Financial crisis
Central Bank of Iceland delays report as tensions over failed banks rise
Central bank postpones launch of financial stability report at last minute, citing the need to wait for new information; governor responds to lobby group calling for heavier tax on failed banks
BoE paper explores link between mortgage debt and consumption
Tighter credit conditions and concern over debt repayments may have led to a 2% drop in aggregate private consumption following the crisis, working paper says
BIS paper uncovers new evidence on FX reserve and capital flow link
Paper argues role of domestic investors is key to properly understanding how foreign exchange reserves can dampen volatile capital movements
Trichet says banks must keep ‘hammering’ at their culture
Progress towards improving culture and behaviour at banks is uneven, and the G30 is calling on the laggards to catch up; Central Banking asked members what still needs to be done
Limited case for leaning against the wind, says IMF report
Staff conclude the short-term costs of using higher interest rates to address financial risks exceed the longer-term benefits in most cases, but stress door should ‘remain open’
SMEs possibly worst hit by fragmentation of monetary policy transmission, ECB paper finds
Small and medium enterprises may have suffered most from fragmentation in monetary policy transmission following the financial crisis, according to research
RBA’s Ellis sees gaps in understanding of credit and property price relationship
The Australian central bank's head of financial stability discusses what economists do and don’t know about the property market, highlighting areas that need more work
Safe as houses: designing a more stable mortgage
A conference at the New York Fed earlier this year looked at some innovative mortgage designs that could boost financial stability. Central Banking approached some of the speakers to learn more
Limited liability distorts incentives for disaster planning, paper argues
Consequences of recent events with catastrophic financial ramifications have been greatly aggravated by policy-makers’ failure to prepare, says ECB working paper
BoE economists mine tweets for early-warning indicator
Central bank put its work on ‘text mining’ and big data to work during Scottish independence referendum in an attempt to create an early-warning indicator for bank runs
Public support works when big and well-aimed, study finds
Large-scale public sector support operations for distressed borrowers work best when they are large and have strong conditionality, according to DNB paper
IMF paper finds standard risk metrics perform poorly with low financial depth
Authors find ‘excess credit’ is a better early warning indicator for financial instability than credit-to-GDP where countries have limited financial depth
Nobel economist Sims on fiscal stimulus, Eurozone loss sharing and role of central banks
The Nobel laureate speaks with Christopher Jeffery about his scepticism regarding secular stagnation, the eurozone’s failings and the need for inflationary fiscal stimulus at the zero lower bound
Managing financial stability, monetary systems and the economic order
If policy-makers fail to address the challenges presented by strong feedback loops between the economic and monetary systems, the next crisis could seriously damage faith in market-based economies
Book notes: Money and Trade Wars in Interwar Europe, by Alessandro Roselli
Alessandro Roselli’s book on interwar Europe should be compulsory reading for all those who are handling or interested in the current crisis in the euro area
Icelandic paper looks for early-warning signals across past crises
Working paper identifies six clusters of financial crises in the country since 1875; finds macroeconomic variables give a ‘more robust warning signal’ than financial alternatives
Bundesbank research warns of risks from rising intraday interest rates
Discussion paper finds intraday rate rose from zero to around 60 basis points after 2008 and sovereign debt crises; researchers suggest it is reflecting a liquidity premium
Bundesbank research tracks changing financial cycle
Discussion paper seeks to establish the ‘empirical regularities’ of the financial cycle using an econometric model, finding the cycle has grown longer and more severe over time
Greek lessons for central banks acting as lenders of last resort
Is it appropriate for a central bank that also acts as lead financial supervisor to act as a lender of last resort at a time when its actions are becoming quasi-fiscal in nature? By Ludek Niedermayer
Belgian paper examines ‘crisis-proof’ services
Working paper finds ‘significant’ differences between the elasticity of goods exports and services exports with respect to GDP growth during the crisis
UK government launches plan to improve BoE governance
Bank of England Bill proposes changes to committee structure, adjustments to the Court, establishing new roles and axing old ones, and audits to assess value for money
ECB raises concerns over Greece’s draft resolution law
Hastily assembled legal opinion on draft law warns of possible detrimental effects on the Bank of Greece, including impact on independence, increased liability and ‘operational burden’
Greece uses bridge loan to repay IMF and ECB
Loan received today used immediately to repay debts, while government works to unlock full bailout; Ben Bernanke joins debate with criticism of German trade surplus
Bundesbank paper tracks causes of financial crisis balance sheet contraction
Working paper identifies characteristics and behaviour that had a dampening effect on German banks during the 2008 crisis, noting the importance of taking a nuanced view