The dollar as barometer for credit market risk
The external value of the USD has become a key factor of U.S. and global credit conditions. This reflects the surge in global USD-denominated...
How convenience yields have compressed real interest rates
Real interest rates on ‘safe’ assets such as high-quality government bonds had been stationary around 2% for more than a century until the 1980s....
How regulatory reform shapes the financial cycle
Ambitious regulatory reform has changed the dynamics of the global financial system. Capital ratios of banks have increased significantly, reining in bank credit. Counter-cyclical...
Low rates troubles for insurances and pension funds
A CGFS report highlights the pressure of a ‘low for long’ interest rate environment on life insurance companies and defined-benefit pension funds. This pressure...
Understanding collateral runs
In normal financial runs lenders want their money back. In collateral runs borrowers want their collateral back. In today’s highly collateralized financial system the...
Modern financial system leverage
Leverage in modern financial systems arises from bank balance sheets and off-balance sheet transactions that involve banks and other financial institution. Non-bank funding of...
The consequences of increased financial collateralization
There has been a strong upward trend in collateralization since the great financial crisis. Suitable collateral, such as government bonds, is essential for financial...
How bank regulatory reform has changed macro trading
The great regulatory reform in global banking has altered the backdrop for macro trading. First, greater complexity and policymaker discretion means that investment managers...
Cash hoarding and market dynamics
Institutional asset managers can aggravate market swings due to the pro-cyclicality of redemptions, internal leverage and cash positions. A new empirical analysis shows that...
Volcker Rule and liquidity risk
The Volcker Rule has banned proprietary trading of banks with access to official backstops. Also, market making has become more onerous as restrictions and...
RECENT ARTICLES
Modern financial system risk for macro trading
Financial system risk is the main constraint and disruptor of macro trading strategies. There are four key areas of modern systemic risk. In...
External imbalances and FX returns
Hedge ratios of international investment positions have increased over past decades, spurred by regulation and expanding derivative markets. This has given rise to predictable...
Predicting volatility with heterogeneous autoregressive models
Heterogeneous autoregressive models of realized volatility have become a popular standard in financial market research. They use high-frequency volatility measures and the assumption that...