Are Banks Too Large? Maybe, Maybe Not

By Luc Laeven, Lev Ratnovski, and Hui Tong Large banks were at the center of the recent financial crisis. The public dismay at costly but necessary bailouts of “too-big-to-fail” banks has triggered an active debate on the optimal size and range of activities of banks. But this debate remains inconclusive, in part because the economics of an “optimal” […]

French Banks Play Russian Roulette

In the fourth quarter of last year, with tensions rising between Russia and the West over Ukraine, U.S., German, UK, and Swedish banks aggressively dialed down their credit exposures in Russia.  But as the graphic above shows, French banks, which have by far the highest exposures to Russia, barely touched theirs.  At $50 billion, this […]

Searching For Banking Regulation’s Godiva

The Federal Reserve is mulling a new set of tougher banking rules to boost the odds that the financial system will remain sufficiently liquid when the next crisis strikes. It’s a worthy goal, if only because one day another event will surely arrive. But all the usual caveats apply when it comes to engineering outcomes in economics, starting with […]

China Moves Against Shadow Banking

China is slated to release its latest estimates for banking lending and aggregate financing in the coming days. Over the past 12-months bank lending accounted for about 53% of the total financing, the remainder comes from the shadow banking sector. In China, shadow banking often refers to the trust companies, which are non-bank lenders. At the […]

Yes, Paul, Banks Do Create Money; and Bill does TED!

Readers know that MMT-ers and Minskyans drive Paul Krugman crazy by insisting that banks really do “create money out of thin air”, and that his “deposit multiplier” story has got it all wrong. See my last post on that here: http://www.economonitor.com/lrwray/2014/02/19/minsky-on-banking-early-work-and-critiques-by-krugman-and-horizontalists-revisited/. The Bank of England has just released a series of papers that are more-or-less on […]

Riding the Waves

The volatility in emerging markets has abated a bit, but may resume in the fallout of the Russian takeover of the Crimea. The capital outflows and currency depreciations experienced in some emerging market nations have been attributed to their choice of policies. But their economic situations reflect the domestic impact of capital inflows as well […]

What Do Bank Share Prices Tell Us About Chinese Growth?

Tom Holland had an interesting piece in the South China Morning Post three weeks ago in which he discusses the low valuations of Chinese banks. About a decade ago, if I remember correctly, Chinese banks were trading between three and four times book. Those valuations have dropped considerably since then: On Monday, the weighted average price-book value ratio for […]

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, […]