News and Commentary
In an article at Fortune, Shiva Rajgopal and Sri Ramamoorti argue that the SEC should oversee markets throughout the globe, rather than just the US. This would entail diplomatic missions in key regions throughout the globe as well as “local inspections of audit firms and of companies based in the region and cross-listed in the US.” The authors recognize that such actions would face sovereignty challenges. They claim that diplomacy could overcome some of these challenges. When necessary, however, they suggest that the US sever financial diplomatic relations with foreign governments hostile to SEC oversight.
In an article at American Banker, Hannah Lang covers Fed chair Powell’s admission that the current supplementary leverage ratio is not working as intended and may need adjustment. Powell claims that “when leverage requirements are binding, it does skew incentives for firms to substitute lower-risk assets for high-risk ones.”
In a post at Financial Regulation News, Dave Kovaleski covers the priorities recently highlighted by Senators Schatz and Whitehouse for the SEC in its evaluation of climate change disclosure regulations. The Senators argue that the SEC must mandate climate disclosure to reduce systemic risk posed by climate change. This disclosure would include exposure to climate risk by individual issuers, financial firms’ contribution to climate change, off-balance sheet activities that worsen systemic risk from climate change, and even “companies’ climate-related political spending and lobbying activities.” The Senators claim that making this information more readily available will better enable the market to curb climate change.
New Research
In an article at VoxEU, Juan Jose Cortina Lorente, Tatiana Didier, and Sergio Schmukler discuss the behavior of corporate borrowing during economic crises. They claim that – contrary to the prevailing view – debt financing does not tend to freeze during crises, but increases instead. Furthermore, they show that firms tend to reorganize their overall debt composition by switching the proportions of their debt held between different debt markets. They argue that this behavior may allow firms to mitigate the impact of crises.
In an article at VoxEU, Miguel Ampudia, Thorsten Beck, and Alexander Popov examine the supposed tradeoff between stability and growth. They use the implementation of the European Central Bank’s Single Supervisory Mechanism as a quasi-natural experiment to do so. They find that “centralised bank supervision is associated with a decline in lending to firms, which is accompanied by a shift away from intangible investment and towards more cash holdings and higher investment in easily collateralisable physical assets.” They argue that – since R&D investment creates more long-term growth than does capital investment – their results suggest there is a tradeoff between stability and economic growth.
In an article at VoxEU, Hans Degryse, Sotirios Kokas, and Raoul Minetti discuss their forthcoming paper in which they examine the relationship between banks’ experience and their credit market outcomes. They find that “banks’ prior experience with borrowing firms and co-lenders reinforces their monitoring incentives allowing for a smaller lead share in the lending syndicate. Banks’ sectoral experience, in contrast, appears to dilute monitoring incentives, calling for a larger lead share in the lending syndicate.”
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