The Lender of Last Resort Function after the Global Financial Crisis

Dobler, Marc; Gray, Simon; Murphy, Diarmuid; Radzewicz-Bak, Bozena

doi:10.5089/9781498355995.001

Cited by 17 publications

(10 citation statements)

References 18 publications

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“…118 Although the Dodd-Frank Act does not expressly allow access to the Federal Reserve (Fed) liquidity facilities to CCPs, currently in the U.S. (and likewise in the UK), such access is granted. 119 In those jurisdictions, where CCPs do not have direct access to central bank liquidity, it is of great importance for the CCP to have a banking license.…”

Section: Externalitiesmentioning

confidence: 99%

In CCP we trust … or do we? Assessing the regulation of central clearing counterparties in Europe

Nabilou

Asimakopoulos

2019

Capital Markets Law Journal

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As part of financial market infrastructures, central counterparties (CCPs) have long been deemed systemically important and are likely to gain in importance due to the regulatory developments mandating central clearing for an increasing number of financial products. This paper focuses on the regulation as well as the recovery and resolution of CCPs in Europe. The existing CCP regulatory framework consists of ex-ante measures, including, among others, capital and liquidity requirements, initial and variation margins, and loss sharing mechanisms. In addition, the European proposal for the recovery and resolution of CCPs (the Proposal) contains several ex-post regulatory measures mainly in the form of rules for recovery and orderly resolution. Having studied the prudential regulatory measures for CCPs contained in the European Market Infrastructure Regulation and the ex-post recovery and resolution measures of the Proposal, this paper puts a spotlight on the specific shortcomings of the existing and proposed rules, in particular in terms of misaligned incentives, externalities, collective action problems, and certain practical impediments, and concludes that it would be misguided to inordinately rely on ex-post measures. Highlighting the limitations of the recovery and resolution mechanisms, this paper proposes that given the systemic importance of CCP functions, it is critical to improve the ex-ante measures whose objective is to prevent the failure of a CCP, rather than ex-post measures, which kick in after its failure. Accordingly, recommendations for making such improvements are proposed.

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Section: Externalitiesmentioning

confidence: 99%

In CCP we trust … or do we? Assessing the regulation of central clearing counterparties in Europe

Nabilou

Asimakopoulos

2019

Capital Markets Law Journal

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“…Intensive growth of non-bank institutions and their connection to banks have significantly hindered the limitation of liquidity support exclusively to banks. Such an approach would be too narrow and inconsistent with the existing structure and development of financial institutions and the whole financial system, especially in conditions of a crisis (Dobler, et al, 2016). Significant reliance of deficit transactors on non-bank mediators, on mutual funds and money market mutual funds contributed for these institutions during the recent financial crisis to be provided with a significant liquidity within the LOLR arrangement.…”

Section: Expansion Within the Components Of Financial Safety Netmentioning

confidence: 99%

“…A special position is given to dealers with government securities, since the market for these securities is the most important segment of the money market as the transmission mechanism of monetary policy and funding of the state. The role of the dealer is significant also on the market for private securities, where LOLR takes the form of an asset swap, providing the possibility to exchange less liquid private sector bonds for more liquid government bonds (Dobler, et al, 2016). In these cases, non-bank institutions as a LOLR users are subject to a special system of control, whereby they do not become the subject of direct regulation and control of CB, but information exchange is performed on the basis of Memoranda of Understanding, MOUs.…”

Section: Expansion Within the Components Of Financial Safety Netmentioning

confidence: 99%

The Impact of Crisis Trends in Banking on Expanding Financial Safety Net

Jemović

Krstić

2018

TEME

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Stable and efficient functioning of financial institutions, especially banking institutions, requires the existence of an adequate regulatory framework. The differences in the character and functioning of financial institutions caused differences in the regulatory approaches for maintaining stability and efficiency, whereby one should bear in mind that even within a concrete financial system, the regulatory framework evolves in order to be able to respond to new trends in the financial services sector. A growing homogenization of activities and a less noticeable difference among financial institutions caused the financial safety net to expand to non-bank financial institutions in order to maintain financial stability. The aim of this paper is to consider the justification and implications of such an expansion. Considering the fact that financial safety net „expansion“ stimulates riskier behaviour of protected institutions, this paper offers suggestions for dealing with this problem in order to reduce it as much as possible.

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“…There is empirical evidence identifying favorable consequences for lending, asset pricing, and economic activity from assistance to financial intermediaries, policies that seek to improve the financial condition of intermediaries indirectly (for example, through debt re-denominations), or interventions to improve the liquidity of markets in the wake of bank failures (for example, government-sponsored asset management companies). 9 Of course, this argument was used by Paulson and Bernanke in support of Congressional approval of TARP. The debates over TARP, however, did not only reflect economic concerns and arguments, but also other considerations, which affected the process of approving TARP.…”

Section: The Objectives Of Government Intervention To Assist Financiamentioning

confidence: 99%

“…Nor was it obvious that government assistance to banks would actually be implemented wisely. For example, it is hard to make sense of the government's decisions to bail out 9 For a general review, see Calomiris, Klingebiel, and Laeven (2005), who discuss the relative advantages of different policy approaches in different economic environments. See also the aforementioned studies of the operation of the Reconstruction Finance Corporation as a particular example of the effects of preferred stock assistance to banks, and Kroszner (1999) and Calomiris (2007) on the positive macroeconomic consequences of redenomination.…”

Section: The Objectives Of Government Intervention To Assist Financiamentioning

confidence: 99%

An Assessment of TARP Assistance to Financial Institutions

Calomiris

Khan²

2015

Journal of Economic Perspectives

102

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How should economists and policymakers evaluate the assistance provided to financial institutions during the recent financial crisis, and in particular the assistance provided through the 2008 Troubled Asset Relief Program, commonly known as TARP? We examine that question in five parts: 1) What did policymakers do? 2) What are the proper objectives of interventions like TARP assistance to financial institutions? 3) Did TARP succeed in those economic objectives? 4) Were TARP funds allocated purely on an economic basis, or did political favoritism play a role? 5) Would alternative policies, either alongside or instead of TARP, and alternative design features of TARP, have worked better?In assessing the TARP, we distinguish between the assistance provided to very large banks and that provided to other banks. The largest banks were treated very differently: they were pressured to participate in the initial TARP program, and some were also pressured to participate (through stress testing) in various second-stage programs. Furthermore, the second-stage investments made into these large institutions (which were justified by a belief that these institutions were special because they were "too big to fail") sometimes took very different and riskier forms from the preferred stock and warrant investments made in other banks under the first phase of TARP.TARP was not a single approach to assisting weak banks but rather a variety of changing solutions to a set of evolving problems. Understanding and evaluating it as

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The Lender of Last Resort Function after the Global Financial Crisis

Cited by 17 publications

References 18 publications

In CCP we trust … or do we? Assessing the regulation of central clearing counterparties in Europe

In CCP we trust … or do we? Assessing the regulation of central clearing counterparties in Europe

The Impact of Crisis Trends in Banking on Expanding Financial Safety Net

An Assessment of TARP Assistance to Financial Institutions

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