Microprudential regulation aims to prevent the government from being faced with a choice between spending taxpayer money to bailout an insolvent financial institution or suffering a financial and economic collapse. Banking collapses are so costly that it is difficult to resist bailouts when they happen. But the expectation of bailouts generates moral hazard, stoking leverage… Read More »
Financial contagion is traditionally defined as a situation in which a shock that initially affects only a few financial institutions spreads, or spills over, to the rest of the financial system and the economy, subsequently infecting the financial systems and economies of other countries. Because of its clear importance to the global economy, this phenomenon… Read More »
Courtesy of Alexandre Garel and Arthur Petit-Romec The COVID-19 outbreak has massively disrupted the life of individuals and imposed huge financial costs on almost all firms. As first diagnosed by Ramelli and Wagner (2020), on February 24, the U.S. stock market started to oscillate wildly and many firms saw much of their equity destroyed by… Read More »
Courtesy of Victor Wang and Betty Xing Information plays a crucial role in well-functioning stock markets, and corporate managers often possess private information about their firms’ performance and prospects. The rapid evolution of the COVID-19 pandemic and the enormous uncertainty associated with it has led firms into uncharted territory. What information can corporate managers share… Read More »
Courtesy of Pamela Foohey, Dalié Jiménez, Christopher K. Odinet As the United States enters the third month of the coronavirus pandemic, states are implementing plans for phasing out shelter-in-place orders and re-opening non-essential businesses. The past months have brought widespread layoffs and furloughs. By the end of April 2020, the unemployment rate soared to 14.7%… Read More »
Courtesy of Robert Gatter & Ana Santos Rutschman On April 21st, the State of Missouri became the first state to sue China, Chinese government-run entities, including the Wuhan Institute of Virology, and the Chinese Communist Party for damages related to Covid-19. The complaint claims that Chinese authorities caused “enormous economic disruption” to governments, corporations, and… Read More »
Courtesy of Selman Erol and Guillermo Ordonez The COVID-19 pandemic has reminded us of the effectiveness of social distancing practices, voluntary and mandated, to reduce disease transmission in the presence of highly contagious infections. Even though COVID-19 has a relatively low fatality rate, slowing down the rate of transmission is critical to avoid overwhelming the… Read More »
Courtesy of Mete Feridun While it is important to consider which regulatory measures may alleviate the impact of the COVID-19 pandemic, it is equally important not to allow the pandemic to derail the planned implementation of future regulations. The complex final phase of the Basel III reforms—referred to as “Basel IV” by the industry—are especially… Read More »
Courtesy of Chris Smith and Sangita Gazi A decade after Lehman Brothers collapsed, the Federal Reserve Bank of St. Louis reviewed the economics literature and concluded that “one of the main reasons why the subsequent recession was ‘great’ was due to high levels of leverage and debt.” On the eve of the 2008 financial crisis,… Read More »
Courtesy of Konstantinos Sergakis and Andreas Kokkinis Employee participation in corporate governance refers to a range of institutions, voluntary or legally mandated, that engage employees in corporate decision-making. Examples include works councils with co-decision powers on labor matters, advisory panels, information and consultation committees, employee share ownership schemes, and board representation. In the US, Senator… Read More »
|