Special Issue "Financial Crises, Macroeconomic Management, and Financial Regulation"

A special issue of Journal of Risk and Financial Management (ISSN 1911-8074). This special issue belongs to the section "Risk".

Deadline for manuscript submissions: closed (20 April 2019).

Special Issue Editor

Dr. Deniz Igan
E-Mail Website
Guest Editor
Deputy Chief, Macro-Financial Division, Research Department, International Monetary Fund, Washington, D.C., USA
Interests: financial crises and regulation; credit and banking; real estate economics; corporate finance

Special Issue Information

Dear Colleagues,

We are at the tenth anniversary of the 2007–2009 global financial crisis, characterized by record numbers of defaults, massive disruptions in asset and credit markets, and devastating effects on the broader economy. While boom–bust cycles and recurrent crises have been familiar features of the economic landscape for much longer than that, the global financial crisis—given its epicentre, depth, and breadth—has been a wake-up call for rethinking macroeconomic management and financial regulation.

This Special Issue aims to take stock of the latest theoretical and empirical advances in research on financial crises. Topics of interest include, but are not limited to, the causes and consequences of financial crises, policies to reduce their likelihood and mitigate their impact, lessons learned from various crises in a range of countries, progress on the international financial reform agenda and work that remains to be done.    

Dr. Deniz Igan
Guest Editor

Manuscript Submission Information

Manuscripts should be submitted online at www.mdpi.com by registering and logging in to this website. Once you are registered, click here to go to the submission form. Manuscripts can be submitted until the deadline. All papers will be peer-reviewed. Accepted papers will be published continuously in the journal (as soon as accepted) and will be listed together on the special issue website. Research articles, review articles as well as short communications are invited. For planned papers, a title and short abstract (about 100 words) can be sent to the Editorial Office for announcement on this website.

Submitted manuscripts should not have been published previously, nor be under consideration for publication elsewhere (except conference proceedings papers). All manuscripts are thoroughly refereed through a single-blind peer-review process. A guide for authors and other relevant information for submission of manuscripts is available on the Instructions for Authors page. Journal of Risk and Financial Management is an international peer-reviewed open access quarterly journal published by MDPI.

Please visit the Instructions for Authors page before submitting a manuscript. The Article Processing Charge (APC) for publication in this open access journal is 1000 CHF (Swiss Francs). Submitted papers should be well formatted and use good English. Authors may use MDPI's English editing service prior to publication or during author revisions.

Keywords

  • Financial crises
  • Financial institutions
  • Asset and credit markets
  • Macro-financial linkages
  • Crisis management
  • Financial regulation
  • Macro-financial policies

Published Papers (10 papers)

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Research

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Open AccessArticle
The Effect of Diversification under Different Ownership Structures and Economic Conditions: Evidence from the Great Recession
J. Risk Financial Manag. 2019, 12(2), 82; https://doi.org/10.3390/jrfm12020082 - 10 May 2019
Abstract
The effect of corporate diversification on firm performance has been extensively documented in the literature. In the general finance literature, Kuppuswamy and Villalonga (2015) studied the diversification effect during the 2007–2009 financial crisis and found that diversification adds value in the presence of [...] Read more.
The effect of corporate diversification on firm performance has been extensively documented in the literature. In the general finance literature, Kuppuswamy and Villalonga (2015) studied the diversification effect during the 2007–2009 financial crisis and found that diversification adds value in the presence of external financing constraints. Motivated by this finding, we investigate whether a similar effect applies to insurance firms and we develop hypotheses for their different ownership structures (stock vs. mutual insurers; and group vs. non-group affiliated insurers). Using a sample of property-liability insurers over a period of 2004 to 2013, we find that the effect of diversification on performance is contingent on ownership structures and economic conditions. The diversification effect for stock insurers and insurers affiliated with a group is not significantly affected by economic conditions. However, the diversification effect for mutual insurers and non-affiliated insurers is reversed during the financial crisis. More specifically, diversified firms with these kinds of ownership structures perform better than focused firms during normal economic conditions, but their performance was significantly worse during the financial crisis. Our results are robust to alternative measures of performance and diversification, and to corrections for endogeneity. Our study contributes to the diversification literature by showing how the effect of diversification varies with ownership structure under different economic conditions and the results shed light on the specific circumstances in which diversification can improve or reduce performance. Full article
(This article belongs to the Special Issue Financial Crises, Macroeconomic Management, and Financial Regulation)
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Open AccessArticle
The Effects of the Financing Facilitation Act after the Global Financial Crisis: Has the Easing of Repayment Conditions Revived Underperforming Firms?
J. Risk Financial Manag. 2019, 12(2), 63; https://doi.org/10.3390/jrfm12020063 - 15 Apr 2019
Abstract
After the global financial crisis, the Japanese government enacted the Financing Facilitation Act in 2009 to help small and medium-sized enterprises (SMEs) that had fallen into unprofitable conditions. Under this law, when troubled debtors asked financial institutions to ease repayment conditions (e.g., extend [...] Read more.
After the global financial crisis, the Japanese government enacted the Financing Facilitation Act in 2009 to help small and medium-sized enterprises (SMEs) that had fallen into unprofitable conditions. Under this law, when troubled debtors asked financial institutions to ease repayment conditions (e.g., extend repayment periods or bring down interest rates), the institution would have the obligation to meet such needs as best as possible. Afterward, the changing of loan conditions began to be utilized often in Japan as a means for supporting underperforming companies. Although many countries employed various countermeasures against the global financial crisis, the Financing Facilitation Act was unique to Japan. However, there is criticism that it did not become an opportunity for companies to substantially reform their businesses, and that there was a moral hazard on the company’s side. This paper analyses whether the easing of repayment conditions revived underperforming firms and who were likely to recover, by using the “Financial Field Study After the End of the Financing Facilitation Act”, carried out by the Research Institute of Economy, Trade and Industry (RIETI) in Oct 2014. We found that the act was successful in that about 60% of companies whose loan conditions were changed recovered their performance after the loan condition changed, and the attitude that financial institutions had towards support was an important factor in whether performance recovered or not. In sum, the act might be effectual when financial institutions properly support firms, although previous studies tend to emphasize its problems. Full article
(This article belongs to the Special Issue Financial Crises, Macroeconomic Management, and Financial Regulation)
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Open AccessArticle
The Global Legal Entity Identifier System: How Can It Deliver?
J. Risk Financial Manag. 2019, 12(1), 39; https://doi.org/10.3390/jrfm12010039 - 07 Mar 2019
Cited by 2
Abstract
We examine the global legal entity identifier (LEI) system for the identification of participants in financial markets. Semi-structured interviews with data professionals revealed the many ways in which the LEI can improve both business process efficiency, and counterparty and credit risk management. Larger [...] Read more.
We examine the global legal entity identifier (LEI) system for the identification of participants in financial markets. Semi-structured interviews with data professionals revealed the many ways in which the LEI can improve both business process efficiency, and counterparty and credit risk management. Larger social benefits, including the monitoring of systemic financial risk, are achievable if it becomes the accepted universal standard for legal entity identification. Our interviews also review the substantial co-ordination and investment barriers to LEI adoption. To address these, a clear regulatory-led road map is needed for its future development, with widespread application in regulatory reporting. Full article
(This article belongs to the Special Issue Financial Crises, Macroeconomic Management, and Financial Regulation)
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Open AccessArticle
Has ‘Too Big To Fail’ Been Solved? A Longitudinal Analysis of Major U.S. Banks
J. Risk Financial Manag. 2019, 12(1), 24; https://doi.org/10.3390/jrfm12010024 - 01 Feb 2019
Abstract
In the wake of the global financial crisis that erupted in 2008, there has been extensive commentary and regulatory focus on the ‘Too Big to Fail’ issue. In this paper, we survey the proposed solutions and regulatory initiatives that have been undertaken. We [...] Read more.
In the wake of the global financial crisis that erupted in 2008, there has been extensive commentary and regulatory focus on the ‘Too Big to Fail’ issue. In this paper, we survey the proposed solutions and regulatory initiatives that have been undertaken. We conduct a longitudinal analysis of major U.S. banks in four discrete time periods: pre-crisis (2005–2007), crisis (2008–2010), post-crisis (2011–2013) and normalcy (2014–2016). We find that risk metrics such as leverage and volatility which spiked during the crisis have reverted to pre-crisis levels and there has been improvement in the proportion of equity capital available to cushion against asset value deterioration. However, banks have grown in size and it does not appear as if their business models have been redirected toward more traditional lending activities. We believe that it is premature to conclude that ‘Too Big to Fail” has been solved, but macro-prudential regulation is now much more effective and, consequently, banks are on a considerably sounder footing since the depths of the crisis. Full article
(This article belongs to the Special Issue Financial Crises, Macroeconomic Management, and Financial Regulation)
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Open AccessArticle
Finance and Jobs: How Financial Markets and Prudential Regulation Shape Unemployment Dynamics
J. Risk Financial Manag. 2019, 12(1), 20; https://doi.org/10.3390/jrfm12010020 - 24 Jan 2019
Abstract
This article explores the impact of financial market regulation on jobs. It argues that understanding the impact of finance on labor markets is key to an understanding of the trade-off between economic stability and financial sector growth. The article combines information on labor [...] Read more.
This article explores the impact of financial market regulation on jobs. It argues that understanding the impact of finance on labor markets is key to an understanding of the trade-off between economic stability and financial sector growth. The article combines information on labor market flows with indicators of financial market development and reforms to assess the implications of financial markets on employment dynamics directly, using information from the International Labour Organization (ILO) datatabse on unemployment flows. On the basis of a matching model of the labor market, it analyses the economic, institutional, and policy determinants of unemployment in- and out-flows. Against a set of basic controls, we present evidence regarding the relationship between financial sector development and reforms and their impact on unemployment dynamics. Using scenario analysis, the article demonstrates the importance of broad financial sector re-regulation to stabilize unemployment inflows and to promote faster employment growth. In particular, we find that encompassing financial sector regulation, had it been in place prior to the global financial crisis in 2008, would have helped a faster recovery in jobs. Full article
(This article belongs to the Special Issue Financial Crises, Macroeconomic Management, and Financial Regulation)
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Open AccessArticle
A Divisia User Cost Interpretation of the Yield Spread Recession Prediction
J. Risk Financial Manag. 2019, 12(1), 7; https://doi.org/10.3390/jrfm12010007 - 06 Jan 2019
Cited by 1
Abstract
A re-evaluation of the role of interest rates is necessary in the wake of the Great Recession. This paper will re-evaluate the interpretation and empirical use of the yield spread as a predictor of recessions, focusing on the simplified methodology in a New [...] Read more.
A re-evaluation of the role of interest rates is necessary in the wake of the Great Recession. This paper will re-evaluate the interpretation and empirical use of the yield spread as a predictor of recessions, focusing on the simplified methodology in a New York Federal Reserve Bank paper by Estrella and Trubin. Using the user cost difference formula to calculate bond prices following the methodology in the Divisia literature begun by William A. Barnett and a unique data set from the Center for Financial Stability, the yield spread is shown to be a form of the user cost difference, and use of the user cost is shown to marginally improve the predictive abilities of the yield spread. Further research into this view of the link of interest rates and economic activity is proposed. Full article
(This article belongs to the Special Issue Financial Crises, Macroeconomic Management, and Financial Regulation)
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Open AccessArticle
Systemic Risk Indicators Based on Nonlinear PolyModel
J. Risk Financial Manag. 2019, 12(1), 2; https://doi.org/10.3390/jrfm12010002 - 20 Dec 2018
Cited by 1
Abstract
The global financial market has become extremely interconnected as it demonstrates strong nonlinear contagion in times of crisis. As a result, it is necessary to measure financial systemic risk in a comprehensive and nonlinear approach. By establishing a large set of risk factors [...] Read more.
The global financial market has become extremely interconnected as it demonstrates strong nonlinear contagion in times of crisis. As a result, it is necessary to measure financial systemic risk in a comprehensive and nonlinear approach. By establishing a large set of risk factors as the main bones of the financial market network and applying nonlinear factor analysis in the form of so-called PolyModel, this paper proposes two systemic risk indicators that can prognosticate the advent and trace the development of financial crises. Through financial network analysis, theoretical simulation, empirical data analysis and final validation, we argue that the indicators suggested in this paper are proved to be very effective in forecasting and tracing the financial crises from 1998 to 2017. The economic benefit of the indicator is evidenced by the enhancement of a protective put/covered call strategy on major stock markets. Full article
(This article belongs to the Special Issue Financial Crises, Macroeconomic Management, and Financial Regulation)
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Open AccessArticle
Risk Culture and the Role Model of the Honorable Merchant
J. Risk Financial Manag. 2018, 11(3), 40; https://doi.org/10.3390/jrfm11030040 - 13 Jul 2018
Cited by 1
Abstract
The current discussion about a “risk culture” in financial services was triggered by the recent series of financial crises. The last decade saw a long list of hubris, misconduct and criminal activities by human beings on a single or even a collective basis [...] Read more.
The current discussion about a “risk culture” in financial services was triggered by the recent series of financial crises. The last decade saw a long list of hubris, misconduct and criminal activities by human beings on a single or even a collective basis in banks, in the industry or in the whole economy. As a counter-reaction, financial authorities called for a guidance by a “new” risk culture in financial institutions based on a set of abstract, formal, and normative governance processes. While traditional risk research in economics and in banking was focused on the statistical aspects of risk as the probability of loss multiplied by the amount of loss, culture is a paraphrase for the behavior in collectives and dynamics of organization found in human societies. Therefore, a “risk culture” should link the normative concepts of risk with the positive “real-world” decision-making in financial services. This paper will describe a novel view on “risk culture” from the perspective of human beings interacting in dynamical and intertemporal commercial relations. In this context “risk” is perceived by economic agents ex−ante as the consequence of the time lag between the present and the uncertain future development (compared to a probability distribution calculated by observers ex−post). For all those individual decisions—to be made under uncertainty—future “risk” includes the so-called “normal accidents”, i.e., failures that will happen at some uncertain point in time but are inevitable, and the only questions are when failure will happen and how to maintain function in the first line of defense. Finally, the shift from an abstract definition of “risk” as a probability distribution to a role model of “honorable merchants” as a benchmark for significant individual decision-making with individual responsibilities for the uncertain future outcome provides a new framework to discuss the responsibilities in the financial industry. Full article
(This article belongs to the Special Issue Financial Crises, Macroeconomic Management, and Financial Regulation)
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Open AccessArticle
Effectiveness of Interest Rate Policy of the Fed in Management of Subprime Mortgage Crisis
J. Risk Financial Manag. 2018, 11(1), 9; https://doi.org/10.3390/jrfm11010009 - 06 Feb 2018
Abstract
The federal funds rate is one of the most important monetary policy instruments of Federal Reserve Bank of America. In this study, we analyze the effectiveness of Fed interest rate policy on different markets in the period between 1976 and 2016 through Markov [...] Read more.
The federal funds rate is one of the most important monetary policy instruments of Federal Reserve Bank of America. In this study, we analyze the effectiveness of Fed interest rate policy on different markets in the period between 1976 and 2016 through Markov regime-switching regression analysis. Results indicate that Federal funds’ rate affects labor and housing markets with a few months’ lag. However, the influence of Federal funds rate on inflation rate is quite limited. It is most probable that Fed employs alternative monetary instruments to regulate inflation. The most interesting results are obtained in the domain of personal savings. The interaction of personal savings and Federal funds rate is significant during both expansion and recession regimes. Full article
(This article belongs to the Special Issue Financial Crises, Macroeconomic Management, and Financial Regulation)
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Review

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Open AccessFeature PaperReview
On the Rising Complexity of Bank Regulatory Capital Requirements: From Global Guidelines to their United States (US) Implementation
J. Risk Financial Manag. 2018, 11(4), 77; https://doi.org/10.3390/jrfm11040077 - 01 Nov 2018
Abstract
After the Latin American Debt Crisis of 1982, the official response worldwide turned to minimum capital standards to promote stable banking systems. Despite their existence, however, such standards have still not prevented periodic disruptions in the banking sectors of various countries. After the [...] Read more.
After the Latin American Debt Crisis of 1982, the official response worldwide turned to minimum capital standards to promote stable banking systems. Despite their existence, however, such standards have still not prevented periodic disruptions in the banking sectors of various countries. After the 2007–2009 crisis, bank capital requirements have, in some cases, increased and overall have become even more complex. This paper reviews (1) how Basel-style capital adequacy guidelines have evolved, becoming higher in some cases and overall more complex, (2) how the United States (US) implementation of these guidelines has contributed to regulatory complexity, even when omitting other bank capital regulations that are specific to the US, and (3) how the US regulatory measures still do not provide equally valuable information about whether a bank is adequately capitalized. Full article
(This article belongs to the Special Issue Financial Crises, Macroeconomic Management, and Financial Regulation)
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