Highlights from the conference on Credit markets after the crisis

Oct. 11, 2016

Did you miss our conference Credit markets after the crisis – or do you want to refresh your insights from the event?  Here are the highlights of the day.

“Securitization is not progress, it’s regress”

Europe is looking to move towards increased securitization – but it’s the wrong way to go, stated Amar Bhidé, professor at the Fletcher School of Law and Diplomacy. Personalization is the future, not anonymization, he argued, making his case with examples as AirBnB and Über. Technology is not making markets outside finance more anonymous, quite the opposite, Bhidé pointed out.
“So why are we trying to go backwards in finance? Securitization is not progress, it’s regress.”

 

Stronger banks – and better securities markets

Does Europe need Stronger Banks or Better Securities Markets? To have both is better than having one or the other, was the answer given in a panel discussion lead by professor Bo Becker from Swedish House of Finance.

“Corporate bonds is something we should welcome. It would make the Swedish markets much more diversified”, stated Erik Thedéen from Finansinspektionen.

Daniel Sachs from Proventus Capital Partner also stated that diversification is a positive development, for corporates and other players on the market, as well as for the overall stability.
“This development has the potential of reducing the systemic risk and stabilizing the financial system”, said Daniel Sachs.

 

More transparency demanded from Riksbanken

Anna Öster, chief economist at Länsförsäkringar, requested more transparency from Riksbanken in a panel discussion led by professor Pehr Wissén at Swedish House of Finance. What happens if ECB change their course and continue with quantitative easing longer than they have said, she asked.
“Do we have to keep up with the ECB? And if we do think that we have to keep up, what are we going to do? I think this is the most pressing issue for you to be more clear on.”

Martin Flodén from Riksbanken explained that the reason for lack of transparency was that they simply did not know how successful the QE would be, and evaluated along the way.
“If we had known it would work so well, we could have announced it all when we started. But we didn’t know. And we still don’t know – how far can we cut the repo rate?”, said Martin Flodén.

 

 

Are we unnecessarily afraid of the credit boom?

What is the probability of a bank crisis after a credit boom? Luc Leaven from the European Central Bank revealed statistics showing that only one in three credit booms have resulted in a bank crisis. If the capital ratio of a bank is between 15 and 22 per cent, history shows that a bank can survive basically any crisis, stated Luc Laeven.

 

Stockholm – the next financial capital of Europe?

Brexit will change the balance in Europe dramatically, stated Nicolas Véron from Bruegel and Peterson Institute, mentioning the possibility of Stockholm competing for the position as next financial capital in Europe. Chances are that when London loses its position, several cities might take its place. Véron also pointed out that the new situation could be a reason for Sweden to consider joining the banking union.

 

History proves liquidity coverage ratio flawed?

Learn from history, said Gary Gorton, professor at Yale School of Management, arguing that we should evaluate policies by studying economic history. Drawing on statistics from the late 1800s, Gorton demonstrated that the design of regulations back then led to the rise of demand deposits, a form of early “shadow banking”. This was at the root of several early banking crises, just like securitization led to the 2007-2008 crisis. In both cases the underlying cause was a shortage of safe debt. Gorton was skeptical that the liquidity coverage ratio, arguably the most important new bank regulation to emerge as a result of the recent crisis, would safe-guard the system against future crises.

 

Want to learn more, and browse the presentations and papers? Download them here.