Found 32 article(s) for author 'Financial System'

Controlling the Long-Term Problem of Short-Term Funding

Controlling the Long-Term Problem of Short-Term Funding. Hal Scott, August 23, 2019, Paper, “While financial crises can be triggered by several causes, runs on short-term liabilities are at the heart of all financial crises, with the recent 2007–09 financial crisis being no exception. Given the unpredictability of crisis triggers and the overwhelming predictability of short-term funding’s role in financial crises, legislative and regulatory responses to the recent financial crisis should focus on the consequences of relying on short-term funding in the financial system. However, in addressing the problem of such funding, it is important to recognize the social benefits afforded by short-term liabilities and not simply the costs. To this end, this paper provides a brief overview of short-term funding in the U.S. financial system, while also highlighting the trade-off between the costs and benefits of short-term liabilities. The paper proceeds with an analysis of various proposals aimed at addressing the short-term funding issue.Link

Tags: , , , ,

Connectedness and Contagion: Protecting the Financial System from Panics

Connectedness and Contagion: Protecting the Financial System from Panics. Hal Scott, May 2016, Book. “The Dodd–Frank Act of 2010 was intended to reform financial policies in order to prevent another massive crisis such as the financial meltdown of 2008. Dodd–Frank is largely premised on the diagnosis that connectedness was the major problem in that crisis—that is, that financial institutions were overexposed to one another, resulting in a possible chain reaction of failures. In this book, Hal Scott argues that it is not connectedness but contagion that is the most significant element of systemic risk facing the financial system. Contagion is an indiscriminate run by short-term creditors of financial institutions that can render otherwise solvent institutions insolvent. It poses a serious risk because, as Scott explains, our financial system still depends on approximately $7.4 to $8.2 trillion of runnable and uninsured short-term liabilities, 60 percent of which are held by nonbanks.Link

Tags: , , , , ,

The Federal Reserve: The Weakest Lender of Last Resort Among Its Peers

The Federal Reserve: The Weakest Lender of Last Resort Among Its Peers. Hal Scott, November 25, 2015, Paper. “This article for the first time compares the Federal Reserve’s powers as lender of last resort (‘LLR’) and its ability to fight contagion, with its three major peers, the Bank of England (the ‘BOE’), the European Central Bank (the ‘ECB’) and the Bank of Japan (the ‘BOJ’). It concludes that the Federal Reserve (the ‘Fed’) is currently the weakest of the four, largely due to a hostile political environment for LLR powers, which are equated with bailouts, and restrictions placed by the 2010 Dodd–Frank Act on the Fed’s ability to loan to non-banks, whose role in the financial system is ever-increasing. This is a concern for the global as well as the US financial system, given the economic importance of the United States and the use of the dollar as a reserve currency …Link

Tags: , , ,

Europe May Require Greek Vote on Debt Accord: Burns

Europe May Require Greek Vote on Debt Accord: Burns. Nicholas Burns, June 22, 2015, Video. “Nicholas Burns, a professor at Harvard University’s Kennedy School of Government and former U.S. ambassador to Greece, talks about the Greek debt crisis. He speaks with Betty Liu, Mark Crumpton and Hans Nichols on Bloomberg Television’s “Bloomberg Markets.”Link

Tags: , , , , ,

Gradualism in Monetary Policy: A Time-Consistency Problem?

Gradualism in Monetary Policy: A Time-Consistency Problem? Jeremy C. Stein, Adi Sunderam, June 2015, Paper. “We develop a model of monetary policy with two key features: (i) the central bank has private information about its long-run target for the policy rate; and (ii) the central bank is averse to bond-market volatility. In this setting, discretionary monetary policy is gradualist, or inertial, in the sense that the central bank only adjusts the policy rate slowly in response to changes in its privately-observed target. Such gradualism reflects an attempt to not spook the bond market. However, this effort ends up being thwarted in equilibrium…”  Link

Tags: , , , ,

The Inflation Puzzle

The Inflation Puzzle. Martin Feldstein, May 29, 2015, Opinion. “The low rate of inflation in the United States is a puzzle, especially to economists who focus on the relationship between inflation and changes in the monetary base. After all, in the past, increases and decreases in the growth rate of the monetary base (currency in circulation plus commercial banks’ reserves held at the central bank) produced – or at least were accompanied by – rises and falls in the inflation rate. And, because the monetary base is controlled directly by the central bank, and is not created by commercial banks, many believe that it is the…” Link

Tags: , , , ,

The U.S. Underestimates Growth; The official statistics are missing changes that are lifting American incomes.

The U.S. Underestimates Growth; The official statistics are missing changes that are lifting American incomes. Martin Feldstein, May 18, 2015, Opinion. “Today’s pessimists about the economy’s rate of growth are wrong because the official statistics understate the growth of real GDP, of productivity, and of real household incomes. Understanding this problem should change the political debate about income growth and income inequality. But it should not change the focus on what matters: policies to increase everyone’s real incomes even faster.” Link

Tags: , ,