Banking for the public good

Bank shareholders cannot be expected to provide good stewardship to banks because there is a conflict of interests between the shareholder owners and a non-mutually owned bank's depositors; who provide the bulk of the funds in traditional retail banks and are willing to accept a lower return on their savings than shareholders, in return for lower risk exposure. Regulation is required to protect depositors where deposit insurance schemes are at best partially funded and underwritten by taxpayers, who in turn need to be protected, and to deliver financial stability, a public good. Once some banks become 'too big (to be allowed) to fail' (TBTF), they enjoy additional implicit public (taxpayer) insurance that enables them to fund themselves more cheaply than smaller banks, which gives them a competitive advantage. The political influence of big banks in the US and the UK is such that they can be regarded as financial oligarchies that have hitherto successfully blocked far reaching structural reform in the wake of the 'Global Financial Crisis' and lobbied successfully for the financial sector liberalisation that preceded it. The TBTF problem and associated moral hazard have been worsened by mergers to save failing banks during the crisis and as a result competition within a number of national banking systems, notably the UK, has been significantly reduced. Solutions alternative to making the banks small enough to be allowed to fail are considered in this paper, but it is difficult to be convinced that they will deliver banks that promote the common or public good. It is argued that regulating retail banking as a utility and pooling insurance against financial instability using pre-funded deposit insurance schemes, with risk related premiums that can also serve as bank resolution funds, should be pursued; and that capital leverage ratios and/or Financial Activity Taxes might be used to 'tax' the size of banks. © 2013 Elsevier Inc. All rights reserved

Restoring the Bank Lending Channel of Monetary Transmission

This paper reports on a ‘round table’ panel discussion that took place at the 30thInternational Symposium on Money, Banking and Finance. This panel discussionwith the same title as this paper was organised by the UK’s ESRC (European andSocial Research Council) and Bank of England sponsored MMFRG (Money,Macro, Finance Research Group).info:eu-repo/semantics/publishedSpecial Issue30th Symposium on Money, Banking and FinanceGuest editors: Christian Aubin, Noëlle Duport andDaniel Goyea

Global Banking after the GFC: Lessons for India

This paper is based on a keynote presentation at the 2nd Pan IIM World Management Conference hosted by the IIM in Kozhikode (IIMK) in November 2014. It draws lessons from the ‘Global’ Financial Crisis for the governance, regulation and structural reform of banking, as well as monetary policy in a globalising financial system. Lessons are also drawn from the Eurozone Crisis, the Asian Financial Crisis and China. The focus then turns to lessons for India with regard to banking and economic growth, financial sector development, and addressing market failures in SME and infrastructural finance. It concludes that the appropriate extent of state ownership of banks and the process for reducing it, whilst also recapitalising banks, along with the development of capital markets, should be an integral part of India’s wider structural reform programme

Convergence of European financial system: Single financial space?

This paper tests the extent to which convergence has been occurring between EU member states in the sources of funding for investment by non-financial corporations. The evidence from time series on 9 EU member countries during 1971-1996 suggests that bank lending (credit) remains the most important source of external financing, although internal financing is increasing in importance. There is also evidence of convergence amongst the financial systems of the 9 EU member countries, for which data were readily available, and a shift from bank financing to direct financing in response to the financial liberalisation in the 1980's (securitisation). These findings suggest an evolving single financial space in Europe.

Stock Market Volatility, Risk Attitude and the Demand for Money in the UK

Is stock market volatility an important determinant of money demand in the UK? If yes, what is the driving force behind that effect? In a cointegration framework, we find that volatility in share prices is an important positive determinant of money demand, alongside standard variables and the stock price level. By studying different stock market indexes effects, we find that the risk aversion of investors is an important force behind the effect, implying that the effect is due to investors’ flight to safer assets in times of volatile stock prices