A new NBER paper looks at how stress testing of central counterparts should better incorporate the “topography” of the financial sector with CCPs at the middle.
News and Commentary
Banking Perspectives is out with their Fall 2019 issue, and it contains some interesting arguments:
Bank Policy Institute’s Greg Baer argues that, while recent changes in financial regulation aimed at increasing commercial bank liquidity has reduced the risk of a bank-caused financial crisis, these regulations won’t stop the next crisis from happening. Nobody knows what will cause the next crisis, and specifically targeting large banks hurts economic activity.
Douglas Elliot and Oliver Wyman believe that policies like capital requirements are backwards looking, and policymakers should instead focus on trying to lessen the harm done by the next recession.
Lastly, Nicola Gennaioli and Andrei Shleifer explain a new model they’ve developed to understand the 2008 Financial Crisis which places a heavier weight on “beliefs of accounting”. They argue it has applications for the future.
The perpetually low interest rates over the past decade has created an environment ripe with zombie firms. Due to the cheap cost of loans, otherwise unprofitable firms have been able to stay in business. A recent VoxEU article points to these types of firms as a potential explanation for low productivity growth in Europe.
The Editors of the Monthly Review, a Socialist Magazine, have an interesting post explaining the origins of the term “financialization”.
Mercatus’s Brian Knight gives an overview of recent research related to fintech lending and the Madden v Midland Funding decision. With more and more data showing its depressing effects on lending, there is momentum for Congressional reform.
Here is the transcript for a recent speech from Fed official Randal K. Quarles. He explains the framework used by the Fed to create their countercyclical capital buffer.
The Fed is asking for public comments on proposed rule change that would change the treatment of unsecured debt issued by systemically important banks. Their goal is to reduce the bank interconnectedness and systemic risk.
How reliable are stress tests? A new report from AEI compares the actual results from the financial crisis to those that stress test models would have predicted to argue that they aren’t reliable enough to base policy on.
The Basel Committee has a new paper that updates some of their previous research on capital requirements and gives an idea of areas that could need future regulation.
A New NBER report shows how useful debt forgiveness programs were during the financial crisis. States with more forgiving debt programs saw a lower decline in employment than less generous states.