Milton Friedman versus Klaus Schwab – it was a battle between two world views. In 1970, Friedman wrote his seminal essay on the role of the firm effectively arguing that the “business of business is business” and that wider stakeholder considerations can be value-destructive. In 1973, Klaus Schwab’s Davos Manifesto argued that management must also serve employees and society, […]
Is it possible to attribute the banks’ home bias in sovereign exposure to something beyond their externally-imposed (such as moral suasion) or internally-distorted (such as risk-shifting) incentives? Despite the so-called doom loop between the two, could the relationship of banks with their domestic governments have an underexplored silver lining?
These are the questions I pursue in a recent paper. By […]
In the initial public offering (IPO) market, sophisticated issuers with considerable sums at stake acquire underwriting services from a large number of capable and highly competitive investment banks. Neoclassical economics implies that such a market will (well, really, must) reach an efficient equilibrium. Yet, in practice, the IPO market has a number of highly unusual features that has led […]
Large economic and political turbulence occurs in the aftermath of financial crises. What starts as panic in a single financial market or institution usually propagates rapidly to other agents of the economy and might necessitate an urgent and decisive reaction from policymakers. However, it is difficult to predict, a priori, whether the reaction of policymakers to the crisis would […]
With less than two years until Britain leaves the EU, the implications of Brexit for financial stability are of some concern. Two key central bankers have reached opposites conclusions, with Mark Carney worried and Mario Draghi more sanguine. Broadly in line with Draghi, we think Brexit should mostly decrease systemic risk, albeit with a potential for an increase.
Brexit will […]
The context of risk management and risk preparedness has changed in recent years.
We are living through a period of multi-dimensional disruption that is often dubbed as the fourth industrial revolution. Developments in extreme connectivity and extreme automation have consequences beyond the world of technology: business models, industries, markets, regulatory, and governance regimes have been thrown into a flux. […]
In the UK, less than half of science, technology, engineering, and mathematics (STEM) graduates work in so-called ‘STEM occupations’ (such as scientists or engineers). If, as is often thought, all recruiters in ‘non-STEM’ occupations (for example, graphic designers or economists) neither require nor value science and technology skills, and simply like hiring science graduates for their problem solving and […]
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 […]