Financial Cycles
Sovereigns, Bankers, and Stress Tests
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Dimitris N. Chorafas
Finance
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Book
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Financial Cycles
Ancient Egyptian mythology spoke of seven fat cows followed by seven lean ones. Unlike other accounts based on hearsay and traditions, this one had an evidence. The fat cows represented the good years when the...
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Dismantling Globalization by Changing the Rules
Monetary history suggests that, at least in the West, the first dominant reserve currency has been the Roman aureus. Eventually it was replaced by another Roman currency, the solidus, a gold coin that managed to ...
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Debt and Democracy
A stark contract between ancient times when democracy first saw the light and the twenty-first century is that the population of people with the privilege of voting has radically changed. The citizens of ancie...
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What Is Special about Banks?
After a period of seven years spent in an economic and financial crisis, bank regulators look forward to a stronger industry by way of improved capital positions, a reduction in risk-weighted assets (RWA, chap...
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The Hydra of Financial Exposure
All financial transactions have risks attached to them, including the conventional, widely used instruments like equities, bonds, and mutual funds. The debtor can get into difficulties and be unable or even un...
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Financial Stability
Financial stability is a condition in which the system of intermediaries, markets, and market infrastructures is capable of withstanding shocks, as well as major imbalances, without falling apart. Financial stabi...
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The European Banking Union: An Exercise in Abstraction
The 2007–2008 economic and financial crisis exposed significant weaknesses in the European banking industry. The immediate reaction was the rush by sovereigns to refill the treasuries of self-wounded banks wit...
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Twists of Monetary Policy and of Supervision
Engineered by the so-called nonbank banks, the shadow banking system operates globally. Many of its activities are similar to those of legacy banking operations, but its players escape prudential supervision. The...
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Debt Sustainability
Since the Treaty of Westphalia of 1648, the sovereignty of states has been sacrosanct. That treaty more or less amounted to an international agreement that nations are open to attack only when they do somethin...
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A Structure of Analysis through Stress Testing
Large and complex banking groups are facing new demands to prove their soundness, after central bankers expressed concerns over their exposure and their leverage. On June 20, 2014, the Bank of England’s regula...
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Epilog
This is a market driven by fear. In mid 2007 the banking crisis began with subprime mortgages given to people who could hardly afford them, and used as raw material for securitizations. The system put in place by...
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Northern Rock: a Case Study
According to financial history books, the concept of lender of last resort dates back to 1797, when Francis Baring so described the Bank of England. A century later, the Bank of England (BoE) obliged by saving...
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The Fed Has Got It Wrong
One of the important themes for the world economy discussed at the 2008 World Economic Forum in Davos, Switzerland, revolved around the fact that central banks have lost control of the economy by allowing comm...
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Earthquake in the Subprime Mortgage Market
Capital is an instrument — not a profound pleasure. As executives from the Securities and Exchange Commission (SEC), Federal Reserve, Federal Deposits Insurance Corporation (FDIC), Office of the Controller of ...
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Leveraged Instruments, Their Credit Ratings, and Other Unorthodox Practices
To appreciate the wider impact of the debacle in subprime mortgages it is important to understand the explosion in supply of leveraged financial instruments; also, the negative aftermath of a steady policy of ...
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Responsibilities of Financial Regulation
The incarnation of the concept of market regulation first saw the day in ancient Athens, when the city-state appointed a regulator of the grain trade. In more recent times, regulatory rules imposed against dec...
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The Mismanagement of Credit Risk
We are still in the midst of a major financial crisis that hit the western world in a vicious manner, and continues to shake the confidence of businesses and of consumers. For all practical purposes the Federa...
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Is There a Remedy for the Problems of Bank Supervision?
The first nine chapters of this book should have brought to the reader’s attention the impossible situation the banking industry has created for itself, on-balance-sheet and off-balance-sheet. Bad enough thoug...
