Finance

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    Why European firms need more securitised bonds (not bank loans)

Why European firms need more securitised bonds (not bank loans)

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 […]

November 15th, 2016|Finance, Markus Demary|0 Comments|
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    What Donald Trump could do to ‘make America great again’ without destroying free trade

What Donald Trump could do to ‘make America great again’ without destroying free trade

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 […]

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    Hedge funds are heavily involved in the distressed debt market

Hedge funds are heavily involved in the distressed debt market

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 […]

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    A proposal to help make credit ratings as accurate as possible

A proposal to help make credit ratings as accurate as possible

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 […]

Fintech’s greatest promise may be in the developing world

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 […]

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    Now Indonesia has a sovereign wealth fund – and it won’t be the last

Now Indonesia has a sovereign wealth fund – and it won’t be the last

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 […]

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    Untied to economic fluctuations, insurers are less likely to generate systemic risks

Untied to economic fluctuations, insurers are less likely to generate systemic risks

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 […]

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    New evidence shows the characteristics of financial cycles

New evidence shows the characteristics of financial cycles

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 […]

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    ECB money and credit data releases help markets improve rate expectations

ECB money and credit data releases help markets improve rate expectations

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 […]

Low volatility makes a financial crisis more likely

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 […]

Rush to emerging-markets debt is wiring a time bomb

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 […]

Is Europe spending too much?

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 […]

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    The Italian banking crisis: where it comes from and where it’s going

The Italian banking crisis: where it comes from and where it’s going

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 […]

Repos: the missing piece in financial market reform

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 […]

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    Ahead of Fed decisions, markets are more forward-looking than we thought

Ahead of Fed decisions, markets are more forward-looking than we thought

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, […]

Mixed fortunes for private equity

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 […]

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    InsureTech firms look to disrupt, but not to overtake incumbents

InsureTech firms look to disrupt, but not to overtake incumbents

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 […]

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    A trusted analyst’s opinion is worth gold for a company’s investors

A trusted analyst’s opinion is worth gold for a company’s investors

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) […]

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    Banks’ cautious approach to financial startups has matured

Banks’ cautious approach to financial startups has matured

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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    Most countries in the ’10 most likely’ to adopt bitcoin are in the developing world

Most countries in the ’10 most likely’ to adopt bitcoin are in the developing world

Which markets have the greatest potential for bitcoin adoption?

With over $250m of venture capital invested in bitcoin startups to date, much is at stake in understanding which markets will prove most fertile for bitcoin. In addition, many governments and regulatory agencies are seeking to better understand the economic opportunities presented by bitcoin along with the perceived risks.

The new Bitcoin Market Potential Index […]