Stablecoins: Policy, sovereignty and backstops
No jurisdiction can ignore stablecoins. They can be banned outright only in the most effectively authoritarian countries, or accommodated and even enc…
Read moreRegulations
43 posts in this category
Financial stability and politics
Politics might be the single largest driver of financial crises, but impossible for the financial authorities to address — the fatal flaw in macroprud…
Read moreSame risk, same regulation — a principle that sounds better than it is
"Same risk, same regulation" is one of those rare principles in finance that almost everybody seems to endorse. But is it as sensible as it sounds?
Read moreThe dark side of well meaning rules and endogenous risk
The dark side of well meaning financial regulations is when they force banks to act against the system, like pouring petrol on a fire.
Read moreThe paradox of perfect supervision
Increasingly stringent financial supervision paradoxically increases systemic fragility. The very attempt to safeguard stability can increase systemic…
Read moreEverybody working in the financial system has an incentive to increase its complexity, including the regulators
The almost infinite complexity of the financial system is the main reason why it is so hard to keep it under control. And that complexity is due to ev…
Read moreHow financial authorities best respond to AI challenges
Artificial intelligence is transforming finance faster than the authorities can adapt. This column argues that while AI enhances the financial system’…
Read moreOf AI bubbles and crashes
Warnings of an AI stock market bubble abound. Should investors and policymakers be concerned? Innovation-driven bubbles can yield real benefits when f…
Read moreSupervision and the Illusion of Optimal Risk
Should supervision be about finding the optimal level of risk? It sometimes seems that way. A sensible idea in portfolio management, less so when appl…
Read moreThe Paradox of Perfect Supervision
The common, perhaps even prevailing, culture among supervisors is to see undesirable outcomes as the result of insufficient resources, information and…
Read moreArtificial intelligence, supervision and financial stability
Artificial Intelligence (AI) adoption in finance is accelerating, giving private sector firms speed and agility that overwhelm human-centred supervisi…
Read moreHow central banks can meet the financial stability challenges arising from artificial intelligence
The growing use of artificial intelligence (AI) poses difficult challenges for the financial authorities. AI allows private-sector firms to optimise a…
Read moreFive systemic threats and what to do about them
Systemic financial risk has both internal and external drivers. So, when we focus too strongly on preventing internal crises, such as the 2008 Global …
Read moreClimate risk does not affect systemic financial risk
Climate risk is not a systemic financial risk. Folding it into financial regulations will likely backfire, not mitigate climate damage and even increa…
Read moreArtificial intelligence and stability
Financial institutions are rapidly embracing AI – but at what cost to financial stability? This column argues that AI introduces novel stability risks…
Read moreThe one-in-a-thousand-day problem
Financial crises usually inflict the most damage when banks suddenly shift from pursuing profits to survival. This column argues that such drastic beh…
Read moreHow the financial authorities can respond to AI threats to financial stability
Artificial intelligence can act to either stabilise the financial system or to increase the frequency and severity of financial crises. This second co…
Read moreAI financial crises
The rapid adoption of artificial intelligence is transforming the financial industry. This first of a two-column series argues that AI may either incr…
Read moreHow AI can undermine financial stability
As artificial intelligence makes inroads into the financial system, it exacerbates existing channels of instability and creates new ones. This column …
Read moreArtificial intelligence and financial stability
The use of artificial intelligence in the private sector is accelerating, and the financial authorities have no choice but to follow if they are to re…
Read moreThe fallacy of composition in financial regulations
The fallacy of composition in financial regulations is that if all the banks are prudent, keeping all their individual micro risks under control, the …
Read moreOn the perils of regulating an infinitely complex financial system
The financial system is infinitely complex, so the supervisors can only patrol a small part of it, why it is so hard to regulate finance effectively.
Read moreWhat Silicon Valley Bank and Credit Suisse tell us about financial regulations
The downfall of Silicon Valley Bank and Credit Suisse has exposed failures in how we regulate the financial system. This column argues that the proble…
Read moreLessons from the collapse of Silicon Valley Bank
The collapse of Silicon Valley Bank shows that banks still pose risks. Are they systemic? While it is unlikely that the failure of SVB will lead to a …
Read moreWhat do we want to get out of regulations?
Financial regulations are vital. But do they give us what we need?
Read moreHow global risk perceptions affect economic growth
The relationship between financial risk and economic growth is complex. This column finds that perceptions of high risk unambiguously harm growth, whi…
Read moreMoral hazard, the fear of the markets, and how central banks responded to Covid-19
While the direct economic consequences of Covid-19 have been significant, the impact on the financial markets has been more nuanced. This column uses …
Read moreDo the new financial regulations favour the largest banks?
The new postcrisis financial regulations, for example Basel III, have the unfortunate side effect of favouring the largest banks relative to the small…
Read moreFinance is not engineering
Regulations change behaviour and outcomes. It is seductively attractive to say that someone misbehaves, therefore we need the rule to prevent the mis…
Read moreShould macroprudential policy target real estate prices?
Keynote speech at the bank of Lithuania on "Should macroprudential policy target real estate prices?"
Read moreThe fatal flaw in macropru: It ignores political risk
Political risk is a major cause of systemic financial risk. This column argues that both the integrity and the legitimacy of macroprudential policy, o…
Read moreOf Brexit and regulations
One often hears from Brexit supporters that too many regulations come from Brussels, that it would be much better if we could regulate ourselves.…
Read moreOf tail risk
Suppose one cares about tail risk, what is the best way to estimate it? There are two, not mutually exclusive, ways; statistical and structural. Whi…
Read moreAre asset managers systemically important?
Some financial authorities have proposed designating asset managers as systemically important financial institutions (SIFIs). This column argues that …
Read moreObjective function of macro-prudential regulations
I have been in a conference for the past few days, and have seen a few presentations on macropru type regulations.
Read moreRegulators could be responsible for next financial crash
LSE report warns that forcing financial institutions to forecast risk in the same way could mean they will all end up being caught unawares.
Read morePost-Crisis banking regulation: Evolution of economic thinking as it happened on Vox
This column introduces a new Vox eBook collecting some of the best Vox columns on financial regulations, starting with the fundamentals of financial r…
Read moreThe new market-risk regulations
Basel III is coming into focus. The fundamental logic of the regulatory changes seems sensible, but the devil is in the detail - empirical implementa…
Read moreTowards a more procyclical financial system
Is the fact that different banks have different risk models problematic? Contrary to the Basel Committee and the European Banking Authority, this colu…
Read moreNot so fast! There's no reason to regulate everything
Many are calling for significant new financial regulations. This column says that if the regulate everything that moves crowd has its way, we will rep…
Read moreFinancial regulation built on sand: The myth of the riskometer
Much of today's financial regulation assumes that risk can be accurately measured so that financial engineers, like civil engineers, can design safe p…
Read moreRegulation and financial models: Complexity kills
Complex financial models and intricate assets structures meant extraordinary profits before the crisis. Markets for structured products became overly …
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