2023 Banking Turmoil

Capital markets are central to capitalism and the functioning of the US economy. Yet, short-selling, an integral part of price discovery in capital markets, has been blamed as a contributor to the recent banking crisis. Lawmakers and interest groups have labeled short sellers opportunists who prey on small investors and the public without justification. The authors shed light on this debate and question the merit of the allegations.

To what degree did banks’ equity price declines trigger deposit withdrawals at recently failed banks? To what degree did the withdrawals trigger declining bank equity prices? Hamid Mehran and Chester Spatt note that in either case, short-selling is not to blame and is, in fact, an essential part of a well-functioning market.

The subsidized emergency takeover of Credit Suisse by UBS brings the current global "too big to fail" regime into question. This column argues that an in-depth analysis of the global resolution framework by both regulators and academics is needed. The main question is whether a resolution of a global systemically important bank is indeed feasible in plausible scenarios. An affirmation would clearly be the best possible result of this analysis. However, if such a resolution proves not to be realistic, then there should be no hesitation to drastically reduce the global risks of such institutions via regulation of their business models.

Adopting a deferred pay scheme for bank managers would provide them with needed funding during a downturn and would incentivize more conservativism when it comes to risk-taking.

Following a widely cited report on unrecognized bank losses due to interest rate rises, Amit Seru and his co-authors have taken a...

Following up their recent analysis of risk in the banking system, DeMarzo, Jiang, Krishnamurthy, Matvos, Piskorski and Seru argue that banks should...

Laurence Kotlikoff and Rick Miller argue that banking as we know it is dying. It’s time to arrange a smooth transition to...

Accounting procedures for held-to-maturity assets in banks allows them to avoid taking losses. Research from professors Bischof, Laux, and Leuz shows how...

Bank regulators have always assumed that bank deposits are ‘sticky,’ but the advent of digital banking is changing that. New research focuses...

Far before the collapse of SVB, I provided systematic evidence that banks appear to benefit from their directorships on Federal Reserve Banks....