instability across the globe, and something must soon give
Bailouts more likely in unequal democracies – research
Accountable governments face pressure to preserve banks
Bank of Canada paper explains decision to dilute ELA solvency requirement
Economists say emergency liquidity can play an important role in a resolution process, which led the Bank of Canada to amend its rules to allow for temporary insolvency
Central banks should sacrifice some independence – Harvard economists
A group including the UK’s Ed Balls says central banks are losing legitimacy; handing over some “political independence” could reverse the trend without damaging policy outcomes
Market forces drive deleveraging as well as regulation – Caruana
BIS chief says markets are forcing discipline on banks, although he concedes regulation is playing a role as well; discussion participants point to tensions in regulatory framework
IMF paper seeks to quantify debt bias
Tax systems create “pervasive” debt bias, authors find, arguing for policy action before the problem worsens
BoE paper takes DSGE approach to deflation probabilities
Comparing simulations using a DSGE model estimated on different market-based measures of deflation probability helps to pick out causality, researchers say
Barro and Summers wrestle with productivity puzzle
Veteran economists seek to offer explanations and policy prescriptions for strong employment and weak growth in the US and elsewhere
ECB paper assesses influence of international linkages on length and severity of recession
Credit growth combined with other vulnerabilities is important, authors argue
Andrew Bailey looks to reboot UK conduct regulator’s ‘mission’
New chief executive seeks to clarify approach after stumbles in past years, admitting global understanding of conduct regulation still at an early stage
Bundesbank paper models spillover effects of risk shocks in financial crisis
Paper finds spillover effects of general risk are stronger than spillovers in response to bailouts
Bundesbank paper looks at financial shocks’ impact on inflation
Shocks that cause output and inflation to diverge can worsen trade-offs for central banks, paper says
Book notes: Achieving financial stability and growth in Africa, edited by Stephany Griffith-Jones and Ricardo Gottschalk
John Chown praises this comprehensive review that studies the possibility of achieving ‘the impossible’ in low-income Africa – both growth and financial stability