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News

April 2017: New VoxEU column

Mapping the interconnectedness between EU banks and shadow banking entities.


April 2017: FSB publishes consulting paper

Proposed Framework for Post-Implementation Evaluation of the Effects of the G20 Financial Regulatory Reforms.


April 2017: New VoxEU column

presents an improved indicator to measure individual economies’ macroprudential policy capacity.


April 2017: The G20 Financial Resilience Taskforce

expresses "the need for a broader and more coordinated capital flow management strategy".


March 2017: BIS Quarterly Review

Covering the growth of non-US banks' global dollar funding and the decline of global financial flows.


January 2017: New Issue of the Interconnectedness Newsletter

A new release of the interconnectedness newsletter available for download.


December 2016: FSB publishes progress report

and 2017 workplan to assess and address the decline in correspondent banking


show more ...

Open Call for Papers


3rd IWH-FIN-FIRE Workshop on "Challenges to Financial Stability"

The Halle Institute for Economic Research (IWH) – Member of the Leibniz Association and the FIRE research centre at Frankfurt School of Finance & Management
Halle (Saale), August 28-29, 2017  
Keynote Speakers: Charles Calomiris (Columbia Business School) and Martin Hellwig (Max Planck Institute for Research on Collective Goods, Bonn)
Deadline CfP: April 28, 2017



8th Economics & Finance Conference

The International Institute of Social and Economic Sciences
London, May 29 - June 1, 2017  
University of London
Deadline CfP: April 29, 2017



9th European Banking Center Network Conference

Tilburg University in cooperation with CEPR
Lancaster, September 29-30, 2017  
Keynote Speaker: Marco Pagano (University of Naples and CEPR)
Deadline CfP: May 1, 2017



2017 Conference on Derivatives and Volatility

Chicago Board Options Exchange
University of Greenwich - Department of International Business and Economics
Chicago IL, November 9-10, 2017  
Deadline CfP: May 12, 2017



4th Annual Conference

The Yale Program on Financial Stability (YPFS)
New Haven, July 28, 2017  
Yale School of Management
Deadline CfP: May 15, 2017



ECB Workshop

Monetary policy in non-standard times
Frankfurt/Main, September 11-12, 2017  
Keynote Speakers: Viral Acharya (Reserve Bank of India), Gauti Eggertsson (Brown University)
Deadline CfP: May 15, 2017



9th Baffi Carefin International Banking Conference "Banking and Financial Regulation"

BAFFI CAREFIN Centre for Applied Research on International Markets, Banking, Finance and Regulation at Universita Bocconi in Milan
Milan, October 9, 2017  
Keynote Speaker: Yves Mersch, Member of the Executive Board, European Central Bank
Deadline CfP: May 15, 2017



2017 Federal Reserve Stress Testing Research Conference

Federal Reserve Bank of Boston
Boston, MA, October 3, 2017  
Deadline CfP: May 15, 2017



Joint European Central Bank and Magyar Nemzeti Bank research workshop

“Macroprudential instruments: effectiveness and interactions”
Budapest, July 10, 2017  
Keynote Speakers: Reint Gropp (Halle Institute for Economic Research), Raphael Auer (Bank for International Settlements)
Deadline CfP: May 19, 2017



12th Annual Seminar on Risk, Financial Stability and Banking

Banco Central do Brasil
Sao Paulo, August 9-10, 2017  
Deadline CfP: May 31, 2017



16th International Conference on Credit Risk Evaluation

Interest Rates, Growth and Regulation
Credit 2017
Venice, September 28-29, 2017  
Keynote speakers: Thomas Philippon (University of New York), Manju Puri (Duke University), Jean-Paul Renne (University of Lausanne)
Deadline CfP: May 31, 2017



20th Annual Research Conference

"Fiscal and Monetary Policy in a changing Economic and Political Environment"
De Nederlandsche Bank
Frankfurt, October 9-10, 2017  
Keynote speakers: John Cochrane (Stanford University), Gauti Eggertsson (Brown University), Chris Sims (Princeton University)
Deadline CfP: May 31, 2017



4th SAFE Asset Pricing Workshop

The Research Center „Sustainable Architecture for Finance in Europe“ (SAFE)
Frankfurt, September 26, 2017  
Deadline CfP: June 1, 2017



18th Jacques Polak Annual Research Conference

"The Global Financial Cycle"
The International Monetary Fund
Washington DC, November 2-3, 2017  
Deadline CfP: June 1, 2017



Paris December 2017 Finance Meeting

EUROFIDAI (European Financial Data Institute) and ESSEC Business School with the participation of AFFI (French Finance Association)
Paris, December 21, 2017  
Deadline CfP: June 5, 2017



Finance and Economic Growth in the Aftermath of the Crisis

Department of Economics, Management and Quantitative Methods (DEMM) of the University of Milan and the Department of Management (DM) of the Polytechnic University of Marche
Milan, September 11-13, 2017  
Keynote Speakers: Costas Azariadis (Washington University, St. Louis, USA), Guido Cozzi (University of St. Gallen, Switzerland), Herbert Dawid (University of Bielefeld, Germany), Domenico Delli Gatti (University of the Sacred Hearth, Italy), Stefano Neri (Bank of Italy)
Deadline CfP: June 15, 2017



4th Joint Bank of Canada/Banco de Espana Workshop

on "International Financial Markets"
Bank of Canada and Banco de Espana
Ottawa, September 21-22, 2017  
Deadline CfP: June 15, 2017



17th Annual Fall Research Conference

FDIC's Center for Financial Research, Journal for Financial Services Research (JFSR)
Arlington, Virginia, September 7-8, 2017
Deadline CfP: June 19, 2017



2nd Conference on Network Models and Stress Testing for Financial Stability

Banco de México, University of Zurich, Bank of Canada, Journal of Financial Stability
Mexico City, September 26-27, 2017
Keynote speaker: Stephen G. Cecchetti (Brandeis University, USA)
Deadline CfP: June 30, 2017



ECB workshop

on money markets, monetary policy implementation and central bank balance sheets
Frankfurt, November 6-7, 2017  
Deadline CfP: July 31, 2017



5th Paris Financial Management Conference

IPAG Business School
Paris, December 18-20, 2017  
Keynote Speakers: Alex Edmans (London Business School, UK), Rossen Valkanov (University of California San Diego, USA)
Deadline CfP: July 31, 2017



30th Australasian Finance and Banking Conference (AFBC)

Institute of Global Finance and the School of Banking and Finance, UNSW Business School
Sydney, December 13-15, 2017  
Deadline CfP: August 18, 2017



5th Bordeaux Workshop in International Economics and Finance

Laboratory for Analysis and Research in Economics and International Finance (LAREFI)
Bordeaux, December 8, 2017  
Emerging countries’ economic and financial vulnerabilities - 10 years after the Subprime crisis
Keynote Speakers: Jean-Joseph Boillot-Cepii, Ramon Moreno-Bis
Deadline CfP: September 18, 2017


Conferences


Workshop “Finance and Development“

German Institute for Economic Research
(DIW Berlin Deutsches Institut für Wirtschaftsforschung e.V.)
Berlin, May 4-5, 2017  



The 2017 Global Finance Conference

Hempstead, May 4-6, 2017  
The Global Finance Association and the Frank G. Zarb School of Business at Hofstra University in Hempstead, New York



SFS Cavalcade North America 2017 Conference

Vanderbilt University
Nashville, May 15 - 18, 2017  



RCEA Macro-Money-Finance Workshop

The Rimini Centre for Economic Analysis
Rimini, May 18 - 19, 2017  
Keynote Speaker: Karim Abadir (University College, London)



1st FENS Workshop "Financial Economics and Network Science"

Financial Economics and Networks Science
University of Greenwich - Department of International Business and Economics
London, May 19, 2017  
Old Royal Naval College
Keynote Speakers: Dr. Fabio Caccioli (UCL), Prof. Guido Caldarelli (IMT), Dr. Larry Su (Coventry University), Prof. Menelaos Karanasos (Brunel University)



First Conference on Financial Stability

Banco de España together with Centro de Estudios Monetarios y Financieros (CEMFI)
Madrid, 24-25 May 2017  
Banco de España
Keynote Speaker: Mario Draghi (President of the European Central Bank)



21st International Conference on Macroeconomic Analysis, and International Finance

Crete, May 25-27, 2017  



7th International Conference of the Financial Engineering and Banking Society

Financial Markets, Innovation and Regulation
Glasgow, June 1-3 June 2017  
Strathclyde Business School and the Centre for Financial Regulation and Innovation (CFRI)
Keynote Speakers: Jonathan Crook (University of Edinburgh Business School) and Raghavendra Rau(Cambridge Judge Business School)



2017 FIRS Conference

Lisbon, June 5-7, 2017  
The Financial Intermediation Research Society
Keynote speaker: Robert Townsend, MIT.



INFINITI 2017

València, June 12-13 2017  



Regulating Financial Markets

Deutsche Bundesbank, SAFE, ZEW and CEPR
Frankfurt, June 12–13, 2017  
House of Finance, Goethe University Frankfurt
Keynote Speaker: Amit Seru (Stanford University)



6th MoFiR Workshop on Banking

Money and Finance Research group (MoFiR), the Bank of England and the European Bank for Reconstruction and Development (EBRD)
London, June 15-16 2017  



Marstrand Finance Conference

Centre for Finance, University of Gothenburg
Marstrand Island, June 17 and 19, 2017  



IM-TCD-ND Workshop
International Macroeconomics and Capital Flows

Dublin, June 19-20, 2017
Trinity College Dublin and University of Notre Dame



2017 Annual Meeting

Western Finance Association
Whistler, June 25-28 2017  



IBEFA Summer Meeting at the 2017 WEAI Conference

The International Banking, Economics and Finance Association (IBEFA) 
San Diego, June 25-29, 2017  
Deadline CfP: January 27, 2017.



17th Doctoral Meetings in International Trade and International Finance

Villeneuve d’Ascq Cedex, June 26-27 2017  
The Research in International Economics and Finance (RIEF) network
Keynotes: Florin Bilbiie (Paris School of Economics and CEPR) and Kalina Manova (University of Oxford and CEPR)



IAAE 2017

Sapporo, June 26-29, 2017  
International Association for Applied Econometrics



34th International Symposium on Money, Banking and Finance

Annual meeting of the European Research Group (GdRE) on Money Banking and Finance.
Paris, 5-6 July 2017  
University Paris Ouest Nanterre La Défense
Keynote Speakers: Philippe Bacchetta (HEC Lausanne and Swiss Finance Institute), Thorsten Beck (Cass Business School) and Michael Bordo (Rutgers University)



CEBRA’s Boston Policy Workhsop

Boston, July 9, 2017  
The Central Bank Research Association (CEBRA) and the Federal Reserve Bank of Boston’s Research and Supervision Departments



IFABS 2017 Oxford Conference

International Finance and Banking Society
"Towards an Integrated View of Financial Regulation: Key Lessons from the Crisis and Future Challenges"
Oxford, July 15-17, 2017  
Saïd Business School, University of Oxford
Keynotes: Nellie Liang (Board of Governors of the Federal Reserve System) and H Peyton Young (University of Oxford)



2017 Annual Meeting of the Central Bank Research Association (CEBRA)

Hosted by the Bank of Canada
Featuring BIS, IMF, WB, and NBER special sessions
Ottawa, July 20-21, 2017  



European System of Central Banks' Day-Ahead Conference

Lisboa, August 20, 2017  
The European System of Central Banks (ESCB) and Banco de Portugal (BdP)



EEA - ESEM

European Economic Association (EEA) and the Econometric Society
Lisbon, August 21-25 2017  
University of Lisbon
Keynotes: John Van Reenen (MIT Sloan School of Management), Amy Finkelstein (MIT), Philippe Aghion (College de France and London School of Economics)



44th European Finance Association (EFA) Annual Meeting

Mannheim, August 23-26, 2017 
European Finance Association (EFA)
Keynote speaker: Campbell R. Harvey (Duke University and NBER)



Northern Finance Association Conference 2017

Halifax, September 17, 2017  
Northern Finance Association
Keynote Speaker: Robert L. McDonald (Northwestern University)


The International Banking Library

The International Banking Library is a web-based platform for the exchange of research on cross-border banking. It provides access to data sources, academic research, both theoretical and empirical on cross-border banking, as well as information on regulatory initiatives. The International Banking Library is associated with the International Banking Research Network (IBRN), a research network of Central Banks worldwide. The International Banking Library addresses researchers, policymakers, and students of international banking and economics in search of comprehensive information on international banking issues.


At the Research Frontier     

CEPR Discussion Paper

Authors: Leonardo Gambacorta, Stefano Schiaffi, Adrian van Rixtel
Date: April 2017
Abstract: This paper investigates the foreign funding mix of globally active banks. Using BIS international banking statistics for a panel of 12 advanced economies, we detect a structural break in international bank funding at the onset of the global financial crisis. In their post-break business model, banks rely less on cross-border liabilities and, instead, tap funds from outside their jurisdictions by making more active use of their subsidiaries and branches, as well as inter-office accounts within the same banking group.

NBER Working Paper

Authors: Falk Bräuning, Victoria Ivashina
Date: April 2017
Abstract: Global banks use their global balance sheets to respond to local monetary policy. However, sources and uses of funds are often denominated in different currencies. This leads to a foreign exchange (FX) exposure that banks need to hedge. If cross-currency flows are large, the hedging cost increases, diminishing the return on lending in foreign currency. We show that, in response to domestic monetary policy easing, global banks increase their foreign reserves in currency areas with the highest interest rate, while decreasing lending in these markets. We also find an increase in FX hedging activity and its rising cost, as manifested in violations of covered interest rate parity.

CEPR Working Paper

Authors: Ester Faia, Gianmarco Ottaviano and Irene Sanchez Arjona
Date: April 2017
Abstract: We exploit an original dataset on 15 European banks classified as G-SIBs by the BIS to assess whether expansion in foreign markets increases their riskiness, and through which channels that eventually happens. We find that there is a strong negative correlation between bank risk (proxied with CDS price or loan loss provisions) and foreign expansion. The same is true when using systemic risk metrics (marginal expected shortfalls or CoVaR). On the one hand, banks that expand abroad more have lower riskiness so that, given individual bank riskiness, their expansion reduces the (weighted) average riskiness of the banks' pool. On the other hand, foreign expansion of any given bank makes the bank and thus the banks' pool less risky. In terms of the channels, diversification, competition and regulation are all important. Expansion in destination countries with different business cycle co-movement and with stricter regulations than the origin country decreases a bank's riskiness. As for competition, expansion decreases riskiness only when competition in the origin country is less intense than in the destination countries.

Bank of England Staff Working Paper

Authors: Stijn Claessens, Omar Hassib and Neeltje van Horen
Date: April 2017
Abstract: This paper provides new insights into how financial globalization relates to international trade. Exploiting unique, time-varying, bilateral data on foreign bank ownership for many countries, we show that, for emerging markets, greater local foreign bank presence, especially from the importing country, is associated with higher exports in sectors more dependent on external finance. The association does not arise for advanced countries and is stronger when institutions are weaker. The presence of a bank from the importing country is also associated with higher exports in sectors with more opaque products. Results are robust to controlling for domestic financial development and a full set of fixed effects. An event study confirms findings and shows impacts to be more pronounced when a foreign bank enters through an M&A. Imports also increase after entry, but less so. Overall, results suggest that foreign banks facilitate trade in emerging markets by increasing the availability of external finance and helping overcome information asymmetries.

CEPR Working Paper

Authors: Ester Faia and Gianmarco Ottaviano
Date: March 2017
Abstract: Direct involvement of global banks in local retail activities can reduce risk-taking by promoting local competition. We develop this argument through a model in which multinational banks operate simultaneously in different countries with direct involvement in imperfectly competitive local deposit and loan markets. The model generates predictions that are consistent with the foregoing argument as long as the expansionary impact of competition on multinational banks'aggregate profits through larger scale is strong enough to o¤set its parallel contractionary impact through lower loan-deposit return margin (a result valid with both perfectly and imperfectly correlated loans'risk). When this is the case, banking globalization also moderates the credit crunch following a deterioration in the investment climate. Compared with multinational banking, the beneficial effect of cross-border lending on risk-taking is weaker.

BIS Working Paper

Authors: Leonardo Gambacorta, Adrian Van Rixtel and Stefano Schiaffi
Date: March 2017
Abstract: This paper investigates the foreign funding mix of globally active banks. Using BIS international banking statistics for a panel of 12 advanced economies, we detect a structural break in international bank funding at the onset of the global financial crisis. In their post-break business model, banks rely less on cross-border liabilities and, instead, tap funds from outside their jurisdictions by making more active use of their subsidiaries and branches, as well as inter-office accounts within the same banking group.

IMF Working Paper

Authors: Robert Cull, Maria Soledad Martinez Peria and Jeanne Verrier
Date: March 2017
Abstract: This paper presents recent trends in bank ownership across countries and summarizes the evidence regarding the implications of bank ownership structure for bank performance and competition, financial stability, and access to finance. The evidence reviewed suggests that foreign-owned banks are more efficient than domestic banks in developing countries, promote competition in host banking sectors, and help stabilize credit when host countries face idiosyncratic shocks. But there are tradeoffs, since foreign-owned banks can transmit external shocks and might not always expand access to credit. The record on the impact of government bank ownership suggests few benefits, especially for developing countries.

IMF Working Paper

Authors: Leonardo Maria Sole Pagliari and Swarnali Ahmed Hannan
Date: March 2017
Abstract: Capital flow volatility is a concern for macroeconomic and financial stability. Nonetheless, literature is scarce in this topic. Our paper sheds light on this issue in two dimensions. First, using quarterly data for 65 countries over the period 1970Q1-2016Q1, we construct three measures of volatility, for total capital flows and key instruments. Second, we perform panel regressions to understand the determinants of volatility. The measures show that the volatility of all instruments is prone to bouts, rising sharply during global shocks like the taper tantrum episode. Capital flow volatility thus remains a challenge for policy makers. The regression results suggest that push factors can be more important than pull factors in explaining volatility, illustrating that the characteristics of volatility can be different from those of the flows levels.

CEPR Working Paper

Authors: Jorge Abad, Marco D'Errico, Neill Killeen, Vera Luz, Tuomas Peltonen, Richard Portes and Teresa Urbano
Date: March 2017
Abstract: This paper provides a unique snapshot of the exposures of EU banks to shadow banking entities within the global financial system. Drawing on a rich and novel dataset, the paper documents the cross-sector and cross-border linkages and considers which are the most relevant for systemic risk monitoring. From a macroprudential perspective, the identification of potential feedback and contagion channels arising from the linkages of banks and shadow banking entities is particularly challenging when shadow banking entities are domiciled in different jurisdictions. The analysis shows that many of the EU banks' exposures are towards non-EU entities, particularly US-domiciled shadow banking entities. At the individual level, banks' exposures are diversified although this diversification leads to high overlap across different types of shadow banking entities.

IMF Working Paper

Authors: Joseph E. Gagnon, Tamim Bayoumi, Juan M. Londono, Christian Saborowski and Horacio Sapriza
Date: March 2017
Abstract: This paper explores the effects of unconventional monetary and exchange rate policies. We find that official foreign asset purchases have large effects on current accounts that diminish as capital mobility rises and spill over to financially integrated countries. There is an additional effect through the stock of central bank assets. Domestic asset purchases have an effect on current accounts only when capital mobility is low. We also find that rising US bond yields drive foreign yields, stock prices and depreciations, but less so on days of policy announcements. We develop a theoretical model that is broadly consistent with our results.

CEPR Working Paper

Authors: Ayhan Kose, Csilla Lakatos, Franziska Ohnsorge, Marc Stocker
Date: February 2017
Abstract: This paper analyzes the role of the United States in the global economy and examines the extent of global spillovers from changes in U.S. growth, monetary and fiscal policies, and uncertainty in its financial markets and economic policies. Developments in the U.S. economy, the world's largest, have effects far beyond its shores. A surge in U.S. growth could provide a significant boost to the global economy. Tightening U.S. financial conditions -whether due to contractionary U.S. monetary policy or other reasons- could reverberate across global financial markets, with adverse effects on some emerging market and developing economies that rely heavily on external financing. In addition, lingering uncertainty about the course of U.S. economic policy could have an appreciably negative effect on global growth prospects. While the United States plays a critical role in the world economy, activity in the rest of the world is also important for the United States.

CEPR Working Paper

Authors: Yusuf Soner Baskaya, Julian di Giovanni, Sebnem Kalemli-Ozcan, Mehmet Fatih Ulu
Date: February 2017
Abstract: We show that capital inflows are important drivers of domestic credit cycles using a firm-bank-loan level dataset for a representative emerging market. Instrumenting inflows by changes in global risk appetite (VIX), we find that a fall in VIX leads to a large decline in real borrowing rates and an expansion in credit supply. Estimates explain 40% of observed cyclical corporate credit growth. The OLS-elasticity of interest rates vis-à-vis capital inflows is smaller than the IV-elasticity. Banks with higher noncore funding offer relatively lower rates to low net worth firms, but do not extend more credit to them given collateral constraints.

CEPR Working Paper

Authors: Yusuf Soner Baskaya, Julian di Giovanni, Sebnem Kalemli-Ozcan, José Luis Peydró and Mehmet Fatih Ulu
Date: February 2017
Abstract: We examine the role of the international credit channel in Turkey over 2005-2013. We show that larger, more capitalised banks with higher non-core liabilities increase credit supply when capital inflows are higher. This result is stronger for domestic banks relative to foreign banks and survives during the crisis period of post 2008, when foreign banks in general stop lending in emerging markets and retreat to their home countries. By decomposing capital inflows into bank and non-bank flows, we show the importance of domestic banks' external borrowing for domestic credit growth.

IMF Working Paper

Authors: Bennett W Sutton, Diva Singh and Luc Eyraud
Date: January 2017
Abstract: The timing is ripe to pursue greater regional financial integration in Latin America given the withdrawal of some global banks from the region and the weakening of growth prospects. Important initiatives are ongoing to foster financial integration. Failure to capitalize on this would represent a significant missed opportunity. This paper examines the scope for further global and regional financial integration in Latin America, based on economic fundamentals and comparisons to other emerging regions, and quantifies the potential macroeconomic gains that such integration could bring. The analysis suggests that closing the financial integration gap could boost GDP growth be ¼ - ¾ percentage point in these countries, on average.

BIS Note

Authors: Nikola Tarashev, Fabrizio Zampolli, Matthias Lörch and Anamaria Illes
Date: December 2016
Abstract: One aspect of resilience that is often underappreciated concerns financial imbalances. A resilient economy absorbs exogenous shocks and recovers quickly. But resilience also hinges on policies that contain the build-up of financial imbalances and mitigate the fallout of their correction, ie policies that tackle the financial cycle head on. This note discusses the nature of the financial cycle, its monitoring and the economic implications of booms and busts. It argues for a macro-financial stability framework, which accounts for both aspects of resilience. In this framework, prudential, monetary and fiscal policies complement each other in systematically leaning against the financial cycle.

CEPR Working Paper

Authors: Andrew Haldane, Matt Roberts-Sklar, Tomasz Wieladek and Chris Young
Date: December 2016
Abstract: In the past decade or so, a number of central banks have purchased assets financed by the creation of central bank reserves as a tool for loosening monetary policy - a policy often known as "quantitative easing" or "QE". The first half of the paper reviews the international evidence on the impact on financial markets and economic activity of this policy. It finds that these central bank balance sheet expansions had a discernible and significant impact on financial markets and the economy. The second half of the paper provides new empirical analysis on the macroeconomic impact of central bank balance sheet expansions, across time and countries. It finds three key results. First, it is only when central bank balance sheet expansions are used as a monetary policy tool that they have a significant macro-economic impact. Second, there is evidence for the US that the effectiveness of QE may vary over time, depending on the state of the economy and liquidity of the financial system. And third, QE can have strong spill-over effects cross-border, acting mainly via financial channels. For example, the impact of US QE on UK economic activity may be as large as the impact on US economic activity.

NBER Working Paper

Authors: Claudia M. Buch and Linda Goldberg
Date: December 2016
Abstract: The development of macroprudential policy tools has been one of the most significant changes in banking regulation in recent years. In this multi-study initiative of the International Banking Research Network, researchers from fifteen central banks and two international organizations use micro-banking data in conjunction with a novel dataset of prudential instruments to study international spillovers of prudential policy changes and their effects on bank lending growth. The collective analysis has three main findings. First, the effects of prudential instruments sometimes spill over borders through bank lending. Second, international spillovers vary across prudential instruments and are heterogeneous across banks. Bank-specific factors like balance sheet conditions and business models drive the amplitude and direction of spillovers to lending growth rates. Third, the effects of international spillovers of prudential policy on loan growth rates have not been large on average. However, our results tend to underestimate the full effect by focusing on adjustment along the intensive margin and by analyzing a period in which relatively few countries implemented country-specific macroprudential policies.

IMF Working Paper

Authors: Ms. Deniz O Igan, Ali M. Kutan and Ali Mirzae
Date: December 2016
Abstract: We examine the association between capital inflows and industry growth in a sample of 22 emerging market economies from 1998 to 2010. We expect more external finance dependent industries in countries that host more capital inflows to grow disproportionately faster. This is indeed the case in the pre-crisis period of 1998–2007, and is driven by debt, rather than equity, inflows. We also observe a reduction in output volatility but this association is more pronounced for equity, rather than debt, inflows. These relationships, however, break down during the crisis, hinting at the importance of an undisrupted global financial system for emerging markets to harness the growth benefits of capital inflows. In line with this observation, we also document that the inflows-growth nexus is stronger in countries with well-functioning banks.

NBER Working Paper

Author: Enrique G. Mendoza
Date: November 2016
Abstract: Macroprudential policy holds the promise of becoming a powerful tool for preventing financial crises. Financial amplification in response to domestic shocks or global spillovers and pecuniary externalities caused by Fisherian collateral constraints provide a sound theoretical foundation for this policy. Quantitative studies show that models with these constraints replicate key stylized facts of financial crises, and that the optimal financial policy of an ideal constrained-efficient social planner reduces sharply the magnitude and frequency of crises. Research also shows, however, that implementing effective macroprudential policy still faces serious hurdles. This paper highlights three of them: (i) complexity, because the optimal policy responds widely and non-linearly to movements in both domestic factors and global spillovers due to regime shifts in global liquidity, news about global fundamentals, and recurrent innovation and regulatory changes in world markets, (ii) lack of credibility, because of time-inconsistency of the optimal policy under commitment, and (iii) coordination failure, because a careful balance with monetary policy is needed to avoid quantitatively large inefficiencies resulting from violations of Tinbergen’s rule or strategic interaction between monetary and financial authorities.

CEPR Working Paper

Author: Olivier Accominotti
Date: November 2016
Abstract: In May-July 1931, a series of financial panics shook Central Europe before spreading to the rest of the world. This paper explores how the 1931 Central European crisis propagated to the London and New York financial centers; it also examines the role of cross-border banking linkages in international crisis transmission. Using archival bank-level data, I document US and British banks' asset-side exposure to the crisis region. The Continental crisis disturbed few US banks but endangered several British financial institutions and triggered severe stress in the London money market. Central European credits were mostly held by large and diversified commercial banks in the United States and by small and geographically specialized financial institutions in Britain. Differences in the market structure of the trade finance industry explain why the 1931 Central European crisis infected London banks but not New York banks.

CEPR Working Paper

Authors: Stephanie Schmitt-Grohé and Martin Uribe
Date: November 2016
Abstract: This paper contributes to a literature that studies optimal capital control policy in open economy models with pecuniary externalities due to flow collateral constraints. It shows that the optimal policy calls for capital controls to be lowered during booms and to be increased during recessions. Moreover, in the run-up to a financial crisis optimal capital controls rise as the contraction sets in and reach their highest level at the peak of the crisis. These findings are at odds with the conventional view that capital controls should be tightened during expansions to curb capital inflows and relaxed during contractions to discourage capital flight.

NBER Working Paper

Author: Graciela L. Kaminsky
Date: November 2016
Abstract: The ongoing slowdown in international capital flows has brought again to the attention the booms and bust cycles in international borrowing. Many suggest that capital flow bonanzas are excessive, ending in crises. One of the most frequently mentioned culprits are the cycles of monetary easing and tightening in the financial centers. More recently, the 2008 Subprime Crisis in the United States has also been blamed for the retrenchment in capital flows to both developed and developing countries. To further understand international capital flow cycles, I construct a new database on capital flows spanning the first episode of financial globalization from 1820 to 1931. During this episode, monetary policy in the financial center is constrained by the adherence to the Gold Standard, thus providing a benchmark for global cycles in the absence of an active role of central banks in the financial centers. Also, panics in the financial center are rare disasters that can only be studied in this longer episode of financial globalization. This paper presents the historical data with an example for Latin America.

CEPR Working Paper

Author: Dirk Schoenmaker
Date: November 2016
Abstract: The stability of a banking system ultimately depends on the strength and credibility of the fiscal backstop. While large countries can still afford to resolve large global banks on their own, small and medium-sized countries face a policy choice. This paper investigates the impact of resolution on banking structure. The financial trilemma model indicates that smaller countries can either conduct joint supervision and resolution of their global banks (based on single point of entry resolution) or reduce the size of their global banks and move to separate resolution of these banks' national subsidiaries (based on multiple point of entry resolution). Our empirical results show that the euro-area countries are heading for joint resolution based on burden sharing, while the UK and Switzerland have started a process of downsizing their banks.

BIS Working Paper

Author: Bruno Tissot
Date: October 2016
Abstract: The Great Financial Crisis of 2007-09 and its aftermath have emphasised the need for a global approach when assessing financial stability risks. One difficulty is that the traditional apparatus, especially the System of National Accounts (SNA), relies on the criterion of residency to capture statistical information within countries' boundaries. This paper analyses how to collect meaningful data to assess consolidated risk exposures. In particular, it argues that data collected along the residency-based SNA concept can be usefully complemented by a nationality-based, global approach. This requires the establishment of a framework for assessing financial positions on a socalled "nationality-basis", that is, at a globally consolidated level.

NBER Working Paper

Authors: Joshua Aizenman, Menzie D. Chinn and Hiro Ito
Date: October 2016
Abstract: We study how the financial conditions in the Center Economies [the U.S., Japan, and the Euro area] impact other countries over the period 1986 through 2015. Our methodology relies upon a two-step approach. We focus on five possible linkages between the center economies (CEs) and the non-Center economics, or peripheral economies (PHs), and investigate the strength of these linkages. For each of the five linkages, we first regress a financial variable of the PHs on financial variables of the CEs while controlling for global factors. Next, we examine the determinants of sensitivity to the CEs as a function of country-specific macroeconomic conditions and policies, including the exchange rate regime, currency weights, monetary, trade and financial linkages with the CEs, the levels of institutional development, and international reserves. Extending our previous work (Aizenman et al. (2016)), we devote special attention to the impact of currency weights in the implicit currency basket, balance sheet exposure, and currency composition of external debt. We find that for both policy interest rates and the real exchange rate (REER), the link with the CEs has been pervasive for developing and emerging market economies in the last two decades, although the movements of policy interest rates are found to be more sensitive to global financial shocks around the time of the emerging markets’ crises in the late 1990s and early 2000s, and since 2008. When we estimate the determinants of the extent of connectivity, we find evidence that the weights of major currencies, external debt, and currency compositions of debt are significant factors. More specifically, having a higher weight on the dollar (or the euro) makes the response of a financial variable such as the REER and exchange market pressure in the PHs more sensitive to a change in key variables in the U.S. (or the euro area) such as policy interest rates and the REER. While having more exposure to external debt would have similar impacts on the financial linkages between the CEs and the PHs, the currency composition of international debt securities does matter. Economies more reliant on dollar-denominated debt issuance tend to be more vulnerable to shocks emanating from the U.S.

BIS Working Paper

Authors: Stefan Avdjiev, Catherine Koch, Patrick McGuire and Goetz von Peter
Date: October 2016
Abstract: We combine the BIS international banking statistics with the IBRN prudential instruments database in a global study analyzing the effect of prudential measures on international lending. Our bilateral setting, which features multiple home and destination countries, allows us to simultaneously estimate both the international transmission and the local effects of such measures. We find that changes in macroprudential policy via loan-to-value limits and local currency reserve requirements have a significant impact on international bank lending. Balance sheet characteristics play an important role in determining the strength of these effects, with better capitalized banking systems and those with more liquid assets and less core deposits reacting more. Overall, our results suggest that the tightening of these macroprudential measures can be associated with international spillovers.

NBER Working Paper

Authors: Òscar Jordà, Moritz Schularick and Alan M. Taylor
Date: October 2016
Abstract: In advanced economies, a century-long near-stable ratio of credit to GDP gave way to rapid financialization and surging leverage in the last forty years. This "financial hockey stick" coincides with shifts in foundational macroeconomic relationships beyond the widely-noted return of macroeconomic fragility and crisis risk. Leverage is correlated with central business cycle moments, which we can document thanks to a decade-long international and historical data collection effort. More financialized economies exhibit somewhat less real volatility, but also lower growth, more tail risk, as well as tighter real-real and real-financial correlations. International real and financial cycles also cohere more strongly. The new stylized facts that we discover should prove fertile ground for the development of a new generation of macroeconomic models with a prominent role for financial factors.