Archive for September 2nd, 2009

Reselience of Canada’s Banks

September 2, 2009

I had pointed about this excellent paper on wholesale funding. The authors have explored the framework further to understanding why Canadian Banks have fared so well in this crisis. The paper is here. It says:

This paper explores factors behind Canadian banks’ relative resilience in the ongoing credit turmoil. We identify two main causes: a higher share of depository funding (vs. wholesale funding) in liabilities, and a number of regulatory and structural factors in the Canadian market that reduced banks’ incentives to take excessive risks. The robust predictive power of the depository funding ratio is confirmed in a multivariate analysis of the performance of 72 largest commercial banks in OECD countries during the turmoil.

What is particularly interesting is that Canada also has a fairly concentrated banking structure (few banks hold majority of the banking share) but still managed to survive. It was mainly because of prudent banking policies which restricted usage of wholesale funding and curbed leverage. They had regulators who wanted to regulate.

Great insights.


Future of Japanese economy post elections

September 2, 2009

One of the big misconceptions before this crisis was politics doesn’t matter in economics. As long as we left everything to the markets, only good things would occur. Little did we understand that this philosophy was shared by most politicians and politician elected regulators as well.

Japan is an interesting case in point. For  the last 50 years, it was ruled by Liberal Democratic Party for the last 54 years (formed in 1955 and has been ruling since then). Now it is  the turn of Democratic Party of Japan (which was formed in 1998, what is interesting is that just like we see in India, both LDP and DPJ are formed by merger of several opposition parties).

Now, I came across 2 articles in NYT. One is by Yukio Hatoyama, the leader of DPJ and other reflects on the Japan economic policiesafter the crisis and the new elections and the article by Hatoyama.

Hatoyama says (his article is titled as A New Path for Japan):


What or Who started Great Depression?

September 2, 2009

Lee Ohanianis a eco historian who has done plenty of work on great depression. His new paper is titled as:  What – or Who – Started the Great Depression? He says:

Herbert Hoover. I develop a theory of labor market failure for the Great Depression based on Hoover’s industrial labor program that provided industry with protection from unions in return for keeping nominal wages fixed. I find that the theory accounts for much of the depth of the Depression and for the asymmetry of the depression across sectors. The theory also can reconcile why deflation and low levels of nominal spending apparently had such large real effects during the 1930s, but not during other periods of significant deflation.

It becomes an immediate read right away 🙂 Should provide great lessons in eco history.

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