1,721,484 research outputs found
Allen Franklin Spriggel oral history recording
No full textAn audio recording of an oral history of Allen Franklin Spriggel on life in Beaverton, the pond on Fanno farmland, and his school years
What is systemic risk?
No full textArticle first published online: 9 JUL 2013The traditional view of risk in a financial system is that it is the summation of individual risks within the system. However, the financial crisis that started in 2007 has driven home that this view of risk is inadequate. It is the interactions of financial institutions and markets that determine the systemic risks that drive financial crises. We identify four types of systemic risk. These are (i) panics—banking crises due to multiple equilibria; (ii) banking crises due to asset price falls; (iii) contagion; and (iv) foreign exchange mismatches in the banking system
Stakeholder Governance, Competition and Firm Value
Full text linkIn many countries, the legal system or social norms ensure that firms are stakeholder oriented. We analyze the advantages and disadvantages of stakeholder-oriented firms that are concerned with employees and suppliers compared to shareholder-oriented firms in a model of imperfect competition. Stakeholder firms are more (less) valuable than shareholder firms when marginal cost uncertainty is greater (less) than demand uncertainty. With globalization shareholder firms and stakeholder firms often compete. We identify the circumstances where stakeholder firms are more valuable than shareholder firms and compare these mixed equilibria with the pure equilibria with stakeholder and shareholder firms only. Finally, we analyze firm financial constraints and derive implications for the capital structure of stakeholder firms
Money, financial stability and efficiency
No full textMost analyses of banking crises assume that banks use real contracts but in practice contracts are nominal. We consider a standard banking model with aggregate return risk, aggregate liquidity risk and idiosyncratic liquidity shocks. With non-contingent nominal deposit contracts, a decentralized banking system can achieve the first-best efficient allocation if the central bank accommodates the demands of the private sector for fiat money. Price level variations allow full sharing of aggregate risks. An interbank market allows the sharing of idiosyncratic liquidity risk. In contrast, idiosyncratic (bank-specific) return risks cannot be shared using monetary policy alone as real transfers are needed
Deposit Insurance and Risk Taking
No full textWe review the theory of deposit insurance, highlighting the underlying assumptions that were not satisfied during the recent financial crisis and that may have led to serious policy mistakes. In theoretical models, deposit insurance is mostly seen as an equilibrium selection device to avoid panic-based runs. In such a context, it is not drawn on and is thus costless and fully credible. However, if bank runs are linked to a fall in asset values, providing deposit insurance can be very costly and, as the case of Ireland has shown, can even threaten sovereign solvency. This perspective indicates a need for new research on the relation between bank failures, deposit insurance schemes, sovereign default, and currency depreciation, and for reforms of deposit insurance schemes
New theories to underpin financial reform
No full textBefore 2007, financial crises were not widely studied in economics and finance. The lack of importance ascribed to financial stability and our limited knowledge of this topic were significant contributors to the crisis. This paper suggests five areas where new theories are needed. These are asset price bubbles, central bank checks and balances, global imbalances, banking regulation, and competition in financial services
Moral hazard and government guarantees in the banking industry
No full textFirst published online: 3 February 2015The massive use of public funds in the financial sector and the large costs for taxpayers are often used to justify the idea that public intervention should be limited. This conclusion is based on the idea that government guarantees always induce financial institutions to take excessive risk. In this article, we challenge this conventional view and argue that it relies on some specific assumptions made in the existing literature on government guarantees and on a number of modelling choices. We review the theory of government guarantees by highlighting and discussing the role that these underlying assumptions play in the assessment of the desirability and effectiveness of government guarantees and propose a new framework for thinking about them
An introduction to liquidity and crises
No full textFinancial crises have been pervasive for many years. Their frequency in recent decades has been double that of the Bretton Woods Period (1945-1971) and the Gold Standard Era (1880-1993), comparable only to the period during the Great Depression. Nevertheless, the financial crisis that started in the summer of 2007 came as a great surprise to most people. What initially was seen as difficulties in the U.S. subprime mortgage market, rapidly escalated and spilled over first to financial markets and then to the real economy. The crisis changed the financial landscape worldwide and its full costs are yet to be evaluated. One important reason for the global impact of the 2007-2009 financial crisis was massive illiquidity in combination with an extreme exposure of many financial institutions to liquidity needs and market conditions. As a consequence, many financial instruments could not be traded anymore, investors ran on a variety of financial institutions particularly in wholesale markets, financial institutions and industrial firms started to sell assets at fire sale prices to raise cash, and central banks all over the world injected huge amounts of liquidity into financial systems. But what is liquidity and why is it so important for firms and financial institutions to command enough liquidity? This book brings together classic articles and recent contributions to this important field of research. It provides comprehensive coverage of the role of liquidity in financial crises and is divided into five parts: (i) liquidity and interbank markets; (ii) the public provision of liquidity and regulation; (iii) money, liquidity and asset prices; (iv) contagion effects; (v) financial crises and currency crises
Structural changes in European financial systems: the impact of the regulatory framework on investment in the European Union
No full textEuropean countries have undertaken a large number of regulatory reforms or are in the process of doing so, ranging from higher capital and liquidity requirements for banks and a banking union for the eurozone to new regulatory frameworks for the insurance and investment fund sectors. We focus on the main regulatory reform programmes and proposals over the past five years. Many of these were initiated after the onset of the global financial crisis by the G20 and their implementation has progressed reasonably swiftly. These include the Basel III reforms of capital and liquidity requirements and the attempt to centralise trading of securities previously traded over-the-counter. On the other hand, there are reform proposals, which are politically controversial, both within and across countries,
which have made only limited progress so far. Among these are activity restrictions on banks and suggestions for a security transaction tax. Most importantly, discussions on complementing the currency union in the eurozone with an effective banking union are still ongoing and there are critical decisions that still need to be taken. We argue that the evidence suggests that the agreed reforms and many of the proposed ones will have moderate effects on banks’ funding costs and thus real investment. The largest effects, including on
market structure and corporate financing structures, are likely to come from the resolution of the eurozone crisis and the design of the banking union. Our main policy conclusion is therefore that priority should be given to completing the banking union’s unfinished parts so that it can operate effectively. This will go a long way to helping resolve the eurozone crisis. The banking union comprises a Single Supervisory Mechanism (SSM), a European deposit insurance system and a European Resolution Mechanism (ERM). The ultimate goal of the banking union appears to be the preservation of the Single Market in financial services and the avoidance of having to provide
taxpayers’ money in support of distressed banks. None of the three pillars of the banking union have been formally approved to date. Negotiations and proposals are at an advanced stage for the creation of the SSM, and at an earlier stage concerning the
ERM. No proposals are under discussion currently concerning the creation of a European deposit insurance system. We believe it is important that all three pillars be approved and implemented as soon as possibl
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