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Tag Archives: Banks

China’s dual banking system: consolidation as the final solution for weak small banks

There are fundamental solvency and liquidity issues for some small Chinese banks, widely influencing both the bond market as well as the broader financial sector. Given the difficulties in creating a level playing field between small and large banks, there is an expectation that small banks will continue to under-perform.The latest bailout of the Bank of Jinzhou shows the intervention by the People’s Bank of China (PBoC) on Baoshang Bank was not an isolated event. There are indeed fundamental...

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The tricky link between the Hong Kong dollar and capital flows

The Hong Kong economy has been hit by a series of shocks, but it should resist taking drastic measures to keep foreign capital in the city.Hong Kong is a very special financial centre. First, it is highly dependent on Chinese financial intermediaries and corporates. Second, its currency is pegged to the US dollar through one of the tightest monetary arrangements, namely a currency board.Furthermore, Hong Kong’s economic cycle is mainly linked to mainland China but with both the Hong Kong...

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Backstage at BAM19: How much further reform is needed for the new financial sector?

Backstage at the Bruegel Annual Meetings, Rebecca Christie talks with Nicolas Véron on the new financial sector.Is current financial architecture working as intended? If not, can it be fixed at the margin, or does it require holistic overhaul? Can such reforms be envisaged in a way that gives satisfaction to most or all member states? In this podcast, Rebecca Christie discusses financial sector architecture with Nicolas Véron.

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An Effective Regime for Non-viable Banks: US Experience and Considerations for EU Reform

The US regime for non-viable banks has maintained a high degree of stability and public confidence by protecting deposits, while working to minimise the public cost of that protection. EU reformers can draw valuable insights from the US experience. A review of the US regime supports arguments in favour of harmonisation and centralisation of bank insolvency proceedings and deposit insurance in Europe’s banking union. This study was requested by the European Parliament’s ECON...

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The breakdown of the covered interest rate parity condition

A textbook condition of international finance breaks down. Economic research identifies the interplay between divergent monetary policies and new financial regulation as the source of the puzzle, and generates concerns about unintended consequences for financing conditions and financial stability. The breakdown of the covered interest rate parity condition What’s at stake: a textbook condition of international finance breaks down. Economic research identifies the interplay between...

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Taking stock of the Single Resolution Board: Banking union scrutiny

The Single Resolution Board (SRB) has had a somewhat difficult start but has been able to learn and adapt, and has gained stature following its first bank resolution decisions in 2017-18. It must continue to build up its capabilities, even as the European Union’s banking union and its policy regime for unviable banks continue to develop. By: Nicolas Véron Date: April 18, 2019 Topic: European Macroeconomics & Governance...

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Providing funding in resolution: Unfinished business even after Eurogroup agreement on EMU reform

The recent Eurogroup agreement on euro-area reform foresees a greater role for the European Stability Mechanism (ESM) as a backstop to the banking union. This is a welcome step forward but important issues remain. We assess the agreement on how to fund banks after resolution and the best way to organise the fiscal role in liquidity provisioning to banks. We argue that the bank resolution framework will remain incomplete and its gaps could result in important financial instabilities. The...

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Global markets’ tepid reaction to China’s new opening

China’s accession to the World Trade Organisation in 2001 was greeted with great fanfare. But near silence has greeted the recent removal by the China Banking and Insurance Regulatory Commission of caps on foreign ownership of Chinese financial institutions. For Beijing, the apparent lack of interest might be an issue of too little, too late. Soon after U.S. President Donald Trump and his Chinese counterpart, Xi Jinping, met in Beijing last year, China announced that it would relax or...

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Excess liquidity and bank lending risks in the euro area

In this Policy Contribution prepared for the European Parliament’s Committee on Economic and Monetary Affairs (ECON) as an input to the Monetary Dialogue, the authors clarify what excess liquidity is and argue that it is not a good indicator of whether banks’ have more incentives in risk-taking and look at indicators that might signal that bank lending in the euro area creates undue risks. By: Zsolt Darvas and David Pichler Date: September 26, 2018 Topic: European...

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Lehman Brothers: 10 Years After

Ten years after the bankruptcy that shook the world, we review economists’ take on the lessons learned from the global financial crisis. Adam Tooze has a whole new 700-page book on the financial and economic history of the last decade (aptly titled “Crashed”). The book revolves around four themes: the immediate post-crisis response; the euro-zone crisis; the shift in the developed world after 2010 to a more austere fiscal policy; and the rise of populist politics in Europe and America....

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