Ten questions about the subprime crisis.

The ongoing credit crunch represents the fi rst crisis of the age of mass securitization. One conclusion sometimes drawn is that the costs of securitization, in the form of risks to fi nancial stability, exceed the benefits. The implication is that we should return to the simpler days when commercial banks originate loans to households and fi rms and hold them on their balance sheets, rather than slicing them, dicing them and selling them off. But this back-to-the-future formula ignores economic realities. Securitization is bound up with the broader deregulation of fi nancial markets and with the information-technology revolution. Policy makers cannot eliminate this process short of reimposing the kind of restrictive regulation to which banking and fi nancial systems were subject half a century ago.liquidity lines provided by financial institutions. Market liquidity depends not only on objective, exogenous factors, but also on endogenous market dynamics. Central banks responsible for systemic stability need to consider how far their traditional responsibility for the health of the banking system needs to be adapted to promote stability in the relevant financial markets. In any case, turning back the clock would not be desirable because the constellation of financial innovations referred to as securitization has real benefits for the economy. Those innovations have allowed the financial system to repackage and spread risk. They have reduced the amount of equity capital that this system requires to absorb that risk. The result has been to lower funding costs for both fi rms and homeowners as a class. In the aftermath of the Great Securitization Crisis of 2007-8, would-be reformers will surely say that financial regulators need to rethink speed limits and rules of the road. In my view, policy makers should focus on the banking system. Banks still play a unique role. They are at the center of the information-impacted segments of the financial system. Their key role and their vulnerability are recognized by the protection they receive via the financial safety net. Re-thinking should start with the role of Basel II, and within Basel II of the role of internal models and bond ratings.

The Euro Crisis in the Mirror of the EMS: How Tying Odysseus to the Mast Avoided the Sirens but Led Him to Charybdi

Why was recovery from the euro area crisis delayed for a decade? The explanation lies in the absence of credible and timely policies to backstop financial intermediaries and sovereign debt markets. In this paper we add light and color to this analysis, contrasting recent experience with the 1992-3 crisis in the European Monetary System, when national central banks and treasuries more successfully provided this backstop. In the more recent episode, the incomplete development of the euro area constrained the ability of the ECB and other European institutions to do likewis

The Euro Crisis in the Mirror of the EMS: How Tying Odysseus to the Mast Avoided the Sirens but Led Him to Charybdis

Why was recovery from the euro area crisis delayed for a decade? The explanation lies in the absence of credible and timely policies to backstop financial intermediaries and sovereign debt markets. In this paper we add light and color to this analysis, contrasting recent experience with the 1992-3 crisis in the European Monetary System, when national central banks and treasuries more successfully provided this backstop. In the more recent episode, the incomplete development of the euro area constrained the ability of the ECB and other European institutions to do likewise.Keynes Fund at Cambridge University. The Making of the Euro-Area Crisis: Lessons from Theory and History (JHLP)

Cultural Stereotypes of Multinational Banks

Using hand-collected data spanning more than a decade on European banks’ sovereign debt portfolios, we show that the trust of residents of a bank’s countries of operation in the residents of a potential target country of investment has a positive, statistically significant, and economically important association with its cross-border exposures. In identifying cultural stereotypes at the bank level, we show that corporate culture at bank headquarters is influenced by foreign subsidiaries for several reasons, including banks’ tendency to hire internally across borders for high-level managerial positions. We therefore leverage the geography of multinational bank branch networks to con- struct a bank-specific measure of culture that di↵ers across banks headquartered in the same country, at the same point in time, with regard to the same target country. This allows us to compare how sovereign exposures are a↵ected by cultural stereotypes while ruling out confounding factors at country and country-pair levels. The e↵ect of stereotypes is persistent over time, stronger for less diversified banks, and weaker for target countries whose bonds appear more frequently in bank portfolios. Cultural stereotypes are particularly salient when governments are hit by sovereign debt crise

Emotions in Deaf and Hard-of-Hearing and Typically Hearing Children

For deaf and hard-of-hearing (DHH) children living in an environment where their access to linguistic input and social interactions is compromised, learning emotions could be difficult, which may further affect social functioning. To understand the role of emotion in DHH children’s social life, this study investigated emotional functioning (i.e., emotion recognition, empathy, emotion expression), and its relation with social functioning (i.e., social competence and externalizing behaviors), in 55 DHH children and 74 children with typical hearing (aged 3–10 years; M_{age} = 6.04). Parental reports on children’s emotional and social functioning and factors related to DHH children’s hearing were collected. Results showed similar levels of emotional and social functioning in children with and without hearing loss. Use of auditory intervention and speech perception did not correlate with any measures in DHH children. In both groups, higher levels of empathy related to higher social competence and fewer externalizing behaviors; emotion recognition and positive emotion expression were unrelated to either aspect of social functioning. Higher levels of negative emotion expression related to lower social competence in both groups, but to more externalizing behaviors in DHH children only. DHH children in less linguistically accessible environments may not have adequate knowledge for appropriately expressing negative emotions socially

Asian Currency Baskets: An Answer in Search of a Question?

10.1007/s11079-007-9064-2Open Economies Review203403-42

Banking union in historical perspective: the initiative of the European Commission in the 1960s-1970s

This article shows that planning for the organization of EU banking regulation and supervision did not just appear on the agenda in recent years with discussions over the creation of the eurozone banking union. It unveils a hitherto neglected initiative of the European Commission in the 1960s and early 1970s. Drawing on extensive archival work, this article explains that this initiative, however, rested on a number of different assumptions, and emerged in a much different context. It first explains that the Commission's initial project was not crisis-driven; that it articulated the link between monetary integration and banking regulation; and finally that it did not set out to move the supervisory framework to the supranational level, unlike present-day developments

Epidemic Exposure, Financial Technology, and the Digital Divide

We ask whether epidemic exposure leads to a shift in financial technology usage and who participates in this shift. We exploit a dataset combining Gallup World Polls and Global Findex surveys for some 250,000 individuals in 140 countries, merging them with information on the incidence of epidemics and local 3G internet infrastructure. Epidemic exposure is associated with an increase in remote-access (online/mobile) banking and substitution from bank branch-based to ATM activity. Heterogeneity in response centers on the age, income and employment of respondents. Young, high-income earners in full-time employment have the greatest tendency to shift to online/mobile trans-actions in response to epidemics. These effects are larger for individuals with better exante 3G signal coverage, highlighting the role of the digital divide in adaption to new technologies necessitated by adverse external shocks