Bancos centrales y la mejor forma de proveer liquidez

Banking & Capital Markets

Economics

What’s the best way for central banks to provide liquidity?

By Clemens Jobst and Stefano Ugolini

Jun 24 2015

One of the most acute problems experienced by developed countries since 2008 is that the expansion of the monetary base has not been matched by an expansion of credit to economic activity. In January 2015 loans to the private sector were still contracting in the euro area, despite a steady increase in the money supply. The long-lasting contraction of credit has particularly hit small and medium-sised enterprises (SME), which have often found themselves exposed to rationing. The question of how to repair the transmission channel has therefore naturally emerged. Given the malfunctioning of bank lending channels, should central banks find alternative strategies for easing SMEs’ access to credit?
The limits to collateralised lending
One possible solution involves designing better mechanisms for securitising small corporate debt – once turned into standardised collateral, SMEs’ highly idiosyncratic debt could thus be made eligible to central bank operations (e.g., see Brunnermeier and Sannikov 2014). By intervening directly on the asset-backed corporate securities market, central banks could in this way bypass the banking system. This would not actually imply any major change in monetary policymaking for major central banks, who engage exclusively in collateralised operations today. As recent experience and theoretical developments have shown, however, the big problem with standardised collateral is that it is constructed precisely in order to allow lenders to save on information-gathering costs. As a result, the price of standardised collateral tends to be prone to informational shocks, which can easily trigger money market freezes (Gorton and Ordoñez 2014). In such circumstances, the only way a central bank can prevent the freeze of a collateralised loan market is by transforming itself into a ‘market-maker of last resort’ – clearly a suboptimal outcome (Buiter and Sibert 2007). All this suggests that collateralised loan markets might not necessarily be an ideal intervention ground for central banks – especially when the risk of a ‘collateral shock’ is highest. An alternative might consist of going the opposite way – rather than operating on a standardised collateral debt market that incites participants not to collect information, the central bank could operate on an uncollateralised debt market that does incite participants to rely on valuable information.
Two concepts of liquidity
Uncollateralised and collateralised lending can be associated to two different concepts of liquidity, corresponding respectively to today’s definitions of liability-side (funding) liquidity, i.e. the ease with which funding can be obtained; and asset-side (market) liquidity, i.e. the ease with which a given asset can be sold (Holmström and Tirole 2010). In some scholars’ view, these two concepts of liquidity are but the two sides of the same coin (e.g., see Brunnermeier and Pedersen 2009) – but this applies only if liability-side liquidity can be exclusively obtained through collateralised loans, access to which is proportional to available collateral. This is not necessarily always the case, though – when uncollateralised transactions are easily available, funding and market liquidity are not bound to behave accordingly. The reason is that uncollateralised operations may involve other kinds of (moral) guarantee (Ghatak and Guinnane 1999). This suggests that the two concepts do not perfectly coincide. The fact that the central bank chiefly provides the one or the other type of liquidity will provide different incentives to information-gathering by money market participants.
Central bank liquidity provision during the first globalisation
In a recent paper, we reconstruct the way central banks’ liquidity provision has evolved over the last two centuries (Jobst and Ugolini 2014). We find that uncollateralised operations were long-preferred to collateralised ones as a means for providing liquidity to the economy – the share of collateralised operations in total lending constantly declined from the end of the Napoleonic wars to the mid-19th century, and recovered substantially only in connection with the world wars. Although the situation differed from one country to the other, uncollateralised loans were thus predominant everywhere in the period between these two major geopolitical shocks (see figure 1). Therefore, during the first globalisation central bankers appeared to prefer uncollateralised over collateralised operations. Why was that the case?
Figure 1. Share of collateralised operations in total domestic lending (averages per decade)

Source: Jobst and Ugolini (2014). The database includes ten countries (Austria, Belgium, Switzerland, Germany, France, Italy, Netherlands, Norway, UK, and US). For individual country data, see table 2 in the paper.
Note: Each central bank is one observation. Boxes cover observations between the first and third quartile (inside line being the median), whiskers cover the remaining observations except outside values. Outside values (smaller/larger than the first/third quartile less/plus 1.5 times the interquartile range) are plotted individually.
19th century central bankers’ bias for uncollateralised operations
The extent to which central bankers engage in one of the two interventions may be related to the credit risk associated with each type of operations. In principle, thanks to the double guarantee provided by the borrower and by the collateral, secured transactions should be less risky – in particular if the collateral consists of easily marketable government securities and haircuts are significant. However, unsecured lending through the purchase of commercial bills (the standard 19th century discount operation) also benefitted from the additional safety feature provided by the joint moral guarantee of all persons (at least two) who had signed the bill. Unlike marketable securities, moreover, bills were subject to credit risk but not to market risk, as their price at maturity was not liable to vary. As a result, none of the two types of operations was necessarily superior to the other as far as risk is concerned.
Commentators unanimously report that discounting of uncollateralised (but jointly-guaranteed) commercial bills was clearly preferred in the 19th century:

1. Discounting was deemed to provide more flexibility for the adjustment of overall liquidity. Continuous backflows from bills falling due could facilitate the granting of new loans to new counterparties, which was useful whenever money markets were not working perfectly. Central banks might have been forced to prolong collateralised loans, or face difficulties selling the collateral. Bills, on the other hand, were considered to be ‘self-liquidating’, a widespread notion in 19th-century banking (Plumptre 1940). The same concern about liquidity can also explain the preference of many central banks for real bills over finance bills, as finance bills (with their need to be rolled over at maturity) rather resemble collateralised loans in moments of financial stress.
2. It was possible to derive valuable information on economic activity from the bills submitted to discount. Central banks were big players in the money market. For instance, around 1900 40% of all bills originated in France each year passed through the Banque de France’s discount window (Roulleau 1914). Central bankers were hence necessarily concerned about financial stability, and the discounting of bills was thought to provide the possibility to manage the extent of risk-taking in the economy, because the origination and distribution of bills were possible to track (Flandreau and Ugolini 2013). Moreover, by encouraging or discouraging the presentation of certain types of bills for discounting at its discount window, central banks could encourage or discourage particular activities or sectors (Allen 2014).

The 20th century change
Central bankers’ attitude seems to have changed following the crowding-out of the commercial bill market by the government debt market, engendered by the world wars. The costly information-gathering mechanisms put into place in order to monitor risk-taking in the bill market became less and less useful, and central bankers gradually started to dismiss them. This prompted a rethinking of the concept of liquidity, which became closer to the modern one – according to which asset- and liability-side liquidity are but two sides of the same coin (Plumptre 1940, Brunnermeier and Pedersen 2009). Today, central bankers no longer focus on the maturity of outright holdings (i.e., their being self-liquidating) but on the possibility to sell them on the market if need be (i.e., their ‘shiftability’). Shiftability, however, appears to be very sensitive to informational shocks (Gorton and Ordoñez 2014). As a result, central banks have increasingly found themselves exposed to collateral crises – and hence, to the risk of having to become market-makers of last resort.
Concluding remarks
Unlike their 19th century predecessors, today’s central banks no longer try to have access to superior information than markets – as any other market participant, they rely on the informational shortcuts provided by collateralisation. As a result, central banks appear to be fatally doomed to become market-makers of last resort whenever informational shocks trigger the unravelling of collateral crises. An alternative might consist of reviving 19th century practice and reactivating uncollateralised lending, thus encouraging all market participants not to rely on informational shortcuts. This might perhaps provide a more efficient strategy in order to repair the transmission channel. Sure, the costs of rebuilding information-collection mechanisms might well be substantial; but economies of scope must exist between monetary policy implementation and the carrying-out of the financial stability mandate.
References
Allen, W (2014) “Eligibility, bank liquidity, Basel 3, bank credit and macro-prudential policy: History and current issues”, Working Paper.
Brunnermeier, M and L Pedersen (2009), “Market liquidity and funding liquidity”, Review of Financial Studies, 22(6): 2201-38.
Brunnermeier, M and Y Sannikov (2014), “Repairing the transmission of monetary policy through asset-backed securitisation”, VoxEU.org, 3 June.
Buiter, W and A Sibert (2007), “The central bank as the market maker of last resort: From lender of last resort to market maker of last resort”, VoxEU.org, 13 August.
Flandreau, M and S Ugolini (2013), “Where it all began: Lending of last resort and Bank of England monitoring during the Overend-Gurney Panic of 1866”, in M Bordo and W Roberds (eds), A return to Jekyll island: The origins, history, and future of the Federal Reserve, Cambridge University Press, 2013, 113-161.
Ghatak, M and T Guinnane (1999), “The economics of lending with joint liability: Theory and practice”, Journal of Development Economics, 60: 195-228.
Gorton, G and G Ordoñez (2014), “Collateral crises”, The American Economic Review, 104(2): 343-378.
Holmström, B and J Tirole (2010), Inside and Outside Liquidity, MIT Press.
Jobst, C and S Ugolini (2014), “The coevolution of money markets and monetary policy, 1815-2008”, European Central Bank Working Papers Series no. 1756.
Plumptre, A (1940), Central banking in the British dominions, University of Toronto Press.
Roulleau, G (1914), Les règlements par effets de commerce en France et à l’étranger, Société de Statistique de Paris.
This article is published in collaboration with Vox EU. Publication does not imply endorsement of views by the World Economic Forum.
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Author: Clemens Jobst is an Economist at the Oesterreichische Nationalbank, Research Affiliate at CEPR. Stefano Ugolini is an Assistant Professor of Economics, University of Toulouse.

La debilidad del sistema bancario de Estados Unidos

http://beta.ineteconomics.org/ideas-papers/blog/americas-banking-system-is-a-giant-house-of-cards-it-could-fall-on-you

America’s Banking System is a Giant House of Cards

By By Lynn Parramore

Apr 21, 2015 | Money & Banking

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It Could Fall On You.

Anat Admati teaches finance and economics at the Stanford Graduate School of Business and is co-author of The Bankers' New Clothes, a classic account of the problem of Too Big to Fail banks. On May 6th, at the Finance and Society Conference sponsored by the Institute for New Economic Thinking, she will join Brooksley Born, former chair of Chair of the Commodities Futures Trading Commission, to discuss how effective financial regulation can make the system work better for society. Seven years after the worst financial crisis since the Great Depression, Admati warns that we are not doing nearly enough to confront a bloated, inefficient, and dangerous financial system. The system can't fix itself. Here's what you need to know.
Lynn Parramore: How would you describe the problem of Too Big to Fail banks. Whey does it matter to an ordinary person?
Anat Admati: Too Big to Fail is a license for recklessness. These institutions defy notions of fairness, accountability, and responsibility. They are the largest, most complex, and most indebted corporations in the entire economy.
We all have to be really alarmed by the fact that not only do we still have such institutions, but many of them are ever-larger and more complex and at least as dangerous, if not more so, than they were before the financial crisis.
They are too big to manage and control. They take enormous risks that endanger everybody. They benefit from the upside and expose the rest of us to the downside of their decisions. These banks are too powerful politically as well.
As they seek profits, they can make wasteful and inefficient loans that harm ordinary people, and at the same time they might refuse to make certain business loans that can help the economy. They can even break the laws and regulations without the people responsible being held accountable. Effectively we're hostages because their failure would be so harmful. They're likely to be bailed out if their risks don't turn out well.
Ordinary people continue to suffer from a recession that was greatly exacerbated or even caused by recklessness in the financial system and failed regulation. But the largest institutions, especially their leaders — even in the failed ones — have suffered the least. They're thriving again and arguably benefitting the most from efforts to stimulate the economy.
So there's something wrong with this picture. And there's also increasing recognition that bloated banks and a bloated financial system – these huge institutions—are a drag on the economy.
LP: Have we made any progress in dealing with the problem?
AA: The progress has been totally unfocused and insufficient. Dodd-Frank claims to have solved the problem and it gives plenty of tools to regulators to do what needs to be done (many of these tools they actually already had before). But this law is really complex and the implementation of it is very messy. The lobbying by the financial industry is a large part of the reason that the law has been implemented so poorly and inefficiently with so much difficulty. We are failing to take simple steps and at the same time undertaking extremely costly steps with doubtful benefits.
So we've had far from enough progress. We are told things are better but they are nowhere near what we should expect and demand. Much more can be done right now.
LP: Banks, compared to other businesses, finance an enormous portion of their assets with borrowed money, or debt – as much as 95 percent. Yet bankers often claim that this is perfectly fine, and if we make them depend less on debt they will be forced to lend less. What is your view? Would asking banks to rely more on unborrowed money, or equity, somehow hurt the economy?
AA: Sometimes when I don't have time to unpack everything I use a quote from a book called Payoff: Why Wall Street Always Wins by Jeff Connaughton. He relates something Paul Volcker once said to Senator Ted Kaufman: "You know, just about whatever anyone proposes, no matter what it is, the banks will come out and claim that it will restrict credit and harm the economy…It's all bullshit."
Here's one obvious reason such claims are, in Volcker's vocabulary, bullshit: Lending suffered most when banks didn't have enough equity to absorb their losses in the crisis — and then we had to bail them out. The loss they suffered on the subprime fiasco was relatively small by comparison to losses to investors when the Internet bubble burst, but there was so much debt throughout the system, and indeed in the housing markets, and so much interconnection that the entire financial system almost collapsed. That's when lending suffered. So lending and growth suffers when the banks have too little equity, not too much.
Now, banks naturally have some debt, like deposits. But they don't feel indebted even when they rely on 95 percent debt to finance their assets. No other healthy company lives like that, and nobody, even banks, needs to live like that — that's the key. Normally, the market would not allow this to go on; those who are as heavily indebted feel the burden in many ways. The terms of the debt become too burdensome for corporations, and reflect the inefficient investment decisions made by heavily indebted companies. But banks have much nicer creditors, like depositors, and with many explicit and implicit guarantees, banks don't face trouble or harsh terms. They only have to convince the regulators to let them get away with it. And they do.
So the abnormality of this incredible indebtedness is that they get away with it. There's nothing good about it for society. If they had more equity then they could do everything that they do better —more consistently, more reliably, in a less distorted fashion.
Today's credit market is distorted. A key reason is that bankers love the high risk and chase returns. They are less fond of some of the lending where they are needed the most — like business lending, for example. Instead, most people get many credit cards in the mail and too many people live on expensive revolving credit. Effectively, the poor may end up subsidizing the credit card of the person who pays on time and has zero interest (and we all end up paying the enormous fees merchants are charged). So we can have too much or too little lending and live through inefficient booms and busts. Part of the reason for that is that banks are continually living on the edge in a way that nobody else in the economy would, and regulations meant to correct it are insufficient and flawed in their design.
LP: Banking has been a very profitable business. Is it profitable because the risks are born by the taxpayer? Do you think the bank bonus system is part of the problem?
AA: Yes, banking is partly profitable because of subsidies from taxpayers. There are probably other reasons, and not all of them good ones, in terms of the way competition works and other things. The bonus system encourages recklessness, and recklessness increases the value of the subsidies from taxpayers. Bankers are effectively paid to gamble.
It is profitable for the banks to become big even when this is inefficient, because they can do so with subsidized borrowing on easy terms. Guarantees, explicit and implicit, are a form of free or subsidized insurance. We don't control whether what banks do with the cheap funding benefits the economy or just bankers and some of their investors. We must reduce these large subsidies that end up rewarding recklessness and harming us. (See Admati's July 2014 testimony before Congress on bank subsidies).
LP: We often hear about financial innovations that helped bring the global economy to its knees in 2008. Back in December, Congress rolled back a key taxpayer protection concerning derivatives, which Robert Lenzner of Forbes Magazine called a "Christmas present for the banks." What do Americans need to know about derivatives? How do they affect the Too Big to Fail problem?
AA. The Christmas present was just one more small thing in a much bigger problem. The largest financial firms in America can hide an enormous amount of risk in derivatives. That's very dangerous because it makes banks more interconnected, since much of the derivatives trading happens within the financail system. It creates a house of cards — a very fragile system.
We also have bankruptcy laws in this country that perversely give unusual priority to derivatives contracts and other reckless practices.
Derivatives exacerbate Too Big to Fail dramatically because there's so much opacity in the system. Policy-makers get scared into bailing our or guaranteeing a lot of their commitments made in those markets because they won't quite know the consequences of letting them fail. It's very intimately related to Too Big to Fail. It's as if they hold a gun to your head. You don't konw whether they have bullets so you may get scared into paying the ransom.
LP: Is breaking up the banks is a solution?
AA: People say those words but what does it mean? How would you do it? That's the big problem. Banks are multiple times bigger than most of the corporations you think of as big. I once made a mistake rushing through a HuffPost piece in 2010 saying that Jamie Dimon wants to be as big as Walmart. Well, at the time, JP Morgan was already 10 times bigger than Walmart by assets! When it comes to the financial sector, big is really big. People don't even appreciate how big we're talking about. Nobody else gets to be as big, and in fact, In other parts of the economy, companies that get so big often break up on their own. But that doesn't happen in banking partly because of the perverse subsidies taxpayers provide.
The most sensible approach is to force banks and other financial institutions to have more equity, which is actually going to expose their inefficiencies and bring more investor pressure for a break-up to happen naturally without us doing it actively. Regulators can also put significantly more pressure on banks to simplify their structure and divest unnecessary lines of businesses such as commodities (energy, aluminum, etc.). The size appears unmanageable and makes regulation difficult.
LP: What would make banking regulation more effective?
AA: First of all there could be simpler regulation in some places and some cost-ineffective things could be used a bit less. Right now, we know too little about the risk and we have too little margin for error. We must reduce the opacity and increase the safety margins dramatically. Regulators make it complicated because we are unnecessarily living at the edge of a cliff all the time. We live so dangerously! There's no need for that. We are told that we have to live like that, but it's that's completely false. The system has to be made a lot more resilient. Then we can worry less and sleep better.
In addition to making things simpler, it's very important that we are able to see more of the risk and then to enforce much stronger and simpler rules. And, of course, regulators need to be watching where the risks are going. They should not believe that just because the risks are off the accounting balance sheets that they are gone. That was a trick to get around regulations and get around accounting rules in cases like Enron. A lot of the risks were hiding — but they can be traced. Some laws that are counterproductive and make regulation harder should also be examined, including the tax code that encourages debt over equity, and the bankruptcy law that overly protects certain financial practices.
LP: If we don't deal with the problem of Too Big to Fail, what happens?
AA: An ordinary person doesn't realize it, but the impact of this unhealthy system on them happens every day. It's doesn't feel as acute as something like leakage from a nuclear facility because harm from the financial system is a little more abstract. You only see it when it blows. But it's an unhealthy, inefficient, bloated and dangerous system. Because this system is so fragile, it can implode again, and our options next time will be dire again. We will either suffer a lot or bail out the system to suffer a little bit less.
I recently shared with my students a quote by the Rothschild brothers of London, writing to associates in New York in 1863: "The few who understand the system will either be so interested in its profits or be so dependent upon its favours that there will be no opposition from that class, while the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests."
This is a great quote! We get tricked into thinking that we have a great financial system because we have our credit cards and whatnot. We don't see the enormous risks that are taken in derivatives markets and some of the other practices that can topple the entire system again and which extracts fees and bonuses. The truth is that we can have a safer system that serves the economy and society better. But getting there requires that better laws and regulations are implemented and enforced. The system will not correct itself; we must demand that policymakers do a better job for the public