Category: Bond Market

Banks, Securities Markets, And Risk

Banks, Securities Markets, And Risk

Large bank corporations now tend to have both traditional lending divisions as well as securities market divisions. This was not always the case; regulators used to keep financial firms locked to specialisations — this was referred to as “the pillar system” in Canada. However, ongoing deregulation eroded the pillars — I discuss part of the […]

The Yield Curve And Bank Net Interest Margins

The Yield Curve And Bank Net Interest Margins

One of the topics that comes up whenever government bond curves re-price is the relationship between the yield curve and bank net interest margins (NIM). This then morphs into a second question: does a yield curve inversion cause a recession by the (alleged) effect of the yield curve on bank interest margins, reducing the willingness […]

Crypto Failures Versus Bank Failures

Crypto Failures Versus Bank Failures

The ongoing collapse in cryptocurrency exchanges is attracting attention and schadenfreude. As an uninterested outside observer, all I can say is that weak exchanges are being culled, whether any “strong” ones will be left remains to be determined. My guess is that unless regulators step in and shutter them, inflows from elsewhere should be able […]

Podcast

Podcast

I was invited onto the MMT Podcast with Patricia Pino and Christian Reilly (thanks!): “What Is A Bond Vigilante And How Do We Get Rid Of Them?” A discussion of some of the issues raised by the wackiness in the U.K. bond market. Obviously not a current event, but a discussion of what we can […]

Primer: Bank Capital

Primer: Bank Capital

Bank capital is the buffer on a bank’s balance sheet that allows it to absorb losses, particularly credit losses. Although there is a great deal of excitement about bank liquidity — bank runs, just like in “It’s a Wonderful Life”! — but the main danger is the capital buffer being wiped out (insolvency). A bank […]

Bank Liquidity Management Introduction

Bank Liquidity Management Introduction

For modern financial systems, the key distinguishing characteristic of banks is that they key managers of the liquidity of the system. Although one can find small banks (or community banks) that operate on more traditional lines, banking firms are diversified and operate in the capital markets as well taking in deposits and making loans in […]

Runs, Cascades, Squeezes, and Crises

Runs, Cascades, Squeezes, and Crises

Recent discussions about bank runs in economics has led me to the conclusion that economists want to lump practically all behaviour around default as a “run,” which is not helpful. In order to have a better grasp of the situation, we need to distinguish various possibilities — runs, cascades, squeezes, and good old fashioned financial […]

The Markets Made Me Do It!

The Markets Made Me Do It!

British Prime Minister sacked the Chancellor of the Exchequer (head of Treasury) Kwasi Kwarteng on Friday, and economic commentary was predictable. Variations of “markets force government to backtrack!” were abundant, and echoed by Labour Party supporters (which would be surprising for anyone unfamiliar with British politics). Of course, this is a variant of the “bond/currency […]

Initial Comments On Sissoko Paper: Money Markets

Initial Comments On Sissoko Paper: Money Markets

I ran across Carolyn Sissoko’s working paper “Financial dominance: why the ‘market maker of last resort’ is a bad idea and what to do about it” (link: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4240857). Although I agree that non-bank finance (“market-based finance”) is going to be the source of financial instability under current institutional arrangements in the developed countries, I am […]