Understanding the shift from micro- to macro-prudential thinking: a discursive network analysis

Abstract

While some economists argued for macro-prudential regulation pre-crisis, the macro-prudential approach and its emphasis on endogenously created systemic risk have only gained prominence post-crisis. Employing discourse and network analysis on samples of the most cited scholarly works on banking regulation as well as on systemic risk (60 sources each) from 1985 to 2014, we analyze the shift from micro to macro-prudential thinking in the shift to the post crisis period. Our analysis demonstrates that the predominance of formalism, particularly, partial equilibrium analysis along with the exclusion of historical and practitioners' styles of reasoning from banking regulatory studies impeded economists from engaging seriously with the endogenous sources of systemic risk prior to the crisis. Post-crisis, these topics became important in this discourse, but the epistemological failures of banking regulatory studies precrisis were not sufficiently recognized. Recent attempts to conceptualize and price systemic risk as a negative externality point to the persistence of formalism and equilibrium thinking, with its attending dangers of incremental innovation due to epistemological barriers constrains theoretical progress, by excluding observed phenomena, which cannot yet be accommodated in mathematical models.

Monetary policy, crisis and capital centralization in corporate ownership and control networks: A B-Var analysis

“…Economic networks are webs where nodes represent economic agentsindividuals, firms, consumers, organizations, industries, countries, etc.and links depict market interactions. Economic network analysis applies general network science models (Caldarelli, 2007;Newman, 2010) to economic analysis (Schweitzer et al, 2009; see also : Economidies, 1996;Goyal, 2007;Jackson, 2008;Bramoullé et al, 2016), with more and more frequent uses in many different fields, especially after the crisis (Chinazzi and Fagiolo, 2013;Thiemann et al, 2017). One of the most promising implementations of network analysis is the study of capital ownership and control structures (Corrado and Zollo, 2006;Carroll, 2007;Vitali et al, 2011;Heemskerk and Takes, 2016;Glattfelder and Battiston, 2019;van Lidth de Jeude et al, 2019).…”

FinTech sector and banking business: competition or symbiosis?

“…What new risks arise in this case and can them destabilise the financial system? Obviously, all these questions require a qualitative, holistic and integral analysis of the micro and macro environment [16].…”

“…Such cooperation can benefit both banks and organisations implementing innovative technologies in the process of providing financial services. From banks' point of view, it is Source: Compiled by the authors based on [16] important to be able to test and implement the latest technological solutions that can significantly improve the competitive position in the future. It is notable that by virtue of the provisions contained in the FinTech and banks' agreements, the final product or service can become the property of the bank at no extra cost, or it can be a purchase, for example, with a high margin license for a fixed percentage of its value.…”

“…Important trends in current researches on financial innovations development are related to the establishment of interdependencies and partnerships between FinTech companies and banks (Navaretti, Calzolari & Pozzolo, 2017; Mocetti, Pagnini & Sette, 2017) [12][13], while business models arise due to technological financial platforms and create new forms of non-hierarchical community between stakeholders (Tasca, Aste, & Pelizzon, 2016; Gulamhuseinwala, Bull & Lewis, 2016) [14][15], and risk management for banks links to the development of FinTech (Thiemann, Aldegwy, 2016) [16].…”

What do stress tests test? Experimentation, demonstration, and the sociotechnical performance of regulatory science

“…To be accused of abusing their discretionary license and pulled into public controversy is a point of acute sensitivity for central banks who cherish their operational independence and justify it based on their value‐neutral expertise (Conti‐Brown, ). Those fears are heightened in the case of the Bank’s macroprudential regulation, given how far it pushes beyond the economic knowledge sanctioned by academic research communities (Thiemann, ; Thiemann, Aldegwy, & Ibrocevic, ). The financial cycle that the Bank’s scenarios and countercyclical buffer are anchored to remains an uncertain theoretical postulate, contingent to a large extent upon the measurement device applied to financial and macroeconomic data (Kranke & Yarrow, ; Stellinga, ).…”