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...

The role of macroprudential policy

Macroprudential measures are often seen as a counterweight to ultra-easy monetary policy in the developed world. BIS research cautions against this expectation. Macroprudential policies are...

A brief review of China’s vulnerabilities

The IMF’s latest staff report on China serves as a reminder of key vulnerabilities. With repressed real interest rates corporate leverage remains high and...

The euro area’s persistent de-leveraging

The ongoing economic misery of the euro area periphery reflects the compounded deleveraging of corporates, households, financial institutions, and governments. According to a new...

When does shadow banking become a problem?

A new ECB paper explains key risk factors of shadow banking. First, if unregulated finance outgrows market size, tightening liquidity can escalate into runs...

The global leverage problem

On aggregate, global financial leverage has further increased since the great financial crisis. Most worrisome is the declining debt service capacity of public and...

A theory of safe asset shortage

Ricardo Caballero and Emmanuel Farhi from MIT and Harvard propose an interesting and relevant formal model of safe asset shortage. While safe asset supply...

Liquidity regulation and monetary policy

From 2015 banks will have to satisfy new liquidity standards. Of particular importance is the liquidity coverage ratio, which requires institutions to hold enough “high...

Rules of thumb for banking and currency crisis risk

A new ECB paper explores macroeconomic indicators for banking and currency crises over the past 40 years. Banking crises arose mostly in constellations of...

IMF reminder of incomplete euro area banking union

A new IMF Staff Discussion Note provides opinion and advice on the euro area banking union. It reiterates the urgent need for a single...

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Equity return anomalies and their causes

The vast range of academically researched equity return anomalies can be condensed into five categories: return momentum, outperformance of high valuation, ...

Basic factor investment for bonds

Popular factors for government bond investment are “carry”, “momentum”, “value” and “defensive”. “Carry” depends on the steepness of the yield curve, which to some...

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