EconoMonitor

Ed Dolan's Econ Blog

Roubini Topic Archive: Financial Regulation

  • The Case for Breaking Up Too-Big-To-Fail Banks

    The presidential campaign has brought new attention to the problem of banks that are too big to fail (TBTF). As everyone agrees, the largest banks are bigger than ever. As the following chart shows, the share of all bank assets held by the four largest banks rose from 33 percent in 2007 to 41 percent […]

    More ›

  • Why Latvia’s Decision to Join the Euro Makes Sense

    Last week’s convergence report from the European Commission gave Latvia the green light to become the eighteenth member of the eurozone as of next January. “The eurozone is again a club with a queue–not at the exit but at the entrance,” crowed Herman Van Rompuy, president of the European Council. “Joining the eurozone will foster […]

    More ›

  • 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” […]

    More ›

  • 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 […]

    More ›

  • 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 […]

    More ›

  • 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 […]

    More ›

  • 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, […]

    More ›

  • Are Financial Regulators Flying Blind? Would Better “Risk Topography” Help?

    Data on the capital and liquidity of banks are the navigation aids that regulators depend on to avoid another financial crash. Improvements to these indicators, adopted last year by the Basel Committee on Bank Supervision, are among the most heralded regulatory reforms since the 2008 crisis. But what if the instruments are faulty, even in their upgraded form? If so, regulators are flying blind, and our chances of avoiding another crash are slim. What can be done?

    A recent paper by three prominent financial economists suggests one possible answer: a sort of Manhattan project that would map out a “risk topography” of the financial system. The authors are Markus K. Brunnermeier of Princeton, Gary Gorton of Yale, and Arvind Krishnamurthy of Northwestern. All three are also affiliated with the National Bureau of Economics Research. (I will refer to the team in what follows as BG&K.)

    More ›

  • 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.

    More ›

  • The Case Against the Mortgage Interest Tax Deduction

    As the US economy struggles to recover from recession and cope with a budget crisis, all past policies must be put on the table for review and revision. Even the sacred cows. Even the mortgage interest deduction.

    A new report from the OECD, which deserves more attention than it has been getting, explains the role badly-designed housing policies played in triggering the recent economic crisis. As the report shows, housing policy varies greatly among developed economies. There are some areas where the United States scores well. For example, it has a relatively liberal regime of building and land use permits. As a result, the supply of housing responds more to rising prices than in other OECD countries. Also, with the exception of some urban areas like New York and San Francisco, the US rental housing market has a healthier balance between the rights of landlords and tenants. However, in the area of tax treatment of owner-occupied housing, the United States comes off poorly.

    More ›

Most Read | Featured | Popular