Archive for November, 2019

How executive greed led to ruin of De La Rue, world’s top banknote printer…

November 29, 2019

De La Rue which prints/provides technology for banknotes is in financial trouble. One would think this would be due to rise in digital transactions. But this is not the case. It is due to executive compensation!

Guardian reports:

De La Rue’s shareholder meeting in June, 48% of votes were cast against the banknote printer’s remuneration report, presumably in protest at the £197,000 bonus awarded to its then chief executive, Martin Sutherland, in his final undistinguished year at the helm. Perhaps the 52% of compliant voters were half asleep. Five months later, the horrible state of De La Rue should be plain even to dozy fund managers.

Debt has soared, borrowing covenants are tight and there is “material uncertainty” over the 200-year-old company’s future if known risks materialise. De La Rue has fallen into a half-year loss of £12.1m. The dividend is being cut from 25p a share to zero, which clearly should have happened before now. The share price, down by almost a quarter on Tuesday, stands at a 21-year low.

The farewell bonus for Sutherland, who finally departed last month, now looks a wretched joke about a licence to print money.

The new chief executive, Clive Vacher, was too polite to aim a direct kick at his predecessors but it wasn’t hard to detect his diagnosis of drift in the boardroom. “The business has experienced an unprecedented level of change with the chairman, CEO, senior independent director and most of the executive team leaving or resigning in the period,” he wrote in the half-year report. “This has led to inconsistency in both quality and speed of execution.”


No lessons learnt..


25 years of independence of Central banks of Mexico and Spain

November 29, 2019

Central Bank Independence seems to be a great deal in Latin American countries. There is a reason why Central bank of Mexico organised a seminar to reflect on the 25 years of its independence.

Pablo Hernández de Cos, Governor of Central Bank of Spain gives a speech at the seminar:

The Banco de España was granted institutional independence in July 1994. So this year, as is also the case for the Banco de México, marks the 25th anniversary of our Law of Autonomy. The independence of the Banco de España came about as part of the European economic integration process. Following the requirements laid down in the Maastricht Treaty, central banks in the European Union were meant to pursue the primary objective of price stability and be vested with a large degree of independence, both political and operational. Participation in the monetary union also entailed a change in the relationship
between Treasury and central bank so as to incorporate the prohibition of monetary financing of government deficits.

Central bank independence was granted with a large degree of legal protection and, as a matter of fact, no country in the European Union can change it at its own discretion. Of course, the independence of the central bank does not mean arbitrariness, as it is well counterbalanced by high transparency and accountability requirements and practices. 

Granting independence to the Banco de España some years before the introduction of the euro as a common currency reflected Spain’s strong ambition to become a founding member of the European Economic and Monetary Union. It was also the result of a firm political conviction as to the benefits of price stability and the advisability of delegating the pursuit of this goal to an independent central bank. Price stability requires a medium-term orientation and the independence of the monetary authority creates credibility by helping to keep inflation expectations anchored while avoiding time inconsistency problems.1 These reasons were particularly compelling for the Spanish economy in light of the previous experience of relatively high inflation.



Central bankers as explorers/navigators such as Vasco Da Gama, Columbus…

November 29, 2019

Klaas Knot of Dutch Central Bank in this speech:

We are drawing closer to the end of the year in which the ECB has been celebrating its twentieth anniversary. Typically, this type of event leads one to look back and reflect on the lessons learnt over time. And to evaluate how the lessons learnt can be taken on board in future endeavors. Indeed, the year has seen many conferences and papers dedicated to the tale of the ECB’s first two decades. For European central bankers, the second of these two decades has been particularly challenging.

In the last decade, the ECB has been navigating uncharted waters with unconventional monetary policy, just like Magellan, Sir Francis Drake and Columbus. We were not without compass, nor without a clearly set course. But nevertheless, the waters we navigated were new to us. No maps were available. And, again like those famous explorers, we were vigilant, alert and prudent. Now that we seem to have reached a harbor of some sort, and a new captain is aboard, we should consider charting the unchartered. We should draw maps of the coasts we discovered. We should mark where the sea monsters live. We should be the cartographers of unconventional monetary policy.


Not sure many would agree to this comparison!

What drives interest rates? Central bank policy rates or something else?

November 29, 2019

Òscar Jordà and Alan M. Taylor in this short paper look at evidence from Japan, Germany, the United Kingdom, and the United States.

People generally attribute a great deal of discretion to a central bank’s ability to set interest rates. This might be an overstatement. Our analysis suggests that most of the variation in interest rates can be explained by conditions beyond the central bank’s control: the aging of the population, declining rates of productivity growth, and other slow-moving factors known to affect the neutral rate of interest globally and domestically. From this perspective, fears that policy stances are increasingly diverging across advanced economies and that this divergence may have adverse consequences for the international financial system may be overblown.


How Neoliberal Thinkers Spawned Monsters They Never Imagined

November 28, 2019

Interesting interview of Wendy Brown who has written a book on the topic:

Lynn Parramore: To many people, neoliberalism is about economic agendas. But your book explores what you describe as the moral aspect of the neoliberal project. Why is this significant?

Wendy Brown: Most critical engagement with neoliberalism focuses on economic policy – deregulation, privatization, regressive taxation, union busting and the extreme inequality and instability these generate. However, there is another aspect to neoliberalism, apparent both in its intellectual foundations and its actual roll-out, that mirrors these moves in the sphere of traditional morality. All the early schools of neoliberalism (Chicago, Austrian, Freiburg, Virginia) affirmed markets and the importance of states supporting without intervening in them.

But they also all affirmed the importance of traditional morality (centered in the patriarchal family and private property) and the importance of states supporting without intervening in it. They all supported expanding its reach from the private into the civic sphere and rolling back social justice previsions that conflict with it. Neoliberalism thus aims to de-regulate the social sphere in a way that parallels the de-regulation of markets.

Concretely this means challenging, in the name of freedom, not only regulatory and redistributive economic policy but policies aimed at gender, sexual and racial equality. It means legitimating assertions of personal freedom against equality mandates (and when corporations are identified as persons, they too are empowered to assert such freedom). Because neoliberalism has everywhere carried this moral project in addition to its economic one, and because it has everywhere opposed freedom to state imposed social justice or social protection of the vulnerable, the meaning of liberalism has been fundamentally altered in the past four decades.

That’s how it is possible to be simultaneously libertarian, ethnonationalist and patriarchal today: The right’s contemporary attack on “social justice warriors” is straight out of Hayek.

All human constructs have serious limitations…

Central Bank of Ukraine being attacked by a oligarch and the central bank chooses to respond

November 28, 2019

This blog has pointed to several attacks on Ukraine central bank and even its retired Governor.

The Central Bank Board responds to the continued attacks:


Europe needs its “own open development bank” to push its global agenda

November 27, 2019

Everyone needs a bank these days. That too in this digital era where people are questioning the role banks will play in future.

In this piece. Eric Berglof of EBRD argues for a development bank to push Europe’s global agenda:


Why Financial Markets’ (yet another) new exuberance is irrational

November 27, 2019

Nouriel Roubini in this proj synd piece:

Owing to a recent easing of both Sino-American tensions and monetary policies, many investors seem to be betting on another era of expansion for the global economy. But they would do well to remember that the fundamental risks to growth remain, and are actually getting worse.


The disconnect between financial markets and the real economy is becoming more pronounced. Investors are happily focusing on the attenuation of some short-term tail risks, and on central banks’ return to monetary-policy easing. But the fundamental risks to the global economy remain. In fact, from a medium-term perspective, they are actually getting worse.

But who cares as long as the music is on…

Angus Deaton on Random Control Trials (RCTs)

November 27, 2019

Prof Deaton has been a long critic of RCTs.

In this recent piece at the India Forum, he says they are useful but should not be the only way to do research:

Randomized control trials are a useful tool in development economics. But RCTs are not a gold standard; like other tools they face problems of inference, they cannot claim to have established causality and some of them raise serious ethical concerns.

Fellow Dalits, open your own bank…

November 27, 2019

Chandra Bhan Prasad wrote an interesting piece in ToI a couple of days back.

He first makes a case for how Dalit entrepreneurs pay usurious rates of interest:

On the outskirts of west Delhi, first-generation Dalit entrepreneur Subhash Singh Grover has earned a place for himself in the crane industry. A year back, he received an offer from a company to supply two cranes, both 250 metric tons in strength. He needed Rs 5 crore to commence production. Without any assets to pledge, he took a Rs 5 crore unsecured loan from a consortium of lenders at the interest rate of 15%. Since its birth in 2005, his company has spent over Rs 10 crore on interest.

Another first-generation Dalit entrepreneur from Delhi, NK Chandan makes smart electric meter covers, junction boxes and bus bars for power companies. Since 2013, he has spent over Rs 5 crore paying interest. He once took a large sum from a private lender at an interest rate of 36%.

The list of Dalit businessmen spending mind-boggling sums of money paying interest to usurious private lenders is long. Ahmedabad based Ratibhai Makwana trades in plastics. The Makwana group spends over Rs 7 crore annually on paying interest. A leader in making fishing nets, Bhavnagar based Devji Bhai Makwana spends about Rs 5 crore on interest annually. New Bombay based first-generation Dalit entrepreneur Ashok Khade has spent about Rs 10 crore on interest in the past decade. The list goes on.

He then calls upon Dalit middle class to fund their own bank:

Despite making hundreds of billions of rupees annually, Dalits have no bank or financial institutions of their own. With a little financial wisdom, and a mere 1% investment of their income, Dalits in government services alone can create banks with massive liquidity every year. Most of that money, like floodwaters, goes into the seas. Dalit middle class has not been able to tame their money into their own banks. If no one else, Dalit middle class alone can fund Dalit capitalism project that can produce Dalit billionaires worth the Indian billionaire club membership. Dalit billionaires can create a bigger spark than Dalit politicians occupying top public positions.

So fellow Dalits, awake, channelise your incomes into your own banks, build a Dalit economy the way American Blacks have built their own economy, turning American capitalism more respectable, vibrant.

Ideally, one would see banks not discriminating against Dalit businesses.  But as Mr Bhan points:

In collaboration with scholar D Shyam Babu, senior fellow with the Centre for Policy Research, Delhi, we have studied about 1,000 such Dalit businesses nationwide. This study was commissioned by the Centre for the Advanced Study of India, University of Pennsylvania. Led by then CASI director Devesh Kapur, who is now with John Hopkins University, the study concluded in 2015.

The consistent point that emerged is that most Dalit businesses find it tough to secure bank credit. Consequently, an overwhelming majority go to private lenders who charge huge interest. Some lucky ones, Makwanas for instance, get into formal banking. But it is no wonder that not a single Dalit entrepreneur is able to enter India’s billionaire club.

This is interesting. Several banks have been opened both in India and  abroad to finance/support certain communities.  One sees this trend quite prominent in Southern India. Some were named to clearly signal this community orientation as well.

The Nidhis were christened as Hindu Permanent Funds clearly signalling who they were for.  Canara Bank started as Canara Hindu Permanent Fund in Mangalore before renaming itself as Canara Bank. Even after name change, it primarily served the Gauda Saraswat Brahmin Community of South Canara region. Similarly, Syndicate Bank was started mainly via support from GSB community. Seeing banks for GSBs, Vijaya Bank was started in Mangalore to serve the Bunt Community.

In Kerala, one saw several banks named after their respective Christian/church communities: Mar Thoma Syrian Bank, Latin Christian Bank, Chadean Syrian Bank and so on. Currently CSB Bank which is undergoing an IPO started as a community bank for supporting Catholic Syrians.

Coimbatore which was hub of Nidhis had similar names: Coimbatore Sri Kannikaparamesvari Bank, Coimbatore Hindu Krupkara Nidhi and so on.

In the west, relationship between jews and banking is legendary.

Thus, history shows that community and banking go hand in hand. Quite a few communities will owe their success to their bank. I especially saw this connect in South Canara where people continued to protest against mergers of “their banks”.

So there is a case for Dalit Bank based on community networks. Just that the new proposed bank should focus on financials and not lend recklessly on the basis of community/relationships. Communities do help in establishing “their own bank” but it requires a proper financial conduct and governance to successfully run the bank. One could pick lessons from the South Canara based banks which started as community banks but hardly compromised on the financials.


Ensuring exorbitant privilege of US Dollar: The real challenge for USD is not Libra but Chinese CBDC

November 26, 2019

Ken Rogoff in this Proj Synd piece:

Just as technology has disrupted media, politics, and business, it is on the verge of disrupting America’s ability to leverage faith in its currency to pursue its broader national interests. The real challenge for the United States isn’t Facebook’s proposed Libra; it’s government-backed digital currencies like the one planned by China.

He says US govt can still work around Libra/Bitcoin and so on. But cannot do anything against Chinese CBDC:

America’s deep and liquid markets, its strong institutions, and the rule of law will trump Chinese efforts to achieve currency dominance for a long time to come. China’s burdensome capital controls, its limits on foreign holdings of bonds and equities, and the general opaqueness of its financial system leave the renminbi many decades away from supplanting the dollar in the legal global economy.

Control over the underground economy, however, is another matter entirely. The global underground economy, consisting mainly of tax evasion and criminal activities, but also terrorism, is much smaller than the legal economy (perhaps one-fifth the size), but it is still highly consequential. The issue here is not so much whose currency is dominant, but how to minimize adverse effects. And a widely used, state-backed Chinese digital currency could certainly have an impact, especially in areas where China’s interests do not coincide with those of the West.

A US-regulated digital currency could in principle be required to be traceable by US authorities, so that if North Korea were to use it to hire Russian nuclear scientists, or Iran were to use it to finance terrorist activity, they would run a high risk of being caught, and potentially even blocked. If, however, the digital currency were run out of China, the US would have far fewer levers to pull. Western regulators could ultimately ban the use of China’s digital currency, but that wouldn’t stop it from being used in large parts of Africa, Latin America, and Asia, which in turn could engender some underground demand even in the US and Europe.

One might well ask why existing cryptocurrencies such as Bitcoin cannot already perform this function. To an extremely limited extent, they do. But regulators worldwide have huge incentives to rein in cryptocurrencies by sharply proscribing their use in banks and retail establishments. Such restrictions make existing cryptocurrencies highly illiquid and ultimately greatly limit their fundamental underlying value. Not so for a Chinese-backed digital renminbi that could readily be spent in one of the world’s two largest economies. True, when China announces its new digital currency, it will almost surely be “permissioned”: a central clearing house will in principle allow the Chinese government to see anything and everything. But the US will not.

The onward march towards an old-style command economy..

November 26, 2019

V. Anantha Nageswaran in this piece points how shortselling is being banned in quite a few parts of the world:

Elizabeth Warren, Bernie Sanders and James Corbyn must be fancying their chances in the forthcoming elections in their respective countries. Never mind that former US President Barack Obama cautioned against the Democratic Party turning too far left. Even if they heed his advice, the world’s capitalists and regulators seem united in turning voters and candidates leftwards.

I just saw a story (Return Of Short-Selling Bans: Market Protection Or “War Against Truth”?, 19 November 2019) put out by Reuters that Turkey has banned short-selling. Korea might do so, and so could Europe if Brexit creates market turbulence. Europe had resorted to banning short-selling between 2008 and 2012 as it battled the fallout of the global crisis and then the Greek crisis. Global economies, advanced and developing, now ride on asset prices. As leverage ratios have risen relentlessly both in the public and private sectors, the only way governments can prevent the unravelling of balance sheets is to place all policy tools at the service of underpinning asset prices.

The logic is clear. However, the question is whether its costs would exceed the benefits, and whether it would postpone real price discovery to a later date—only for it to manifest itself more uncontrollably than now.

The more things change, the more they remain the same!

Keynes and Fiscal Federalism in India: History, Ideology and Practice

November 26, 2019

RBI organises 4 memorial lectures:

NK Singh delivered the 17th LK Jha Memorial lecture.

It is interesting and odd how all of these lectures have been given by scholars and policymakers based elsewhere. All these years, there has not been a single lecture from an academic/policymaker based in India.

N.K. Singh happens to be the first speaker in these lectures who is currently serving as the chair of the 15th Finance Commission. Not surprisingly, Mr Singh chooses to speaks on fiscal federalism (Sharing of financial resources between Central Government, State Governments and Local governments). Fiscal federalism has become an important topic of late given the late addition to its terms of reference.

At the end of his lecture, Mr Singh quotes Keynes which sums up the evolution of fiscal federalism in India:

In the context of remark that markets may remain irrational longer than I can remain solvent, John Maynard Keynes is reported to have remarked that when facts and circumstances change, I change my mind – what do you do?

The facts and circumstances on Fiscal Federalism have changed. Time to change our mind.

The lecture points to some of these changes. Read the whole thing…


Proposal for writing a short history of International Economic Association (IEA)

November 26, 2019

The open call for writing the IEA history is here. (HT: Good friend Nitesh Ranjan)

The Patriot versus the President (politician)

November 26, 2019

Interesting piece by Ian Buruma and something worth pondering on:

Lt. Col. Alexander Vindman should be a Republican poster boy, given the party’s routine invocation of love of country and encomiums to military valor. But to the GOP and its supporters, Vindman’s recent testimony in the impeachment inquiry into President Donald Trump automatically makes him an enemy of the people.

In most parts of the world, politicians are raising and questioning patriotism of people who stand /speak against them. And these polticians position themselves as apostles of patriotism. But why is feeling of patriotism so important? Who is a true patriot?


Why should anyone be grateful for belonging to a particular nation? Pride, perhaps, but gratitude? In fact, patriotism based on gratitude might be the strongest form there is.

Grateful patriotism should not be confused with the chauvinistic zeal displayed by some people from national minorities or marginal border regions: Napoleon from Corsica, Hitler from the Austrian borderlands, Stalin from Georgia. Some of the most fanatical Nazis were from German-speaking areas outside the mother country, such as Czechoslovakia and South Tyrol. Such people are less motivated by gratitude than by a desire for acceptance by the majority.

To Vindman’s family, the US offered a refuge from an authoritarian regime. There cannot be a stronger bond of allegiance. Watching Vindman testify was to see the greatest hope for America. He still believes that in spite of threats and smears and the toxic atmosphere of Trump’s Washington, he “will be fine for telling the truth.”

The words engraved on a plaque in the pedestal of the Statue of Liberty are often quoted, but not always properly understood: “Give me your tired, your poor/your huddled masses yearning to breathe free.” Trump’s main adviser on immigration, Stephen Miller, himself from a family of Jewish immigrants, has disparaged these words. Immigrants have to speak English, he has said, and Emma Lazarus’s poem “The New Colossus” does not represent “American values.”

In fact, ideally, Lazarus’s famous poem is the apotheosis of American values. Those huddled masses yearning to be free are the true patriots. They have traditionally been America’s greatest strength, embodying the kind of loyalty that is hardest to break. If the approach to tired and poor refugees is to vilify them as thieves, murderers, and rapists; lock them up; and separate them from their children, steadfast loyalty will give way to hostility, violence, and even terrorism. As a result, the traditional strength of the US is being sapped a bit more every day, until nothing will be left for which to yearn.

History of Islamic Banking in Pakistan

November 25, 2019

Interesting bit of banking history of a different kind.

Steps for Islamization of banking and financial system of Pakistan were started in 1977-78. Pakistan was among the three countries in the world that had been trying to implement interest free banking at comprehensive/national level. But as it was a mammoth task, the switchover plan was implemented in phases. The Islamization measures included the elimination of interest from the operations of specialized financial institutions including HBFC, ICP and NIT in July 1979 and that of the commercial banks during January 1981 to June 1985.

The legal framework of Pakistan’s financial and corporate system was amended on June 26, 1980 to permit issuance of a new interest-free instrument of corporate financing named Participation Term Certificate (PTC). An Ordinance was promulgated to allow the establishment of Mudaraba companies and floatation of Mudaraba certificates for raising risk based capital. Amendments were also made in the Banking Companies Ordinance, 1962 (The BCO, 1962) and related laws to include provision of bank finance through PLS, mark-up in prices, leasing and hire purchase.

Separate Interest-free counters started operating in all the nationalized commercial banks, and one foreign bank (Bank of Oman) on January 1, 1981 to mobilize deposits on profit and loss sharing basis. Regarding investment of these funds, bankers were instructed to provide financial accommodation for Government commodity operations on the basis of sale on deferred payment with a mark-up on purchase price. Export bills were to be accommodated on exchange rate differential basis.

In March, 1981 financing of import and inland bills and that of the then Rice Export Corporation of Pakistan, Cotton Export Corporation and the Trading Corporation of Pakistan were shifted to mark-up basis. Simultaneously, necessary amendments were made in the related laws permitting the State Bank to provide finance against Participation Term Certificates and also extend advances against promissory notes supported by PTCs and Mudaraba Certificates. From July 1, 1982 banks were allowed to provide finance for meeting the working capital needs of trade and industry on a selective basis under the technique of Musharaka.

As from April 1, 1985 all finances to all entities including individuals began to be made in one of the specified interest-free modes. From July 1, 1985, all commercial banking in Pak Rupees was made interestfree. From that date, no bank in Pakistan was allowed to accept any interest-bearing deposits and all existing deposits in a bank were treated to be on the basis of profit and loss sharing. Deposits in current accounts continued to be accepted but no interest or share in profit or loss was allowed to these accounts. However, foreign currency deposits in Pakistan and on-lending of foreign loans continued as before.


Notes from an inter-planetary monetary anthropologist

November 25, 2019

Fascinating post from a fascinating monetary economics blogger JP Koning:

My work as an inter-planetary monetary anthropologist has brought me to dozens of different planets to study their monetary systems. The monetary system of the most recent planet that I visited, the planet of Zed in the Xv2 galaxy, falls into the same classification as the systems on Vigil X and Earth (which I last visited in 1998 and, according to other anthropologists, hasn’t changed much).

As on Earth, markets on Zed tend to lie towards the free end of the spectrum. Zedians can own property. And property rights are enforced. Zedians often put their savings in institutions much like banks and earn interest. Banks in turn lend to individuals and business.


Should Bulgaria abandon its Currency Board and join the Euro?

November 25, 2019

Prof Steve Hanke , has been a long time advocate of currency boards.

In this paper, he along with Todor Tanev argue that Bulgaria should not abandon its currency board…


Rediscovering Indian thought: How a scholar built a database of pre-Independence magazinesRediscovering Indian thought: How a scholar built a database of pre-Independence magazines

November 25, 2019

Prof Rahul Sagar of NYU Abu Dhabi has built this fantabuolus database: It indexes the contents pages of 255 English-language pre-Independence magazines from India.

In thus scroll article. Prof Sagar details his journey:

In the early nineteenth century the East India Company committed itself to imparting modern knowledge to the people of India. Soon thereafter Indians began flocking to newly created colleges and schools where they became avid readers of the celebrated British periodicals of the era such as Athenaeum, The Quarterly Review, The Contemporary Review, The Fortnightly Review, The National Review, and Nineteenth Century. Not unreasonably, they came to view these periodicals as exemplars of public debate and reasoned deliberation.

As the century progressed, these increasingly urbane Indians ached to discuss subjects closer to home. They answered this need by founding local counterparts to the British periodicals they admired so greatly. In a matter of decades there were hundreds of periodicals in circulation, brimming with essays on a wide range of topics. How to address inequalities of caste and gender? What to learn from rising powers like Japan and the United States? How to ensure economic development and advance self-government? How to reconcile traditional beliefs with modern science?

A vibrant public sphere now took shape as legions of newly minted graduates contributed and subscribed to these English-language periodicals. The most notable of the first wave included Bengal Magazine, Haris Chandra’s Magazine, Mookerjee’s Magazine, Allahabad Review, Madras Review, and The Quarterly Journal of the Poona Sarvajanik Sabha. At the end of the nineteenth century came that magnificent trio – The Hindustan Review, The Indian Review, and The Modern Review – that dominated public life for the next half a century. They were joined by dozens of smaller periodicals such as Welfare, The Aryan Path, and Modern World.

It is impossible to overestimate the importance of these periodicals. Transported around the country by newly built railway networks, they attracted and cultivated a wide readership. By compelling writers and readers to think more broadly, they midwifed modern India. This was not all. As these periodicals were typically published on a monthly basis, they devoted themselves not to reporting news, which would be stale by the time the periodical reached the subscriber, but to essays on the leading questions of the day.

He and his team have put all these together. Just amazing work. Applause!!

Does the Lack of Financial Stability Impair the Transmission of Monetary Policy?

November 25, 2019

Viral Acharya, Björn Imbierowicz, Sascha Steffen and Daniel Teichmann in this new NBER paper:

We investigate the transmission of central bank liquidity to bank deposits and loan spreads in Europe over the period from January 2006 to June 2010. We find evidence consistent with an impaired transmission channel due to bank risk. Central bank liquidity does not translate into lower loan spreads for high-risk banks for maturities beyond one year, even as it lowers deposit spreads for both high-risk and low-risk banks. This adversely affects the balance sheets of high-risk bank borrowers, leading to lower payouts, capital expenditures and employment. Overall, our results suggest that banks’ capital constraints at the time of an easing of monetary policy pose a challenge to the effectiveness of the bank-lending channel and the central bank’s lender-of-last-resort function.


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