Commerzbank Tower, by David Schiersner, under a CC-BY-2.0 licence
Bank lending to the real economy has still not recovered from the financial crisis in Europe. This problem is pervasive because of the relevance of the bank lending channel. About 80 per cent of companies’ debt financing is based on bank loans in Europe, while only 20 per cent is based on the […]
US flag, by unsplash.com, under a CC0 licence
For nearly two years, unsettling comments by US presidential candidates rattled international investors. The prospect of US trade wars with China and Mexico hit global markets, already weakened by the surprising result of the Brexit referendum. The elections ended, but the financial community still cannot breathe a sigh of relief.
In order to calm […]
Securities and Exchange Commission, by Scott S, under a CC-BY-2.0 licence
Debt restructurings (or loan amendments) can prove disruptive for a firm’s operations and have real effects on production and investment. Done successfully, restructurings help realize firm value, while failure to do so is detrimental to the firm and some — if not all — of its claimholders.
The effect of trading […]
Fitch Ratings, by Solvency II Wire, under a CC-BY-2.0 licence
In a recently published article, we propose the introduction of a tailored liability regime to induce credit rating agencies (CRAs) to produce ratings as accurate as the available forecasting technology allows.
In a nutshell, credit rating agencies issue judgements on the quality of financial assets reducing asymmetric information on financial markets. In the recent […]
M-PESA, by Rosenfeld Media, under a CC-BY-2.0 licence
For Mary Tonkei and Stephen Wainaina Waweru, and a lot of other people in the developing world, the fintech revolution is much more than a matter of convenience. It’s changing their way of life. Tonkei, a Maasai dairy farmer in Kenya, is able to run her entire business through her phone. Using a […]
Key players in international finance
Sovereign wealth funds (SWFs) are large state owned investment funds. With assets under management of about US $7 trillion globally, SWFs have become key players in international finance – even surpassing the combined size of global hedge funds and private equity firms.
In the vast majority of cases SWFs were funded by the proceeds of oil and […]
In a nutshell, macroprudential regulation is made up of two building blocks: surveillance and supervision. Surveillance is concerned with identifying, assessing and monitoring the build-up of systemic risks, i.e., those regarding the financial stability of a country or region. Supervision is aimed at preventing, mitigating and managing systemic risks.
A key lesson from the recent global financial crisis is that […]
Financial cycles are on average twice as long as business cycles. At the same time, there is substantial heterogeneity of national cycles across G-7 countries, ranging from very similar financial and business cycles in Germany to markedly different cycles in the United States and Italy.
We conclude that policies targeting financial cycles (such as countercyclical macroprudential policies) can act as […]
Monetary and credit data released by the European Central Bank (ECB), not just official communications and inflation and output projections, help markets to predict future interest rate moves. The ECB is one of the few central banks to emphasise the importance of its monetary analysis as a cross-check of its economic analysis. With the exception of the early years […]
Received wisdom maintains that financial market volatility has a direct impact on the likelihood of a financial crisis. Perhaps the best expression of this is Hyman Minsky’s (1992) hypothesis that economic agents observing low financial risk are induced to increase risk-taking, which in turn may lead to a crisis. This is the foundation of his famous statement that ‘stability […]
The explosion of debt in troubled developing countries like Brazil may be a problem at some point in the future. For now, investors are stepping over one another to buy more of such bonds.
They’re so eager for a chance to lend to Brazil in particular that the nation is about to sell at least $500 million of notes maturing […]
The eurozone crisis, the rise of nationalist parties across Europe and the Brexit vote have all pointed to significant vulnerabilities in the European social model. Europe is home to only 8 per cent of the world’s population, yet it produces 50 per cent of global social payments (public pensions, healthcare benefits, maternity leave and associated benefits, public education and […]
The Italian banking crisis is the outcome of two factors. First, a deep recession that caused many borrowers to become insolvent during the last five years. Second, the mismanagement of some banks, mostly regional banks (with the exception of MPS, which is the third bank in the country), that did not follow sound practices and in some cases made […]
We all remember the hectic summer and fall of 2008 when the financial system was at the brink of the collapse. Since that time, policymakers have enacted structural reforms to the financial system, but what about the repurchase agreements (repo) market?
A repo is the sale of financial assets coupled with a promise to repurchase the same assets at a […]
Much of the literature related to Federal Open Market Committee (FOMC) decisions focuses on their post-announcement effects. There is ample evidence that asset prices and volatilities only respond to “surprises” – that is, when the actual target decision differs from the market’s expectation mirroring the findings of a substantial body of work considering the effects of macroeconomic announcements.
In addition, […]
There have been a number of warnings that a vote to leave the European Union on 23 June may have adverse effects on the UK stock market, both from public institutions – such as the Treasury and the IMF – and private companies in the financial sector. These predictions suggest that Brexit would reduce the expected profitability of listed […]
Private equity is at a crossroads. A once carefree industry, it is increasingly assailed by regulators and investors demanding lower fees, higher returns and greater financial transparency. Valuations, having risen sharply, may have peaked; the average price paid for assets by US buyout firms in 2015 was 22.4 times earnings, according to data from Bloomberg. The buyout industry had […]
The insurance industry is rarely credited with innovations we now take for granted. The idea for a fire service was brewed up in 17th century coffee houses to insure against arson, pension funds came from the desire to protect the wives of clergymen in the 18th century, and the blueprint for the modern welfare state ultimately emerged from Bismarck’s […]
Whose reputation do investors pay attention to when determining how to value a firm? Is it the reputation of the stock analyst who covers the firm, or is it the company’s reputation? What about the reputation of the CEO?
For instance, when Matthew Boss (a J.P. Morgan professional who has been rated as a star analyst by Institutional Investor magazine) […]
Financial Technology (FinTech) has been one of the fastest growing tech sectors during the past two years. Interest in the sector has led banks, investors, regulators and policymakers alike to interact with FinTech start-ups to better understand what drives their success. This has emerged as an on-going process – the difficulty comes from the fact that similarly to the […]
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