An evolving financial system: Don't leave it too late, simulate

a column by Alex Brazier for VOX: CEPR’s Policy Portal

Thanks to transformative post-crisis reforms, the financial system is safer and simpler than it was a decade ago. But the structure of the system continues to evolve, partly in reaction to those reforms. Economies are now more reliant on market-based finance.

This column argues that to deliver the macroprudential objective of a system that is able to serve households and businesses in bad times as well as good, policymakers must run stress simulations on systemic markets as well as systemic banks, and take pre-emptive corrective action where necessary.

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Foreign expansion, competition, and bank risk

a column by Ester Faia, Sébastien Laffitte and Gianmarco Ottaviano for VOX: CEPR’s Policy Portal

There is a general consensus that lax monetary policy and banking globalisation were two critical factors behind the Global Crisis.

This column explores how banks’ decisions to enter foreign markets impacted their individual and systemic risk. Results from a sample of European banks suggest that banks’ foreign expansions decreased risk from both an individual and systemic viewpoint.

The findings cast doubt on the idea that banking globalisation was one of the culprits behind the crisis.

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