Central Banks Policy Asynchronous-ity – A Source of New Risk

Since 2009, the key driver of financial markets has been low rates and abundant liquidity which has boosted all asset prices. The total amount of money pumped into global money markets is around US$10-12 trillion, enough to buy each person on earth a widescreen flat TV.  In the great reflation, according to one estimate, over […]

Should Commodity Futures Margins Be Regulated?

Transactions in futures involve two counterparties, the buyer and the seller.  Every counterparty has to put aside the margin, an amount to serve as a collateral deposit in the event that she cannot meet its obligations stemming from the futures contract agreement.  Until recently, futures exchanges had the authority to set and change margin levels […]

Argentina’s Default: A Not-So-Illogical Move

Argentina failed to reach an agreement with its holdout creditors last week, defaulting on its debt for the second time in thirteen years. In this piece for Foreign Policy, I explain why this outcome is not so surprising. You can read the beginning of the piece below:  On July 30, Argentina defaulted on its outstanding debt. The technical […]

China’s Financial Risk

Three years ago I called attention to the NYU Stern Volatility Laboratory. Since then it’s grown into an even more amazing resource, giving anyone access to constantly updated information about financial conditions in dozens of countries around the globe. Of particular interest are recent changes in their measure of the systemic risk posed by financial institutions. The basic […]

Bank Profits—With A Little Help From The Fed!

Global stock prices have rallied significantly since 2009. Financial stocks have increased albeit off a low base, with US banks up by over 200%. But improvements in the fortune of banks may be misleading. To paraphrase George Bernard Shaw, financial markets have substituted the “obsolete fictitious for the contemporary real”. Central bank policies, especially low […]

Revisiting Banking Union in a Single Currency Area (Part 2)

The current banking union framework remains far from ideal if the currency union dimension is taken into account. While decisions so far have been focusing on the moral hazard of banks, these measures fail to solve an additional market failure in the Euro area caused by the moral hazard of governments competing on funding costs, […]

Repo Comes Under the Microscope

Introduction On 29 January 2014, the EU Commission published a legislative proposal for a regulation on reporting and transparency of securities financing transactions[1] (SFTs) and associated FAQ document. The EU Commission is concerned that efforts to reform the structure of EU banks (in the form of the Liikanen proposals – see this blog post for […]

Revisiting Banking Union in a Single Currency Area (Part 1)

Evidence suggests that financial integration in the Euro area is retrenching at a quicker pace than outside the union. Home bias persists. Meanwhile, governments continue to compete on their funding costs via interventions to support ‘their’ banks, avoiding spill over effects on costs of public debt but so distorting the level playing field with massive […]

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