Finance: Research, Policy and Anecdotes

November and December have been busy months:

The Centre for Banking Research at Cass hosted a panel on bank resolution, based on the publication of the latest issue of European Economy on this topic.  An interesting mix of regulators (Bank of England and Single Resolution Board) and academics (both economists and lawyers).  Two big questions remain: after all the reform of resolution frameworks on the national and Eurozone level, is the glass half full or half empty? And where do we stand on bail-in vs. bail-out?  As regulators are (and should be!) proud of what has been achieved, we academics have the task to point to gaps and deficiencies.  And as much as politicians want us to believe that there will never be any bail-out with taxpayer money again (at least until the next election), we academics are more cautious, both on positive terms (rather not good to say never) and normative terms (bail-in might not always under all circumstances be optimal).

I attended an interesting evidence session of the LSE Growth Commission on the effect of Brexit on the financial sector in the UK, with a few academics and lots of industry representatives.  Here is what I took away: while the majority of financial service provision in the UK is directed at the domestic economy, the loss of access to the EU market would result in quite a lot of losses in terms of jobs and value added, though the exact numbers are disputed.    And while Brexit might open some new opportunities, this loss of being a financial service provider for the EU makes London also less attractive as global financial centre. And as there is no obviuous candidate to compete for the crown of Europe’s financial centre, it might be a loss for the whole continent.  One issue that came prominently through was the fear of losing access to a broad talent pool, both under the aspect of migration restrictions but also simply due to loss of attraction of London as city to work and live.  On this note: next Tuesday will see a great panel discussion at Cass on the topic of Brexit. 

Orkun Saka, a Cass PhD student on the job market this year has a very interesting (and maybe controversial) paper on Eurozone banks’ home bias. Unlike other recent papers, he explains this home bias with an information story – the “closer” a bank to a country, the more it invests in its sovereign bonds as well as corporate bonds.  This also holds for foreign banks that are located closer to the crisis countries.

A great new policy report on finance in Central and Eastern Europe by the World Bank has just been launched (full disclosure: I was involved as outside advisor).  In-depth analysis based on lots of data crunching with important policy messages. The trade-off between stability and inclusion is one of the main themes.   Highly recommended reading if you want to catch up on finance in this part of the world.

Finally, Martin Sandbu has a great discussion of what constitutes populism on FT Free Lunch: anti-globalism, nationalism and nativism, economic policy based on state activism, and anti-rule-based policy making.  One can clearly see from this categorization that this goes beyond the old left-right classification. The behavior (read: tweeting) of the president-elect of the U.S. certainly fits this characterization perfectly.  And looking back into history (and that is now purely my reading) one notes parallels to the corporatists/fascist policy approach as practiced in Italy, Spain, Portugal and some Latin American countries…

Overview