Financial Stability

Julia Giese, Michael McLeay, David Aikman and Sujit Kapadia Central banks have been using a range of monetary policy and macroprudential tools to maintain monetary and financial stability. But when should monetary versus macroprudential tools be used and how should they be combined? Our recent paper develops a macroeconomic model to answer these questions. We … Continue reading Unifying monetary and macroprudential policy →

Yuliya Baranova, Eleanor Holbrook, David MacDonald, William Rawstorne, Nicholas Vause and Georgia Waddington The functioning of major government bond and related repo markets has deteriorated on several occasions in recent years as trading demand has overwhelmed dealers’ intermediation capacity. Seeking a remedy, Duffie (2020) proposes a study of the costs and benefits of a clearing … Continue reading Central clearing and the functioning of government bond markets →

Álvaro Fernández-Gallardo, Simon Lloyd and Ed Manuel Since the 2007–09 Global Financial Crisis, central banks have developed a range of macroprudential policies (‘macropru’) to address fault lines in the financial system. A key aim of macropru is to reduce ‘left-tail risks‘ – ie, minimise the probability and severity of future economic crises. However, building this … Continue reading The transmission of macroprudential policy in the tails →

Julian Oakland Exchange-traded funds (ETFs) are supposed to be simple and straightforward, and for the most part they are, but one group punches well above its weight when it comes to market impact. In this post, I show that leveraged and inverse (L&I) ETFs generate rebalancing flows that: (1) are always in the same direction … Continue reading Leveraged and inverse ETFs – the exotic side of exchange-traded funds →

Gerry Gunner and James Waddell Buy-Now-Pay-Later (BNPL) is a relatively new form of consumer credit that you might have noticed as a payment option when shopping online or in person. However, there is little analysis in the public domain about who is using BNPL credit in the UK and its contribution to total household debt. … Continue reading Shining light on ‘shadow credit’ – what is Buy-Now-Pay-Later and who uses it? →

Kim Nyamushonongora and Oscar Spencer 99.9% of UK businesses are small and medium-sized enterprises (SMEs), employing 61% of the UK population. Yet, we know so much more about large businesses, how they function and particularly how they finance themselves. SMEs have been referred to as the backbone of economies around the world. Therefore, SME’s access … Continue reading A quick dive into SME finance →

May Rostom On average, parental contributions help children buy homes four years earlier than those without them. Out of every 100 new homeowners below the age of 30, 16 will have had help from ‘the Bank of Mum and Dad’, or Bomad for short. That rises to one in four new homeowners under the age … Continue reading Bomadland: How the Bank of Mum and Dad helps kids buy homes →

Lydia Henning, Simon Jurkatis, Manesh Powar and Gian Valentini Autumn 2022 saw some of the largest intraday moves in gilt yields in history. It was then that jargon normally confined to financial stability papers entered into mainstream commentary – ‘LDI’, ‘doom loop’, ‘deleveraging’. And it was then that the Bank of England engaged in an … Continue reading Lifting the lid on a liquidity crisis →

Kristin Forbes, Christian Friedrich and Dennis Reinhardt Recent episodes of financial stress, including the ‘dash for cash’ at the onset of the Covid-19 (Covid) pandemic, pressure in the UK’s liability-driven investment funds in 2022, and the collapse of Silicon Valley Bank in 2023, were stark reminders of the vulnerability of financial institutions to shocks that … Continue reading Funding structures and resilience to shocks after a decade of regulatory reform →

Danny Walker Many people expect the rise in interest rates over the past 18 months to lead house prices to fall. Average prices have already fallen by 1–2% in the UK and by more in the US. In this post I show that historically there have been large differences in how an interest rate shock … Continue reading How house prices respond to interest rates depends on where they are in the country →