30 August 2017 · 9:00 am

Who withdraws money from distressed banks?

Benjamin Guin, Martin Brown and Stefan Morkoetter

The recently proposed liquidity regulations for banks under Basel III emphasize the importance of deposit insurance and well-established customer relationships for the stability of bank funding. However, little is known about which clients withdraw their deposits from distressed banks. New survey data covering the behaviour of households in Switzerland during the 2007-2009 crisis suggest that well-established customer relationships are indeed crucial for mitigating withdrawal risk when a bank is in distress.

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24 August 2017 · 9:00 am

Bitesize: The very volatile value of cryptocurrencies

John Lewis

Proponents of private cryptocurrencies argue they are a better store of value than traditional “fiat” currency. But even if a cryptocurrency’s value cannot be inflated away by large supply increases, that doesn’t automatically mean its value is stable in terms of ability to buy goods and services.

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17 August 2017 · 9:00 am

Foreign-owned firms and productivity

Sandra Batten and Dena Jacobs

Many governments around the world pursued policies to free up capital flows from the late 1970s to early 1990s with the aim of boosting productivity.  There’s now a debate raging about the costs and benefits of globalisation. While detractors highlight concerns about inequality, supporters of capital liberalisation point to the productivity growth it has fostered. Drawing on a unique UK firm-level dataset that merges data from the ONS business and innovation surveys, we show that foreign-owned companies are more productive than domestically owned firms and that their presence boosts domestic labour productivity. We suggest three reasons why: foreign-owned companies invest more in R&D; they are better managed; and they collaborate with other organisations and promote the diffusion of ideas.

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15 August 2017 · 9:00 am

Car finance: what’s new?

Tim Pike, Phil Eckersley and Alex Golledge

Since our first post, car finance has risen up the agenda of regulators, journalists and policymakers. Here we provide an update on recent developments. Sterling’s depreciation has had little impact on car finance costs: first because pass-through to new car prices has been muted, and second because finance providers have responded by lengthening loan terms and increasing balloon payments rather than upping monthly repayments. Providers are increasingly retailing contracts where consumers have no option to purchase the car at the end.  This avoids some risks associated with voluntary terminations, but it creates new risks around resale value. In sum, the industry continues to accumulate credit risk, predicated on the belief that used car values will remain robust.

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11 August 2017 · 9:00 am

Bitesize: Elections, confidence and misery (US edition)

Thomas Viegas and Emil Iordanov

Since Donald Trump was elected to the Oval Office last November, consumer confidence in the US has picked up notably. But is this post-election rise unusual?

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08 August 2017 · 9:00 am

Your country needs funds: The extraordinary story of Britain’s early efforts to finance the First World War

Michael Anson, Norma Cohen, Alastair Owens and Daniel Todman

Financing World War I required the UK government to borrow the equivalent of a full year’s GDP.  But its first effort to raise capital in the bond market was a spectacular failure. The 1914 War Loan raised less than a third of its £350m target and attracted only a very narrow set of investors. This failure and its subsequent cover-up has only recently come to light following research analysing the Bank’s ledgers.  It reveals the shortfall was secretly plugged by the Bank, with funds registered individually under the names of the Chief Cashier and his deputy to hide their true origin.  Keynes, one of a handful of officials in the know at the time, described the concealment as “a masterly manipulation”.

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27 July 2017 · 9:00 am

The Dog and the Boomerang: in defence of regulatory complexity

Joseph Noss and David Murphy

For some years, financial regulations have been becoming more complex. This has led some prominent commentators, regulators and regulatory bodies, to set out the case for simplicity, including Adrian Blundell–Wignall, Andy Haldane, Basel Committee and Dan Tarullo. In his contribution, Haldane illustrates how simple rules can achieve complex tasks: by simply adjusting its speed to keep its angle of gaze fixed, a dog can manage the complex task of catching a Frisbee. In this post, however, we argue that some financial risks are hard to catch with simple rules – they are more like a boomerang’s flight path than that of a Frisbee. Complex rules can sometimes do a better job at catching risk; and simple rules can be less prudent.

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24 July 2017 · 9:00 am

Pension fund deficit risk

Matt Roberts-Sklar

In recent years, the volatility of pension fund deficits has been dampened by pension fund assets behaving more similarly to pension fund liabilities. This is partly because bonds make up a bigger share of assets than a decade ago, and partly because bonds and equities are moving more closely than before. Both factors have increased the correlation of assets with pension funds’ liabilities which tend to be intrinsically bond-like. This matters because the volatility of pension deficits can affect pension fund investment decisions. Given their size, changes in pension fund asset allocation can materially affect asset prices.

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20 July 2017 · 11:00 am

Modelling the Macroprudential Balancing Act

Angus Foulis and Jon Bridges

Macropru is new.  Although many countries have now used macroprudential tools, there is no well-established guidebook to help policymakers develop their reaction functions.  The principles behind macroprudential strategy are still being explored, with recent speeches by Alex Brazier, Vitor Constancio, and a review by the IMF,FSB & BIS.  This post illustrates how the balancing act at the heart of the macroprudential debate can be formalised – it is a call to arms for further research, rather than the definitive guide.

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19 July 2017 · 9:00 am

How will households react to the real income squeeze?

Philip Bunn and Jeremy Rowe

Rising inflation is eroding the spending power of UK households’ incomes.  How will they react to that?  The answer will make a big difference to the economic outlook.  Will they dip into savings and carry on buying the same amount of goods and services, or will they just spend the same and be able to buy less with it?  New survey evidence suggests that households intend to do a bit of both with nominal spending increasing by around half of the rise in prices but real consumption also falling.  But not all households say they will respond in the same way: households with debts and limited savings to fall back on are less likely to be able to increase spending.
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