IDEAS home Printed from https://ideas.repec.org/p/bis/biswps/792.html
   My bibliography  Save this paper

Is the financial system sufficiently resilient: a research programme and policy agenda

Author

Listed:
  • Paul Tucker

Abstract

The paper discusses why the financial system is not as resilient as policymakers currently claim - despite extensive regulatory reforms from a very weak starting point.The paper discusses different policy strategies for making some of the debt of some banks "information-insensitive", so that they it would be treated as safe in all but the most stressed circumstances. For the current prudential strategy, which is centred on minimum equity requirements, the paper argues that central banks and other agencies should start publishing annual staff reports on where regulatory and supervisory policy has been surreptitiously tightened or loosened.The paper aims to spark and contribute to the debate on the second phase of stability reforms that will be needed. It sets out an alternative policy strategy based on 100% liquidity cover for the short-term debt of banks (and shadow banks), and for the creditor hierarchy of operating banks and holding companies. In this proposal, the haircut policy of central banks would become the key instrument in determining bank equity requirements and the terms on which they could borrow in secured money markets. As such, this strategy would operationalise the theoretical and empirical work of Bengt Holmström and Gary Gorton.

Suggested Citation

  • Paul Tucker, 2019. "Is the financial system sufficiently resilient: a research programme and policy agenda," BIS Working Papers 792, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:792
    as

    Download full text from publisher

    File URL: https://www.bis.org/publ/work792.pdf
    File Function: Full PDF document
    Download Restriction: no
    File URL: https://www.bis.org/publ/work792.htm
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Bank for International Settlements, 2001. "Collateral in wholesale financial markets: recent trends, risk management and market dynamics," CGFS Papers, Bank for International Settlements, number 17, december.
    2. Lucas, Robert E, Jr, 1980. "Methods and Problems in Business Cycle Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(4), pages 696-715, November.
    3. Chousakos, K. & Gorton, G., 2017. "Bank health post-crisis," Financial Stability Review, Banque de France, issue 21, pages 55-67, April.
    4. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    5. Gorton, Gary, 1988. "Banking Panics and Business Cycles," Oxford Economic Papers, Oxford University Press, vol. 40(4), pages 751-781, December.
    6. Gorton, Gary & Metrick, Andrew, 2012. "Securitized banking and the run on repo," Journal of Financial Economics, Elsevier, vol. 104(3), pages 425-451.
    7. Markus Brunnermeier & Arvind Krishnamurthy, 2014. "Risk Topography: Systemic Risk and Macro Modeling," NBER Books, National Bureau of Economic Research, Inc, number brun11-1.
    8. Kyriakos T. Chousakos & Gary B. Gorton, 2017. "Bank Health Post-Crisis," NBER Working Papers 23167, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hristov, Atanas, 2022. "Credit spread and the transmission of government purchases shocks," Economic Modelling, Elsevier, vol. 107(C).
    2. Aditya Anta Taruna & Cicilia Anggadewi Harun & Raquela Renanda Nattan, 2020. "Macroprudential Liquidity Stress Test: An Application to Indonesian Banks," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(special i), pages 165-187.
    3. Paul Tucker, 2024. "Monetary system stability as a precondition for local and international order," Economic Affairs, Wiley Blackwell, vol. 44(2), pages 204-217, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gary B. Gorton, 2019. "The Regulation of Private Money," NBER Working Papers 25891, National Bureau of Economic Research, Inc.
    2. Timmermann, Allan & Wermers, Russ, 2014. "Runs on Money Market Funds," CEPR Discussion Papers 9906, C.E.P.R. Discussion Papers.
    3. Sang Rae Kim, 2024. "Financial Crisis as a Run on Profitable Banks," Annals of Economics and Finance, Society for AEF, vol. 25(1), pages 213-250, May.
    4. Song Han & Dan Li, 2010. "The fragility of discretionary liquidity provision - lessons from the collapse of the auction rate securities market," Finance and Economics Discussion Series 2010-50, Board of Governors of the Federal Reserve System (U.S.).
    5. Gary Gorton, 2020. "The Regulation of Private Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(S1), pages 21-42, October.
    6. Ryo Kato & Takayuki Tsuruga, 2022. "Pecuniary externalities, bank overleverage, and macroeconomic fragility," International Journal of Economic Theory, The International Society for Economic Theory, vol. 18(4), pages 554-577, December.
    7. Committee, Nobel Prize, 2022. "Financial Intermediation and the Economy," Nobel Prize in Economics documents 2022-2, Nobel Prize Committee.
    8. Kinateder, Markus & Kiss, Hubert János, 2014. "Sequential decisions in the Diamond–Dybvig banking model," Journal of Financial Stability, Elsevier, vol. 15(C), pages 149-160.
    9. Giese, Julia & Nelson, Benjamin & Tanaka, Misa & Tarashev, Nikola, 2013. "Financial Stability Paper No 21: How could macroprudential policy affect financial system resilience and credit? Lessons from the literature," Bank of England Financial Stability Papers 21, Bank of England.
    10. Hubert J. Kiss & Ismael Rodriguez-Lara & Alfonso Rosa-Garcia, 2022. "Experimental bank runs," Chapters, in: Sascha Füllbrunn & Ernan Haruvy (ed.), Handbook of Experimental Finance, chapter 25, pages 347-361, Edward Elgar Publishing.
      • Hubert J. Kiss & Ismael Rodriguez-Lara & Alfonso Rosa-Garcia, 2021. "Experimental Bank Runs," ThE Papers 21/03, Department of Economic Theory and Economic History of the University of Granada..
    11. Lawrence Schmidt & Allan Timmermann & Russ Wermers, 2016. "Runs on Money Market Mutual Funds," American Economic Review, American Economic Association, vol. 106(9), pages 2625-2657, September.
    12. Kristian Blickle & Markus Brunnermeier & Stephan Luck, 2020. "Micro-evidence from a System-wide Financial Meltdown: The German Crisis of 1931," Working Papers 275, Princeton University, Department of Economics, Center for Economic Policy Studies..
    13. Lallour, Antoine & Mio, Hitoshi, 2016. "Do we need a stable funding ratio? Banks’ funding in the global financial crisis," Bank of England working papers 602, Bank of England.
    14. Kiss, Hubert János & Rodriguez-Lara, Ismael & Rosa-García, Alfonso, 2015. "Kognitív képességek és stratégiai bizonytalanság egy bankrohamkísérletben [Cognitive abilities and strategic uncertainty in a bank-run experiment]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(10), pages 1030-1047.
    15. Augusto Hasman, 2013. "A Critical Review Of Contagion Risk In Banking," Journal of Economic Surveys, Wiley Blackwell, vol. 27(5), pages 978-995, December.
    16. Diane Pierret, 2015. "Systemic Risk and the Solvency-Liquidity Nexus of Banks," International Journal of Central Banking, International Journal of Central Banking, vol. 11(3), pages 193-227, June.
    17. Poeschl, Johannes & Zhang, Xue, 2018. "Bank Capital Regulation and Endogenous Shadow Banking Crises," MPRA Paper 92529, University Library of Munich, Germany.
    18. Gary B. Gorton, 2012. "Some Reflections on the Recent Financial Crisis," NBER Working Papers 18397, National Bureau of Economic Research, Inc.
    19. Goldstein, Itay & Razin, Assaf, 2015. "Three Branches of Theories of Financial Crises," Foundations and Trends(R) in Finance, now publishers, vol. 10(2), pages 113-180, 30.
    20. Emanuele Brancati & Marco Macchiavelli, 2015. "The Role of Dispersed Information in Pricing Default: Evidence from the Great Recession," Finance and Economics Discussion Series 2015-79, Board of Governors of the Federal Reserve System (U.S.).

    More about this item

    Keywords

    regulatory reforms; Basel III; great financial crisis;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bis:biswps:792. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Martin Fessler (email available below). General contact details of provider: https://edirc.repec.org/data/bisssch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.