This Week in Financial Regulation, March 10th

This Week in Financial Regulation, March 10th

News and Commentary

Elizabeth Dexheimer at Bloomberg writes on Mark Calabria, the director of U.S. Federal Housing Finance Agency. Calabria faces several challenges in determining the future of Fannie and Freddie, including the prospect of a turn in the housing market.

A new CEPR Vox article analyzes where banks in Belgium lent to after the interbank funding market freeze in September of 2008. The funding shock had smaller effects on firms borrowing from banks that either had greater market share or greater specialization in the sector of the firm.

The Economist has a new article on the risks emerging in America’s housing market. It argues these new lenders hold considerable risks for the mortgage market and could precipitate another crash.

Pete Schroeder at Reuters reports on new stress capital buffer rules for banks announced by the Fed. The rules are estimated by Fed staff to increase capital requirements for large banks while lowering them for smaller institutions. They will be implemented in a new round of bank stress tests covering 34 banks, and the Fed plans to release results on June 30. The New York Times’ Jeanna Smialek also notes in coverage that such rule changes are likely to reduce redundancy and have sharply divided central bank officials, past and present.


New Research

A new NBER paper examines capital flows to the periphery since the end of Bretton Woods, finding regional factors that explain most booms and busts in capital flows. The authors point to supply shocks driving these flows, and also observe more lending to the advanced periphery since the 2000s.

Another NBER paper takes a look at long-term effects of communism on household financial decisions and attitudes. The authors look at German brokerage data and bank data, observing that East Germans hold more stocks today in current or former communist countries, and lean towards state-owned companies instead of the financial industry. Among other interesting findings, election years show increased divergences between Eastern and Western German investments.

A new ECB working paper analyzes the interaction between capital requirements and monetary policy through a few macroeconomic models. The authors suggest that minor falls in GDP from tighter bank capital requirements can be cushioned by changes in monetary policy, and that tighter requirements as macroprudential policy will help moderate credit booms and busts, reducing the need for very low interest rates. The authors have written on their paper at CEPR’s Vox here.

Another ECB companion working paper to the one above analyzes monetary policy and bank stability more closely in a historical context, explaining the trade-offs of unconventional monetary policy used in the Eurozone crisis.

An NBER paper applies a small open economy model to analyze the effect of an economic shock that constrains credit for households and firms. The authors find that such a crisis is a negative shock to demand when imports contract in response to household consumption, and verify this with data on trade flow among almost 200 financial crises in a wide sample of countries. They have discussed this research in a CEPR Vox post here.

An IMF working paper analyzes the fiscal impact of public interventions in the public sector during the 2008 crisis. They find the government still holds a larger stake in countries that have recovered slower from this crisis. The authors have written up a CEPR Vox post summarizing their research here.

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By |2020-03-11T14:09:40-07:00March 11th, 2020|Blog, Financial Regulation|