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Archive for the ‘Bank regulation’ Category

This is the title of the second research paper published by the Institute of International Monetary Research (IIMR), by Adam Ridley. This is a brief summary extracted from the paper, which is fully available at http://www.mv-pt.org/research-papers:

‘Output growth in the leading Western economies has been weaker since the Great Recession of 2008 and 2009 than at any time since the 1930s. According to the International Monetary Fund’s database, advanced economies’ gross domestic product was flat in 2008 and dropped by 3.4 per cent in 2009. Although 2010 enjoyed a rebound with 3.1 per cent growth, the next three years saw output advancing typically by a mere 1 ½ per cent a year. This was well beneath the pre-2008 trend.

In the leading Western nations the official response to the Great Recession has had a number of well-known and familiar common features, although policy has been far from stable or easy to predict. The elements of this response constitute what might be termed the “New Regulatory Wisdom” (NRW). How is to be defined? What has been its impact so far? And what will be its effects if it is maintained into the future?’

 

Video on changes in bank regulation during and after the Global Financial Crisis

You can also find a video below with further insights on this fundamental topic to understand the collapse in broad money growth in the midst of the Global Financial Crisis, and thus the aggravation of the crisis. The effects of tightening bank capital regulation are quite straight forward; in order to comply with higher capital to assets ratios, banks would have to sell their assets and thus reduce the amount of deposits (bank money) in the economy. This means a contraction in banks’ balance sheets and in turn a fall in deposits (broad money). The effects of such contractionary regulation is addressed in detail in Money in the Great Recession (Ed. Tim Congdon. 2017). In view of recent proposals to even increase capital ratios further the IIMR will hold a conference in this topic in november 2017 (more information with the programme and speakers to follow after the summer)

Comments welcome.

Juan Castañeda

 

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