Essays on the Financial Crisis and Macroprudential Regulation PDF Download
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Author: Linda Kirschner
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Languages : en
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The financial crisis was, at its core, a banking crisis, which affected the real economy through a rapid reduction in credit supply. This dissertation combines three essays on policy changes after the financial crisis. The first two chapters focus on regulatory rules proposed to avoid future credit crunches and the resulting contractionary effects on the real economy. In the first chapter, I introduce two different proposals for countercyclical capital buffers and compare their effectiveness in reducing macroeconomic fluctuations. The Basel III capital buffer is attuned to early warning signals of systemic risk, while dynamic loan loss provisions are set aside to cover expected losses. I show that the systemic risk buffer is more effective in reducing macroeconomic volatility in times of excessive lending booms and crunches. The second paper examines the effectiveness of the Basel III buffer more closely by considering different shocks to the economy and the banking sector. At the heart of the recent banking crisis were bank's difficulties to receive both equity and debt funding. I show that the macroeconomic implications of financial shocks are particularly serious if banks have only restricted access to deposits. These disturbances on the supply side of credit have more distressing consequences than comparable shocks to the credit demand side. Interestingly, I find that the Basel III buffer is most effective in dealing with these supply side shocks. The third chapter analyses the Eurozone crisis as a triple crisis of fiscal solvency, banking sector instability, and stagnant growth. Given negative feedback loops, and starting from bad initial conditions, Italy remains vulnerable to adverse economic shocks originating at home and abroad. Furthermore, we contrast the two cases of continued membership or exit from the Eurozone and find exiting will severely delay Italy's economic recovery at least in the long run.
Author: Linda Kirschner
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ISBN:
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Languages : en
Pages :
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Book Description
The financial crisis was, at its core, a banking crisis, which affected the real economy through a rapid reduction in credit supply. This dissertation combines three essays on policy changes after the financial crisis. The first two chapters focus on regulatory rules proposed to avoid future credit crunches and the resulting contractionary effects on the real economy. In the first chapter, I introduce two different proposals for countercyclical capital buffers and compare their effectiveness in reducing macroeconomic fluctuations. The Basel III capital buffer is attuned to early warning signals of systemic risk, while dynamic loan loss provisions are set aside to cover expected losses. I show that the systemic risk buffer is more effective in reducing macroeconomic volatility in times of excessive lending booms and crunches. The second paper examines the effectiveness of the Basel III buffer more closely by considering different shocks to the economy and the banking sector. At the heart of the recent banking crisis were bank's difficulties to receive both equity and debt funding. I show that the macroeconomic implications of financial shocks are particularly serious if banks have only restricted access to deposits. These disturbances on the supply side of credit have more distressing consequences than comparable shocks to the credit demand side. Interestingly, I find that the Basel III buffer is most effective in dealing with these supply side shocks. The third chapter analyses the Eurozone crisis as a triple crisis of fiscal solvency, banking sector instability, and stagnant growth. Given negative feedback loops, and starting from bad initial conditions, Italy remains vulnerable to adverse economic shocks originating at home and abroad. Furthermore, we contrast the two cases of continued membership or exit from the Eurozone and find exiting will severely delay Italy's economic recovery at least in the long run.
Author: Manuel Álvaro Muñoz García
Publisher:
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Languages : en
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As a consequence of the Global Financial Crisis (GFC), macroprudential policy emergedas the third pillar of macroeconomic policies (the other two pillars are monetary policy and fiscal policy). The aim of macroprudential policy is to smooth the financial cycle andto prevent the endogenous build-up of systemic risk. While some of the financial reforms undertaken in the aftermath of the GFC have represented important steps on this front,the COVID-19 crisis has highlighted the need for rethinking macroprudential regulation. Recent developments suggest that the Basel III Accord does not provide banks with the right incentives for them to draw on their capital buffers when such action is needed the most (i.e., bank capital counter cyclical regulation is proving to be less effective than initially expected). In addition, the pandemic crisis has underscored the importance of strengthening the macroprudential policy framework for non-banks...
Author: Toni Ahnert
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Languages : en
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Author: Erlend Nier
Publisher: International Monetary Fund
ISBN: 1484314891
Category : Business & Economics
Languages : en
Pages : 103
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Book Description
The financial crisis that began in 2007 brought much of the global economy to its knees and nearly triggered another Great Depression. The financial storm gradually died down in 2009, at least in the United States, but even six years after that, much of the world had yet to fully recover from the enormous economic damage caused by the crisis.This essay describes what happened and outlines a new approach to financial regulation (macroprudential policy) that aims to prevent such crises from happening again.
Author: Douglas D Evanoff
Publisher: World Scientific
ISBN: 9814405159
Category : Business & Economics
Languages : en
Pages : 421
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This book is a collection of papers presented in the conference held at the Federal Reserve Bank of Chicago in September 2010, that examines the role of macroprudential regulation in the financial industry. Shocked by the experience of the last few years, many argue that the more traditional microprudential regulatory tools are inadequate to create a safe and stable financial system. The microprudential paradigm relies on the presumption that the financial system as a whole can be made safe by ensuring individual financial institutions are made safe. This ignores interconnections and externalities, whereby the actions of one financial institution or events in financial markets can lead to spillover effects that adversely affect general market conditions, other financial institutions, and ultimately the economy as a whole. Instead, it is argued, there is a need for both microprudential approaches to regulate individual institutions and macroprudential approaches to manage the overall financial system risks.Conference participants discussed macroprudential regulation and related issues, including: What are the theoretical motivations for macroprudential regulation? How would it interact with other regulatory and macroeconomic policies, especially monetary policy? What would be the specific macroprudential tools? Who should have control over the macroprudential tools? How should a macroprudential regulator be structured? Where should it be housed? How can macroprudential policies be structured across national borders? What role, if any, can market discipline play in supporting macroprudential objectives?Concentrating on public policy issues, the conference featured keynote addresses by influential past and present public policy figures including: Paul Volcker, Chairman of the US President's Economic Recovery Advisory Board and former Chairman of the Federal Reserve System; Tommaso Padoa-Schioppa, Chairman, Promontory Financial Group Europe and Former Chairman of the Basel Committee on Banking Supervision; Jaime Caruana, General Manager of the Bank for International Settlements and Former Chairman of the Basel Committee on Banking Supervision; and Charles Taylor, Director of the Pew Charitable Trust Financial Reform Project and Former Executive Director of the Group of Thirty.
Author: Salim Dehmej
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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The aim of this thesis, composed of four academic papers, is to apply empirical and theoreticalanalyses to study the involvement of central banks in financial stability-confidence in the financial system's ability to facilitate allocation of economic resources, manage risks, and withstand shocks -and to discuss their recent macroprudential responsibilities. The global financial crisis (GFC) shitied the perspective of financial regulation - rules that financial institutions have to comply with in order to ensure effective risk management and to with stand financial shocks - and supervision - ensuring that financial institutions follow these rules - from a microprudential perspective based on the resilience of individual institutions to amacroprudential (henceforth · "MaP") perspective. The MaP perspective takes into account the interactions of financial institutions, the externalities related to their decisions, and also the effects of the financial cycle on central bank policy and financial stability. This thesis analyses the policy mix of monctary and macroprudential policies which both have an impact on price stability and financial conditions and which operate through common or overlapping channels. A particular focus is given to the role of MaP policy in heterogeneous monetary union such as the Eurozone- where countries are experience in different macroeconomic conditions - in terms of financial and macroeconomic stabilisation. Since a single interest rate is unlikely to fit circumstances in all countries, MaP policy could compensate the Jack of autonomous monetary policy in each country as both policies share many transmission channels. This enhances the optimality's degree of the currency area.
Author: Rabi N. Mishra
Publisher: SAGE Publications Pvt. Limited
ISBN: 9789353285425
Category : Business & Economics
Languages : en
Pages : 0
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Book Description
The Global Financial Crisis is undoubtedly the most severe financial crisis the world witnessed since the Great Depression of 1929. The crisis has been analysed by a number of experts offering distinct narratives and counter-narratives. Systemic Risk and Macroprudential Regulations examines causes and consequences of the global financial crisis and proposes a regulatory reforms policy—macroprudential regulations. The book emphasizes ‘systemic risk’ as the new-found villain of the financial space and narrates how such risk can be addressed through macroprudential tools. It, thus, offers a possible solution to avoid financial crises in future and facilitates building a safer financial system globally. The book also examines major crisis management frameworks, stress testing, relevant regulatory and supervisory development, and early warning mechanism with detailed cross-country analysis.
Author: Christopher Johnson
Publisher:
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Category :
Languages : en
Pages :
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Book Description
My dissertation investigates policy-oriented issues relating the the Great Recession from a macro-financial perspective. The first chapter focuses on macroprudential policy in the context of the Global Financial Crisis. The second chapter evaluates the effectiveness of fiscal stimulus in response to the Great Recession. The third chapter considers welfare-maximizing monetary policy when the liquidity of assets depends on the opinions of investors. A striking feature of the Great Recession was that all G7 countries experienced a simultaneous decline in economic activity. Two crucial developments prior to the crisis were the rise of non-bank financial intermediation, or shadow banking, and increased trade in asset-backed securities around the world. In the first chapter of my dissertation, I describe the extent to which shadow banking and securitization contributed to the high degree of international comovement during the Great Recession, which largely resulted from the collapse of the US housing bubble. In order to address this, I utilize a novel two-country real business cycle model with financial intermediation disaggregated between commercial and shadow banking in both countries, the latter of which specializes in securitization. When a negative country-specific shock occurs, both countries experience a simultaneous decline in both real and financial economic activity. The shock is transmitted across borders through a balance sheet channel, and is then amplified by the high leverage of shadow banks. On the policy front, I find that when capital controls are imposed on securities originated by the country where a negative shock occurs, both the transmission and amplification factors are reduced. In response to the Great Recession, fiscal stimulus was utilized with the American Recovery and Reinvestment Act (ARRA) of 2009. The effectiveness of fiscal stimulus has been well-documented through empirical estimates of fiscal multipliers. However, the validity of these measures came into question following the ARRA, with most criticisms regarding endogeneity. In 2011, Robert Barro wrote in the Wall Street Journal that the studies the Obama administration relied on were dependent upon models that ``substitute assumptions for identification.'' The assumptions in question are the recursive structures involving the endogenous variables utilized in these models, also known as a Cholesky ordering. In the second chapter of my dissertation, I test the validity of Cholesky ordering in the context of measuring fiscal multipliers. Using a novel iterative projection instrumental variable approach in a structural vector autoregressive framework, I find strong evidence in the rejection of every possible recursive ordering among standard endogenous variables utilized throughout the literature. I also find new estimates of fiscal multipliers that do not rely on a Cholesky ordering. My estimates are conservative relative to the rest of the literature, with fiscal multipliers that are economically and statistically significant after four quarters, but disintegrate within eight quarters. In the third chapter of my dissertation, I consider how differences of opinion among investors affect the liquidity value of assets. I use a monetary framework in which money and risky assets can facilitate trade. While the future value of money is agreed upon among investors, the risky asset is opinion-sensitive such that traders may disagree on its future value. This results in a pecking order theory of trade, which depends on the perceptions of the traders in question. I find that optimists prefer to use money instead of assets as a method of payment, whereas pessimists prefer to use assets instead of money. Intuitively, optimists value assets for their future return value, so they would rather hold onto their assets to realize those returns. Pessimists expect less favorable returns on their assets, so they are willing to part ways with them. Pessimists buys assets because there is always the possibility that they meet an optimist to trade with, by which the terms of trade will be favorable for pessimists. Regarding monetary policy, the Friedman rule is welfare-maximizing. Additionally, monetary policy can alter the composition of investors in the asset market. Specifically, lowering the nominal interest rate drives pessimists out of the asset market.
Author: R. Barwell
Publisher: Springer
ISBN: 1137274468
Category : Business & Economics
Languages : en
Pages : 544
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Book Description
The financial crisis of 2008 is probably the single most important economic event in post-war history. Macroprudential policy is the response to that crisis – a determined attempt to stabilize the financial system. This book explains why it is necessary, who will be responsible for executing this responsibility and how they will go about doing it.
Author: Mr.Stijn Claessens
Publisher: International Monetary Fund
ISBN: 1484358112
Category : Business & Economics
Languages : en
Pages : 38
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Book Description
Macroprudential policies – caps on loan to value ratios, limits on credit growth and other balance sheets restrictions, (countercyclical) capital and reserve requirements and surcharges, and Pigouvian levies – have become part of the policy paradigm in emerging markets and advanced countries alike. But knowledge is still limited on these tools. Macroprudential policies ought to be motivated by market failures and externalities, but these can be hard to identify. They can also interact with various other policies, such as monetary and microprudential, raising coordination issues. Some countries, especially emerging markets, have used these tools and analyses suggest that some can reduce procyclicality and crisis risks. Yet, much remains to be studied, including tools’ costs ? by adversely affecting resource allocations; how to best adapt tools to country circumstances; and preferred institutional designs, including how to address political economy risks. As such, policy makers should move carefully in adopting tools.
