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The ESRB Working Paper Series is run by the Advisory Scientific Committee. Its purpose is to collate high-quality research on systemic risk and macroprudential policy, thus informing the policymaking activities of the ESRB.

Submissions to the Working Paper Series are welcomed when at least one co-author is affiliated to the ESRB or an ESRB member institution, or when the paper has been presented at an ESRB event. To submit a paper for consideration, email a pdf file to wpseries@esrb.europa.eu

Any views expressed in working papers are those of the authors and do not necessarily reflect the official stance of the ESRB, its member institutions, or any institution to which the authors may be affiliated.

No. 69
19 February 2018
When gambling for resurrection is too risky

Abstract

JEL Classification

G22 : Financial Economics→Financial Institutions and Services→Insurance, Insurance Companies, Actuarial Studies

G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages

G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill

G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation

Abstract

Rather than taking on more risk, US insurers hit hard by the crisis pulled back from risk taking, relative to insurers hit less hard by the crisis. Capital requirements alone do not explain this risk reduction: insurers hit hard reduced risk within assets with identical regulatory treatment. State level US insurance regulation makes it unlikely this risk reduction was driven by moral suasion. Other financial institutions also reduce risk after large shocks: the same approach applied to banks yields similar results. My results suggest that, at least in some circumstances, franchise value can dominate, making gambling for resurrection too risky.

No. 68
16 February 2018
Business cycles and the balance sheets of the financial and non-financial sectors

Abstract

JEL Classification

E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy

E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles

G01 : Financial Economics→General→Financial Crises

Abstract

I propose and estimate a dynamic model of financial intermediation to study the different roles of the condition of banks’ and firms’ balance sheets in real activity. The net worth of firms determines their borrowing capacity both from households and banks. Banks provide risky loans to multiple firms and use their diversified portfolio as collateral to borrow from households. This intermediation process allows additional funds to flow from households to firms. Banks require net worth for intermediation as they are exposed to aggregate risk. The net worth of banks and firms are both state variables. In normal recessions, firm and bank net worth play the same role, so their sum determines the allocation of capital. During financial crises, shocks to bank net worth have an additional effect beyond that in standard financial frictions’ models. This mechanism works through intermediation and affects activity, even if shocks redistribute net worth from banks to firms. I estimate my model and find that the new mechanism accounts for 40% of the fall in output and 80% of the fall in bank net worth during the Great Recession. Finally, the model is consistent with the different dynamics of the share of bank loans in total firm debt and credit spreads during the recessions of 1990, 2001, and 2008.

No. 67
29 January 2018
Positive liquidity spillovers from sovereign bond-backed securities

Abstract

JEL Classification

E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy

G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates

G24 : Financial Economics→Financial Institutions and Services→Investment Banking, Venture Capital, Brokerage, Ratings and Ratings Agencies

C22 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models &bull Diffusion Processes

C53 : Mathematical and Quantitative Methods→Econometric Modeling→Forecasting and Prediction Methods, Simulation Methods

C58 : Mathematical and Quantitative Methods→Econometric Modeling→Financial Econometrics

C63 : Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling→Computational Techniques, Simulation Modeling

Abstract

There are competing arguments about the likely effects of Sovereign Bond-Backed Securitisation on the liquidity of sovereign bond markets. By analysing hedging and diversification opportunities, this paper shows that positive liquidity spillovers would dominate or at least constrain the extent of any negative effects. This relies on dealers using Sovereign Bond-Backed Securities as instruments to hedge inventory risk and it assumes that they diversify their activities widely across euro area sovereign markets. Through a simple arbitrage relation, the existence of low-cost hedging and diversification opportunities limits the divergence of bid-ask spreads between national and SBBS markets. This is demonstrated using estimated SBBS yields (` la Sch¨nbucher (2003)). a o

No. 66
29 January 2018
How effective are sovereign bond-backed securities as a spillover prevention device?

Abstract

JEL Classification

C58 : Mathematical and Quantitative Methods→Econometric Modeling→Financial Econometrics

G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions

G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates

G17 : Financial Economics→General Financial Markets→Financial Forecasting and Simulation

Abstract

Brunnermeier et al. (2017) propose the introduction of sovereign bond-backed securities (SBBS) in the euro area. That and other papers assess how the securitisation would insulate senior bond holders from actual default-related losses. This paper generalises the assessment by using the VAR-based Diebold and Yilmaz (2012) spillover index methodology to assess potential attenuation of the spillover of shocks in holding-period returns across bond markets due to the introduction of SBBS. This is made possible by employing SBBS yields estimated from historical euro area member state sovereign bond yields using Monte Carlo methods, as described in Sch¨nbucher (2003). A lower spillover o of shocks between SBBS securities compared to what arises between eleven member states’ bond markets is observed. Spillover values fall during the euro area sovereign bond crisis. Gross and net spillovers are lower for a 70-30 tranching than for a 70-20-10 case but in both cases the senior tranche becomes more insulated from shocks in the more junior tranches during periods of financial stress.

No. 65
29 January 2018
Sovereign bond-backed securities: a VAR-for-VaR and Marginal Expected Shortfall assessment

Abstract

JEL Classification

E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects

E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy

E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy

E53 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit

G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates

G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading

Abstract

The risk reducing benefits of the sovereign bond-backed security (SBBS) proposal of Brunnermeier et al (2011, 2016, 2017) have been assessed in terms of the likely losses that different kinds of holders would suffer under simulated default scenarios. However, the effects of mark-to-market losses that may occur when there is rising uncertainty about defaults, or when self-fulfilling destablising dynamics are prevalent, have not yet been examined. We apply the “VAR-for-VaR” method of White, Kim and Manganelli (2015) and the Marginal Expected Shortfall approach of Brownlees and Engle (2012, 2017) to estimated yields of SBBS to assess how ex ante exposures are likely to playout under various securitisation structures. We compare these with exposures of single sovereigns and a diversified portfolio. We find that the senior SBBS has extremely low ex ante tail risk and that, like the lowest-risk single-named sovereigns, it acts as a hedge against extreme adverse movements in the yields on more junior tranches. The mezzanine SBBS has tail risk exposure similar to that of Italian and Spanish bonds. Yields on SBBS appear to be adequate compensation for their risks when compared with single sovereigns or a diversified portfolio.

No. 64
16 January 2018
Short-selling bans and bank stability

Abstract

JEL Classification

G01 : Financial Economics→General→Financial Crises

G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates

G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading

G18 : Financial Economics→General Financial Markets→Government Policy and Regulation

Abstract

In both the subprime crisis and the euro-area crisis, regulators imposed bans on short sales, aimed mainly at preventing stock price turbulence from destabilizing financial institutions. Contrary to the regulators’ intentions, financial institutions whose stocks were banned experienced greater increases in the probability of default and volatility than unbanned ones, and these increases were larger for more vulnerable financial institutions. To take into account the endogeneity of short sales bans, we match banned financial institutions with unbanned ones of similar size and riskiness, and instrument the 2011 ban decisions with regulators’ propensity to impose a ban in the 2008 crisis.

No. 63
16 January 2018
Banks’ maturity transformation: risk, reward, and policy

Abstract

JEL Classification

E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects

G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages

G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation

Abstract

The aim of this paper is twofold: first, to study the determinants of banks’ net interest margin with a particular focus on the role of maturity transformation, using a new measure of maturity mismatch; second, to analyse the implications for banks of the relaxation of a binding prudential limit on maturity mismatch, in place in Italy until the mid-2000s. The results show that maturity transformation is an important driver of the net interest margin, as higher maturity transformation is typically associated with higher net interest margin. However, there is a limit to this positive relationship as ‘excessive’ maturity transformation — even without leading to systemic vulnerabilities — has some undesirable implications in terms of higher exposure to interest rate risk and lower net interest margin.

No. 62
15 December 2017
The demand for central clearing: to clear or not to clear, that is the question

Abstract

JEL Classification

G18 : Financial Economics→General Financial Markets→Government Policy and Regulation

G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation

G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill

Abstract

This paper analyses whether the post-crisis regulatory reforms developed by globalstandard-setting bodies have created appropriate incentives for different types of market participants to centrally clear Over-The-Counter (OTC) derivative contracts. Beyond documenting the observed facts, we analyse four main drivers for the decision to clear: 1) the liquidity and riskiness of the reference entity; 2) the credit risk of the counterparty; 3) the clearing member’s portfolio net exposure with the Central Counterparty Clearing House (CCP) and 4) post trade transparency. We use confidential European trade repository data on single-name Sovereign Credit Derivative Swap (CDS) transactions, and show that for all the transactions reported in 2016 on Italian, German and French Sovereign CDS 48% were centrally cleared, 42% were not cleared despite being eligible for central clearing, while 9% of the contracts were not clearable because they did not satisfy certain CCP clearing criteria. However, there is a large difference between CCP clearing members that clear about 53% of their transactions and non-clearing members, even those that are subject to counterparty risk capital requirements, that almost never clear their trades. Moreover, we find that diverse factors explain clearing members’ decision to clear different CDS contracts: for Italian CDS, counterparty credit risk exposures matter most for the decision to clear, while for French and German CDS, margin costs are the most important factor for the decision. Moreover, clearing members use clearing to reduce their exposures to the CCP and largely clear contracts when at least one of the traders has a high counterparty credit risk.

No. 61
15 December 2017
Discriminatory pricing of over-the-counter derivatives

Abstract

JEL Classification

G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading

G18 : Financial Economics→General Financial Markets→Government Policy and Regulation

D4 : Microeconomics→Market Structure and Pricing

Abstract

New regulatory data reveal extensive discriminatory pricing in the foreign exchange derivatives market, in which dealer-banks and their non-financial clients trade over-the-counter. After controlling for contract characteristics, dealer fixed effects, and market conditions, we find that the client at the 75th percentile of the spread distribution pays an average of 30 pips over the market mid-price, compared to competitive spreads of less than 2.5 pips paid by the bottom 25% of clients. Higher spreads are paid by less sophisticated clients. However, trades on multi-dealer request-for-quote platforms exhibit competitive spreads regardless of client sophistication, thereby eliminating discriminatory pricing.

No. 60
15 December 2017
Crises in the modern financial ecosystem

Abstract

JEL Classification

G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading

G18 : Financial Economics→General Financial Markets→Government Policy and Regulation

Abstract

We build a moral hazard model to study incentives of financial intermediaries (shortly, bankers) facing a leverage-insurance trade-off in their investment choice. We demonstrate that the choice is affected by two recent transformations of the financial ecosystem bankers inhabit: (i) the rise of institutional savers, such as treasurers of global corporations, which manage huge balances in need for parking space and (ii) the proliferation of balance sheets with asset-liability mismatch, like those of insurance companies and pension funds (ICPFs), which allocate capital to bankers to reach for yield and meet their liabilities offering guaranteed returns. Bankers supply parking space to institutional savers and deliver leverageenhanced returns to ICPFs. When the demand for parking space and the mismatch which ICPFs must bridge are large, the equilibrium allocation is characterized by high leverage and financial crises. We show that post-crisis regulatory reforms, while improving the resiliency of the regulated banking sector, create room for bank disintermediation and do not unambiguously limit systemic risks which can build up in the asset management complex. Both transformations indeed stem from real economy developments (e.g. population ageing, global imbalances, income and wealth inequality, increased sophistication of tax arbitrage). Fiscal and structural reforms that directly address the real economy roots of those secular developments are then essential to complement financial and banking regulations and promote financial stability and balanced growth.

No. 59
1 December 2017
ETF arbitrage under liquidity mismatch

Abstract

JEL Classification

G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates

G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading

G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors

Abstract

A natural liquidity mismatch emerges when liquid exchange traded funds (ETFs) hold relatively illiquid assets. We provide a theory and empirical evidence showing that this liquidity mismatch can reduce market efficiency and increase the fragility of these ETFs. We focus on corporate bond ETFs and examine the role of authorized participants (APs) in ETF arbitrage. In addition to their role as dealers in the underlying bond market, APs also play a unique role in arbitrage between the bond and ETF markets since they are the only market participants that can trade directly with ETF issuers. Using novel and granular AP-level data, we identify a conflict between APs’ dual roles as bond dealers and as ETF arbitrageurs. When this conflict is small, liquidity mismatch reduces the arbitrage capacity of ETFs; as the conflict increases, an inventory management motive arises that may even distort ETF arbitrage, leading to large relative mispricing. These findings suggest an important risk in ETF arbitrage.

No. 58
15 November 2017
Syndicated loans and CDS positioning

Abstract

JEL Classification

G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages

G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation

Abstract

This paper analyzes banks’ usage of CDS. Combining bank-firm syndicated loan data with a unique EU-wide dataset on bilateral CDS positions, we find that stronger banks in terms of capital, funding and profitability tend to hedge more. We find no evidence of banks using the CDS market for capital relief. Banks are more likely to hedge exposures to relatively riskier borrowers and less likely to sell CDS protection on domestic firms. Lead arrangers tend to buy more protection, potentially exacerbating asymmetric information problems. Dealer banks seem insensitive to firm risk, and hedge more than non-dealers when they are more profitable. These results allow for a better understanding of banks’ credit risk management.

No. 57
15 November 2017
Why are banks not recapitalized during crises?

Abstract

JEL Classification

E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy

F33 : International Economics→International Finance→International Monetary Arrangements and Institutions

G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages

G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation

Abstract

I develop a model where the sovereign debt capacity depends on the capitalization of domestic banks. Low-capital banks optimally tilt their government bond portfolio toward domestic securities, linking their destiny to that of the sovereign. If the sovereign risk is sufficiently high, low-capital banks reduce private lending to further increase their holdings of domestic government bonds, lowering sovereign yields and supporting the home sovereign debt capacity. The model rationalizes, in the context of the eurozone periphery, the increase in domestic government bond holdings, the reduction of bank credit supply, and the prolonged fragility of the financial sector.

No. 56
1 November 2017
A macro approach to international bank resolution

Abstract

JEL Classification

G01 : Financial Economics→General→Financial Crises

G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages

G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation

Abstract

In the aftermath of the Great Financial Crisis, regulators have rushed to strengthen banking supervision and implement bank resolution regimes. While such resolution regimes are welcome to reintroduce market discipline and reduce the reliance on taxpayer-funded bailouts, the effects on the wider banking system have not been properly considered. This paper proposes a macro approach to resolution, which should consider (i) the contagion effects of bail-in, and (ii) the continuing need for a fiscal backstop to the financial system. For bail-in to work, it is important that bail-inable bank bonds are largely held outside the banking sector, which is currently not the case. Stricter capital requirements could push them out of the banking system. The organisation of the fiscal backstop is crucial for the stability of the global banking system. Single-point-of-entry resolution of international banks is only possible for the very largest countries or for countries working together, including in terms of sharing the burden of a potential bank bailout. The euro area has adopted the latter approach in its Banking Union. Other countries have taken a stand-alone approach, which leads to multiple-point-of-entry resolution of international banks and contributes to fragmentation of the global banking system.

No. 55
20 October 2017
Collateral scarcity premia in euro area repo markets

Abstract

JEL Classification

E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy

G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates

G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors

Abstract

Collateral plays a very important role in financial markets. Without easy access to high-quality collateral, dealers and market participants would find it more costly to trade, with a negative impact on market liquidity and the real economy through increased financing costs. The role of collateral has become increasingly significant since the global financial crisis, partly due to regulatory reforms. Using bond-level data from both repo and securities lending markets, this paper introduces a new measure of collateral reuse and studies the drivers of the cost of obtaining high-quality collateral, i.e. the collateral scarcity premium, proxied by specialness of government bond repos. We find that the cost of obtaining high-quality collateral increases with demand pressures in the cash market (short-selling activities), even in calm financial market conditions. In bear market conditions ‒ when good collateral is needed the most ‒ this could lead to tensions in some asset market segments. Collateral reuse may alleviate some of these tensions by reducing the collateral scarcity premia. Yet, it requires transparency and monitoring due to the financial stability risks associated. Finally, we find that the launch of the ECB quantitative easing programme has a statistically significant, albeit limited, impact on sovereign collateral scarcity premia, but this impact is offset by the beginning of the ECB Securities Lending Programme.

No. 54
15 September 2017
Networks of counterparties in the centrally cleared EU-wide interest rate derivatives market by Paweł Fiedor, Sarah Lapschies and Lucia Országhová

Abstract

JEL Classification

G10 : Financial Economics→General Financial Markets→General

L14 : Industrial Organization→Market Structure, Firm Strategy, and Market Performance→Transactional Relationships, Contracts and Reputation, Networks

G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors

Abstract

We perform a network analysis of the centrally cleared interest rate derivatives market in the European Union, by looking at counterparty relations within both direct (house) clearing and client clearing. Since the majority of the gross notional is transferred within central counterparties and their clearing members, client clearing is often neglected in the literature, despite its significance in terms of net exposures. We find that the client clearing structure is very strongly interconnected and contains on the order of 90% of the counterparty relations in the interest rate derivatives market. Moreover, it is more diverse in terms of geography and sectors of the financial market the counterparties are associated with. Client clearing is also significantly more volatile in time than direct clearing. These findings underline the importance of analysing the structure and stability of both direct and client clearing of the interest rate derivatives market in Europe, to improve understanding of this important market and potential contagion mechanisms within it.

No. 53
1 August 2017
Two Big Distortions: Bank Incentives for Debt Financing, by Jesse Groenewegen, Peter Wierts

Abstract

JEL Classification

G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages

G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill

H25 : Public Economics→Taxation, Subsidies, and Revenue→Business Taxes and Subsidies

Abstract

Systemically important banks are subject to at least two departures from the neutrality of debt versus equity financing: the tax deductibility of interest payments and implicit funding subsidies. This paper fills a gap in the literature by comparing their mechanism and interaction within a common analytical framework. Findings indicate that both the tax shield and implicit funding subsidy remain large, in the order of up to 1 percent of GDP, despite decreases in recent years. But the underlying mechanisms differ. The tax shield incentivises debt financing as it reduces tax payments to the government. The implicit funding subsidy incentivises debt financing as it lowers private bankruptcy costs. This funding subsidy is passed on to other bank stakeholders. It therefore provides incentives for increases in balance sheet size and risk taking. This, in turn, increases the value of the tax shield. Overall, these results help to explain why systemically important banks are highly leveraged.

No. 52
14 July 2017
Asset Encumbrance, Bank Funding and Fragility, by Toni Ahnert, Kartik Anand, Prasanna Gai, James Chapman
No. 51
14 July 2017
Working paper no. 51: The missing links: A global study on uncovering financial network structures from partial data, by Kartik Anand, Iman van Lelyveld, Ádám Banai, Soeren Friedrich, Rodney Garratt, et al.
No. 50
30 June 2017
Working paper no. 50: Equity versus bail-in debt in banking: an agency perspective, by Caterina Mendicino, Kalin Nikolov, Javier Suarez
No. 49
30 June 2017
Working paper no. 49: Wholesale funding dry-ups, by Christophe Pérignon, David Thesmar, Guillaume Vuillemey
No. 48
14 June 2017
Working paper no. 48: Banking integration and house price comovement, by Augustin Landier, David Sraer, David Thesmar
No. 47
14 June 2017
Working paper no. 47: The real effects of bank capital requirements, by Henri Fraisse, Mathias Lé, David Thesmar
No. 46
9 June 2017
Working paper no. 46: Simulating fire-sales in a banking and shadow banking system, by Susanna Calimani, Grzegorz Hałaj, Dawid Żochowski
No. 45
9 June 2017
Working paper no. 45: Use of unit root methods in early warning of financial crises, by Timo Virtanen, Eero Tölö, Matti Virén, Katja Taipalus
No. 44
2 May 2017
Working paper no. 44: Compressing over-the-counter markets, by Marco D’Errico, Tarik Roukny
No. 43
2 May 2017
Working paper no. 43: Coherent financial cycles for G-7 countries: Why extending credit can be an asset, by Yves S. Schüler, Paul P. Hiebert, Tuomas A. Peltonen
No. 42
3 April 2017
Working paper no. 42: A dynamic theory of mutual fund runs and liquidity management, by Yao Zeng
No. 41
3 April 2017
Working paper no. 41: Financial frictions and the real economy, by Mario Pietrunti
No. 40
15 March 2017
Working paper no. 40: Mapping the interconnectedness between EU banks and shadow banking entities, by Jorge Abad, Marco D’Errico, Neill Killeen, Vera Luz, Tuomas Peltonen, et al.
No. 39
14 March 2017
Working paper no. 39: Decomposing financial (in)stability in emerging economies, by Etienne Lepers, Antonio Sánchez Serrano
No. 38
10 March 2017
Working paper no. 38: Flight to liquidity and systemic bank runs, by Roberto Robatto
No. 37
10 March 2017
Working paper no. 37: SRISK: a conditional capital shortfall measure of systemic risk, by Christian Brownlees, Robert Engle
No. 36
13 February 2017
Working paper no. 36: Credit conditions, macroprudential policy and house prices, by Robert Kelly, Fergal McCann, Conor O'Toole
No. 35
13 February 2017
Working paper no. 35: Addressing the safety trilemma: a safe sovereign asset for the eurozone, by Ad van Riet
No. 34
13 February 2017
Working paper no. 34: Resolution of international banks: can smaller countries cope?, by Dirk Schoenmaker
No. 33
22 December 2016
Working paper no. 33: How does risk flow in the credit default swap market?, by Marco D'Errico, Stefano Battiston, Tuomas Peltonen, Martin Scheicher
No. 32
21 December 2016
Working paper no. 32: Financial contagion with spillover effects: a multiplex network approach, by Gustavo Peralta, Ricardo Crisóstomo
No. 31
21 December 2016
Working paper no. 31: The (unintended?) consequences of the largest liquidity injection ever, by Matteo Crosignani, Miguel Faria-e-Castro, Luís Fonseca
No. 30
17 November 2016
Working paper no. 30: Exposure to international crises: trade vs. financial contagion, by Everett Grant
No. 29
14 November 2016
Working paper no. 29: Predicting vulnerabilities in the EU banking sector: the role of global and domestic factors, by Markus Behn, Carsten Detken, Tuomas Peltonen and Willem Schudel
No. 28
20 October 2016
Working paper no. 28: Financial intermediation, resource allocation, and macroeconomic interdependence, by Galip Kemal Ozhan
No. 27
20 October 2016
Working paper no. 27: (Pro?)-cyclicality of collateral haircuts and systemic illiquidity, by Florian Glaser and Sven Panz
No. 26
20 October 2016
Working paper no. 26: Using elasticities to derive optimal bankruptcy exemptions, by Eduardo Dávila
No. 25
19 September 2016
Working paper no. 25: Macroeconomic effects of secondary market trading, by Daniel Neuhann
No. 24
19 September 2016
Working paper no. 24: Macroprudential policy with liquidity panics, by Daniel Garcia-Macia and Alonso Villacorta
No. 23
19 September 2016
Working paper no. 23: Liquidity transformation in asset management: Evidence from the cash holdings of mutual funds, by Sergey Chernenko and Adi Sunderam
No. 22
19 September 2016
Working paper no. 22: Arbitraging the Basel securitization framework: Evidence from German ABS investment, by Matthias Efing
No. 21
19 September 2016
Working paper no. 21: ESBies: Safety in the tranches, by Markus K. Brunnermeier, Sam Langfield, Marco Pagano, Ricardo Reis, Stijn Van Nieuwerburgh and Dimitri Vayanos
No. 20
8 August 2016
Working paper no. 20: Multiplex interbank networks and systemic importance – An application to European data, by Iñaki Aldasoro and Iván Alves
No. 19
25 July 2016
Working paper no. 19: Strategic complementarity in banks’ funding liquidity choices and financial stability, by André Silva
No. 18
13 July 2016
Working paper no. 18: Cyclical investment behavior across financial institutions, by Yannick Timmer
No. 17
12 July 2016
Working paper no. 17: Assessing the costs and benefits of capital-based macroprudential policy, by Markus Behn, Marco Gross and Tuomas Peltonen
No. 16
28 June 2016
Working paper no. 16: Bank recapitalizations and lending: A little is not enough, by Timotej Homar
No. 15
28 June 2016
Working paper no. 15: Credit default swap spreads and systemic financial risk, by Stefano Giglio
No. 14
28 June 2016
Working paper no. 14: Catering to investors through product complexity, by Claire Célérier and Boris Vallée
No. 13
9 June 2016
Working paper no. 13: Banks' exposure to interest rate risk and the transmission of monetary policy, by Matthieu Gomez, Augustin Landier, David Sraer and David Thesmar
No. 12
3 June 2016
Working paper no. 12: Extreme risk interdependence, by Arnold Polanski and Evarist Stoja
No. 11
2 May 2016
Working paper no. 11: Bank exposures and sovereign stress transmission, by Carlo Altavilla, Marco Pagano and Saverio Simonelli
No. 10
2 May 2016
Working paper no. 10: Systemic risk in clearing houses: Evidence from the European repo market, by Charles Boissel, François Derrien, Evren Örs and David Thesmar
No. 9
2 May 2016
Working paper no. 9: Regime-dependent sovereign risk pricing during the euro crisis, by Anne-Laure Delatte, Julien Fouquau and Richard Portes
No. 8
20 April 2016
Working paper no. 8: Double bank runs and liquidity risk management, by Filippo Ippolito, José-Luis Peydró, Andrea Polo and Enrico Sette
No. 7
12 April 2016
Working paper no. 7: Bail-in expectations for European banks: Actions speak louder than words, by Alexander Schäfer, Isabel Schnabel and Beatrice Weder di Mauro
No. 6
24 March 2016
Working paper no. 6: Cross-country exposures to the Swiss franc, by Agustín S. Bénétrix and Philip R. Lane
No. 5
24 March 2016
Working paper no. 5: Securities trading by banks and credit supply: Micro-evidence from the crisis, by Puriya Abbassi, Rajkamal Iyer, José-Luis Peydró and Francesc R. Tous
No. 4
11 March 2016
Working paper no. 4: Capital market financing, firm growth, and firm size distribution, by Tatiana Didier, Ross Levine and Sergio L. Schmukler
No. 3
11 March 2016
Working paper no. 3: How excessive is banks’ maturity transformation?, by Anatoli Segura and Javier Suarez
No. 2
23 February 2016
Working paper no. 2: Macroprudential supervision: From theory to policy, by Dirk Schoenmaker and Peter Wierts
No. 1
23 February 2016
Working paper no. 1: Macro-Financial Stability Under EMU, by Lane, Philip R.

Abstract

Abstract

This paper examines the cyclical behaviour of country-level macro-financial variables under EMU. Monetary union strengthened the covariation pattern between the output cycle and the financial cycle, while macro-financial policies at national and area-wide levels were insufficiently counter-cyclical during the 2003-2007 boom period. We critically examine the policy reform agenda required to improve macro-financial stability.