An IMF study analyzes what bank characteristics and investments contribute to idiosyncratic and systemic risk. Higher profitability creates “skin in the game” and thus an incentive to reduce risk, while greater industry concentration and heavy reliance on non-interest income contribute to systemic risk.
News and Commentary
Dean Baker on the passing of Jack Bogle and index funds’ implications for a financial transaction tax. The tax, which Bogle supported, would be relatively inconsequential for index funds, but penalize high-frequency trading and other forms of active management.
Douglas Holtz-Eakin of American Action Forum on the future of the GSEs Fannie Mae and Freddie Mac.
House Financial Services Committee Chairwoman Maxine Waters’s comments at the Center for American Progress on financial regulation. Her focuses include strengthening consumer protection and ensuring the GSEs Fannie and Freddie continue to provide access to the 30-year fixed mortgage, but no calls for higher capital requirements.
What is the optimal capital requirement? The Bank Policy Institute reviews the literature and finds that current capital levels (about 11%) are higher than optimal, but other research finds that capital requirements of 19% or even higher are necessary.
The Center for Retirement Research at Boston College finds that public sector pension funds’ overly-optimistic assumed rates of return lead them to invest in riskier assets. This usually means investing in hedge funds and other alternative investments that charge high fees and come with volatile returns compared to low-cost index funds.