Föhrenbergkreis Finanzwirtschaft

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Posts Tagged ‘voxeu’

Southern European and emerging market firms are under severe distress

Posted by hkarner - 7. Mai 2020

Erica Bosio, Simeon Djankov 06 May 2020, voxeu

Researcher, World Bank Group

Policy Director, Financial Markets Group, London School of Economics

Businesses are rapidly running out of cash. In the US, firms have cash reserves to last anywhere between three weeks and six months. Restaurants, for example, have less than a month of cash on hand (Didier et al., 2020). Den Rest des Beitrags lesen »

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The IMF at 75: Reforming the global reserve system

Posted by hkarner - 20. April 2019

José Antonio Ocampo 08 April 2019, voxeu

Member of the Board of Directors of Banco de la República; Professor of Professional Practice in International and Public Affairs, Columbia University (on leave)

The 75th anniversary of the Bretton Woods agreement is a good time to rethink the role the institutions created at the time should play in today’s world. In the case of the IMF, there are four central issues to consider:

  1. the global reserve system (the way international liquidity is provided);
  2. managing the macroeconomic linkages among different economies, including the exchange rate system;
  3. balance-of-payments crisis prevention and resolution, including in the first case rules for capital account management; and
  4. improving governance of the international monetary system, to develop a more inclusive system and appropriate links between the IMF and regional and interregional monetary arrangements (i.e. the design of the Global Financial Safety Net). Den Rest des Beitrags lesen »

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Public debt through the ages

Posted by hkarner - 2. April 2019

Barry Eichengreen, Asmaa El-Ganainy, Rui Esteves, Kris Mitchener 01 April 2019, vox.eu

Sovereign debt is a Janus-faced asset class. In the best of times, it relaxes the domestic constraint on saving, smooths consumption, and finances investment. Investors see it as a safe haven, as delivering ‘alpha’, and as a means of portfolio diversification. In the worst of times, it is associated with debt overhangs, banking collapses, exchange rate crises and inflationary explosions.

In a world still reeling from the Global Crisis, the policy debate has been dominated by the downside risks from excessive debt accumulation – be these growth slowdowns (Panizza and Presbitero 2013), financial instability (Brunnermeier et al. 2016), or debt default (IMF 2013, Eichengreen et al. 2018), although now there may be renewed appreciation of the uses and scope for accumulating debt (Blanchard 2019). Den Rest des Beitrags lesen »

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Brexit: Blame it on the banking crisis

Posted by hkarner - 19. Januar 2019

Nicholas Crafts 15 January 2019, vox.eu

Professor of Economics and Economic History at the University of Warwick and CEPR

The banking crisis of ten years ago was a serious policy failure (Independent Commission on Banking 2011). Leverage increased dramatically from the late 1980s to the crisis while loss-absorbing equity capital was inadequate. Regulation that addressed these issues could have maintained financial stability at minimal cost to economic growth (Miles et al. 2013).

The banking crisis was damaging in many ways, most obviously through the output and fiscal costs of the recessionary shock that it imposed on the economy. The key point for the argument of this column is that it reduced the level of potential output in the economy and accordingly raised the structural budget deficit. This effect comes through decreases in capital, human capital and total factor productivity. A conventional estimate might be that the crisis of ten years ago probably reduced the level of potential output in the UK by somewhere between 3.8% and 7.5% (Table 1).

Table 1 Estimates of the impact of the banking crisis on the level of UK potential output (% GDP) Den Rest des Beitrags lesen »

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Financial supervisory architecture since the Global Crisis: Supervisory models remain diverse, but more powers for central banks

Posted by hkarner - 7. Dezember 2018

Daniel Calvo, Juan Carlos Crisanto, Stefan Hohl 23 November 2018, vox.eu

Daniel Calvo, Senior Economist, Central Bank of Chile
Juan Carlos Crisanto, Deputy Chair of the Financial Stability Institute, Bank for International Settlements
Stefan Hohl, Senior Advisor, Financial Stability Institute, Bank for International Settlements

Following the Global Crisis, a number of significant regulatory reforms have helped to improve both crisis prevention and crisis management systems. Yet an effective financial supervisory architecture is essential to optimise the positive effect of the post-crisis reforms. When referring to a financial supervisory architecture, we mean an institutional supervisory setup that: (i) assigns specific functions to individual financial authorities; (ii) establishes coordination and cooperation mechanisms among those authorities; and (iii) specifies other approaches and arrangements to avoid potential conflicts of mandates. Deciding on the above institutional issues generally entails trade-offs between synergies across functions and potentially conflicting goals. In addition, the choices are influenced by the structure of the financial sector, past experience with financial crises, and legal, historical, cultural and political economy considerations. Moreover, the effectiveness of a financial supervisory architecture is very much related to the financial authorities’ ability to act with clear objectives, operational autonomy, comprehensive and effective powers, sufficient resources and adequate incentives.  Den Rest des Beitrags lesen »

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Bank resolution and the structure of global banks

Posted by hkarner - 10. August 2018

Patrick Bolton, Martin Oehmke 01 August 2018, vox.eu

Barbara and David Zalaznick Professor of Business, Columbia University

Associate Professor of Finance, London School of Economics

How should prudential regulators deal with global banks that are ‚too big to fail‘? Many see bank resolution as the key element in dealing with this challenge (FDIC and Bank of England 2012, Financial Stability Board 2014). The main idea is that global systemically important banks (G-SIBs) should issue ‚total loss absorbing capital‘ (TLAC) in the form of subordinated long-term debt or equity. These securities would be issued to absorb losses and recapitalise the institution in resolution, with minimal disruption to the bank’s operations and without public support.

But what should these resolution frameworks look like? More importantly, would they work? Much hinges on this question, given that there are currently around thirty G-SIBs, with total exposures equal to more than 75% of global GDP in 2014.

Global and local

In our recent work (Bolton and Oehmke 2018), we provide a framework to assess the key trade-offs in cross-border resolution of global banks. The main difficulty in designing effective resolution regimes is the mismatch between their global nature and the national scope of the regulators charged with carrying out their resolution.  Den Rest des Beitrags lesen »

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Next steps after the Euro Summit

Posted by hkarner - 16. Juli 2018

Agnès Bénassy-Quéré, Markus K Brunnermeier, Henrik Enderlein, Emmanuel Farhi, Marcel Fratzscher, Clemens Fuest, Pierre-Olivier Gourinchas, Philippe Martin, Jean Pisani-Ferry, Hélène Rey, Isabel Schnabel, Nicolas Véron, Beatrice Weder di Mauro, Jeromin Zettelmeyer 10 July 2018, vox.eu

This column is a lead commentary in the VoxEU Debate „Euro Area Reform

The outcome of the Euro Summit of 29 June regarding the reforms of the euro area’s architecture disappointed observers who had hoped it would provide decisions along the lines of the Meseberg declaration by German Chancellor Angela Merkel and French President Emanuel Macron. Yet the statement is a constructive first step and has substantial symbolic value as it crosses red lines that were considered taboos only a few months ago. It is important to use this momentum to finalise the promised reforms as well as to break further taboos in order to move towards a stable monetary union.

Despite the summit statement’s brevity, there are several positive elements. Europe’s political leaders seem to have understood that fixing the euro area’s banking system remains a high priority – most of the statement is devoted to this. The firm commitment to a backstop from the European Stability Mechanism (ESM) for bank crisis resolution is an important stabilising element. Given the strong opposition in Germany, the explicit reference to a European Deposit Insurance Scheme (EDIS) after a sufficient reduction of legacy risks in banks, made for the first time ever at the Leaders’ level, breaks an important taboo and is a step in the right direction of both risk reduction and risk sharing. Den Rest des Beitrags lesen »

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A plan to save the euro

Posted by hkarner - 29. Mai 2018

Jeffry Frieden 22 May 2018, voxeu

Professor at Harvard University’s Department of Government

The mismanagement of the euro area debt crisis has been the gravest failure in the history of European integration. Inaction, misguided action, contradictory policies, and political conflict turned a manageable debt problem into a decade of economic stagnation, social upheaval, and political protest.

The economic and social impact of this bungled crisis has contributed mightily to the rise of populist movements that challenge the euro, and European integration more generally (see Algan et al. 2017 for one among many surveys).

For the euro area to be stable and move forward productively requires substantial improvements in its operation. It is unlikely that the euro could survive another crisis like the one from which it is just (barely) emerging.

This makes it particularly important to evaluate the proposal from 14 leading French and German economists to reform the euro area in a way that they say combines risk-sharing and market discipline (Bénassy-Quéré et al. 2018). It also makes it particularly important to understand the political need for reform, and the political conditions any meaningful reform has to address in order to be successful.

There are several points worth making if we want to understand the current political economy of euro area reform. Den Rest des Beitrags lesen »

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Completing Europe’s Banking Union means breaking the bank-sovereign vicious circle

Posted by hkarner - 17. Mai 2018

Isabel Schnabel, Nicolas Véron 16 May 2018, vox.eu

This column is a lead commentary in the VoxEU Debate „Euro Area Reform

Several euro area leaders, including the German chancellor, her finance minister, and the French president, have recently referred to the need to “complete the Banking Union”. These public calls echo those made in more formal settings, in intergovernmental meetings (European Council 2014) and in European Commission communications (European Commission 2015) over the last half decade. They inevitably raise the question of what criteria should be used to assess the Banking Union’s completeness. A narrow interpretation, based on euro area leaders’ past commitments, equates it with breaking the bank-sovereign vicious circle; a more ambitious long-term vision for complete Banking Union implies the removal of all cross-border distortions within the euro area banking market. Even the minimalist version, however, entails more reforms than those publicly under current consideration.  Den Rest des Beitrags lesen »

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Euro area reform: No deal is better than a bad deal

Posted by hkarner - 17. Mai 2018

Professor for Monetary Policy and International Economics at the University of Wuerzburg, member of the German Council of Economic Experts and CEPR Research Fellow

Peter Bofinger 15 May 2018, vox.eu

This column is a lead commentary in the VoxEU Debate „Euro Area Reform

A team of prominent French and German economists have presented a paper which they regard as “a game changer for the euro area” (Benassy-Quéré et al. 2018). Their proposals have initiated an intensive debate (Bini Smaghi 2018, Micossi 2018, Buti et al. 2018, Pisani-.Ferry and Zettelmeyer 2018).

While several shortcomings of CEPR Policy Insight 91 have already been discussed, in this column I argue that the specific insolvency risk of euro area membership is the main risk that should be covered by a joint risk sharing. The authors‘ modest proposals for a public and private risk sharing are insufficient in this regard. With a strengthening of market discipline, this risk could even be increased. So far, there is little evidence that financial markets could play a stabilising role in the euro area. The proposal for an expenditure rule has its merits as it focuses on a target which governments can control effectively. But it requires a sensible debt-to-GDP target, for which the completely arbitrary 60% value of the Maastricht Treaty should not be slavishly adopted. For a productive compromise between France and Germany, the German side has to take the first step by allowing at least some debt financing of public investments within the fiscal framework of the euro area.  Den Rest des Beitrags lesen »

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