Rent Check
The Fed recently announced that they are keeping the Countercyclical Capital Buffer at zero. This goes against the advice of economists who argue that a higher CCyB would improve financial stability.
News and Commentary
Chicago Booth’s Yunzhi Hu uses bank lending patterns to determine how long recessions last. Due to their pro-cyclical lending habits, banks scare away potentially successful entrepreneurs from borrowing during recessions, thus weakening the recovery.
Christian Keuschnigg and Michael Kogler argue that only a strong and secure banking system can efficiently allocate capital. They use this theory to advocate for things like capital requirements and reforms to existing insolvency laws.
Roman Goncharenko, Steven Ongena, and Asad Rauf analyze the impact of contingent convertible bonds on bank behavior. While they are useful tools for increasing a bank’s loss-absorption capacity, the regulations that encourage them require reforms to encourage proper bank lending.
The Federal Reserve finalized their policy approach to stress testing. Here is the official statement.
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