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According to the report released by the Financial Stability Board (FSB) in November 2011, shadow banking is defined as ‘credit intermediation involving entities and activities outside the regular banking system’. Put differently but simply, shadow banking is the realm of lending that does not rely on deposit-taking banks using customer money to fund loans. The International Monetary Fund (IMF) defines the shadow banking system as ‘off-balance-sheet and non-bank financial intermediation’ including Internet finance, micro-lending, asset securitization and some wealth management products. ‘Shadow banks’ in the context of Western countries refer to buy-out firms, hedge funds, venture funds and ordinary corporations which are using their investors’ money and wholesale funding to hire disgruntled bank traders, engage in direct lending and escape traditional banking regulation. In more advanced economies, shadow banking remains a key channel of credit intermediation that complements the formal banking system.
Claudio Borio and Anna Zabai
We explore the effectiveness and balance of benefits and costs of so-called ‘unconventional’ monetary policy measures extensively implemented in the wake of the financial crisis: balance sheet policies (or ‘quantitative easing’), forward guidance and negative policy rates. We reach three main conclusions: there is ample evidence that, to varying degrees, these measures have succeeded in influencing financial conditions even though their ultimate impact on output and inflation is harder to pin down; the cost-benefit balance is likely to deteriorate over time; and the measures are generally best regarded as exceptional, for use in very specific circumstances. Whether this will turn out to be the case, however, is doubtful at best and depends on more fundamental features of monetary policy frameworks. We also provide a critique of prevailing analyses of ‘helicopter money’ and explore in more depth the role of negative nominal interest rates in our fundamentally monetary economies, highlighting some risks.
Maarten Prak, Marcel Hoogenboom and Patrick Wallis
The chapter analyses the formation of European citizenship from a historical perspective. Compared to the transition of citizenship rights from the local to the national level in the 18th, 19th and 20th centuries, EU citizenship can be characterised as a unique project. Never before in history was an attempt made to forge more than two dozen highly developed nation states into a new supranational entity. The formation of citizenship in Europe was a two-stage process. During the medieval and early modern periods, a robust form of urban citizenship developed. In 1789, that urban model of citizenship was overturned by the French Revolution, which introduced a national model of citizenship. At the beginning of the 21st century the further integration of EU Member States has already resulted in the transfer of some national citizenship rights (especially civil and economic rights) to a higher – European – level. From a historical perspective, the chapter asks what alternatives Europe’s own history can offer.
Christine Kaufmann and Rolf H Weber
Prior to the Great Financial Crisis (2008/9) Central Banks used a single instrument, control over the short term interest rate, to achieve a single inflation target. The experience of the GFC has led Central Banks to give much more emphasis to financial stability, reverting to an earlier historical tradition. To hit two objectives efficiently, two instruments are required. A second set of instruments, macro-prudential measures, has been developed for this purpose. Macro-pru measures differ from micro-pru, since the former should vary according to the state of the banking (or wider financial) sector as a whole and be applied across the board, whereas the latter relates to the individual institution. There is, however, a large overlap between macro-pru and monetary policy on one side, and macro-pru and micro-pru on the other. Given such overlaps there is a strong efficiency argument for combining the conduct of all three within the Central Bank, but this not only greatly extends the powers, but also blurs the mandate, of an unelected technocratic agency, which is problematical. Much may depend on how successful Central Banks become in employing macro-pru measures, such as counter-cyclical capital requirements and varying limits on housing finance, since experience with these remains quite limited.