A New Look at the Benefits and Costs of Bank Capital

By Jihad Dagher, Giovanni Dell’Ariccia, Luc Laeven, Lev Ratnovski, and Hui Tong

The appropriate level of bank capital and, more generally, a bank’s capacity to absorb losses, has been a contentious subject of discussion since the financial crisis. Larger buffers give bankers “skin in the game” helping to prevent excessive risk taking and absorb losses during crises. But, some argue, they might increase the cost of financial intermediation and slow economic growth.

(more…)

By | March 3rd, 2016|Finance, Financial Crisis, International Monetary Fund, U.S.|0 Comments

Good Governance Curbs Excessive Bank Risks

By Luis Brandão-Marques, Gaston Gelos, and Erik Oppers 

The global financial crisis reminded us that banks often take risks that are excessive from society’s point of view and can damage the economy. In part, this is the result of the incentives embedded in compensation practices and of inadequate monitoring by stakeholders.  Our analysis found the right policies could reduce banks risky behavior. 

Our findings

In our latest Global Financial Stability Report we take stock of recent developments in executive pay, corporate governance, and bank risk taking, and conduct a novel empirical analysis.

(more…)

Time Waits for No Man: How to Secure Financial Stability in 2011

So, where does the global financial system stand at the moment? Yes, we have witnessed improvements recently, but we are also observing a dichotomy between the economy and the financial system. While the global economic recovery has been continuing, financial stability is still at risk, because of a persistent lack of investor confidence in some advanced country sovereigns and their banking systems. In this post José Viñals reflects on the IMF’s updated assessment of global financial stability, including the key challenges that keep global financial stability at risk and the policies needed to meet these challenges.

Load More Posts