Monthly Archives: August 2017

Who withdraws money from distressed banks?

Benjamin Guin, Martin Brown and Stefan Morkoetter

The recently proposed liquidity regulations for banks under Basel III emphasize the importance of deposit insurance and well-established customer relationships for the stability of bank funding. However, little is known about which clients withdraw their deposits from distressed banks. New survey data covering the behaviour of households in Switzerland during the 2007-2009 crisis suggest that well-established customer relationships are indeed crucial for mitigating withdrawal risk when a bank is in distress.

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Filed under Banking, Financial Stability, Microprudential Regulation

Bitesize: The very volatile value of cryptocurrencies

John Lewis

Proponents of private cryptocurrencies argue they are a better store of value than traditional “fiat” currency. But even if a cryptocurrency’s value cannot be inflated away by large supply increases, that doesn’t automatically mean its value is stable in terms of ability to buy goods and services.

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Filed under Currency, Financial Markets

Foreign-owned firms and productivity

Sandra Batten and Dena Jacobs

Many governments around the world pursued policies to free up capital flows from the late 1970s to early 1990s with the aim of boosting productivity.  There’s now a debate raging about the costs and benefits of globalisation. While detractors highlight concerns about inequality, supporters of capital liberalisation point to the productivity growth it has fostered. Drawing on a unique UK firm-level dataset that merges data from the ONS business and innovation surveys, we show that foreign-owned companies are more productive than domestically owned firms and that their presence boosts domestic labour productivity. We suggest three reasons why: foreign-owned companies invest more in R&D; they are better managed; and they collaborate with other organisations and promote the diffusion of ideas.

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Filed under Macroeconomics

Car finance: what’s new?

Tim Pike, Phil Eckersley and Alex Golledge

Since our first post, car finance has risen up the agenda of regulators, journalists and policymakers. Here we provide an update on recent developments. Sterling’s depreciation has had little impact on car finance costs: first because pass-through to new car prices has been muted, and second because finance providers have responded by lengthening loan terms and increasing balloon payments rather than upping monthly repayments. Providers are increasingly retailing contracts where consumers have no option to purchase the car at the end.  This avoids some risks associated with voluntary terminations, but it creates new risks around resale value. In sum, the industry continues to accumulate credit risk, predicated on the belief that used car values will remain robust.

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Filed under Financial Stability, Macroeconomics, Uncategorized

Bitesize: Elections, confidence and misery (US edition)

Thomas Viegas and Emil Iordanov

Since Donald Trump was elected to the Oval Office last November, consumer confidence in the US has picked up notably. But is this post-election rise unusual?

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Filed under Economic History, International Economics, Macroeconomics

Your country needs funds: The extraordinary story of Britain’s early efforts to finance the First World War

Michael Anson, Norma Cohen, Alastair Owens and Daniel Todman

Financing World War I required the UK government to borrow the equivalent of a full year’s GDP.  But its first effort to raise capital in the bond market was a spectacular failure. The 1914 War Loan raised less than a third of its £350m target and attracted only a very narrow set of investors. This failure and its subsequent cover-up has only recently come to light following research analysing the Bank’s ledgers.  It reveals the shortfall was secretly plugged by the Bank, with funds registered individually under the names of the Chief Cashier and his deputy to hide their true origin.  Keynes, one of a handful of officials in the know at the time, described the concealment as “a masterly manipulation”.

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Filed under Debt Management, Economic History, Evolution of Central Banks