House of Finance News https://www.hof.uni-frankfurt.de/ Latest news from House of Finance en House of Finance News https://www.hof.uni-frankfurt.de/typo3conf/ext/tt_news/ext_icon.gif https://www.hof.uni-frankfurt.de/ 18 16 Latest news from House of Finance TYPO3 - get.content.right http://blogs.law.harvard.edu/tech/rss Tue, 20 Dec 2016 09:36:00 +0100 Wolfgang König AIS Fellow 2016 http://www.hof.uni-frankfurt.de/news-media/news/article/article/wolfgang-koenig-ais-fellow-2016.html Wolfgang König, Professor of Information Systems at Goethe University Frankfurt and Executive Director of the House of Finance, was presented the AIS 2016 Fellow Award during the 37th International Conference on Information Systems (ICIS), which took place in Dublin from 11 to 14 December 2016. The ICIS is the world-leading gathering of all IS academics organized by the Association of Information...

]]>

]]>
2016 Tue, 20 Dec 2016 09:36:00 +0100
Time for Reforms http://www.hof.uni-frankfurt.de/news-media/news/article/article/time-for-reforms.html On 15 December, Volker Wieland, Director of the Institute for Monetary and Financial Stability (IMFS) at Goethe University Frankfurt and member of the German Council of Economic Experts, presented the key findings of the Council’s Annual Report 2016/17 and shared his insights on the current monetary policy. The lecture was jointly organized by the IMFS and the SAFE Policy Center and...

]]>
On 15 December, Volker Wieland, Director of the Institute for Monetary and Financial Stability (IMFS) at Goethe University Frankfurt and member of the German Council of Economic Experts, presented the key findings of the Council’s Annual Report 2016/17 and shared his insights on the current monetary policy. The lecture was jointly organized by the IMFS and the SAFE Policy Center and moderated by Jan Pieter Krahnen, Program Director of the SAFE Policy Center. The Report’s title “Time for Reforms” is, first of all, addressed to Germany. As Wieland elaborated, economic policy should focus more on the German economy’s competitiveness. In contrast, the topic of inequality, income and wealth distribution, which is a subject of keen debate in Germany, is less important, in his view, as inequality has remained largely unchanged during the past decade. As an example for a necessary reform, the Council suggested to link the retirement age to longer life expectancy in order to ensure the long-term sustainability of the statutory pension scheme. With respect to the current monetary policy in the euro area, Wieland pointed out that core inflation has been fairly stable throughout the last decade. Therefore, the expansionary monetary policy of the European Central Bank (ECB) is not adequate and increasingly threatens financial stability, he warned. The ECB should normalize its monetary policy and slow down its bond-buying program. Monetary policy could stimulate demand, but it cannot create sustainable growth, he said. A further focus of the lecture was on the need for structural reforms in the euro area. Without the readiness for fundamental reforms, the long-term economic viability of the EU cannot be secured, Wieland said. In order to bring Europe closer to its citizens again, institutional reforms should reinforce the principle of subsidiarity. Fiscal policy, labor market policy and social policy should remain national responsibilities. With respect to the current developments in Italy, he advised the Italian government to apply for a program at the European Stability Mechanism (ESM), preferably including the International Monetary Fund. Both institutions would put up the pressure needed to implement reforms. Link to the Annual Report

]]>
2016 Mon, 19 Dec 2016 14:42:00 +0100
Congratulations to Goethe Alumnus Tobias Adrian to his new Job at the IMF http://www.hof.uni-frankfurt.de/news-media/news/article/article/congratulations-to-goethe-alumni-tobias-adrian-to-his-new-job-at-the-imf.html Goethe University congratulates its alumnus Tobias Adrian to his new job at the International Monetary Fund (IMF). IMF Managing Director Christine Lagarde appointed Adrian as Financial Counsellor and Director of the Monetary and Capital Markets Department. Adrian has most recently served as Senior Vice President and Associate Director of Research at the Federal Reserve Bank of New York, where he...

]]>
Goethe University congratulates its alumnus Tobias Adrian to his new job at the International Monetary Fund (IMF). IMF Managing Director Christine Lagarde appointed Adrian as Financial Counsellor and Director of the Monetary and Capital Markets Department. Adrian has most recently served as Senior Vice President and Associate Director of Research at the Federal Reserve Bank of New York, where he has worked in a variety of roles since 2003. His appointment is effective January 3, 2017.  “Mr. Adrian has extensive experience in assessing and addressing capital markets issues and in developing monetary and financial stability policies at the Federal Reserve Bank of New York,” Ms Lagarde said. “He is internationally highly regarded for his insightful analytical work, and has published widely, including on asset pricing and capital markets, monetary policy, and financial sector issues. Adrian holds a Ph.D. from the Massachusetts Institute of Technology (MIT) and a MSc from the London School of Economics, as well as postgraduate degrees from Goethe University Frankfurt and Dauphine University, Paris. He has taught at MIT, Princeton University, and New York University. Adrian is affiliated with the House of Finance via his positions as a Member of the Research Advisory Council of the Research Center SAFE and as a Research Fellow of the Institute for Monetary and Financial Stability.

]]>
2016 Thu, 01 Dec 2016 16:06:00 +0100
Frankfurt Chamber of Commerce and Industry Awards Dissertation Prize to Kai Zimmermann http://www.hof.uni-frankfurt.de/news-media/news/article/article/ihk-verleiht-dissertationspreis-an-kai-zimmermann.html In the last decade, the complexity of securities trading has increased tremendously. Automatization of trading centers and processes made securites markets much faster. Interconnection of markets and the emergence of alternative trading platforms raises concerns about possible contagion effects. Kai Zimmermann, who dedicated his doctoral thesis to this development, was awarded this year's...

]]>

]]>
2016 Fri, 25 Nov 2016 17:28:00 +0100
Hoover Institution and IMFS win Sloan Foundation Grant for Macroeconomic Model Comparison Initiative http://www.hof.uni-frankfurt.de/news-media/news/article/article/hoover-institution-and-imfs-win-sloan-foundation-grant-for-macroeconomic-model-comparison-initiative.html The Alfred P. Sloan Foundation has awarded a three-year grant in the amount of $591,295 in support of a new Macroeconomic Model Comparison Initiative (MMCI). This is a joint project by the Hoover Institution at Stanford and the Goethe University Frankfurt’s Institute for Monetary and Financial Stability (IMFS). The new grant will assist in developing and applying new methods of research ...

]]>
The Alfred P. Sloan Foundation has awarded a three-year grant in the amount of $591,295 in support of a new Macroeconomic Model Comparison Initiative (MMCI). This is a joint project by the Hoover Institution at Stanford and the Goethe University Frankfurt’s Institute for Monetary and Financial Stability (IMFS). The new grant will assist in developing and applying new methods of research analysis in macroeconomic modeling for monetary, fiscal and macro-prudential policy. The MMCI brings together a network of renowned economic researchers, led by John Taylor, the Mary and Robert Raymond Professor of Economics at Stanford University and the George P. Shultz Senior Fellow in Economics at the Hoover Institution; Volker Wieland, Chair of Monetary Economics and Managing Director at Goethe University Frankfurt’s Institute for Monetary and Financial Stability; and Michael Binder, Chair of International Macroeconomics and Macroeconometrics. “We are enthusiastic about collaborating with leading research institutions such as the Sloan Foundation and the Hoover Institution on this important initiative. Its goal is to change research on macroeconomic modeling by making it more reproducible, collaborative and comparative in nature” stated IMFS Managing Director Volker Wieland.  Quantitative macroeconomic models play an important role in informing policy makers about the effects of monetary, fiscal and macro-prudential policies. Yet, little progress has been made to advance the development of methods and norms that are essential to making comparisons of such models both practical to carry out and highly informative. As part of the MMCI, the Macroeconomic Model Data Base (MMB), which already features about 70 macroeconomic models, will be developed into an interactive, open-source based platform for researchers reproducing and replicating models. “The MMCI aims to put macroeconomists in a stronger position to inform policy makers at central banks, finance ministries, legislative bodies, regulatory authorities and international organizations about policy strategies the effects of which are robust to model uncertainty” stated IMFS Affiliated Professor Michael Binder.

]]>
2016 Thu, 17 Nov 2016 08:27:00 +0100
Now online: New issue of SAFE Newsletter (Q4 2016) http://www.hof.uni-frankfurt.de/news-media/news/article/article/now-online-new-issue-of-safe-newsletter-q4-2016.html Read in the SAFE Newsletter Q4 2016: Research Viral V. Acharya, Tim Eisert, Christian Eufinger, Christian Hirsch Whatever it takes: The Real Effects of Unconventional Monetary Policy Christian Eufinger, Andrej Gill New Regulatory Approach to Curb Bank Risk-Taking: Incentive-Based Capital Requirements Interview Martin GötzThe...

]]>

Read in the SAFE Newsletter Q4 2016:

Research 


Viral V. Acharya, Tim Eisert, Christian Eufinger, Christian Hirsch Whatever it takes: The Real Effects of Unconventional Monetary Policy
Christian Eufinger, Andrej Gill New Regulatory Approach to Curb Bank Risk-Taking: Incentive-Based Capital Requirements
Interview Martin GötzThe Bail-In Tracker: Does the new EU Regulation on Bank Recovery and Resolution Work?
Policy
Jan Pieter Krahnen, Loriana Pelizzon Central Counterparty Clearing Houses Should be Supervised by the SSM
Guest Commentary Mario Nava Financial Stability, Business Sentiment and Economic Growth in Europe: The Initiatives of the European Commission
Web version | Print version (pdf)

]]>
2016 Fri, 28 Oct 2016 15:44:00 +0200
HR Managers like Frankfurt Economics Students Most http://www.hof.uni-frankfurt.de/news-media/news/article/article/hr-managers-like-frankfurt-economics-students-most.html HR managers at German companies value graduates from Goethe University Frankfurt most among all economics graduates in Germany. According to a survey of the Business magazine WirtschaftsWoche one quarter of 540 surveyed HR managers named Goethe University when asked which graduates would fulfill their expectations most. They were allowed to name several universities per subject. With respect to...

]]>

]]>
2016 Wed, 26 Oct 2016 15:53:00 +0200
Pier Carlo Padoan: Promoting Growth, Employment and Solidarity in Europe http://www.hof.uni-frankfurt.de/news-media/news/article/article/pier-carlo-padoan-promoting-growth-employment-and-solidarity-in-europe.html On 21 October 2016, Pier Carlo Padoan, Italian Minister of Finance, held a speech on “Promoting Growth, Employment and Solidarity in Europe in Times of Political and Policy Uncertainty” at Goethe University organized by the Research Center SAFE, the Center for Financial Studies and Deutsche Bundesbank. Padoan was introduced by Brigitte Haar, Vice President of Goethe University Frankfurt,...

]]>
On 21 October 2016, Pier Carlo Padoan, Italian Minister of Finance, held a speech on “Promoting Growth, Employment and Solidarity in Europe in Times of Political and Policy Uncertainty” at Goethe University organized by the Research Center SAFE, the Center for Financial Studies and Deutsche Bundesbank. Padoan was introduced by Brigitte Haar, Vice President of Goethe University Frankfurt, and Jens Weidmann, President of Deutsche Bundesbank.
Padoan started his lecture with the assessment that, since the financial crisis of 2007-08, Europe is facing a time of weak economic prospects, rising inequality, and increased downside risk with regard to economic developments. The recovery after the recession has been below expectations and the current economic environment of low interest rates and weak demand has been dubbed the “new normal” by economists. The Minister addressed the issue of political uncertainty as a factor that negatively affects economic growth in Europe. In times of political uncertainty, households increase precautionary savings and reduce spending, thus lowering demand, while firms hold back investments, further lowering economic growth. He emphasized the need for coordinated policy action, encompassing monetary, fiscal and structural policies, to dissipate political uncertainty. Regarding specific policies, Padoan called for increased public investment in countries exhibiting the necessary fiscal space, potential joint debt issuance in the eurozone and structural reforms in deficit countries. Padoan elaborated that all policy measures should focus on inclusion and economic inequality as important dimensions of the economic discourse. >> Video of the event

]]>
2016 Mon, 24 Oct 2016 18:36:00 +0200
CFS survey: The issue of cyber security must be on every financial industry agenda http://www.hof.uni-frankfurt.de/news-media/news/article/article/cfs-survey-the-issue-of-cyber-security-must-be-on-every-financial-industry-agenda.html The issue of cyber security is of central importance. Germany’s financial industry is in firm agreement on this point, attributing it a significance of high (20%) to very high (75%). This is shown by a current survey of financial institutions and service providers in the Financial Centre Germany conducted by the Center for Financial Studies. However, the industry is also largely in agreement...

]]>
The issue of cyber security is of central importance. Germany’s financial industry is in firm agreement on this point, attributing it a significance of high (20%) to very high (75%). This is shown by a current survey of financial institutions and service providers in the Financial Centre Germany conducted by the Center for Financial Studies. However, the industry is also largely in agreement (78%) that the issue is not being sufficiently addressed at the moment.

Most of the financial industry only expecting some measure of support from FinTechs

Only 8% of the survey participants expect significant support from FinTechs in the area of cyber security. Half of them (51%) believe their company will receive at least some measure of support. On the other hand, 29% are anticipating little support from FinTechs, and 7% none at all.

“The issue of cyber security is a key topic for the future, and in fact it is tailor made for young technology companies. I therefore expect we will soon see more start-ups in this area,” Professor Volker Brühl, Managing Director of the Center for Financial Studies, interprets the results.

Cyber security can become a competitive factor in the future – Establishing European data centres is seen as important to crucial

The large majority of the financial institutions (86%) is in agreement that the issue of data security can become a competitive factor for financial service providers. Only 12% do not believe this is a relevant point. Since a large amount of data from European users is stored by social networks in the US, the necessity of providing data centres for critical data in Europe is under discussion. The majority of the financial industry (59%) believes it is important to establish such data centres, while 26% regard this as crucial. On the other hand, 12% see little relevance in where data centres are located. 

“The study demonstrates how important a world-class data infrastructure is for today’s financial sector. The Financial Centre Frankfurt sets the bar pretty high with dozens of data centres and the DE-CIX internet exchange. More than half of the German data centres are located in Frankfurt and the surrounding region. Our status as the Data Capital of Germany is irrefutable and makes us an even more attractive location for FinTechs,” comments Hubertus Väth, Managing Director of Frankfurt Main Finance e.V.

Bitcoins not expected to gain in importance as a payment method in light of data security concerns

Bitcoins are supposed to be particularly suited to preventing hacker attacks in payment transactions. However, the majority of the financial industry (73%) does not expect bitcoins to gain in importance as a payment method in light of such concerns.

The CFS would like to thank Frankfurt Main Finance e.V. for financially supporting the project.

Download press release (pdf) In case of further questions, please contact:
Sebastian Frontczak
Center for Financial Studies
House of Finance
Goethe-Universität Frankfurt
E-Mail: frontczak@ifk-cfs.de      
Tel.: (069) 798-30043
www.ifk-cfs.de/cfs-index

]]>
2016 Wed, 19 Oct 2016 08:54:00 +0200
CFS Index: Significant job cuts at financial institutions – Significant job growth at service providers http://www.hof.uni-frankfurt.de/news-media/news/article/article/cfs-index-significant-job-cuts-at-financial-institutions-significant-job-growth-at-service-providers.html CFS Index remains largely unchanged as a result The CFS Index, which measures the business climate of the German financial sector on a quarterly basis, rises by 0.3 points to 110.6 points in the third quarter of 2016. Though the value remains almost unchanged, it comes as a result of sharply contrasting developments of employee numbers at the financial institutions and the service providers....

]]>
CFS Index remains largely unchanged as a result

The CFS Index, which measures the business climate of the German financial sector on a quarterly basis, rises by 0.3 points to 110.6 points in the third quarter of 2016. Though the value remains almost unchanged, it comes as a result of sharply contrasting developments of employee numbers at the financial institutions and the service providers. While the measure of employee numbers at the financial institutions is at a historic low since the Index surveys began in 2007, the service providers are stepping up hiring. Aside from this, the financial industry as a whole is recording growth in revenues and earnings. The financial institutions in particular, after considerable declines in earnings in the first half of the year, now report a clear increase that surpasses expectations. The growth in investment volume declines slightly, but remains at a solid level.

“The figures reflect structural changes in the banking industry’s mode of production, particularly with regard to rising capital intensity and falling employee numbers. Conversely, employee numbers at the external service providers are on the rise, partly due to the trend toward digitalization,” Professor Jan Pieter Krahnen, Director of the Center for Financial Studies, interprets the results.

 

Financial industry rates the future international importance of the Financial Centre Germany very positively

Following the Brexit vote, the rating of the future international importance of the Financial Centre Germany had reached a historic high of 136.8 points in the second quarter. This value remains at an above-average level of 128.3 points in the third quarter, despite falling by 8.5 points.

Dr. Lutz Raettig, Executive Chairman of Frankfurt Main Finance e.V., emphasized, “The results of the study show that there is still great trust in Frankfurt’s capabilities as a leading Financial Centre. Our function as a bridge between London and the EU and our constructive handling of Brexit will strengthen Frankfurt as the most important Financial Centre in the Eurozone."

Job cuts hit financial institutions more strongly than expected, and further cutbacks in personnel are anticipated

The extent of job cuts at the surveyed financial institutions turned out to be even larger than expected in the last quarter. Previously the number of employees had remained stable at a neutral level. Now the employee numbers sub-index for the financial institutions falls by -13.7 points to a historic low – since the start of the survey in 2007 – of 86.0 points, and the financial institutions are expecting the situation to degrade further still in the current quarter. By contrast, employee numbers at the service providers are developing even more positively than expected. The corresponding sub-index improves significantly on the previous quarter, rising 11.8 points to 116.9 points. The service providers are even more optimistic regarding the fourth quarter.

Revenue growth for the financial institutions

The growth in revenues/business volume among the surveyed financial institutions turns out to be slightly higher in the third quarter of 2016 than was expected in the previous quarter. The corresponding sub-index rises by 2.5 points to 109.6 points. As expected, the service providers also maintain their high level of revenues, slipping just -1.0 points to 119.7 points, and they are anticipating increased revenue growth in the current quarter.

Financial institutions stop decline in earnings – Financial industry takes a positive view of the current quarter

In terms of earnings, both groups report growth in the third quarter. The financial institutions in particular, after considerable declines in earnings in the first half of the year, now report a clear increase that surpasses expectations. The corresponding sub-index for the financial institutions rises by 7.0 points to 103.9 points; the service providers’ sub-index climbs 2.2 points to 115.3 points. Both groups have a positive outlook for the current quarter.

The growth in investment volume in product and process innovations declines slightly, but remains at a solid level. For the financial institutions this sub-index falls by -2.2 points to 110.1 points, contrary to expectations. The service providers’ sub-index remains stable, slipping just -0.4 points to 112.2 points. As a result, the two groups are still at an almost equal level, with neither anticipating any major change in the current quarter.

The CFS would like to thank Frankfurt Main Finance e.V. for financially supporting the project.

Download press release (pdf)

In case of further questions, please contact: Sebastian Frontczak, Center for Financial Studies, E-Mail: frontczak@ifk-cfs.de, Tel.: (069) 798-30043

]]>
2016 Wed, 19 Oct 2016 08:44:00 +0200
Mass Cancelling of Building Loan Saving Contracts Unlawful http://www.hof.uni-frankfurt.de/news-media/news/article/article/mass-cancelling-of-building-loan-saving-contracts-unlawful.html SAFE legal scholars warn of tolerating the cancellations of contracts by building societies with reference to the low interest rate environment / Economically “counterproductive” Building societies are recently cancelling existing contracts on a large scale that guarantee highly attractive interest rates for savers. A wave of lawsuits against these cancellations is currently keeping German...

]]>
SAFE legal scholars warn of tolerating the cancellations of contracts by building societies with reference to the low interest rate environment / Economically “counterproductive” Building societies are recently cancelling existing contracts on a large scale that guarantee highly attractive interest rates for savers. A wave of lawsuits against these cancellations is currently keeping German courts busy and will reach the Federal Supreme Court (Bundesgerichtshof) shortly. According to Tobias Tröger, Professor at Goethe University Frankfurt and the Research Center SAFE, and his Assistant Thomas Kelm, the cancellations are legally not justified. As the two legal scholars outline in this week’s issue of the Neue Juristische Wochenschrift (NJW 39/2016, 22 September 2016), building societies cannot claim an exceptional right of termination after §489 I Nr. 2 BGB. It is an original task of credit institutions, which includes building societies, to consider the risk of interest rate changes in their management decisions, they state. If institutions were allowed to terminate contracts in an unfavorable interest rate environment, those that have not met this economically fundamental task would be rewarded. As a consequence, moral hazard would arise taking any incentive from credit institutions to consider interest rate risk at all into in their contracts. Instead, institutions would benefit in good times and cancel unattractive contracts in bad times. As the authors set out, this would be counterproductive because maturity transformation by credit institutions serves a general economic interest. “The enormous threat of a financial sector that is able to refinance itself largely independent from (market price) risk is known not only since the financial crisis.” A need for action would only arise in the event of a sector-wide mismanagement with a threatening default of a large number of institutions and, thus, a risk for financial stability, the authors explain. In this case, however, supervisory law would apply, not civil law. It is the duty of the Federal Financial Supervisory Authority (BaFin) to assess possible systemic consequences. On the other hand, if only a small number of institutes face problems, they have to bear the consequences of the mismanagement of market price risks themselves.

]]>
2016 Wed, 21 Sep 2016 18:30:00 +0200
House of Finance Comes Seven in the FAZ Ranking of Economists http://www.hof.uni-frankfurt.de/news-media/news/article/article/house-of-finance-comes-seven-in-the-faz-ranking-of-economists.html For the first time, Goethe University Frankfurt’s House of Finance has this year been assessed as an institutional entity in the ranking of economists of the German daily Frankfurter Allgemeine Zeitung. Based on the very good individual results of several of its economists, which were evaluated in the categories media response, political influence and research output, the House of Finance was...

]]>

]]>
2016 Mon, 19 Sep 2016 08:36:00 +0200
Aetienne Sardon has been awarded the Maravon Markets Award 2016 http://www.hof.uni-frankfurt.de/news-media/news/article/article/aetienne-sardon-has-been-awarded-the-maravon-markets-award-2016.html Aetienne Sardon has been awarded the Maravon Markets Award 2016 for the best master thesis. The prize, which is presented by the Maravon GmbH, honors outstanding research papers on financial markets topics. Sardon wrote his master thesis on "The Role of CCPs in Derivatives Clearing - An Analysis of Interoperability" at the Chair of eFinance of Prof. Dr. Peter Gomber. Central...

]]>
Aetienne Sardon has been awarded the Maravon Markets Award 2016 for the best master thesis. The prize, which is presented by the Maravon GmbH, honors outstanding research papers on financial markets topics. Sardon wrote his master thesis on "The Role of CCPs in Derivatives Clearing - An Analysis of Interoperability" at the Chair of eFinance of Prof. Dr. Peter Gomber. Central Counterparties (CCP) are legal subjects that come in between a buyer and a seller at some trading places and OTC derivative trading platforms. The master thesis describes the risk that is connected to central counterparties themselves and analyzes, based on simulations, how this risk and the structure of market participants change in the light of agreements on interoperability that strengthen the substitutability of clearing services. The prize is worth 1,000 euros.

]]>
2016 Wed, 14 Sep 2016 14:46:00 +0200
Central Clearing of Derivatives Entails Significant Systemic Risks http://www.hof.uni-frankfurt.de/news-media/news/article/article/central-clearing-of-derivatives-entails-significant-systemic-risks.html Unregulated competition of central counter parties (CCPs) may endanger the entire financial system / New SAFE white paper calls for a centralization of CCP regulation and supervision New regulation in the U.S. (Dodd-Frank-Act) and in Europe (EMIR) renders the involvement of a central counter party (CCP) mandatory for standardized OTC derivatives’ trading. An estimated 50% of all...

]]>
Unregulated competition of central counter parties (CCPs) may endanger the entire financial system / New SAFE white paper calls for a centralization of CCP regulation and supervision New regulation in the U.S. (Dodd-Frank-Act) and in Europe (EMIR) renders the involvement of a central counter party (CCP) mandatory for standardized OTC derivatives’ trading. An estimated 50% of all interest rate and credit derivatives are currently cleared via a CCP. In a new SAFE policy white paper, Jan Pieter Krahnen and Loriana Pelizzon, both Professors at Goethe University Frankfurt and the Research Center SAFE, argue that although the involvement of CCPs is suitable to reduce contagion risks, it also creates a potential systemic risk that may undermine the stability of the entire financial system. Despite this extreme risk, regulation and notably supervision of CCPs has remained quite fragmented to date. Jan Pieter Krahnen: “It is high time that politicians and regulators take into consideration the systemic risks that may evolve from central clearing. In order to delimit the emergence of financial crises, an internationally coordinated regulation and supervision of CCPs is indispensable.” Derivative transactions are intertemporal by nature and thus require some sort of credit relationship between the counterparties. If one defaults on the deal, the other may suddenly turn out to be unhedged. In order to avoid contagion effects among the trading parties, the regulators in the US and in the EU have stipulated the obligatory involvement of a CCP in the trading of standard derivative contracts – implying risk adequate collateral postings from both parties.

Thus CCPs dramatically reduce the risk of system-wide instability, which otherwise would prevail in a world of financial institutions interconnected through derivative contracts. However, despite the great improvement brought about by CCPs, there is also a downside: A default of the CCP itself, should it ever happen, is likely to have pervasive consequences for financial stability worldwide. Risks emerging from competition and consolidation According to Krahnen and Pelizzon there is an odd couple of factors increasing CCP-induced stability risk: the growing competition among CCPs worldwide, which goes hand in hand with CCP consolidation. The default risk results from the fact that CCPs are competing for market share. Such competition may induce CCPs to apply “predatory margining”: a reduction of collateral requests in order to be cheaper than competitors and, thus, to increase market share. As the stability of a financial system critically depends on collateral requirements, an unregulated competition endangers the entire system. Moreover, the default risk of CCPs is all the more relevant for the financial system, the more consolidated its CCPs are. Thus, competition and consolidation work hand in hand, increasing the systemic relevance of CCPs – and hence the likelihood that there will be a government bailout, should push comes to shove. Lessons for regulation and supervision As a consequence, supervision of CCPs, which is currently organized in a decentralized setting, urgently needs to be supra-nationally coordinated. Supervisory standards and practice should be the same for all CCPs, irrespective of their location, in order to avoid a race to the bottom of regulatory standards, as well as protective behavior towards national champions by their local supervisor. Therefore, the authors suggest to centralize CCP regulation and supervision in one agency covering as many economies as possible in which CCP counterparties are domiciled, thus encompassing the whole set of countries that would ultimately face the bailout bill should a systemic risk event ever happen. Given the current institutional set-up in Europe, the single supervisor for CCPs could well be the European Securities and Markets Authority (ESMA), the Single Supervisory Mechanism for banks (SSM), or a newly established institution. CCP of merged Deutsche Börse/LSE should be domiciled in the EU This last point is also of relevance in the current debate about the future location of a merged Deutsche Börse-London Stock Exchange entity. As the authors argue, a consolidated CCP run by the merged entity – or both CCPs if LCH.Clearnet and Eurex.Clearing remain separate businesses – should be domiciled within the borders of the European Union, preferably the Eurozone, with a single EU-wide supervisory agency being in charge of monitoring CCP management, particularly its margining policy. Download SAFE White Paper No. 41

]]>
2016 Tue, 13 Sep 2016 09:39:00 +0200
Helmut Gründl Appointed a Member of the Insurance Advisory Council of the Federal Financial Supervisory Authority http://www.hof.uni-frankfurt.de/news-media/news/article/article/helmut-gruendl-appointed-a-member-of-the-insurance-advisory-council-of-the-federal-financial-supervisory-authority.html Prof. Dr. Helmut Gründl, Managing Director of the International Center for Insurance Regulation at the House of Finance, has been appointed to the Insurance Advisory Council of the Federal Financial Supervisory Authority (BaFin) for a five year term. The Insurance Advisory Council addresses issues of insurance practice and provides advice to BaFin on the implementation and further development of...

]]>

]]>
2016 Mon, 12 Sep 2016 14:58:00 +0200
Nicola Fuchs-Schündeln has been awarded the Gossen Prize http://www.hof.uni-frankfurt.de/news-media/news/article/article/nicola-fuchs-schuendeln-has-been-awarded-the-gossen-prize.html German economics association “Verein für Socialpolitik” honors Frankfurt economist Nicola Fuchs-Schündeln, Professor of Macroeconomics and Development at Goethe University Frankfurt’s House of Finance, has been awarded the Gossen Prize 2016. The economist (44) received the most important German economics award during the annual meeting of the Verein für Socialpolitik in Augsburg on Monday...

]]>
German economics association “Verein für Socialpolitik” honors Frankfurt economist Nicola Fuchs-Schündeln, Professor of Macroeconomics and Development at Goethe University Frankfurt’s House of Finance, has been awarded the Gossen Prize 2016. The economist (44) received the most important German economics award during the annual meeting of the Verein für Socialpolitik in Augsburg on Monday evening. The Gossen Prize is awarded every year to a German speaking economist who has gained international reputation for his or her research. The most important criterion are publications in internationally renowned research journals. Monika Schnitzer, Chair of the Verein für Socialpolitik, acknowledged in her laudatory speech the significant empirical research contributions of Nicola Fuchs-Schündeln in the areas of political economics, economics of household decisions and development economics. Nicola Fuchs-Schündeln investigates mainly the behavior of private households with respect to consumption, savings and labor supply as well as the endogeneity of preferences. Her work has been published i. a. in the American Economic Review, the Quarterly Journal of Economics and Science. Since 2009, Fuchs-Schündeln holds a chair at Goethe University where she also contributes to the Cluster of Excellence “The Formation of Normative Orders” as a Principal Investigator and to the Research Center “Sustainable Architecture for Finance in Europe” (SAFE) as a Program Director. The past twelve months she spend at Stanford University, California, as a guest professor. In 2010, Fuchs-Schündeln received a starting grant of the European Research Council, one of the most important scientific awards in the European Union. Before coming to Frankfurt she held positions at the universities of Harvard and Yale in the U.S. The award, which is endowed with 10,000 euros, is named after the Prussian lawyer Hermann Heinrich Gossen (1810–1858). Although hardly noticed at that time due to its mathematical nature, his book “Die Entwicklung der Gesetze des menschlichen Verkehrs, und der daraus fließenden Regeln für menschliches Handeln” (“The Development of the Laws of Human Interaction and the Resulting Rules of Human Behavior”) has prepared the ground for modern marginalist theory.

]]>
2016 Tue, 06 Sep 2016 08:54:00 +0200
CFS Survey: Financial Centre Frankfurt emerges as major winner of a Brexit http://www.hof.uni-frankfurt.de/news-media/news/article/article/cfs-survey-financial-centre-frankfurt-emerges-as-major-winner-of-a-brexit.html Germany’s financial industry is in firm agreement that the Financial Centre Frankfurt will profit from a British exit from the EU, although the outcome of the British vote largely came as a surprise to the industry. The potential impacts on the German economy are also regarded as neutral to positive. These were among the results of a survey of financial institutions and service providers in...

]]>
Majority of the financial industry in favour of limiting Britain’s access to the EU interior market and expects a Brexit to have neutral to positive impacts on the German economy In the opinion of most financial institutions and service providers surveyed (68%), the EU should not grant Britain unrestricted access to the EU interior market after a Brexit. By contrast, 22% advocate not introducing any restrictions in spite of a Brexit. Around half the respondents (48%) regard the potential impacts of a Brexit on the German economy as neutral, while 35% see them as positive. Just 15% are anticipating negative impacts.

]]>
2016 Thu, 21 Jul 2016 10:52:00 +0200
CFS Index returns to a slight upward trend - Financial industry revenues are developing positively http://www.hof.uni-frankfurt.de/news-media/news/article/article/cfs-index-returns-to-a-slight-upward-trend-financial-industry-revenues-are-developing-positively.html The CFS Index, which measures the condition of the German financial sector on a quarterly basis, rises by 1.6 points to 110.3 points in the second quarter of 2016. The increase is based on the strong development on revenues in the financial industry. Contrary to expectations, however, the earnings performance of the financial institutions remains on a downward trend, while the service providers...

]]>
Financial industry sees the future international importance of the Financial Centre Germany at a historic high The future international importance of the Financial Centre Germany reaches a historic high of 136.8 points. Owing to Britain’s potential exit from the EU, the corresponding value rises by 20.7 points. Dr. Lutz Raettig, Executive Chairman of Frankfurt Main Finance e.V., emphasized, “We all deeply regret the results of the referendum, but naturally, we also respect the outcome. As a consequence, financial centres within the EU will now compete with one another to lure individual product areas and activities out of London. Frankfurt Rhine-Main will certainly be at the centre of this competition, but in a constructive and cooperative manner.

Business volume of the financial industry develops positively – contrast between earnings performance of financial institutions and service providers The surveyed financial institutions and service providers manage to considerably increase their revenues/business volume again following the poor performance in the first quarter. The corresponding sub-index for the financial institutions rises by 2.7 points to 107.2 points in the second quarter. The service providers raise their revenues by 3.8 points to 120.3 points, which is only slightly below the prior-year level. The financial industry expects to maintain these levels in the current quarter. In terms of earnings, the financial institutions record a further decline, contrary to their expectations. The corresponding sub-index falls to 96.9 points. However, the service providers reveal steady earnings growth, in spite of negative prior expectations. The earnings sub-index for this group rises by 0.3 points to 113.1 points. The financial institutions expect the low level to persist; the service providers are more optimistic for the current quarter. The investment volume in product and process innovations of both groups remains at a solid level. The sub-index of the financial institutions falls by 0.2 points to 112.3 points. The service providers’ sub-index falls by 0.1 points to 112.6 points. As such, both groups are at the same level and neither is expecting changes in the current quarter. Financial institutions anticipating job cuts in third quarter As for employee numbers, which the financial institutions have so far kept stable at a neutral level of 99.7 points (+0.7 points), a significant decline is expected in the current quarter. The surveyed service providers are maintaining a higher level, with a value of 105.1 points, though they have hired significantly fewer new employees than in the previous quarter. The corresponding sub-index falls by 5.9 points. The service providers are optimistic that this value will improve in the third quarter.

]]>
2016 Thu, 21 Jul 2016 10:45:00 +0200
Now online: New issue of SAFE Newsletter (Q3 2016) http://www.hof.uni-frankfurt.de/news-media/news/article/article/now-online-new-issue-of-safe-newsletter-q3-2016.html Web version | Print version (pdf) Research Vilen Lipatov, Alfons Weichenrieder A Central EU Tax is not Superior to the Current System of National Contributions Brigitte Haar Freedom of Contract and Financial Stability Interview Helmut Gründl"All Insurers are Currently Searching for Yield" Policy ...

]]>
Web version | Print version (pdf)
Research 


Vilen Lipatov, Alfons Weichenrieder A Central EU Tax is not Superior to the Current System of National Contributions
Brigitte Haar Freedom of Contract and Financial Stability
Interview Helmut Gründl"All Insurers are Currently Searching for Yield"
Policy
Alexander Ludwig Demographic Change: Asset Returns, Wages and Distributional Effects
Guest Commentary Carl-Ludwig Thiele Blockchain and Fintechs as Possible Game Changers for Payments

]]>
2016 Wed, 20 Jul 2016 12:31:00 +0200
Hermann Remsperger Awarded Order of Merit, First Class http://www.hof.uni-frankfurt.de/news-media/news/article/article/hermann-remsperger-awarded-order-of-merit-first-class.html Professor Hermann Remsperger, for many years Chairman of the Council of the Stiftung Geld und Währung, Chairman of the Board of Trustees of the Institute for Monetary and Financial Stability (IMFS) and a Member of the House of Finance Board of Trustees, was awarded the Order of Merit of the Federal Republic of Germany, first class. The former member of the Executive Board of the Deutsche...

]]>
More

]]>
2016 Mon, 04 Jul 2016 09:57:00 +0200
"The EU is forced to re-define itself" http://www.hof.uni-frankfurt.de/news-media/news/article/article/the-eu-is-forced-to-re-define-itself.html House of Finance researchers comment on the Brexit vote. Prof. Dr. Jan Pieter Krahnen The Brexit vote is a warning signal for the remaining EU. The EU is forced to re-define and re-position itself, for example via a constitutional convention. It has to look for a new "bearing point" that can give orientation on the path e.g. towards a closer union. Such a bearing point could be an...

]]>
House of Finance researchers comment on the Brexit vote.

Prof. Dr. Jan Pieter Krahnen

Jan Pieter KrahnenThe Brexit vote is a warning signal for the remaining EU. The EU is forced to re-define and re-position itself, for example via a constitutional convention. It has to look for a new "bearing point" that can give orientation on the path e.g. towards a closer union. Such a bearing point could be an "avant-garde model": a couple of countries joining closer in selected policy areas, e.g. within the framework of a clever designed two-tier federal state model with a democratically legitimized top which, however, should only have highly restricted rights and budgetary sovereignty. Other models are conceivable, too – the crucial point is that we need a serious attempt to define a new common objective. Financial markets can serve as a role model as "more Europe" has already been implemented via the banking union. Short-term, we will see enormous instability on financial markets until all important institutions have re-positioned themselves. The Brexit vote is a serious test of the banking union whose peak will probably only come next week. I am confident, however, that financial institutions, central banks and regulatory authorities have taken precautions that help to overcome the shock. Jan Pieter Krahnen is Professor of Corporate Finance and Director of the Research Center SAFE and the center for Financial Studies.

Prof. Dr. Dr. h.c. Helmut Siekmann

Helmut SiekmannThe result of the referendum in the United Kingdom is a wakening call. All decision makers in the European Union and its member states are called to immediately embark on fundamental reforms of the constitution of the (remaining) Union. "Carry on as before" or "more of the same" are no convincing strategies. Above all, the widespread mechanism has to come to an end that politicians decide on measures on the European level and afterwards, when these are being implemented, they hold the "bad" bureaucrats in Brussels responsible for them. Also the media likes to blame "Brussels" for all negative outcomes while the great achievements of the European Union are nearly mentioned at all. Now, we need an open and – if necessary, controversal – discussion on how a future federal state on the European level should look like. In any case, it should dispose of a strong head which is capable to act while leaving the highest possible autonomy to countries and regions. Its bodies have to be directly democratically legitimized including elements of direct codetermination of the people in factual questions. Helmut Siekmann is Professor of Money, Currency and Central Bank Law at the Institute for Monetary and Financial Stability.

Prof. Volker Wieland, Ph.D.

Volker WielandThe European Union without Britain would not be a European Union. It would lose a significant part of Europe and an essential cornerstone of the post-war European peace project. The narrow Brexit vote need not be a final decision on UK membership, but it is a wake-up call to all European partners and European leaders. There is room and there is time for second thoughts, new resolutions and making up. It would be a big mistake for the other members to react with childish disappointment: "If you want to leave us, go ahead." Rather, we have to acknowledge that many European citizens, not only in Britain, desire substantial sovereignty at the national level. The expression of national identity and the desire for self-determination cannot be satisfied with football competitions alone. Rather than mechanically calling for ever closer integration, and expecting every crisis to lead automatically to "more Europe" aka "more transfer of sovereignty to supra-national institutions", we need to think carefully about how to re-calibrate European institutions such that they achieve the right balance of supra-national powers and national sovereignty. For the euro area this means, for example, that we need to ensure that domestic fiscal sovereignty can coexist with a stable monetary union. 

Volker Wieland is Professor for Monetary Economics at the Institute for Monetary and Financial Stability.

]]>
2016 Fri, 24 Jun 2016 16:25:00 +0200
Comparative Financial Systems - Historical Perspectives http://www.hof.uni-frankfurt.de/news-media/news/article/article/comparative-financial-systems-historical-perspectives.html While institutional and regulatory conditions change over time, human behavior does not. Therefore, studying historical events and long-run financial trends provides highly informative and instructive insights also with respect to current developments. Based on this conviction, Goethe University hosted a conference on “Comparative Financial Systems – Historical Perspectives” on 17 June 2016....

]]>
While institutional and regulatory conditions change over time, human behavior does not. Therefore, studying historical events and long-run financial trends provides highly informative and instructive insights also with respect to current developments. Based on this conviction, Goethe University hosted a conference on “Comparative Financial Systems – Historical Perspectives” on 17 June 2016. The conference was jointly organized by Goethe University’s House of Finance, the Research Center SAFE and the Institute for Banking and Financial History in the context of the Visiting Professorship of Financial History, endowed by Metzler Bank and Edmond de Rothschild Group. Introductory remarks were given by Raimond Maurer, Dean of Goethe University’s Faculty of Economics and Business Administration, and Michael Klaus, Partner at Metzler Bank, who announced the objective to work towards a transformation of the visiting professorship, which has been granted for three years, into a permanent professorship. In her keynote speech, this year’s Visiting Professor of Financial History, Caroline Fohlin (Emory University), stressed that people tend to think in dichotomies when comparing financial systems: bank-dominated versus market-dominated systems, or systems where universal banks prevail versus those predominated by specialized banks. History shows however that these dichotomies are not so strict; many economies were and are characterized by mixed forms. The main predictor of a country’s modern banking structure is the respective structure at the start of the 20th century, Fohlin explained. For example, moderately wealthy countries in 1900 as well as countries with historically centralized governments tend to have universal banks and to be less market oriented today. Also, legal traditions correlate with both market orientation and banking type. However, financial system design and legal traditions cannot explain cross-country growth differences over the last 100 years or more, according to Fohlin. Moritz Schularick, Professor of Economics at the University of Bonn, focused on changes in the global financial system that makes it more vulnerable to crises. He showed, based on a newly constructed dataset comprising 17 advanced economies in the period of 1870 to 2012, that household debt, especially mortgage lending, has increased tremendously since the 1970s. The reasons are that more people borrow to buy houses (ownership effect), people buy more expensive houses due to heavily increased land prices (price effect) and people borrow more against house value (leverage effect). Correspondingly, the share of mortgage lending in banks’ balance sheets nearly doubled from the 1960s to the 2000s. Although the outbreak of the financial crisis in 2007 brought this increase to a halt, mortgage lending still remains at an all-time high. Schularick emphasized the ensuing risk by citing a long-run study of his which reveals that, although house price bubbles are less frequent than equity bubbles, they more often end up in financial crises and, especially when fueled by credit, lead to particularly deep recessions and slow recoveries. Thomas Gehrig, Professor of Finance at the University of Vienna, concentrated on the quality of financial markets over time as regards information aggregation and price discovery. As main sources of mispricing he named herding behavior, speculation, manipulation and illiquidity. With respect to the creation of systemic risk, fragmentation and opacity were mainly responsible for contagion effects on markets, he said. By comparing today’s MDax with the Berlin stock exchange between 1880 and 1910, Gehrig showed that transaction costs were significantly lower back then. The relative impact of information however has remained constant over time – despite all the technological and regulatory advances. Nevertheless, regulation was not a fruitless task, Gehrig said. The most impressive change occurred in market participation which has increased enormously over the last century. In Gehrig’s view, regulation could be very effective with respect to market participation. Iain Hardie, Senior Lecturer in International Relations at the University of Edinburgh, came back on the dichotomy between bank-based and market-based financial systems. While, overall, securities markets increased in size more than bank assets, a bank disintermediation did not take place, he said. In a number of countries (Canada, France, Greece, Italy, Netherlands, UK) companies increasingly relied on bank lending in the period of 2000 to 2007, and a range of countries of different system types became more bank-based in this time, Hardie showed. At the same time, the financial system has changed a lot, he stated. Traditional banking is being more and more challenged by market-based banking, offered by traditional but also by “parallel banks”, more commonly referred to as shadow banks. According to Hardie, regulators have pushed against market-based banking by demanding higher capital requirements but, more recently, they have also recognized the need to support the development, for example, by making an effort to restart securitization. In the ensuing panel discussion, which was moderated by Reinhard H. Schmidt, the speakers returned to the question of what and how to learn from financial history. According to Caroline Fohlin, it is more common among researchers in Europe to consider historical events whereas in the U.S. people do not pay very much attention to history. She warned however that there can also be an “over-learning” from history by pointing to the excessive references to the Great Depression of the 1930s in the U.S. whose counterpart in Germany is the hyperinflation in the 1920s. According to Ian Hardie an important long-term lesson fro history is that, despite all regulatory efforts, people make mistakes. No matter how good the breaks and tires are, he said, if you let people drive fast, accidents will happen. This has to be considered when longing for profits as fruits of free markets, Hardie demanded. The question of how to improve the importance and acceptance of historical research within economics and of how to raise interest among students for historical connections was not answered in the end despite lively discussion with the audience. Download the conference presentations:
  • Caroline Fohlin
  • Moritz Schularick
  • Thomas Gehrig
  • Iain Hardie

]]>
2016 Tue, 21 Jun 2016 16:12:00 +0200
“Pan-European Banks would reduce the need for a European Deposit Insurance” http://www.hof.uni-frankfurt.de/news-media/news/article/article/pan-european-banks-would-reduce-the-need-for-a-european-deposit-insurance.html Jan Pieter Krahnen demands rethinking of banking regulation / Transnational risk balancing within institutions should be allowed Jan Pieter Krahnen, Professor of Corporate Finance at Goethe University Frankfurt and Director of the Research Center SAFE and the Center for Financial Studies, supports ECB Board Member Peter Praet in his call for pan-European banks. “Instead of many national...

]]>
Jan Pieter Krahnen demands rethinking of banking regulation / Transnational risk balancing within institutions should be allowed Jan Pieter Krahnen, Professor of Corporate Finance at Goethe University Frankfurt and Director of the Research Center SAFE and the Center for Financial Studies, supports ECB Board Member Peter Praet in his call for pan-European banks. “Instead of many national champions we need a reasonable number of well diversified pan-European banks,” Krahnen said. In this way, one of the main causes of the European government debt crisis, the intermeshing of bank risks and national state budgets, could be alleviated substantially. “Financial institutions that have subsidiaries across Europe should be allowed to compensate losses internally and thus to contribute automatically to a risk balancing within Europe,” Krahnen explained. A well-functioning competition among a certain number of pan-European bank holdings would reduce the need for a European Deposit Insurance, which aims at risk balancing. A European Deposit Insurance has long been discussed, a political consensus is not discernible however. According to Jan Pieter Krahnen, European politicians and regulators have to change their views in order to make pan-European financial institutions possible. As a reaction to the financial crisis, EU member states made a transnational risk balancing within holdings, e.g. by a transfer of capital or liquidity, more difficult and rather tried to protect their national banks from crises in neighboring countries. “This national regulatory approach needs to be overcome in favor of a real pan-European regulatory thinking,” Krahnen demands. A risk balancing across an entire holding has to be enabled within Europe, regardless of national borders. “Pan-European banks have to be regulated beyond regional differences like national banks are today.” In order to achieve this, a change of current regulatory rules is necessary. “Today, the legislator blocks the creation of pan-European institutions instead of incentivizing their formation,” Krahnen states. Although large European institutes such as Deutsche Bank, Banco Santander or BNP Paribas are active in many European countries, no financial institution fulfills the characteristics of a pan-European bank.

]]>
2016 Wed, 18 May 2016 12:30:00 +0200
Now online: New issue of SAFE Newsletter (Q2 2016) http://www.hof.uni-frankfurt.de/news-media/news/article/article/now-online-new-issue-of-safe-newsletter-q2-2016.html Web version | Print version (PDF) Content: Research Adrian Buss, Bernard Dumas, Raman Uppal, Grigory Vilkov "The Intended and Unintended Consequences of Financial Market Regulations" Nicole Branger, Patrick Grüning, Christian Schlag "Commodities, Financialization and Heterogeneous Agents" Interview...

]]>
Web version | Print version (PDF) Content:
Research 


Adrian Buss, Bernard Dumas, Raman Uppal, Grigory Vilkov "The Intended and Unintended Consequences of Financial Market Regulations"
Nicole Branger, Patrick Grüning, Christian Schlag "Commodities, Financialization and Heterogeneous Agents"
Interview Andreas Hackethal "How to Help People to Make Better Investment Decisions?"
Policy
Martin R. Götz, Tobias H. Tröger "The Implementation of the Bail-in Tool Requires Crucial Amendments"
Guest Commentary Thomas Schäfer "The 'Deutschland-Rente'"
If you would like to receive the SAFE Newsletter via email on a quarterly basis, please register here.

]]>
2016 Thu, 12 May 2016 14:11:00 +0200
CFS Survey: Majority of the German financial industry is behind the planned merger between London Stock Exchange and Deutsche Börse http://www.hof.uni-frankfurt.de/news-media/news/article/article/cfs-survey-majority-of-the-german-financial-industry-is-behind-the-planned-merger-between-london-stock-exchange-and-deutsche-boerse.html According to a recent survey of financial institutions and service providers by the Center for Financial Studies, 63% of the companies surveyed are fundamentally in favor of the planned merger between London Stock Exchange (LSE) and Deutsche Börse. However, 35% of respondents would only support the merger in case of a Brexit if the holding’s headquarters were to remain in Frankfurt and therefore...

]]>
Financial industry expects the stock exchange merger to negatively impact the Financial Centre Frankfurt if the holding is based in London A majority of the financial industry agrees that a combined stock exchange holding with its headquarters in London would negatively impact the Financial Centre Frankfurt. The consequences are rated as negative by 64% in case of a Brexit, and by 57% in case Britain remains in the EU. “The financial industry is convinced by the industrial logic of the merger, although negative impacts on the Financial Centre Frankfurt are foreseen if the holding is based in London,” Professor Volker Brühl, Managing Director of the Center for Financial Studies, interprets the results. The Financial Centre Frankfurt would benefit from a Brexit, despite negative expectations for the EU and UK economies In case the majority of the British public votes to exit the EU on 23 June, the impacts on economic growth are expected to be negative in all affected countries. A large majority of the respondents (82%) believe the British will be hit hard. By comparison, only half (48%) anticipate negative consequences for the EU. By contrast, 69% of respondents expect the Financial Centre Frankfurt to emerge as a major winner from a Brexit scenario. According to polls carried out in the UK, the outcome of the referendum remains entirely open. In Germany the majority of survey participants (62%) expect the British public to vote to remain in the EU. The possibility of a Brexit leading to other countries exiting the EU is regarded as unlikely by just over half the respondents (51%), while 41% would expect other countries to follow suit. “Of course we are not in favor of a Brexit. It would not only be detrimental for Great Britain, but also Germany and Europe as a whole. But should it come to pass, it would clearly be an opportunity for Frankfurt as a Financial Centre, as confirmed in the survey,” explains Hubertus Väth, Managing Director of Frankfurt Main Finance e.V. Download press release (pdf)

]]>
2016 Tue, 26 Apr 2016 09:14:00 +0200
CFS Index falls significantly – sentiment of financial institutions has reached a low point http://www.hof.uni-frankfurt.de/news-media/news/article/article/cfs-index-falls-significantly-sentiment-of-financial-institutions-has-reached-a-low-point.html The CFS Index, which measures the business climate of the German financial industry on a quarterly basis, falls significantly by 4.2 points to 108.7 points in the first quarter of 2016. The decline is largely attributable to the weak development of revenues and business volume and the reduced earnings power of financial institutions and service providers. This development therefore confirms the...

]]>

In line with the financial industry’s expectations in the previous quarter, revenues/business volume took a downturn in the first quarter. The corresponding sub-index for the financial industry falls by 11.4 points to 110.5 points. The revenues of the financial institutions, at 104.5 points, are significantly lower than in the first quarter (-12.9 points). Service provider revenues, at 116.5 points, are down 9.9 points on the previous quarter, and a sustained decline in growth is expected in the current quarter. The financial institutions, on the other hand, are anticipating a slight upturn. Earnings growth also declined in the first quarter, as forecast by the survey participants. In particular, the earnings sentiment of the financial institutions has hit a low point. The corresponding sub-index falls by 10.3 points to 97.9 points, although they are anticipating an upturn in the current quarter. The sub-index for service providers stands at 112.8 points, down 8.5 points from the first quarter. A slight downward trend is expected to persist in the current quarter. Financial institutions increase investment volume and keep employee numbers stable at a low level The financial institutions raised their investment volume in product and process innovations in the first quarter of 2016 and they plan to continue this positive trend in the current quarter. The corresponding sub-index rises by 3.9 points to 112.5 points. The service providers, on the other hand, show a small decline in investment growth of 1.6 points to 113.6 points. This slight downturn is expected to become more pronounced. The financial institutions kept their employee numbers almost unchanged at a low level. The sub-index for this group falls by just 1.0 points to 99.0 points. The service providers hired fewer new employees in the first quarter of 2016 than in the previous quarter. The corresponding sub-index falls by 4.2 points to 111 points. While the financial institutions’ outlook for the current quarter remains virtually unchanged, the service providers are anticipating a stronger decline in recruitment in the second quarter of 2016. The international importance of Germany as a financial centre is seen to be on the decline. The corresponding value falls by 3.8 points to 116.1 points. This decrease stems from the opinion of the financial institutions. The corresponding sub-index for this group stands at 113.5 points, down 7.2 points from the last quarter. The service providers’ assessment remains almost unchanged, down just 0.4 points to 113.5 points. Download press release (pdf)

]]>
2016 Tue, 26 Apr 2016 09:03:00 +0200
Caroline Fohlin takes over Visiting Professorship of Financial History 2016 http://www.hof.uni-frankfurt.de/news-media/news/article/article/caroline-fohlin-takes-over-visiting-professorship-of-financial-history-2016.html Professor Caroline Fohlin, Emory University, USA, takes over the Visiting Professorship of Financial History at Goethe University Frankfurt’s House of Finance this year. The professorship was endowed by Metzler Bank and the Edmond de Rothschild Group on the occasion of Goethe University's centennial in 2014. Caroline Fohlin’s research blends historical analysis with current methods in financial...

]]>

]]>
2016 Thu, 21 Apr 2016 10:42:00 +0200
Decisive Action to Secure Durable Growth http://www.hof.uni-frankfurt.de/news-media/news/article/article/decisive-action-to-secure-durable-growth.html On 5 April, Christine Lagarde, Managing Director of the International Monetary Fund, gave a speech on “Decisive Action to Secure Durable Growth” at the House of Finance. Lagarde talked about the priorities to be discussed by policymakers at the upcoming 2016 IMF Spring Meetings in Washington, on April 13-18. It was the first “curtain raiser speech” of this kind held in Germany. The lecture was...

]]>

> Speech > Video

]]>
2016 Tue, 05 Apr 2016 13:06:00 +0200
Speech of Finance Minister Schäuble at Goethe University http://www.hof.uni-frankfurt.de/news-media/news/article/article/speech-of-finance-minister-schaeuble-at-goethe-university.html Germany's Federal Minister of Finance Wolfgang Schäuble gave a speech on "The Future of Europe's Financial Architecture" at Goethe University on March 22nd. The event was part of the presidential lecture event series of the Center for Financial Studies. Video of the event

]]>
Video of the event

]]>
2016 Thu, 24 Mar 2016 10:22:00 +0100
Raimond Maurer and Loriana Pelizzon advise EIOPA http://www.hof.uni-frankfurt.de/news-media/news/article/article/raimond-maurer-and-loriana-pelizzon-advise-eiopa.html Raimond Maurer, Professor of Investment, Portfolio Management and Pension Finance at Goethe University Frankfurt, and Loriana Pelizzon, SAFE Professor of Law and Finance, have been appointed academic members of the stakeholder groups of the European Insurance and Occupational Pensions Authority (EIOPA). Maurer is member of the Occupational Pensions Stakeholder Group and Pelizzon of the Insurance...

]]>

]]>
2016 Mon, 07 Mar 2016 14:29:00 +0100
House of Finance Researchers Provide Expert Panel on Banking Supervision for EU Parliament http://www.hof.uni-frankfurt.de/news-media/news/article/article/house-of-finance-researchers-provide-expert-panel-on-banking-supervision-for-eu-parliament.html A team of researchers from the Research Center SAFE at the House of Finance has been chosen to provide the European Parliament's Committee on Economic and Monetary Affairs (ECON) with independent expertise in the field of banking supervision. Participating researchers are Martin Götz, Rainer Haselmann, Jan Pieter Krahnen, Loriana Pelizzon, Tobias Tröger and Mark Wahrenburg. They will support the...

]]>
A team of researchers from the Research Center SAFE at the House of Finance has been chosen to provide the European Parliament's Committee on Economic and Monetary Affairs (ECON) with independent expertise in the field of banking supervision. Participating researchers are Martin Götz, Rainer Haselmann, Jan Pieter Krahnen, Loriana Pelizzon, Tobias Tröger and Mark Wahrenburg. They will support the Banking Union Working Group, a subgroup of the ECON committee, with written and oral expertise, especially for the regular, bi-annual hearings in the framework of the Single Supervisory Mechanism. The European Parliament had announced an open call for tender for the provision of external expertise in the fields of banking supervision and resolution in April 2015. Further information about the participating researchers:
  • Martin Götz holds the SAFE Chair of Regulation and Stability of Financial Institutions
  • Rainer Haselmann holds the SAFE Chair of Finance, Accounting and Taxation and is Program Director of the research area “Financial Institutions” in SAFE
  • Jan Pieter Krahnen holds the Chair of Corporate Finance and is Director of the LOEWE Center SAFE and the Center for Financial Studies
  • Loriana Pelizzon holds the SAFE Chair of Law and Finance and is Program Director of the Systemic Risk Lab at SAFE
  • Tobias Tröger holds the SAFE Chair Private Law, Trade and Business Law, Jurisprudence
  • Mark Wahrenburg holds the Chair of Banking and Finance
>> EU-Parlament - Contract Award Notice

]]>
Year 2016 Tue, 23 Feb 2016 13:51:00 +0100
The Focus on the Prohibition of Bank Proprietary Trading is misplaced http://www.hof.uni-frankfurt.de/news-media/news/article/article/the-focus-on-the-prohibition-of-bank-proprietary-trading-is-misplaced.html The EU Commission’s proposal to prohibit proprietary trading activities of commercial banks will not achieve the regulatory objectives / Separation of trading activities within the existing banking organization is a superior solution A prohibition of proprietary trading by banks, as envisaged in a legislative proposal of the EU Commission, is more problematic than previously thought. It is...

]]>
The EU Commission’s proposal to prohibit proprietary trading activities of commercial banks will not achieve the regulatory objectives / Separation of trading activities within the existing banking organization is a superior solution A prohibition of proprietary trading by banks, as envisaged in a legislative proposal of the EU Commission, is more problematic than previously thought. It is unlikely to reduce risk-taking by banks. Moreover, it will not diminish systemic risk or facilitate bank resolution. In contrast, such a prohibition could crowd out desired trading activities. These are the conclusions drawn in a recent SAFE White Paper by Jan Pieter Krahnen (Goethe University Frankfurt and Research Center SAFE), Felix Noth (University of Magdeburg, Halle Institute for Economic Research and SAFE) and Ulrich Schüwer (University of Mainz and SAFE). The authors argue that a superior solution to limit excessive trading risk in banks would be to separate all trading activities into a legally distinct broker dealer institution. This entity may be part of the same bank-holding company, but must be separately funded. Such a separation would limit cross-subsidies between banking and trading and diminish contagion risk while still allowing for synergies across banking and trading. Comparing the approaches of Volcker, Vickers and Liikanen The White Paper provides a comparison between different proposals for reforming the structure of the banking industry: the Volcker rule in the U.S., the Vickers report in the UK, and the Liikanen and EU Commission proposals for the EU. All proposals for bank structural reform aim to reduce the risks believed to emanate from bank trading activities. The focus of the paper is on one major element of these proposals: the particular approach as to how the prohibition or separation of securities trading activities, notably proprietary trading, from “classical” commercial banking activities is to be realized. The authors favor the separation of all trading activities into a legally distinct broker dealer institution, a solution which is related to the suggestions in the Vickers proposal for the UK and also those of the High Level Expert Group chaired by Erkki Liikanen for the EU. For the implementation of all reform proposals, the challenge of classifying securities transactions as being either client business, treasury business, or proprietary trading is a key element. The authors warn that clear-cut dividing lines between these activities are difficult to observe and supervise because of the high complexity characterizing today’s bank business models. This renders a ban of just one of these activities difficult if not impossible. JP Morgan’s so-called “London Whale” of 2012 is a prime example for ambiguity as to whether a complex transaction is a hedge or a proprietary position. Thus, even with proprietary trading prohibition in place, high risk trades that put a bank’s own capital at risk are possible – provided the bank can camouflage these as plausible hedging or market making strategies. Conversely, the prohibition of proprietary trades may have an important unintended consequence: banks may abstain from (beneficial) hedging or market making services, simply because they fear the supervisor may misclassify them as proprietary trades. Such misclassifications are more likely if the hedging or market making strategy is complex, thus inviting misinterpretations. The costs of reductions in beneficial trading may be significant, both for financial stability and for market liquidity. Different dividing lines between prohibited and permitted trading The structural reform projects currently discussed or implemented in the U.S., the UK, and the EU differ with respect to the range of services covered by the separation decree and with respect to how separation is to be implemented. The Volcker rule draws the ‘magic’ line dividing prohibited and permitted trading activities between proprietary and non-proprietary transactions. The Liikanen proposal, in contrast to Volcker, does not single out proprietary trading for special treatment, but instead requires that all trading business, be it proprietary or client-oriented, is either prepared for separation in a crisis situation (avenue 1) or principally separated from retail banking (avenue 2). After considering the Liikanen proposal, the EU Commission, in January 2014, put forth a legislative proposal (Barnier proposal) which recommends an outright ban for proprietary trading for big banks in Europe. Other forms of trading, like market making activities as well as hedging transactions for the banks’ own accounts, remain allowed. The proposal does grant the responsible supervisor the power to require the separation of all trading if problems occur that potentially put the whole bank and the wider financial system at risk. The negotiations in the European Parliament on the Barnier proposal have reached a deadlock. There is a possibility that EU Commissioner Jonathan Hill will recall the legislative proposal at this stage. For the UK, Sir John Vickers proposed a partial separation of UK retail banking services from global wholesale and investment banking services, the so-called “retail ring-fence”, which resulted in the “Financial Services (Banking Reform) bill” and is to be implemented by 2019. The idea behind this separation proposal is to limit public guarantees to ring-fenced banks, as those perform banking services thought to be vital for the economy. Concurrently, the proposal aims at reducing incentives of non-ring-fenced banks for excessive risk-taking. According to the Vickers approach, proprietary trading does not receive any special treatment; it may be practiced within core retail banking and outside of it. > Link to the White Paper "Structural Reforms in Banking: The Role of Trading"

]]>
2016 Thu, 11 Feb 2016 10:17:00 +0100
Rational Inertia http://www.hof.uni-frankfurt.de/news-media/news/article/article/rational-inertia.html It can sometimes be reasonable when people neglect the investment of their savings / Those who are principally reluctant to spend time on investment issues should consider a financial advisor Most people tend to suppress thoughts about the investment of their savings. The variety of financial products and investment options is becoming ever broader and more complex so that many shy away from...

]]>
It can sometimes be reasonable when people neglect the investment of their savings / Those who are principally reluctant to spend time on investment issues should consider a financial advisor Most people tend to suppress thoughts about the investment of their savings. The variety of financial products and investment options is becoming ever broader and more complex so that many shy away from the effort to dig into the issue and stay regularly informed. A number of recent studies has shown that up to three third of private investors do not change a once taken investment decision for years. Why are most people so surprisingly idle although they know how important private provisions are to maintain their standard of living in old age? Raimond Maurer (Goethe University), Hugh Hoikwang Kim (University of Seoul) and Olivia Mitchell (University of Pennsylvania) have dealt with this question in a recent publication, forthcoming in the Journal of Financial Economics. They show that, depending on age and life situation, it can be rational to neglect investment issues. According to their findings, younger people, who usually have only little savings, should better spend their time on advancing their career. Also, it can be reasonable not to actively engage in trading one’s financial assets later in retirement when decision making efficiency decreases. These results are consistent with empirical evidence: while middle-aged and newly-retired individuals spend the most time on managing their portfolios, young and old people take care of these issues the least. However, even a large share of middle-agers exhibit investment inertia although increasing savings and lower opportunity costs suggest a more intensive dealing with financial investments in these periods of life. People who generally prefer not to spend their time on financial decisions would benefit from contracting a professional investment advisor, Raimond Maurer states. According to his calculations, every investor could increase her yearly consumption options by one percent when doing so. “Good investment advice enables people of every age to optimally deal with their savings and, at the same time, to save their scarcest resource – time – for their job, family or leisure activities,” the economist says. As a consequence, it could be economically reasonable to reduce hurdles, such as too high minimum fees, that especially keep people with little savings from consulting an advisor. Also, suitable standard products for the savings and payment phase could help to not only overcome the definitely rational inertia of many individuals but also to use it for a wider distribution of fully-funded old-age provision, Maurer says.

]]>
2016 Wed, 10 Feb 2016 15:13:00 +0100
Now online: New issue of SAFE Newsletter (Q1 2016) http://www.hof.uni-frankfurt.de/news-media/news/article/article/now-online-new-issue-of-safe-newsletter-q1-2016.html Web version | Print version (PDF) Content: Research Hugh Hoikwang Kim, Raimond Maurer, Olivia S. Mitchell "Investment over the Life Cycle: Inertia and Financial Advice" Elia Berdin, Matteo Sottocornola "Insurance Activities and Systemic Risk" Interview Helmut Siekmann "A Central Bank...

]]>
Web version | Print version (PDF) Content:
Research 


Hugh Hoikwang Kim, Raimond Maurer, Olivia S. Mitchell "Investment over the Life Cycle: Inertia and Financial Advice"
Elia Berdin, Matteo Sottocornola "Insurance Activities and Systemic Risk"
Interview Helmut Siekmann "A Central Bank Cannot Solve Structural Problems"
Policy
Jan Pieter Krahnen, Felix Noth, Ulrich Schüwer "Structural Reforms in Banking: The Role of Trading"
Guest Commentary Katharina Pistor "Illiquidity versus Insolvency – A False Dichotomy"
If you would like to receive the SAFE Newsletter via email on a quarterly basis, please register here.

]]>
2016 Wed, 10 Feb 2016 15:10:00 +0100
Research Grant for Marti G. Subrahmanyam and SAFE http://www.hof.uni-frankfurt.de/news-media/news/article/article/research-grant-for-marti-g-subrahmanyam-and-safe.html Following a nomination by the Research Center SAFE, the Alexander von Humboldt Foundation has granted an Anneliese Maier Research Award 2016 to Marti G. Subrahmanyam, Charles E. Merrill Professor of Finance, Economics and International Business at the Stern School of Business, New York University. Purpose of the grant is the promotion of international cooperation in the humanities and social...

]]>
More information:
  • Humboldt Foundation
  • Website Marti Subrahmanyam

]]>
2016 Tue, 26 Jan 2016 12:57:00 +0100
CFS survey: financial centre Frankfurt should play a greater role in business with fintechs http://www.hof.uni-frankfurt.de/news-media/news/article/article/cfs-survey-financial-centre-frankfurt-should-play-a-greater-role-in-business-with-fintechs.html A large majority of the German financial industry (80%) believe the financial centre Frankfurt should play a greater role in business with fintech companies, even if this means utilizing public funding. This was revealed in a recent study by the Center for Financial Studies of financial institutes and service providers in Germany. For two thirds of the decision-makers from the German financial...

]]>
Cooperation creates a win-win situation On the question of how to deal with fintech companies, a majority of those who responded to the question are in favor of cooperating (39%). Almost half the service providers (46%) and a third of the financial institutions (31%) prefer this approach. In addition, a quarter of the surveyed financial institutions (26%) are developing corresponding products themselves. This plays more of a minor role for the service providers (8%). In terms of goals, half the respondents said they hope digitalization will enable them to achieve cost benefits (50%) and develop new products and services (51%). Additional goals include protecting market share from new competitors (44%) and appealing to young, tech-savvy customers, although the last point is more important to financial institutions (40%) than service providers (20%).

Download press release (pdf)

]]>
2016 Mon, 25 Jan 2016 09:13:00 +0100
CFS Index edges down http://www.hof.uni-frankfurt.de/news-media/news/article/article/cfs-index-edges-down.html The CFS Index, which measures the business climate of the German financial industry on a quarterly basis, edges down 0.9 points to 112.9 points. The expectations deviate strongly from the current positive situation of the surveyed financial institutions and service providers. The firms’ revenues and business volume are significantly increasing. On the other hand, the financial institutions in...

]]>

The surveyed financial institutions and service providers are managing to considerably increase their revenues/business volume, contrary to the weak growth of the previous quarters. The corresponding sub-index rises by 5.1 points to 117.4 points among the financial institutions in the fourth quarter, which puts it at last year’s level. The service providers increased their revenues by 3.6 points to 126.4 points, which is slightly above last year’s level. Nevertheless, the financial institutions are less optimistic about the current quarter and anticipate considerable declines in growth. The service providers, however, are expecting a less significant decline. The earnings of the financial institutions and service providers also take a more positive turn in the fourth quarter, exceeding expectations from the previous quarter. Among the financial institutions the sub-index climbs 3.2 points to 108.2 points, which still leaves it 8.2 points below last year’s level. The service providers also record positive earnings growth, following a decline in the previous quarter. The sub-index for this group rises by 9.2 points to 121.3 points. Despite this positive development, a greater number of both the financial institutions and service providers are expecting growth to decline. The sub-index investment in product and process innovations remains almost unchanged. Among the financial institutions the investment volume is at 108.6 points, just 0.8 points lower than in the previous quarter and 1.8 points under last year’s level. The service providers record an investment volume level of 115.2 points, which is 1.5 points up on the previous quarter and equal with last year’s level. Neutral sentiment among financial institutions on employee numbers Following the major job cuts by the financial institutions in the first quarter of 2015 and the subsequent turnaround to significant job creation in the third quarter, the employee level sub-index now shows a slight decline of 1.3 points to 100 points, indicating a neutral sentiment among the financial institutions. This leaves the index value 4.3 points below last year’s level. Among the service providers this sub-index also remains almost unchanged at 115.2 points, contrary to an expected decline in employee numbers. The international importance of Germany as a financial centre took a slight downturn in 2015 according to the survey respondents. The corresponding index value is on 119.9 points, 4.9 points below its all-time high one year ago (124.8 points).

Download press release (pdf)

]]>
2016 Mon, 25 Jan 2016 09:02:00 +0100
Conference on “Finance between Liquidity and Insolvency” http://www.hof.uni-frankfurt.de/news-media/news/article/article/conference-on-finance-between-liquidity-and-insolvency.html Whether institutions or markets are more or less deserving of protection from binding liquidity constraints has been a recurring theme in debates about bail-in, closeout netting protocols, and access to central bank lending. However, it has rarely been addressed as a unifying theme for governing finance in all its manifestations. The conference on “Finance between Liquidity and Insolvency”...

]]>
(il)liquidity and (in)solvency as conceptually distinct problems, capable of being analyzed and regulated independently of one another. Nowhere was this more clearly the case than in banking regulation. Finance is, however, no longer all about banks and many of the challenges of bank governance faced over the centuries are now replicated at the level of non-bank financial intermediaries and at the intersection between financial institutions and markets. The two-day conference was organized around three main themes: Markets vs. Institutions, Safety Nets, and “Liquolvency” with specific institutional arrangements scrutinized that revolve around these themes. The final theme (Liquidity v. Insolvency: False or Real Dichotomy?) was a wrap-up session aiming to conceptualize the relation between (il)liquidity and (in)solvency. 

The conference brought together prominent legal scholars and economists from academia in Western Europe and the US and the policy-making sector, such as the ECB, the Chicago Fed, and the Banque de France, to discuss these issues. The session themes and the underlying papers covered central bank lending and collateral policy (U. Bindseil, ECB), payment systems with and without official backstops (D. Awrey), price discovery and accounting under stress (A. Amel-Zadeh, Cambridge Judge Business School), liquidity and competition (R. Haselmann, SAFE), bail-ins (G. Ringe, Copenhagen Business School), bankruptcy safe harbors (S. Lubben, Seton Hall, P. Paech, LSE), bridge-finance for bank resolutions (S. Paterson, LSE), and liquidity versus insolvency: false or real dichotomy? (M. Hellwig, MPI Bonn, E. Avgouleas, Univ. of Edinburgh, R. Steigerwald, Chicago Fed). The discussions highlighted the main challenges in order to address liquidity problems of financial institutions and markets: Rigid, clear, non-discretionary, non-arbitrary legal institutions and automatic enforcement of contractual obligations, which satisfy the rule of law and legitimacy requirements, are not apt for addressing liquidity problems. Similarly, market discipline-based regulatory mechanisms such as early bail-ins seem to aggravate rather than resolve liquidity problems. Instead, arbitrary and non-transparent interventions of central banks seem to be the most efficient response to these problems, but they negate both legitimacy and rule of law, and exacerbate the moral hazard problem. The rule of law and legitimacy challenges are aggravated further by the globalization of financial markets, which requires coordination of domestic regulatory responses. However, in times of crisis, most of the pre-crisis commitments of national regulators would not be credible as domestic regulators have strong incentives in crisis times to externalize the costs of crisis to other jurisdictions. 

]]>
2016 Fri, 22 Jan 2016 14:21:00 +0100
New Aristocracies Intensify Inequality http://www.hof.uni-frankfurt.de/news-media/news/article/article/new-aristocracies-intensify-inequality.html Alexander Ludwig sees low chances of social improvement as main reason for unequal distribution of wealth / “Tax increases should be considered without prejudice” What is the reason for the more and more unequal distribution of wealth worldwide? On the occasion of the World Economic Forum in Davos, the development organization Oxfam presented a report according to which the richest 62...

]]>
Alexander Ludwig sees low chances of social improvement as main reason for unequal distribution of wealth / “Tax increases should be considered without prejudice” What is the reason for the more and more unequal distribution of wealth worldwide? On the occasion of the World Economic Forum in Davos, the development organization Oxfam presented a report according to which the richest 62 individuals have the same wealth as the bottom half of humanity. With respect to the causes, the organization cites, among others, the French economist Thomas Piketty who said that returns on capital increase faster than salaries so that inequality between rich and poor will unavoidably continue to grow. “Piketty’s argument does not go far enough,” finds Alexander Ludwig, Professor for Public Finance and Debt Management at the LOEWE Center SAFE at Goethe University Frankfurt. “The fact that capital returns are, in general, higher than wage increases has dramatic consequences only when the permeability between income groups and generations is too low.” As long as employees have a chance to accumulate capital and children from poor parents have a chance of promotion, the relation between returns and pay rises is not relevant. Chances to climb the social ladder are fading However, according to Ludwig, this is exactly the problem today: “We observe that inter- and intragenerational mobility has shrunk during the last decades.” While social classes had become increasingly permeable in the United States between 1950 and the 1980ies, the upper classes have been cutting themselves off more and more ever since. “Although the general access to education has risen, at the same time, educational institutions and networks among the elite have enormously gained in importance, so that chances to climb the social ladder are definitely lower today than a few decades ago,” the economist states. “In more and more countries, a sort of aristocracy is developing both in the economic and the political realm.” A good example for this is Germany, Ludwig says, where, according to Oxfam, the inequality of wealth, income and chances has risen massively in recent decades: “The results of the educational study PISA have shown that the parents’ level of education is more and more crucial for the educational success of the offspring. This way, income differences are made permanent for generations.” At least, income inequality in Germany has remained constant in the last ten years. Deregulated financial markets: multiplying money becomes easier As a further reason for the rapid wealth growth among the rich Ludwig points to the deregulation of financial markets. “When you look at the trend of financial market deregulation and the development of the income of upper classes, you can see a clear correlation.” Today, it is simply easier for rich people to multiply their money than a few decades ago. The recent financial crisis had stopped this trend temporarily but the losses of the rich have much more than averaged out ever since. Tax increases a possible instrument In order to counteract the increasing inequality, Alexander Ludwig suggests to make income taxes more progressive so that people with small incomes have to pay less and those with higher incomes have to pay more. Also, he says that a moderate wealth tax would be appropriate. As it is difficult to differentiate between private and company wealth, claims for tax increases in this area are usually counteracted in Germany with the argument that they would put too much load on family enterprises and, thus, threaten economic output and jobs in certain areas. “Tax increases should be considered without the usual prejudice with respect to small and medium companies”, Alexander Ludwig demands. He grants though that further studies about the overall economic consequences of a small wealth tax are necessary.

]]>
2016 Wed, 20 Jan 2016 15:10:00 +0100