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Roubini Topic Archive: Banks
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Slovenia Is Not The Next Cyprus, but That Doesn’t Mean It’s Not in Trouble
Leo Tolstoy wrote that all happy families are alike, but each unhappy family is unhappy in its own way. Much the same is true of economies. Maybe that was what EU Commission President Jose Barosso had in mind when he said recently that, “it is a completely different situation in Cyprus and in Slovenia.” Different, [...]
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Follow-up: Further Program Notes for the Cyprus Banking Drama
Last Friday I sketched out some program notes for the Cyprus banking crisis. The notes explained the origin of the banks’ losses (Act 1) and the tools that regulators could choose from to resolve the crisis (Act 2). Now the curtain has gone up on Act 3. The government of Cyprus and the EU-ECB-IMF “Troika” [...]
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Bailouts, Bail-ins, Haircuts and All That: Program Notes for the Cyprus Banking Drama
Ireland, Iceland, now Cyprus—the story of small countries with oversized banking systems is all too familiar. There is never a shortage of commentary when a crisis erupts, but much of it assumes a working knowledge of financial terms and concepts. General readers are left wondering—What is a haircut? What is the difference between a bailout [...]
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Are Banks Safe Enough? Do we Really Know? Risk Weighting, Regulatory Arbitrage, and other Issues
During the global financial crisis, people in the United States, Ireland, Iceland, and many other countries learned that undercapitalized banks can spell trouble for the whole economy. The Basel II rules that were supposed to prevent widespread bank failures proved inadequate. In response to the crisis, the world’s central bankers and bank regulators started work [...]
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What is the Liquidity Coverage Ratio for Banks and why should we Care that it has been Watered Down?
“Massive softening of Basel bank rules” read the headline in the print edition of Monday’s Financial Times. “Betrayed by Basel,” wrote Simon Johnson in a blistering post on his New York Times blog. At issue was a rule called the liquidity coverage ratio promulgated by the Basel Committee on Banking Supervision. If you are a [...]
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Simplicity vs. Compexity, Goodhart’s Law, and the Financial Regulator’s Dilemma
One of the most interesting papers to come out of the Jackson Hole conference this year, both in title and content, was “The Dog and the Frisbee.” The paper, presented by Andrew G. Haldane, Executive Director for Financial Stability at the Bank of England and co-authored by Vasileios Madouros, an economist at the same institution, [...]
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Is Financial Reform Working, or Will it Make Things Worse?
The 2008 financial crash gave rise to a world-wide call for a review of regulations. In the United States, the EU, and international forums like the Basel Committee on Bank Supervision, the conclusion was reached that regulators had allowed banks and other financial institutions to take risks well in excess of those justified by the public interest. Legislatures were brought into the act where needed to change the regulatory framework. Everyone vowed to fix things.
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Could an Obscure Loophole Cause the Euro to Go the Way of the Ruble?
Could an obscure loophole known as emergency liquidity assistance (ELA) lead to the collapse of the euro area, much as the post-Soviet ruble area collapsed in 1991-1993? Some people seem to think so. The Irish Independent says that the use of ELA by the Irish central bank amounts to “printing its own money.” Tracy Alloway, writing on ft.com/alphaville, emphasizes the secret, hush-hush nature of ELA operations. One blogger goes so far as to speak of hyperinflation. Is there really something fishy going on? And what does ELA have to do with the ruble?
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Could QE2 Cause the Fed to Go Broke?
The Fed’s new program of quantitative easing, QE2, once again raises an old question: Can central banks go broke? Conventional analysis, aptly summarized by Willem Buiter in a 2008 report, says no, or at least, hardly ever. However, when we look closely, the conventional analysis is not altogether reassuring. Although the Fed most assuredly is not going to go broke, preventing that from happening could raise difficult political issues and perhaps even threaten the Fed’s independence.
