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82. Bail-in Provisions in State Aid and Resolution Procedures: Are they consistent with systemic stability?
- Author:
- Stefano Micossi, Ginevra Bruzzone, and Miriam Cassella
- Publication Date:
- 05-2014
- Content Type:
- Policy Brief
- Institution:
- Centre for European Policy Studies
- Abstract:
- In July 2013, the European Commission adopted a new Banking Communication – the seventh since the start of the financial crisis – updating its criteria for the evaluation of state aid in the banking sector in response to the evolving economic and institutional environment. Under this Communication, any credit institution in need of recapitalisation or 'impaired asset' measures will be required, prior to any further action, to submit a plan for restructuring or the orderly winding down the bank. Moreover, whenever there is a capital shortfall, the Commission will require that, prior to any injection of public funds, not only shareholders – as has been the case so far – but also junior creditors write down or convert into equity their claims on the bank, regardless of whether the bank is under resolution, in order to minimise the need for state aid.
- Topic:
- Economics, International Trade and Finance, and Monetary Policy
- Political Geography:
- Europe
83. Institutions of the Russian fiscal federalism: 20 years of evolution
- Author:
- Elena Jarocinska
- Publication Date:
- 06-2014
- Content Type:
- Policy Brief
- Institution:
- Center for Social and Economic Research - CASE
- Abstract:
- In this brief, Elena Jarocinska summarizes the main thrust of Russian federal fiscal institutions and discusses their specific features. She describes the evolution of federal fiscal regulations since the establishment of the Russian federal state. As a conclusion, she offers the following policy recommendations: tax autonomy of subnational governments which is currently very limited should be increased; federal aid should be further formalized and made more transparent; regulations should not be changed from year to year to provide for a more stable environment; and subnational interests should be better protected at the institutional level.
- Topic:
- Monetary Policy, Reform, Tax Systems, Institutions, Fiscal Policy, Trade, and Post-Socialist Economies
- Political Geography:
- Russia, Europe, Central Asia, Caucasus, and Eastern Europe
84. European Banking Union: An Immediate Tool for Euro Crisis Management and a Long-Term Project for the Single Market
- Author:
- Giulia Rosa Maria Cavallo
- Publication Date:
- 10-2014
- Content Type:
- Working Paper
- Institution:
- Istituto Affari Internazionali
- Abstract:
- After the adoption of a single monetary policy which commits the European Central Bank to maintaining the euro's purchasing power and price stability in the Eurozone, the European Union is facing a new, but equally fundamental challenge: the implementation in a relatively short time of the so-called "Banking Union". Its purpose is twofold: (1) breaking the link between banking and sovereign risk, with the ultimate goal of achieving full protection of EU savers in the event of a crisis; and (2) ensuring uniformity of credit conditions - which are still too fragmented - within the European banking market, to ensure greater EU integration of the financial system. Starting from the Communication in which the European Commission stressed the need for a banking union, this paper intends to explore the complex process towards its establishment by looking at the EU institutional mechanisms and the legal aspects. In particular, the analysis will be based on two building blocks: (1) the Single Supervisory Mechanism, with a single supervisor at the heart of the banking union; and (2) the Single Resolution Mechanism as a new integrated resolution framework and a resolution fund to address the failure of banking institutions. The paper then assesses the next steps for a fully fledged banking union, necessary in order for this new instrument to lay the foundations for a genuine Economic and Monetary Union, thereby fostering financial and economic stability in the euro area and in the EU as a whole.
- Topic:
- Economics, Markets, Monetary Policy, and Financial Crisis
- Political Geography:
- Europe
85. Understanding Differences in Growth Performance in Latin America and Developing Countries between the Asian and Global Financial Crises
- Author:
- Roberto Alvarez and José De Gregorio
- Publication Date:
- 11-2014
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Latin American performance during the global financial crisis was unprecedented. Many developing and emerging countries successfully weathered the worst crisis since the Great Depression. Was it good luck? Was it good policies? In this paper we compare growth during the Asian and global financial crises and find that a looser monetary policy played an important role in mitigating crisis. We also find that higher private credit, more financial openness, less trade openness, and greater exchange rate intervention worsened economic performance. Our analysis of Latin American countries confirms that effective macroeconomic management was key to good economic performance. Finally, we present evidence from a sample of 31 emerging markets that high terms of trade had a positive impact on resilience.
- Topic:
- Emerging Markets, International Trade and Finance, Monetary Policy, and Financial Crisis
- Political Geography:
- Asia and Latin America
86. International in Life, National in Death? Banking Nationalism on the Road to Banking Union
- Author:
- Martin Rhodes and Rachel A. Epstein
- Publication Date:
- 12-2014
- Content Type:
- Working Paper
- Institution:
- The Kolleg-Forschergruppe (KFG)
- Abstract:
- European states have a long history of banking sector nationalism. Control over credit allocation is believed to contribute to economic development and competitiveness goals, insulation from external economic shocks, and control over monetary policy. This paper explains the potentially dramatic loss in domestic control over banks created by the European Banking Union (EBU). First, we argue that ongoing liberalization in the global and European economies has made banking sector protectionism both more costly and conflictual. Second, we contend that because many of the biggest banks have internationalized their operations, they now prefer centralized European regulation and supervision. Third, supporting a modified neofunctionalist argument, we find that behind the sometimes frenetic intergovernmental bargaining in 2012-14, it is primarily the European Commission and the European Central Bank that have pushed Banking Union ahead. Supranational institutions have argued, with some success, that they have unique capacity to solve collective action and prisoners' dilemma problems. Contrary to accepted wisdom, Germany has not set or limited the Banking Union agenda to a great extent, in part because of its own internal divisions. Moreover, the Commission and the ECB have managed at critical junctures to isolate Germany to secure the country's assent to controversial measures.
- Topic:
- Economics, Government, and Monetary Policy
- Political Geography:
- Europe and Germany
87. The Best of Rules and Discretion: A Case for Nominal GDP Targeting in India
- Author:
- Pranjul Bhandari and Jeffrey Frankel
- Publication Date:
- 07-2014
- Content Type:
- Working Paper
- Institution:
- The John F. Kennedy School of Government at Harvard University
- Abstract:
- The recent revival of interest in nominal GDP (NGDP) targeting has come in the context of large advanced economies. We argue that the case for NGDP targeting is even more appealing for mid-sized developing countries, because they tend to be more susceptible to supply shocks and terms of trade shocks. For India, in particular, one major exogenous supply shock is the monsoon rains. NGDP targeting splits the impact of supply shocks automatically between inflation and real GDP growth. In the case of inflation targeting (IT), by contrast, the full impact of an adverse supply shock or terms of trade shock is felt as a loss in real GDP alone. NGDP targeting arguably achieves the best of both worlds: it automatically accommodates supply shocks as most central banks with discretion would do anyway, while retaining the advantage of anchoring expectations as rules are designed to do. We outline a simple theoretical model and derive the conditions under which an NGDP targeting regime would dominate other regimes such as IT for achieving objectives of output and price stability. We go on to estimate for the case of India the main parameters needed to ascertain whether these conditions hold, most notably the slope of the aggregate supply curve. We find that under certain plausible conditions, nominal GDP targeting is indeed better placed than IT, especially in the face of the supply shocks that developing countries tend to experience.
- Topic:
- Development, Emerging Markets, Monetary Policy, GDP, Inflation, and Central Bank
- Political Geography:
- South Asia and India
88. US Policies toward Liquefied Natural Gas and Oil Exports: An Update
- Author:
- Gary Clyde Hufbauer and Cathleen Cimino
- Publication Date:
- 07-2014
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Unconventional extraction methods, namely horizontal drilling and fracking, are transforming global energy production, consumption, and trade. Th e extraction of large amounts of oil and gas from shale formations has led to an unprecedented surge of domestic production in the United States. Th e US Department of Energy (DOE) is now processing more than 40 applications from domestic producers to export liquefi ed natural gas (LNG). While experts still disagree about the magnitude and duration of the energy boom, we are at the "dawn of a US oil and gas renaissance" (Houser and Mohan 2014).
- Topic:
- Economics, International Trade and Finance, and Monetary Policy
- Political Geography:
- United States and North America
89. Power Shift and Renminbi Internationalization: Recommendations for the G20
- Author:
- Raluca Diana Ardelean and Mengun Zhang
- Publication Date:
- 07-2014
- Content Type:
- Policy Brief
- Institution:
- Centre for International Governance Innovation
- Abstract:
- China has gained substantial economic power in recent years, becoming the second-largest trading nation after the United States and the largest goods-trading nation since 2012 (Eichengreen 2014). It is also currently the largest source of savings and the largest potential source of capital for international investment (ibid.). Measured by GDP, China is now the second-largest economy in the world (see Figure 1), and the World Bank surmises it is likely to surpass the United States in 2014 (World Bank 2014). Because of China's growing economic importance, a shift in power is reasonably assumed. As its economic power grows, internationalization of the RMB has become a key policy goal for China, especially after the 2008 financial crisis (Zhang 2009; Park 2010; China Securities Regulatory Commission [CSRC] 2014). This goal demonstrates China's desire for better integration and representation in the international economic community and signals its willingness to perform internal financial reforms and take more responsibility in global economic affairs.
- Topic:
- Economics, International Trade and Finance, and Monetary Policy
- Political Geography:
- United States, China, and Asia
90. A Eurozone Subcommittee in the European Parliament: high hopes, low results?
- Author:
- Stijn Verhelst
- Publication Date:
- 07-2014
- Content Type:
- Policy Brief
- Institution:
- EGMONT - The Royal Institute for International Relations
- Abstract:
- The task of ensuring the democratic legitimacy of the euro has been placed high on the agenda. A eurozone subcommittee in the European Parliament is one of the rare concrete proposals to secure this, creating high hopes. Due to legal and political hurdles the idea might nonetheless have minimal results, which might result in suboptimal parliamentary scrutiny of the eurozone. This Policy Brief argues that if a eurozone subcommittee is to be both meaningful and politically feasible, it should combine substantial competences with innovative decision-making.
- Topic:
- Economics, Regional Cooperation, and Monetary Policy
- Political Geography:
- Europe