March 30, 2014
by Thorsten Beck
This is the first of several blogs where I will discuss the social value of finance. This has been a controversial topic in both developed and developing countries, though for very different reasons. In the developed world, the Global Financial Crisis has transferred losses from Wall to Main Street and makes us doubt whether the size and political clout of the financial system has become too strong. In most developing countries, on the other hand, the majority of the population is excluded from formal financial services and the formal financial system is seen as serving only the rich and connected. Continue Reading →
March 28, 2014
by Thorsten Beck
A recent paper by Kristin Forbes, Marcel Fratzscher and Roland Straub looks at the effectiveness of capital control measures across countries, finding evidence that policies aimed at the financial sector can work, while policies aimed at macroeconomic prices and quantities are less effective
Following up on my previous post on state capture in Tunisia, here is a new World Bank paper showing how companies linked to former president Ben Ali benefited from this link.
Here is a somewhat critical view on the recent agreement on the Single Resolution Mechanism for the Eurozone; bank resolution over the weekend: bye bye. No need to read German to understand the bottom-line!
As announced previously, Stijn Claessens from the IMF’s research department will present the book: Financial Crises: Causes, Consequences, and Policy Responses on 1st May. Please follow this link for registration.
Coming up next week: the first of a series of blog entries on the social value of finance.
March 26, 2014
by Anthony Neuberger
The distinction between savings and pensions has eroded over the years, and the process has accelerated with the recent Budget. Surely the time has now arrived to recognise that savings are savings – a vehicle that allows people to shift income from good times to bad times – and to do away with artificial distinctions based on how the savings may be used. Continue Reading →
March 24, 2014
by Richard Payne
On this blog and elsewhere I have previously talked about the effects of high-frequency trading (HFT) firms on markets, the increasing use of dark pools to trade stock and the allegations of manipulation that currently surround FX markets. This week has seen news relevant to each of those topics. Continue Reading →
March 20, 2014
by Thorsten Beck
SME finance is a hot topic in developing and developed countries alike, though for different reasons. While in many developing countries, access to finance for SMEs has been traditionally very restricted, SMEs in many European countries have been suffering during the recent crisis. It comes therefore as no surprise, that SME finance has been on the agenda of the G20 over the past five years. I was asked to give an introductory presentation on SME finance at a recent G20 seminar in Riyadh to take stock of what we know about SMEs’ financing sources and to discuss some of the more recent innovations.
Over the past years, there have been lots of initiatives, both on quantifying the SME credit gap and on identifying policies and institutions that help close the SME financing gap. It has been relatively easy for politicians to agree on the importance of SMEs for innovation, job creation and growth and reiterate their commitment to improve SMEs’ financing situation. But obviously, the real action is going on in the financial sector and it is here, where there have been quite some innovations in recent years. Continue Reading →
March 19, 2014
by Jose Luis Peydro
Looking at the developments during the crisis, it is clear that monetary policy has been a necessary and crucial tool to reduce the systemic costs of the financial crisis, both through a massive reduction of policy rates and the use of non-standard monetary measures. However, as I explained in my previous post, these measures may have come with costs in the form of expectations of future bailouts thus increasing excessive risk (moral hazard). Continue Reading →
March 17, 2014
by Andrew Clare
It is never easy to identify when a market has bottomed. However, I think it is often possible to identify when one market is cheap relative to another. The black line in the following chart was created by dividing the PE ratio on an index of emerging equity markets with the PE ratio of the US equity market. Emerging equity markets have not been as cheap as they are today, relative to the US market, for nearly ten years.
EM PE Ratio relative to US PE Ratio
Continue Reading →
March 14, 2014
by Thorsten Beck
The program of the 4th EMG Conference on Emerging Markets Finance here at Cass is available. Keynote speeches by Viral Acharya and Helene Rey promise to be interesting as is the rest of the program.
An interesting new book on the recent crisis and lessons learned for the future, “Financial Crises: Causes, Consequences, and Policy Responses” consists of a number of essays by leading economists from in- and outside the IMF. And if you want to know further details – Stijn Claessens from the IMF, one of the editors, will present the book on May 1 at Cass.
Are bankers worth their pay? ask Claire Celerier and Boris Vallee. While not answering the question directly, the authors use French exam and subsequent wage data and show that the wage sensitivity to talent (or rather: exam results) is higher for the financial than other sectors.
More on bankers’ pay and their bonuses – a recent paper by Brian Bell and John Van Reenen shows that the bankers’ pay and especially their bonuses contributed to increasing income inequality in the UK. And interestingly, this trend continued through the financial crisis!
March 12, 2014
by Thorsten Beck
Bankers and politicians alike point to negative consequences of bonus restrictions for London as financial centre, most prominently a possible exodus of skilled bankers to other financial centres with fewer restrictions. But are such restrictions really bad for the financial system? And more important: do they hurt the British economy? My response would be: no. Continue Reading →
March 11, 2014
by Meziane Lasfer
The Wall Street Journal dated 4th March stated that 216 non-financial companies in the S&P 500 cut their debt-to-capitalisation ratio in the past year from 43% in 2012 to 35.4% in 2013. Even though this ratio, measured as debt over the sum of debt and shareholder equity (it wasn’t clear as to whether this is at market or book value), is higher than 35.4% in 2011, it indicates that firms are relying less on debt finance. On the face of it, the fact that so many companies cut their debt might be good news, as they reduced their financial risk. It suggests that they may have been in the past over levered with potential difficulties of servicing their debt, and the reduction in debt is likely to lead to safer firms and financial markets, and may result in an increase in growth.
However, we cannot be certain that this is the case, particularly if this decrease in debt is due to the following factors: Continue Reading →