Determinants of Banks’ Home Bias

Drawing on our earlier Economonitor column on home bias and public debt sustainability (Asonuma, Bakhache and Hesse, 2015)[1], this blog briefly examines some of the potential determinants of banks’ home bias in sovereign debt. The favorable treatment of sovereign debt in the regulatory framework is sometimes complemented by policies that further support banks’ increased holdings […]

Is Banks’ Home Bias Good or Bad for Public Debt Sustainability?

Introduction and literature Issues related to the entrenched sovereign-bank nexus, particularly home bias—banks’ holdings of sovereign domestic debt—have gained prominence during the Global Crisis in recent years as public debt was rising especially in the European periphery.1Prompted by foreign investors’ flight as well as cheap Long-Term Refinancing Operations (LTRO) funding from the ECB, many peripheral […]

Recent Studies Reinforce Case for the Liquidity Coverage Ratio

Summary: Drawing mainly on the recent EBA impact assessment, this VOX piece examines the implementation of the Liquidity Coverage Ratio (LCR) in the EU, which is due by December 31st, 2014. The recalibration of the LCR in January 2013 watered down the standard significantly. Nevertheless, banks in the EU still feature substantial liquidity risk exposure. To […]

The Future of Europe-Wide Stress Testing

The recent IMF (2013a) assessment of Europe’s financial sector found that much has been achieved to address the recent financial crisis in Europe, but vulnerabilities remain, and intensified efforts are needed across a wide front [1]. This column focuses on the role played by Europe-wide stress tests. Selective asset quality reviews, and a high degree of transparency […]

Balance-Sheet Repairs in European Banks

The recent IMF assessment of Europe’s financial sector found that much has been achieved to address the recent financial crisis in Europe, but vulnerabilities remain, and intensified efforts are needed across a wide front, one of which being bank balance sheet repair. This column looks at progress with bank restructuring in Europe. Much has been […]

State Aid and Europe’s Financial Sector

The recent IMF assessment of Europe’s financial sector found that much has been achieved to address the recent financial crisis in Europe, but vulnerabilities remain, and intensified efforts are needed across a wide front: Bank restructuring and resolution, fast and sustained progress toward an effective Single Supervisory Mechanism (SSM) and the banking union (BU), and further steps toward […]

Scenes From A Central Bank: A Turkish Tale in Two Acts

In mid 2010 the Turkish central bank decided to introduce a policy that increased uncertainty in interest rates hoping that would stop foreign investors who were pouring money into the country in search of a quick buck. That’s right. ‘Keep calm and carry on’ was replaced by ‘Keep them guessing.’ The Turkish economy was overheating.  Money poured into […]

Macro-Prudential Policies in Turkey

Turkey’s economy has long been subject to boom-bust cycles linked to capital flows. And while the Turkish banking system continues to perform well, it faces some structural vulnerabilities that can pose financial stability risks. In common with peer countries, Turkey has been developing and implementing a macroprudential policy (MPP) framework, which has had some success […]

Financial Spillovers and Deleveraging: The Case of Romania

This blog looks at foreign bank deleveraging and examines how Romania’s asset prices have been impacted from European crisis spillovers.[1] Foreign bank deleveraging has been orderly and moderate so far in Romania unlike in some peer countries. Findings from the spillover analysis suggests that Romania’s asset markets tend to co-move more closely with its regional […]

Room for Manoeuvre: The Deleveraging Story of Eurozone Banks Since 2008

Europe’s banks are raising their capital-asset ratios to meet regulatory requirements. Many fear that this will trigger a contractionary shrinking of assets. This column presents new evidence that much of the ratio increases since 2009 have come fro new capital rather than reducing exposure to the real economy. Investor trust in European banks has dwindled, […]

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