Financial Stability
Central banks running out of room amid turbulence, BIS warns
Confidence in central banks is “faltering” as policies prove impotent, while negative rates erode bank profitability and debt levels weigh on global growth
Securitisation can dampen business cycles, paper finds
When securities are bought by ‘non-financial agents’ instead of financial intermediaries, they can help dampen rather than amplify cycles, research says
Report finds 11% of Rwandans remain financially excluded
Women and younger people more likely to be financially excluded; share of population excluded falls from 28% to 11%
Kaplan to ‘closely monitor’ debt and ageing demographics in line with growth
Dallas Fed president will also look to other major economies throughout 2016 for patterns that may affect growth; the Federal Reserve will need to be patient, he says
Central bank models need to adjust to nature of exchange rate pass-through, paper says
Exchange rate pass-through shown to be incomplete, endogenous, nonlinear and asymmetric; working paper seeks to quantify effect over time
External conditions move Bank of Mexico to lower growth forecasts
Central bank cuts growth forecasts for 2016/2017 by half a percentage point; global slowdown starting to have larger impact
‘Substantial drawbacks’ remain in European supervisory colleges’ work, EBA says
European supervisory colleges still have ‘substantial’ drawbacks in key aspects of their work, despite making improvements in 2015, the European Banking Authority says
Networks did not spread 2008 shocks in eurozone money market, paper argues
Banking networks in the eurozone did not play a major role in spreading shocks in the financial crisis, ECB working paper argues; eurozone banks are ‘not network dependent’
PBoC confirms Russian swap transactions
Chinese and Russian central banks disclose 'several currency swap trades' since October, but do not disclose further details
Sarb and Bundesbank expand co-operation
Annex to existing MoU will see Bundesbank representative based in the country; two central banks will work together on financial stability, among other issues
Cunliffe: UK housing risks back on the rise
BoE deputy governor says household balance sheets are “stretched” and some risks are growing; suggests dominance of debt as housing finance is undesirable, but unlikely to change
Lautenschläger says some leveraged finance practices need watching
ECB’s head of supervision notes increase in ‘covenant-lite’ deals
Dutch pension funds show signs of herding, paper says
Regulatory price of risk for different asset classes 'should be balanced', warns Dutch working paper, in light of herding behaviour
Book notes: The end of alchemy, by Mervyn King
King’s book on how to fix everything that is wrong with the financial and economic system lays out radical proposals that deserve serious consideration
Mervyn King calls for radical banking reform
Former Bank of England governor wants to curtail banks’ use of maturity transformation, putting the central bank’s lender-of-last-resort role at the heart of his new banking system
Research calls for better understanding of ML/TF risks in Islamic finance
Working paper published by International Monetary Fund warns there is ‘no common understanding’; some risks may be the same as in conventional finance, but some may not
Bank of Russia proposes regular stress tests for private sector pension funds
Russian central bank proposes making all private sector pension funds implement formal risk management plans, including monthly assessments and quarterly stress tests
Singapore mulls increasing central bank’s regulatory powers
Singapore’s parliament is considering a draft law that would expand the central bank’s regulatory powers over domestic and foreign-owned banks
Colombian inflation measures might be ‘overstating’ true level – research
Some core inflation measures are failing to filter the impact of exchange rate on prices; policy-makers must be aware of the risk of expectations losing their anchor
EBA does not object to further macro-prudential measures for Belgian banks
The European Banking Authority clears the way for Belgium’s central bank to tighten macro-prudential measures affecting housing exposures; calls for changes in regulatory framework
Mexico’s stress tests reveal some institutions remain ‘vulnerable’ in extreme scenarios
Stress tests indicate that even in adverse scenarios banking sector remains sound; some banks and investment funds are vulnerable to extreme scenarios, including interest rate adjustments
UK regulators refuse to comply with part of EU bonus cap
FCA and PRA say they will not be imposing European bonus cap rules on small firms, arguing CRD IV’s proportionality principle has not been properly applied
Paper looks at macro-prudential impact on mortgage affordability
Working paper assesses how macro-prudential policies influence the share of households that can “access and sustain” a mortgage at different loan-to-value ratios