"50 Years of Money and Finance", a book published by SUERF

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On November 22, SUERF – The European Money and Finance Forum – celebrated the organization’s 50 Year Anniversary. The event was  marked by a conference in Paris – “The Financial Reconstruction of Europe” hosted by the Banque de France, and the publication of a book on “50 Years of Money and Finance: Lessons and Challenges”, by SUERF/Larcier.

An international group of researchers and experts on monetary and financial affairs were specifically commissioned to share their insights with readers in chapters for the anniversary volume, and several of them spoke at the Paris conference.

Among the topics analyzed in the book are:

- The global trend towards floating and more volatile exchange rates

- The creation of and recent problems of the Euro area

- Global imbalances with focus on the roles of China and Germany

- Liberalization of trade and capital flows and integration of financial markets

- Monetary theory and policy incl. the ECB’s conventional and unconventional policies

- Interaction between financial theory and the development of financial markets

- The trend from national towards global financial regulation (Basel 1, 2 and 3)

- The changing architecture of financial supervision

- Bank business models, bank performance and the internationalization of banking

- Implications of financial innovation, and new IT and communication technology

- Shadow banking, securitization and regulatory arbitrage

- Derivatives markets

- Financial crisis management and bank rescue packages

 

In the words of Urs Birchler, President of SUERF: The study of 50 years of money and banking is one of the most extensive on this topic and highlights many areas of importance to the authorities and the financial industry. To give some flavor, here are some quotes from the various chapters:

- Niels Thygesen notes that the preference for fixed, or very stable, exchange rates is much stronger in Europe than in the US and ultimately led Europe to develop much tighter currency linkages than in the global system. Unfortunately, with EMU, surveillance of national economic performances and policies became weaker in Europe, relying on lax rules and no monitoring of external imbalances.

 

- Guonan Ma and Robert McCauley draw parallels and extract differences between Germany’s and China’s current account surpluses and note that domestic supply-side reforms in both

 

 

countries expanded effective labour supply, restrained wages, shifted income towards profits and increased corporate savings”. But, “while China lays off equity risk to the rest of the world, Germany provides insurance to the rest of world to harvest a modest return on its net claims.

 

- William White notes that central banks need to recognize the crucial role played by the financial sector and credit in generating boom-bust-cycles”, that they “should be more modest about the limits of their knowledge”, that “international spillovers from domestic monetary policy have become so large that the International Monetary System must be rethought”, and that “monetary policy cannot cure all ills.

 

- Christiaan Pattipeilohy, Jan Willem van den End, Mostafa Tabbae, Jon Frost and Jakob de Haan find that “central bank and government policy actions can have significant positive and negative effects on credit spreads. Trust by the markets in the credibility of policy is driving both the absolute value of spreads and the extent to which central bank policy interventions are effective in lowering spreads.”

 

- Morten Balling and Ernest Gnan emphasize that incentives are crucial for the future design of the framework for financial markets. This applies to bankers, depositors, investors, supervisors and regulators. Also academic work should be more geared towards creating insights for practitioners, and towards contributing to a stable financial system useful for society at large.

 

- Paul Atkinson, Adrian Blundell-Wignall and Caroline Roulet recommend that the current Basel framework should be scrapped in favour of something vastly simpler, that capital requirements to banks should be strengthened, that implicit guarantees to too big- to-fail banks should be limited and that corporate governance of banks should be strengthened.”

 

- Charles Goodhart argues that “because the conventional analysis of the financial crisis has been misdirected, so has much of the reform agenda, focusing much more on structural proposals than on reforming housing finance and initiating counter-cyclical macro-prudential measures.”

 

- Donato Masciandaro and Marc Quintyn find that relying on a set of rules, rather than full discretion in some parts of the decision making process should be part of supervisory governance. The arguments for resorting to some rules are even stronger in macro-prudential supervision in light of the political economy pressures on this policy domain.”

 

- David Llewellyn predicts that the crisis will prove to be transformational in several dimensions and three in particular: the relative size of the banking industry; bank business models, and the cost of bank services” and notes that “if banks become more constrained in the post-crisis environment, a key issue is who will provide the displaced credit previously generated in the banking sector.”

 

- Philip Molyneux forecasts that the recent and ongoing financial sector reforms are likely to lead to a more conservative and less competitive system”.

 

- Patricia Jackson argues that shadow banking is again growing sharply, encouraged by the deleveraging in the banking system and search for yield in a low interest environment. Institutional investors (insurance companies and pensions funds) are moving into a variety of lending-style activities such as commercial mortgages, project finance and infrastructure as well as direct lending. Some types of credit extension have largely left the banking system. The robustness of the new channels will depend on whether the lenders correctly assess the risks and if these are appropriately priced.”

 

- Juan Ayuso and Roberto Blanco conclude that the underlying assumption when the euro was

 

 

launched was that an optimal currency area would result endogenously as a result of competition and the disciplining role played by financial markets. ... The current reforms aim at achieving an OCA by introducing externally a more integrated framework in all economic policy areas. This process will require the transfer of sovereignty from the national level to the European level.”

 

- William Arrata, Alejandro Bernales and Virginie Coudert find that derivatives markets may have taken the lead over their underlying market in the price discovery process. Derivative markets should therefore be closely monitored as they raise concerns for financial stability.”

 

SUERF - The European Money & Finance Forum

SUERF – The European Money and Finance Forum was established on 25 November 1963 in Louveciennes, France by a group of academics and bankers from France, the United Kingdom, the Netherlands and Belgium, and celebrates its Golden Jubilee in 2013. SUERF is a membership-based network association of bankers, central bankers, other financial sector practitioners and academics. The Association focusses on the analysis, discussion and understanding of financial markets and institutions, the monetary economy, the conduct of regulation and monetary policy, and related issues. SUERF events provide a unique European network for the analysis and discussion of these and related issues. SUERF has evolved as a forum for the exchange of information, research results and ideas. SUERF's membership is drawn from all over Europe and beyond.

Former members of SUERF’s Council of Management include Mario Monti, Axel Weber, Alexandre Lamfalussy, Mar Gudmundsson, Fernando Restoy, Niels Thygesen, Robert Raymond, Christian de Boissieu, and David Llewellyn.

Further Information:

SUERF/Banque de France Conference “The Financial Reconstruction of Europe” www.suerf.org/paris2013

“50 Years of Money and Finance: Lessons and Challenges” www.suerf.org/50yearsofmoneyandfinance - Key Findings www.suerf.org/50ymf-kt

Further information about SUERF www.suerf.org/suerfinfokit

Requests to receive an electronic version of the volume “50 Years of Money and Finance: Lessons and Challenges” under embargo prior to release by e-mail to michael.bailey@oenb.at.

Contacts:

Michael Bailey, Executive Secretary Tel: +43 1 40420 7216 e-mail: michael.bailey@oenb.at Veronika Brookes, SUERF Secretary Tel: +43 1 40420 7206 e-mail: veronika.brookes@oenb.at

SUERF Secretariat, c/o OeNB Otto-Wagner-Platz 3, A-1090 Wien, AUSTRIA Fax: +43 1 40420 04-7298 e-mail: suerf@oenb.at

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