Category Archives: Microprudential Regulation

When Harry Fired Sally: The Gender Punishment Gap

Mark Egan, Gregor Matvos and Amit Seru

Earlier this year the Bank hosted a joint conference with ECB and the Federal Reserve Board on Gender and Career Progression. In this guest post, Mark Egan, Gregor Matvos and Amit Seru summarise the paper they presented on the differential punishment of male and females in the US financial industry.

The gender pay gap – that women earn lower wages than men – is well known. Is that where the disparity in the workplace ends? No. In a new working paper, we document the existence of the “gender punishment gap”. We study the career trajectories of more than 1.2 million men and women working in the US financial advisory industry and examine how their careers evolve following misconduct. Women face more severe punishment at both the firm and industry level for similar missteps. Following an incidence of misconduct, women are 20% more likely to lose their jobs and 30% less likely to find new jobs relative to their male counterparts. The punishment gap is especially prominent in firms with few female managers.

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Filed under Financial Markets, Microprudential Regulation

US Hurricane Clustering: A New Reality?

Alex Ntelekos, Dimitris Papachristou and Juan Duan

The 2017 Atlantic hurricane season was the fifth most active in 168 years.  It was also one of only six seasons to see multiple Cat 5 hurricanes (Irma & Maria).  These two hurricanes, followed similar tracks and, together with Hurricane Harvey, occurred close together.  This situation can hinder relief efforts.  For insurers it may also lead to resource strain, disputes and unhedged risks, if insurers do not have enough ‘sideways’ reinsurance cover.  Our post asks whether three major hurricanes occurring in the US in close succession really was exceptional or, as our analysis of recent data suggests, it might happen more often in future.  Is the insurance industry underestimating the likely ‘clustering’ of major hurricanes?

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Filed under Insurance, Microprudential Regulation

Open letters: Laying bare linguistic patterns in PRA messages using machine learning

David Bholat and James Brookes

In a recent research paper, we show that the way supervisors write to banks and building societies (hereafter ‘banks’) has changed since the financial crisis. Supervisors now adopt a more directive, forward-looking, complex and formal style than they did before the financial crisis. We also show that their language and linguistic style is related to the nature of the bank. For instance, banks that are closest to failure get letters that have a lot of risk-related language in them. In this blog, we discuss the linguistic features that most sharply distinguish different types of letters, and the machine learning algorithm we used to arrive at our conclusions.

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Filed under Banking Supervision, Microprudential Regulation, New Methodologies, Text mining

Bitesize: The rise and fall of interest only mortgages

Sachin Galaiya

The interest-only product has undergone tremendous evolution, from its mass-market glory days in the run-up to the crisis, to its rebirth as a niche product. However, since reaching a low-point in 2016, the interest-only market is starting to show signs of life again as lenders re-enter the market.

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Filed under Financial Stability, Housing market, Microprudential Regulation

Who’s driving consumer credit growth?

Ben Guttman-Kenney, Liam Kirwin, Sagar Shah

Consumer credit growth has raised concern in some quarters. This type of borrowing – which covers mainstream products such as credit cards, motor finance, personal loans and less mainstream ones such as rent-to-own agreements – has been growing at a rapid 10% a year. What’s been driving this credit growth, and how worried should policymakers be?

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Filed under Financial Stability, Macroeconomics, Macroprudential Regulation, Microprudential Regulation

New machines for The Old Lady

Chiranjit Chakraborty and Andreas Joseph

Rapid advances in analytical modelling and information processing capabilities, particularly in machine learning (ML) and artificial intelligence (AI), combined with ever more granular data are currently transforming many aspects of everyday life and work. In this blog post we give a brief overview of basic concepts of ML and potential applications at central banks based on our research. We demonstrate how an artificial neural network (NN) can be used for inflation forecasting which lies at the heart of modern central banking.   We show how its structure can help to understand model reactions. The NN generally outperforms more conventional models. However, it struggles to cope with the unseen post-crises situation which highlights the care needed when considering new modelling approaches.

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Filed under Microprudential Regulation, Monetary Policy, New Methodologies

10 Years after Northern Rock – is the UK more or less likely to see another bank run?

Stephen Clarke

(Northern Rock image – Lee Jordan – Flickr, reproduced from wikimedia commons under CCA licence)

Ten years ago this month, queues of people started to form early in the morning outside Northern Rock branches across the UK, to withdraw their money out of fear that their bank would soon collapse.  As the day wore on panic spread, and the run continued until when the government stepped in to guarantee all Northern Rock deposits. It was the UK’s first retail bank run since the 19th century and one of the first symptoms of the global financial crisis.  This anniversary is an appropriate time to reflect on those events, but also to look forward and assess how things have moved on in the last decade, and whether something similar could ever happen again.

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Filed under Economic History, Financial Stability, Macroprudential Regulation, Microprudential Regulation

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

The Dog and the Boomerang: in defence of regulatory complexity

Joseph Noss and David Murphy

For some years, financial regulations have been becoming more complex. This has led some prominent commentators, regulators and regulatory bodies, to set out the case for simplicity, including Adrian BlundellWignall, Andy Haldane, Basel Committee and Dan Tarullo. In his contribution, Haldane illustrates how simple rules can achieve complex tasks: by simply adjusting its speed to keep its angle of gaze fixed, a dog can manage the complex task of catching a Frisbee. In this post, however, we argue that some financial risks are hard to catch with simple rules – they are more like a boomerang’s flight path than that of a Frisbee. Complex rules can sometimes do a better job at catching risk; and simple rules can be less prudent.

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Filed under Financial Markets, Financial Stability, Macroprudential Regulation, Microprudential Regulation

A CAMEL ride: Retracing the history of UK banking through a new historical database

Sebastian de-Ramon, Bill Francis and Kristoffer Milonas.

Navigational aids are helpful when visibility is poor or when landmarks are unfamiliar, especially when journeying to new destinations. In a recent working paper, we introduce a new regulatory dataset, the ‘Historical Banking Regulatory Database’ (HBRD), that provides a clearer view of the UK banking sector and helps navigate issues difficult to explore with other datasets. This post describes the HBRD, its benefits for research and policy analyses, and what can be learned from it.

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Filed under Banking, Microprudential Regulation