Financial Markets: Regaining Stability/Promoting Innovation
BCLBE has responded to the worldwide economic collapse with a project on Capital Market Innovation and Stability that combines academic resources across the UC Berkeley campus with business, professional and policymaking innovators to develop research informed recommendations to protect and enhance capital markets in the U.S. and worldwide. Project outputs have included research into the limits and opportunities to preventing foreclosure of home loans, responses to regulatory recommendations, and community forums in which leading Berkeley professors have informed live and online audiences of the origins and reach of the economic crisis and evaluated the public and private responses to it.
The Great Recession: BCLBE Programs on its Origins and Aftermath
As part of BCLBE’s project on Capital Market Innovation and Stability the center is collaborating with the UC Berkeley Center on Institutions and Governance (IGov) to co-sponsor a series of panel presentations. Faculty from across the greater UC Berkeley campus meet to address topics including the origins of the crisis, an analysis of proposals to restructure the financial sector, the role of national and international institutions in returning stability to the system, and the state of the labor market. Video links are available below.UPCOMING
Business & Ethics: Lessons from the Global Economic Crisis
Tuesday, December 1st - 12:30 to 1:45 pm
Boalt Hall, Room 105
This event is being co-sponsored by the UC Berkeley Center on Institutions and Governance (IGov).
A clear lesson from the global economic meltdown is that corporate governance and ethics matter. Less clear are the steps to improving how financial firms operate. Join a panel of UC Berkeley professors to explore and respond to questions such as: How should executives incorporate potential global and long term impacts into their business decisions? Can corporate governance structures and rules be improved to provide meaningful oversight and socially favorable incentives to financial firm leaders? Are the recent announcements of bonuses to financial executives a sign of economic recovery or continued ethical lapses? For more information click here.
Global Unemployment, October 28, 2009
Global Financial & Economic Crisis: What Should the G20 do? March 18, 2009
Good Bank Bad Bank, February 18, 2009
Global Financial Market Turmoil, October 2, 2008
BCLBE also organized Boalt Hall Alumni Reunion panels as part of its Capital Markets project. The presentations examined the causes of the collapse and the process and prospects for rebuilding.
Alumni Reunion Panel, October 10, 2009
Rebuilding the U.S. Financial System: The Causes, Consequences and the Regulatory Responses to the Credit Crisis
Panelists explored the prospects for preserving stability while promoting healthy innovation in the financial sector.
To view a video of the panel, follow this link.
To view Professor Wallace's powerpoint click here.
Systemic Risks and the Bear Stearns Crisis by M. Halloran.
Alumni Reunion Panel, September 20, 2008
Financial Market Turmoil
Panelists explored the prospects for preserving stability while promoting healthy innovation in the financial sector.
To view a video of the panel, follow this link.
The papers presented can be downloaded:
Credit Rating Agencies and the 'Worldwide Credit Crisis': The Limits of Reputation, the Insufficiency of Reform, and a Proposal for Improvement (summary)
Hedge Fund Regulation: The President's Working Group Committees' Best Practices Reports
The SEC's Proposed Rating Agency Rules: Unresolved Conflicts
Financial Regulatory Reform Legislative Proposals
The global economic collapse has stimulated extraordinary activity in the U.S. Congress as legislators try to prevent a recurrence of the 2008 meltdown. Scores of bills have been introduced in Congress, a few have passed and several sweeping reforms are approaching floor debate. Concurrently with this legislative activity, Congress has heard testimony from business leaders, academics, and many of the nation’s top regulators. BCLBE has compiled links to the testimony and pending legislation and prepared summaries of many of the presentations to Congress. This material is available at the following link:
Financial Regulatory Reform: Legislation and Testimony
Publications and White Papers
Nancy Wallace and Richard Stanton, in The Bear's Lair: Indexed Credit Default Swaps and the Subprime Mortgage Crisis, discusses the findings of their study of the pricing of ABX.HE indexed credit default swaps on baskets of mortgage-backed securities. This index is the main benchmark used by financial institutions to mark the subprime mortgage portfolios to market but Wallace and Stanton question whether the index is suitable for this important purpose.
Dwight Jaffee offers a framework and a specific proposal for the re-regulation of key components of the U.S. financial system in the aftermath of the subprime mortgage in “Monoline Regulations to Control the Systemic Risk Created by Investment Banks and GSEs.”
Anita K. Krug discusses the Obama Administration's proposals on financial regulatory reform relating to hedge funds and other private funds and proposes considerations that should inform Congress's formulation of policy in "Financial Regulatory Reform and Private Funds."
BCLBE Research Fellow Anita K. Krug discusses possible regulatory responses to the Madoff fraud and considers what additional information might be useful to Congress and regulators in formulating that response.
Anita K. Krug evaluates the impact on private investment funds, and the markets generally, of the proposed Hedge Fund Transparency Act of 2009.
John P. Hunt comments on the, "Securities and Exchange Commission Re - Proposed Rules for Nationally Recognized Statistical Rating Organizations."
Has securitization caused subprime mortgages to go into default because mortgage servicers cannot modify these loans? Read John P. Hunt's analysis in his paper, "What Do Subprime Securitization Contracts Actually Say About Loan Modification?"
Dwight Jaffee and Mark Perlow assess the impact of the Bear Stearns rescue and outline steps to prevent something similar from happening again in “Catastrophe Insurance and Regulatory Reform After the Subprime Mortgage Crisis”
John P. Hunt provides a TARP summary in “A Guide to the Financial Bailout Legislation (The Emergency Economic Stabilization Act of 2008)”
Congressional Panel Evaluates Bank Stress Tests Report and Media Comments
The Congressional Oversight Panel has just released its June report "Stress Testing and Shoring Up Bank Capital." To help assess the Treasury’s bank stress tests, the panel engaged BCLBE's Professor Eric Talley and Haas Professor Johan Walden.
Wall Street Journal’s Market Watch: More Stress Tests Urged for Banks
CNBC: TARP Panel Report Gives Lukewarm Review to Stress Tests
Fox Business USA: Banks May Need New 'Stress Tests'
Bear Market Investments: Oversight Panel Says Ongoing Stress Tests Needed
Commentary From the UC Berkeley Campus
Scholars around the UC Berkeley campus have been pursuing research activities related to the international economic crisis and government and private sector responses to it. Collected below are a selection of findings and commentary arising from this work.
J. Bradford Delong, in "The Pricing of "Troubled" Assets," suggested a methodology that could have been used for pricing assets under the Troubled Asset Relief Program (TARP), with a particular focus on mortgages and collateralized debt obligations.
Barry Eichengreen, in "The Financial Crisis and Global Policy Reforms," looks at two explanations for the crisis: first, as a result of inadequate regulation and distorted incentives, and second, as a consequence of global imbalances leading to an unsustainable housing and credit boom in the United States. He then offers suggestions for the design and coordination of national and global policy reforms.
Nichols Gârleanu with Darrell Duffie and Lasse Heje Pedersen provide a theory of "Valuation in Over-the-Counter Markets." The authors conclude that in over-the-counter markets illiquidity discounts are higher when counterparties are harder to find, when sellers have less bargaining power, when the fraction of qualified owners is smaller, or when risk aversion, volatility, or hedging demand are larger.
Carl Landauer, in his commentary “The Regulatory Divide: Unintended Consequences of Global Financial Risk Measures for Emerging and Developing Economies,” observes that in response to the economic crisis international organizations and the advanced economies have adopted risk-mitigation measures that may have the unintended result of disadvantaging emerging and developing economies
Alexi Tchistyi with Barney Hartman-Glaser and Tomasz Piskorski address the design of mortgage backed securities in a moral hazard setting to find the optimal contract between a mortgage underwriter and a secondary-market investor in “Optimal Securitization with Moral Hazard.”