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This paper investigates how theories of financial markets and their impact on the real economy have developed since the great financial crisis of 2008. Based on a dataset of 142000 economic papers written on the topic of finance and the macro-economy since 1990, it shows that post-crisis a critical macro-financial view on financial markets has taken hold in academia which problematizes the nature of financial markets as instable and subject to boom and bust cycles, in turn generating negative spill-over effects for the economy. This new knowledge links finance and macro-economy where before there was a “gaping hole”. It goes on to show that economists in central banks and international organizations and academics affiliated with these institutions have been central producers of such economic knowledge, influencing the profession as a whole. Based on 52 expert interviews it elaborates on the mode of collaboration between these applied economists and academia in the production of this new knowledge, pointing to the peculiar task environment of the former. This task environment finds its expression in the production of actionable knowledge that could guide central bank interventions and stylized facts about the economy-finance relationship that could legitimize it. Seeking to legitimize the intervention of central banks in the context of macro-prudential regulation to combat heightened financial instability, these interventions hold the new field of macro-finance together and provide irritations for follow up work by academics.

National development banks (NDBs) have transformed from outdated relics of national industrial policy to central pillars of the European Union's economic project. This trend, which accelerated after the Financial Crisis of 2007, has led to a proliferation of NDBs with an expanded size and scope. However, it is surprising that the EU -- which has championed market-oriented governance and strict competition policy -- has actually advocated for an expansion of NDBs. This book therefore asks, Why has the EU supported an increased role for NDBs, and how can we understand the dynamics between NDBs and European incentives and constraints? To answer these questions, the contributing authors analyze the formation and evolution of a field of development banking within the EU, identifying a new field around an innovative conceptualization of state-backed financing for the purposes of policy implementation. Yet rather than focusing solely on national development banks, the authors instead broaden the focus to the entire ecosystem of the field of development banking, which includes political institutions (both in Brussels and in the member states), financing vehicles (such as the Juncker Plan), regulatory bodies (Directorate-General for Competition, Directorate-General for Economic and Financial Affairs), and commercial actors. Seven in-depth case studies on European NDBs, along with three chapters on European-level actors, detail this field of development banking, and answer the questions of when, where, and how development banking occurs within the EU.

in Accounting, economics, and law Publié en 2020-12
FRIEDRICH Jan
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Regulatory arbitrage – the formal compliance with rules while violating their very spirit – is a persistent practice in daily business and subject of perpetual efforts of regulatory institutions to address this issue. Focusing on both, the practice of regulatory arbitrage as well as attempt of regulators and rule-makers seeking to contain it, the articles in this special issue provide a well-rounded, dialectical understanding of the phenomenon. In this vein, Friedrich zooms in on the construct of synthetic leasing as an example of a product, placed in zones of regulatory overlap between tax and accounting to achieve the most beneficial treatment. Kunkel discusses the political dimension of the conceptual underpinnings of financial reporting and how they are linked to regulatory arbitrage in accounting standards. Stanescu and Bogdan focus on tax sheltering in Romanian debt collecting schemes, just as Langenbucher explores the limits of constraining such practices provided by the need to grant a high degree of legal security, as enshrined in the rule of law. Lastly, Thiemann and Troeger inquire into how supervisors can keep up with financial innovations for regulatory arbitrage in the shadow banking sector, suggesting the need for a flexible interpretation of rules and close exchange with the regulated and their regulatory advisors to control their role bending behavior.

Katharina Pistor’s book The code of capital – how the law creates wealth and inequality (Pistor, K. (2019). The code of capital – How the law creates wealth and inequality. Princeton: Princeton University Press) is an original and insightful intervention in the quest to understand both the rising inequality of the last 40 years, as well as the inner dynamics of capitalism, a social formation that has ruled in western societies for about 200 years now. Pistor shares many of the convictions of the publications in the journal Accounting, Economics and Law, such as the dangers to democracy inherent in the corporate form (Robé, J. P. (2011). The legal structure of the firm. Accounting, Economics and Law, 1(1). https://doi.org/10.2202/2152-2820.1001; Strasser, K., & Blumberg, P. (2011). Legal form and economic substance of enterprise groups: Implications for legal policy. Accounting, Economics and Law, 1(1). https://doi.org/10.2202/2152-2820.1000), the fact that firms and corporate form need to be distinguished (Y. Biondi, A. Canziani, & T. Kirat (Eds), (2007). The firm as an entity: Implications for economics, accounting and law. New York and London: Routledge) and that shareholders do not own corporations, but just their shares, it is only appropriate to discuss and present it to the wider audience of the journal, pointing to its fundamental insights and potential for follow-up research. The title of the book and its set-up evoke both Luhmann’s system theory with its penchant for binary code as well as Marx’s capital (Marx, K. (1955[1867]). Das Kapital. Berlin: Dietz Verlag, Vol. 1). Combining the coding of social systems and their relentless dynamic in innovating and generating new forms by recursively referring to established elements (Luhmann, N. (1984). Soziale Systeme. Frankfurt am Main: Suhrkamp Verlag; Luhmann, N. (1995). Das Recht der Gesellschaft. Frankfurt am Main: Suhrkamp Verlag) with Marx’s focus on the structuring effects capital has on society is making this a very inspiring book, which at the same time evokes many follow-up questions.

This paper contributes to the debate on the adequate regulatory treatment of non-bank financial intermediation (NBFI). It proposes an avenue for regulators to keep regulatory arbitrage under control and preserve sufficient space for efficient financial innovation at the same time. We argue for a normative approach to supervision that can overcome the proverbial race between hare and hedgehog in financial regulation and demonstrate how such an approach can be implemented in practice. We first show that regulators should primarily analyse the allocation of tail risk inherent in NBFI. Our paper proposes to apply regulatory burdens equivalent to prudential banking regulation if the respective transactional structures become only viable through indirect or direct access to (ad hoc) public backstops. Second, we use insights from the scholarship on regulatory networks as communities of interpretation to demonstrate how regulators can retrieve the information on transactional innovations and their risk-allocating characteristics that they need to make the pivotal determination. We suggest in particular how supervisors should structure their relationships with semi-public gatekeepers such as lawyers, auditors and consultants to keep abreast of the risk-allocating features of evolving transactional structures. Finally, this paper uses the example of credit funds as non-bank entities economically engaged in credit intermediation to illustrate the merits of the proposed normative framework and to highlight that multipolar regulatory dialogues are needed to shed light on the specific risk-allocating characteristics of recent contractual innovations.

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After the great financial crisis of 2007–2009, central banks were handed a macroprudential mandate to contain systemic risks, a mandate seen as endangering their independence due to expected distributional conflicts. At the same time, depoliticization through scientific expertise was largely foreclosed, as systemic risk was a largely undefined concept. This paper focuses on how central banks dealt with this conundrum. It examines the scientific debate on systemic risk and macroprudential regulation post-crisis, focusing on the debate’s impact on final regulation. Employing author-topic-modeling on a unique dataset of 2397 published economic papers on the relevant topics, we detect the formation of a new alliance between central bankers and academic economists working jointly on developing systemic risk measures. Centered around a hinge of systemic risk contribution by individual banks, this new alliance expresses itself by incorporating the macroprudential concerns of practitioners into abstract market-based systemic risk measures. These measures develop incrementally, using and repurposing techniques from financial economics pre-crisis to legitimize and justify macroprudential interventions post-crisis. This alliance allows us to account for the incremental change witnessed post-crisis and point to its potential for long-term fundamental change.

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The European Investment Bank and national development banks provide a framework through which a European Recovery Fund could work quickly and effectively.

Publié en 2020-04 Collection Policy Paper : 252
MERTENS Daniel
RUBIO Eulalia
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Introduction: The debate over how Europe should organise solidarity and jointly respond to the COVID induced economic crisis is in full force, with various proposals either agreed or at debate such as the use of the European Stability Mechanism (ESM), the creation of new common debt instruments or the mobilisation of the upcoming Multi-Annual Financial Framework (MFF). So far, however, the prime responses to the economic shock have been located at the national level, not only being proof of the fact that most firefighting is done at the level of Europe’s nation-states but also displaying the inequalities of fiscal capacity that still loom large in the EU’s political economy. There have been various studies and reports comparing governments’ initial fiscal responses to the COVID-19 crisis1. While there are differences in the size and composition of fiscal packages, a common feature that emerges is the strong reliance on credit guarantees and other liquidity support measures. Less appreciated in current debates is the fact that these measures are often administered and distributed by a specific sort of para-fiscal actors: development banks, or national promotional institutions. Even at the European level, significant parts of the common response to the economic impact of the pandemic rest on the European Investment Bank (EIB). This policy brief highlights the key role these para-fiscal institutions play in Europe and reviews the similarities and differences in their responses by focusing on five large institutions (EIB, KfW, Bpifrance, CDP, ICO)2. It explains how these entities have worked as governments’ 'little helpers' in the European context of the past decade and points to key challenges that come with their role in terms of a coordinated and solidarity-based European effort.

At the heart of the last financial crisis stood the shadow banking system, a mesh of financial activities and entities that grew outside of bank balance sheets but with the support of the banking sector. These activities were not regulated or supervised like banks, and they were characterized by high maturity mismatches and leverage. Two prime elements were Money Market Mutual Funds and Asset-Backed Commercial Papers, which jointly performed bank-like functions. This paper sheds light on the fate of these entities post-crisis and the regulatory dynamics at play as policymakers shifted their focus from constraining their activities to drafting a European regulatory infrastructure that delivers both stability and growth. Based on expert interviews and document analysis, we show how European policymakers opened up to private experts during this shift to learn about the technical complexity of Money Market Mutual Funds and Asset-Backed Commercial Papers, but in the end were restricted in their efforts to craft such regulation due to competing national factions and the legislative time pressure at the European level. We argue that the process was heavily influenced by, first, nationally held visions about the future role of financial markets that came to the fore at pivotal moments during the negotiations, and, second, the specific European institutional set-up and its electoral cycle.

This paper contributes to the debate on the adequate regulatory treatment of non-bank financial intermediation (NBFI). It proposes an avenue for regulators to keep regulatory arbitrage under control and preserve sufficient space for efficient financial innovation at the same time. We argue for a normative approach to supervision that can overcome the proverbial race between hare and hedgehog in financial regulation and demonstrate how such an approach can be implemented in practice. We first show that regulators should primarily analyse the allocation of tail risk inherent in NBFI. Our paper proposes to apply regulatory burdens equivalent to prudential banking regulation if the respective transactional structures become only viable through indirect or direct access to (ad hoc) public backstops. Second, we use insights from the scholarship on regulatory networks as communities of interpretation to demonstrate how regulators can retrieve the information on transactional innovations and their risk-allocating characteristics that they need to make the pivotal determination. We suggest in particular how supervisors should structure their relationships with semi-public gatekeepers such as lawyers, auditors and consultants to keep abreast of the risk-allocating features of evolving transactional structures. Finally, this paper uses the example of credit funds as non-bank entities economically engaged in credit intermediation to illustrate the merits of the proposed normative framework and to highlight that multipolar regulatory dialogues are needed to shed light on the specific risk-allocating characteristics of recent contractual innovations.

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