A new ECB paper finds that the imposition of more stringent capital requirements for banks lending to firms at risk of default incentivized banks to lend to “zombie firms”- low-productivity firms that would be underwater if their lenders didn’t roll over their credit. Counter-cyclical capital buffers could be a policy solution to this problem.
News and Commentary
The Federal Reserve recently released their report on shared national credit programs, concluding that the leveraged lending created increased risk. However, Francisco Covas and William Nelson, writing for American Banker, disagree with their conclusion.
Following the news of the BB&T and SunTrust merger, Greg Baer argues that the merger doesn’t carry risk of increased concentration in the industry.
Former director of financial regulation studies at the Cato Institute, Mark Calabria, is preparing for his confirmation hearing following his nomination to be director of the Federal Housing Finance Agency. Hannah Lang poses some questions that could be at the center of his nomination process.
Diego Zuluaga comments on the passing of Jack Bogle on the Cato Institute daily podcast.
What caused the decline in bank lending after the financial crisis? Thomas Hogan argues that it was regulatory changes and monetary policy rather than a slow down in economic activity.
Does increased access to information about a company’s financial health result in better investment outcomes for individual investors? The Wharton school blog spoke with a professor who has recently published a study on this question, concluding that individual investors don’t really use the public information, instead relying on market trends. You can read the study here.
The expansion of lending to low-credit individuals is often blamed as one of the causes of the financial crisis. However, a new study by the American Enterprise Institute refutes that argument. They track the levels of risk present in the mortgage market back to 1990 and find that the seeds of the financial crisis were planted prior to the expansion of credit.