Archive for July 9th, 2018

Banks as potentially crooked secret-keepers…

July 9, 2018

Timothy Jackson and Laurence J. Kotlikoff in this paper:

Bank failures are generally liquidity as well as solvency events. Whether it is households running on banks or banks running on banks, defunding episodes are full of drama. This theater has, arguably, lured economists into placing liquidity at the epicenter of financial collapse. But loss of liquidity describes how banks fail. Bad news about banks explains why they fail. This paper models banking crises as triggered by news that the degree (share) of banking malfeasance is likely to be particularly high.

The malfeasance share follows a state-dependent Markov process. When this period’s share is high, agents rationally raise their probability that next period’s share will be high as well. Whether or not this proves true, agents invest less in banks, reducing intermediation and output.

Deposit insurance prevents such defunding and stabilizes the economy. But it sustains bad banking, lowering welfare.

Private monitoring helps, but is no panacea. It partially limits banking malfeasance. But it does so inefficiently as households needlessly replicate each others’ costly information acquisition. Moreover, if private audits become public, private monitoring breaks down due to free-riding. Government real-time disclosure of banking malfeasant mitigates, if not eliminates, this public goods problem leading to potentially large gains in both non-stolen output and welfare.

Quite similar to the ongoing sentiments in India…

Making Paris an international financial centre via innovations…

July 9, 2018

This blog has pointed multiple times how Paris is making bids to become an  international financial centre post Brexit (one, two, three).

In this speech, Banque de France Governor, François Villeroy de Galhau, highlights how they are using an innovation approach:

Why is the Banque de France involved in financial innovation? Because we are at the crossroads of a European choice and a national ambition. The European choice is that of a federal Eurosystem, with a single monetary policy that is naturally decided centrally but whose implementation is decentralised at the level of each national central bank. The national ambition is to be the central bank for markets within the Eurosystem. For the Banque de France, this is a tradition recognised over the 20 years of the euro, backed by its high-quality teams, and is the first of our Ambitions 2020 strategic plan commitments. This is a win-win situation: for the Eurosystem – which will benefit from many of these innovations – but also for the French economy and the Paris financial centre.


He highlights five recent innovations done by the Banque  from developing a single market for collateral to blockchain technologies.

Japanese Occupation of Nicobar Islands: Slavery, Espionage and Executions

July 9, 2018

Superb paper by Ajay Saini of TISS:

Primarily based on archival research, especially an unpublished diary of Nicobarese stalwart leader John Richardson, this article gives a glimpse of the sufferings that the Nicobarese endured under the Japanese colonial regime during World War II. The regime exposed the indigenes to war, slavery, torture, and executions. At the same time it engendered leadership in the Nicobar Islands which consolidated these historically isolated people into a community and ended their prolonged economic and sexual exploitation.

There is discussion on barter system in the islands as well.

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