This Week in Financial Regulation, September 4th

This Week in Financial Regulation, September 4th

Rent Check

A new paper from Niskanen’s own Monica Prasad explores the tradeoff between social insurance and credit.  Instead of providing resources to increase consumption by the least well off through more straightforward redistribution, the US has opted for the less appealing path of lax bankruptcy laws and other subsidies to borrowing.


News and Commentary

In August, regulators released a set of proposed changes to the Volcker Rule.  The Volcker Rule is meant to stop most types of proprietary trading but has some fuzzy exceptions.   These proposed changes by Trump Administration are attempting to clarify what is and what is not allowed.

The American Prospect argues that the proposed changes virtually repeal the rule, and in response, we should restore the separation between commerical and investment banks with a 21st Century Glass-Steagal Act.

The Bloomberg editorial board is concerned about a huge loophole in the proposal.  While they are generally friendly to the attempt for clarification, they are concerned about limiting the scope of the ban only to “trading” positions.  At the time of the Volcker rule’s initial implementation, non-trading positions constituted about a quarter of the transactions banned.


New Research

A paper in the NBER examines the negative feedback loop between foreclosures and housing downturns.  An initial foreclosure reduces the value of other homes, inducing more people to default in a chain reaction.

A paper from the American Economic Association compares two snapshots of American Banking before and after the 1863-1864 National Banking Acts.  These acts led to more market concentration, promoting diversification at the expense of greater systemic risk.

A paper from CEPR builds a model of financial crises where beliefs about future collateral values execerbates the fluctuations of the financial cycle.


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By |2019-09-04T08:21:49-07:00September 4th, 2019|Blog, Financial Regulation|