scholarly journals Retrospectives: Regulating Banks versus Managing Liquidity: Jeremy Bentham and Henry Thornton in 1802

2020 ◽  
Vol 34 (4) ◽  
pp. 195-209
Author(s):  
John Berdell ◽  
Thomas Mondschean
Keyword(s):  
Systemic Risk ◽  
Financial Crises ◽  
Financial System ◽  
Jeremy Bentham ◽  
Credit System ◽  
Lender Of Last Resort ◽  
Financial Systems ◽  
Bank Regulations ◽  
Systemic Crisis ◽  
The Stability

At nearly the same moment, Jeremy Bentham and Henry Thornton adopted diametrically opposed approaches to stabilizing the financial system. Henry Thornton eloquently defended the Bank of England’s actions as the lender of last resort and saw its discretionary management of liquidity as the key stabilizer of the credit system. In contrast, Jeremy Bentham advocated the imposition of strict bank regulations and examinations, without which, he predicted, Britain would soon experience a systemic crisis—which he called “universal bankruptcy.” There are strong parallels but also dramatic differences with our recent attempts to reduce systemic risk within financial systems. The Basel III bank regulatory framework effectively intertwines Bentham’s and Thornton’s diametrically opposed approaches to stabilizing banks. Yet Bentham’s and Thornton’s concerns regarding the stability of the wider financial system remain alive today due to financial innovation and the politics of responding to financial crises.

scholarly journals Research on the Development of City Financial Systems under the Rural Revitalization Strategy

2021 ◽  
Vol 5 (5) ◽  
pp. 14-19
Author(s):  
Jilu Liu ◽  
Qiaoyu Zhang ◽  
Xiaoming Zeng
Keyword(s):  
Economic Development ◽  
Product Innovation ◽  
Financial System ◽  
Agricultural Product ◽  
Credit System ◽  
Financial Systems ◽  
Rural Economic Development ◽  
Rural Revitalization ◽  
Multi Level ◽  
The City

The implementation of the rural revitalization strategy can provide a better solution for problems such as the “three rural” development limitations and the imbalance of urban and rural economic development as it is the key to comprehensive building of a well-off society. Based on Linhai City’s finance status, this article analyzes the financial needs of the city for a better economic development under the rural revitalization strategy which prioritizes the policy of building a city financial system. The city’s financial system should be organized in a multi-level stucture for better economic development. This will improve the credit system of villages and towns, strengthen agricultural product innovation financially, and improve the finances of rural residents.

scholarly journals Macroprudential Policy Versus Other Economic Policies

2021 ◽  
Vol 23 (2) ◽  
pp. 33-66
Author(s):  
Eva Lorenčič ◽  
◽  
Mejra Festić ◽  
Keyword(s):  
Financial Crises ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Financial System ◽  
Policy Instruments ◽  
Economic Policies ◽  
Macroprudential Policy ◽  
Descriptive Research ◽  
The Stability ◽  
The Global Financial Crisis

After the global financial crisis of 2007, macroprudential policy instruments have gained in recognition as a crucial tool for enhancing financial stability. Monetary policy, fiscal policy, and microprudential policy operate with a different toolkit and focus on achieving goals other than the stability of the financial system as a whole. In ligh of this, a fourth policy – namely macroprudential policy – is required to mitigate and prevent shocks that could destabilize the financial system as a whole and compromise financial stability. The aim of this paper is to contrast macroprudential policy with other economic policies and explain why other economic policies are unable to attain financial stability, which in turn justifies the need for a separate macroprudential policy, the ultimate goal whereof is precisely financial stability of the financial system as a whole. Our research results based on the descriptive research method indicate that, in order to prevent future financial crises, it is indispensable to combine both the microprudential and the macroprudential approach to financial stability. This is because the causes of the crises are often such that they cannot be prevented or mitigated by relying only on microprudential or only on macroprudential policy instruments.

Impact of Crypto-Asset Trade on Financial Stability

2020 ◽  
pp. 210-232
Author(s):  
Nader Trabelsi
Keyword(s):  
Systemic Risk ◽  
Financial Stability ◽  
Financial System ◽  
System Stability ◽  
Copula Model ◽  
Copula Approach ◽  
The Stability ◽  
The Empirical Analysis ◽  
Global Financial System

The chapter attempts to test the hypothesis that cryptocurrencies are real independent financial instruments that pose no danger to global financial system stability. For the empirical analysis, the authors use data related to bitcoin and widely traded asset classes. They also utilize the copula approach as well as the CoVaR model. The results show a significant role of crypto-asset market in the stability of global markets. Precisely, they find a dependence between bitcoin and oil prices defined by a normal copula model. The empirical results regarding the systemic risk show that extreme changes in bitcoin prices may have an adverse effect on equity and gold markets. There are positive and significant effects of EUR, JPY, and WTI markets when bitcoin goes down. The authors have also shown that after 2016 the virtual market sudden changes are more likely to raise the whole regular financial system losses, except the energy market. These results are important for policymakers and investors.

Systemic Risk in Financial Services

2011 ◽  
Vol 16 (2) ◽  
pp. 195-300 ◽  
Author(s):  
D. Besar ◽  
P. Booth ◽  
K. K. Chan ◽  
A. K. L. Milne ◽  
J. Pickles
Keyword(s):  
Financial Markets ◽  
Systemic Risk ◽  
Financial Services ◽  
Financial Crises ◽  
Financial System ◽  
Policy Makers ◽  
Large Aggregate ◽  
The Past ◽  
Markets And Institutions ◽  
Aggregate System

AbstractThe current banking crisis has reminded us of how risks materialising in one part of the financial system can have a widespread impact, affecting other financial markets and institutions and the broader economy. This paper, prepared on behalf of the Actuarial Profession, examines how such events have an impact on the entire financial system and explores whether such disturbances may arise within the insurance and pensions sectors as well as within banking. The paper seeks to provide an overview of a number of banking and other financial crises which have occurred in the past, illustrated by four case studies. It discusses what constitutes asystemicevent and what distinguishes it from a large aggregate system wide shock. Finally, it discusses how policy-makers can respond to the risk of such systemic financial failures.

Central banking in nineteenth-century Belgium: was the NBB a lender of last resort?

2008 ◽  
Vol 15 (2) ◽  
pp. 153-173 ◽  
Author(s):  
Erik Buyst ◽  
Ivo Maes
Keyword(s):  
Banking Sector ◽  
Financial System ◽  
Central Banking ◽  
Lender Of Last Resort ◽  
Short Term ◽  
Commercial Activities ◽  
Finance Minister ◽  
National Bank ◽  
The Stability

AbstractThe creation of the National Bank of Belgium (NBB) in 1850 marked a fundamental reform of the Belgian financial system. It clearly aimed at rendering the financial system more crisis resistant, especially by restricting the leverage of the banking sector. The NBB, which received the privilege to issue banknotes, was subject to strict rules to grant only short-term credit against collateral. The NBB took up a key role in maintaining monetary stability, especially by safeguarding the convertibility of banknotes. The NBB also took part in certain rescue operations of financial institutions. However, this was mostly on explicit demand from the finance minister and for crises concerning discount banks. It would then be an exaggeration to consider it as a lender of last resort, in the sense of taking responsibility for the stability of the financial system. This should be no surprise, given the limitations imposed by its statutes, especially the limitation to short-term credits and the strict rules on collateral, the role of the profit motive in its commercial activities and the priority for safeguarding the convertibility of banknotes.

scholarly journals Input-to-state Stability in the Meaning of Switching for Delayed Feedback Switched Stochastic Financial System

2020 ◽  
Author(s):  
Ruofeng Rao
Keyword(s):  
Global Financial Crisis ◽  
Semigroup Theory ◽  
Financial System ◽  
Stability Criteria ◽  
Financial Systems ◽  
Switching Law ◽  
Lyapunov Function Method ◽  
Globally Asymptotical Stability ◽  
The Stability ◽  
The Global Financial Crisis

Financial system is essentially chaotic and unstable if there is not any external inputs. By means of Lyapunov function method, design of switching law, novel fuzzy assumption, $L^p$ estimation technique and Laplace semigroup theory, the author presents the boundedness and LMI-based (globally) asymptotical input-to-state stability criteria of financial systems. Particularly, the globally asymptotical stability in the meaning of switching implies that when the time $t$ is big enough, the dynamic of any subsystem must approach its unique equilibrium point. Besides, the global financial crisis often erupts periodically, which illuminates that the global stability in the classical sense is actually meaningless. So the stability in the meaning of switching proposed in this paper is suitable and appropriate. Numerical examples illuminate the effectiveness of the obtained results.

scholarly journals Evaluation of derivatives impact to early systemic risk of Euro area

2020 ◽  
Vol 4 (1) ◽  
pp. 62-71
Author(s):  
Rima Žitkienė ◽  
Valdas Grigonis ◽  
Pavlo Burak
Keyword(s):  
Regression Analysis ◽  
Euro Area ◽  
Systemic Risk ◽  
Linear Regression Analysis ◽  
Financial System ◽  
Financial Derivatives ◽  
Size Factor ◽  
Financial Instruments ◽  
Systemic Crisis ◽  
The Impact

Introduction. Evaluation of systemic risk is very complicated, as it is difficult to accurately predict the extent of the links between various institutions, and the possible spread and scale of the country's systemic risk. In addition, the country's systemic crisis is affected by many factors, many elements of the financial system. Financial derivatives are one of many elements of financial system, and the market of financial derivatives is huge compared to other financial instruments. The impact of financial derivatives to economies of various countries has been widely studied, however, the research on their impact to countries‘ early systemic risk remains under-researched. For this reason, assessment of the impact of derivative financial instruments on the early systemic risk is very relevant. Aim and tasks. The purpose of the article is to assess the impact of financial derivatives on the country's early systemic risk in the Euro area region. Results. It is shown that correlation fluctuates between weak-strong level, when analyzing relationship between various factors of financial derivatives and early systemic risk in the Euro area. Results of linear regression analysis prove that the group of financial derivatives independent variables (interconnection, size, liquidity, complexity, stability, leverage) can be used to reliably estimate the dependent variable (early systemic risk). Logistic regression analysis also provides similar results to the linear regression analysis. Additionally, it is shown, that logistic regression is more suitable to analyze impact on early systemic risk. Analysis of impact of individual financial derivatives factors to early systemic risk demonstrate, that three financial derivatives factors – size, complexity, and leverage – may be the best predictors of an impending systemic crisis. Among these factors, the size factor has the largest impact on early systemic risk of the Euro area, and complexity factor shows improved statistical parameters, which indicates, that this parameter is more suitable to be used in early warning system models. Conclusions. The use of financial derivatives has strong impact on early systemic risk in the Euro area. The size factor of financial derivatives indicates the highest probability of an impending systemic crisis. Nevertheless, complexity factor of financial derivatives is the only statistically significant factor, that has an impact on early systemic risk. The results suggest that the inclusion of these factors in the systemic risk assessment models, which are developed by researchers, could increase the accuracy of the models. It is noted, that country’s systemic risk may not necessarily arise in financial derivatives, because there are many different financial products in the financial system. As a result, other financial instruments could also be the subject to further research by scientists. The inclusion of factors of various financial instruments could help to better identify the risks of impeding systemic crisis in systemic risk assessment models.

Competitive Advantages and Challenges in the Italian Cooperative Credit System

2011 ◽  
pp. 89-106
Author(s):  
Mitja Stefancic
Keyword(s):  
Small Firms ◽  
Financial System ◽  
Policy Recommendations ◽  
Competitive Advantages ◽  
Credit System ◽  
Opportunistic Behaviour ◽  
Cooperative Banks ◽  
Democratic Principles ◽  
The Stability ◽  
Credit Network

Cooperative credit banks were established in the mid-19th century to overcome problems of opportunistic behaviour by borrowers. In Italy, they are currently playing a major role for the financial system and for the economy. They provide credit to individuals and households, as well as capital to small firms from sectors such as agriculture. These banks relate to a cooperative credit network that grants them an adequate level of competitiveness in the market. By effectively implementing democratic principles of governance and by focusing on relationship banking, they foster responsible behaviour, a crucial concept in times of crisis. This paper accounts for both the competitive advantages and the challenges faced by Italian cooperative credit banks. It suggests that a better understanding of their specifics would help to highlight the contribution of a sound cooperation to economics. Finally, it provides policy recommendations for a qualitative supervision of cooperative banks in order to increase the stability of the financial system.

Systemic Risk in Banking after the Great Financial Crisis

2019 ◽  
pp. 846-884
Author(s):  
Olivier De Bandt ◽  
Philipp Hartmann
Keyword(s):  
Financial Crisis ◽  
Conceptual Framework ◽  
Systemic Risk ◽  
Financial Crises ◽  
Empirical Literature ◽  
Aggregate Shocks ◽  
The Great Depression ◽  
Ex Post ◽  
Systemic Risks ◽  
Systemic Crisis

In this chapter we present a comprehensive review of systemic risk in banking, as the primary ingredient for understanding financial crises that have severe adverse effects on the macroeconomy (such as the Great Depression or the recent Great Financial Crisis). The first part of the chapter develops a conceptual framework that distinguishes three main forms of systemic risk: contagion, aggregate shocks, and the endogenous build-up and unraveling of widespread financial imbalances (such as credit booms leading to debt overhangs). Ex ante (preventive) policies, notably macroprudential regulation and supervision, and ex post (crisis management and resolution) policies to contain systemic risks and financial crises are also discussed. The second and third parts of the chapter review the existing theoretical and empirical literature about systemic risk, using the previously described conceptual framework and making reference to features of the systemic crisis that started in the summer of 2007.

scholarly journals EVOLUTION OF THE FORMATION AND DEVELOPMENT OF THE CONCEPT OF PUBLIC DEBT

2021 ◽  
Author(s):  
Nataliia Zhmurko ◽  
◽  
Olga Rudyk ◽  
Tetiana Hrynkevych ◽  
◽  
...  
Keyword(s):  
Public Debt ◽  
Financial Crises ◽  
Foreign Exchange Market ◽  
The State ◽  
Main Task ◽  
Credit System ◽  
The Public ◽  
Global Issues ◽  
The Stability ◽  
Effective Use

Globalization and the processes generated by it and the solution of the main issues for the development of the state's economy are impracticable without addressing the issues of ownership and use of funds, their expedient and effective use. World financial crises and solutions to global issues in the state induce the state to borrow, both internal and external. Since it is impossible to stop the needs of the state and the population, as well as to stop the development of the economy, and this causes the investment of significant financial resources. To solve the main tasks of the state, it is necessary to have fundamental capital investments, therefore the state objectively borrows funds and the main task is to implement the effective use of its own and borrowed funds. Due to problems with a significant shortage of funds in the state, the country has a system of state credit, which is an important component of the financial system of the state. And it is the system of state lending that is the link between the spheres of the economy and the state budget. The very existence of the public credit system led to the emergence of the public debt system. Undoubtedly, such phenomena as financial crises, inflation, an unstable situation in the foreign exchange market and especially an increase in the size of public debt, as well as an excessive amount of budget expenditures in comparison with revenues, determine the economic situation and development of our state. Today, the size of the country's public debt and the basis for repayment of this affect all areas of the state's economic system. And that is why it is important to identify problems for its management and maintenance. The stability of the economy is determined through the expedient use of debt funds and the proper servicing of public debt. The efficiency of the implementation of budgetary policy in the state and the stability of the national currency will depend on the solution of these issues. That is why the article is devoted to the study of the theoretical foundations of the formation and development of the concept of «public debt», its analysis and generalization of its interpretation by different economic schools.

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