1932

Abstract

The financial system has undergone far-reaching changes since the global financial crisis of 2008. We cast those changes in terms of shifts in the manner in which financial intermediaries manage their balance sheets. We also discuss the regulatory reform agenda, and we review the impact of regulations on market liquidity and credit availability. Current evidence suggests that the financial system has become safer, at limited unintended cost.

Loading

Article metrics loading...

/content/journals/10.1146/annurev-financial-110217-023113
2018-11-01
2024-04-16
Loading full text...

Full text loading...

/deliver/fulltext/financial/10/1/annurev-financial-110217-023113.html?itemId=/content/journals/10.1146/annurev-financial-110217-023113&mimeType=html&fmt=ahah

Literature Cited

  1. Adrian T, Boyarchenko N 2012. Intermediary leverage cycles and financial stability Staff Rep. 567 Fed. Reserve Bank N.Y. NY:
  2. Adrian T, Boyarchenko N, Shachar O 2016. Dealer balance sheets and bond liquidity provision Staff Rep. 803 Fed. Reserve Bank N.Y. NY:
  3. Adrian T, Boyarchenko N, Shin HS 2015. On the scale of financial intermediaries Staff Rep. 743 Fed. Reserve Bank N.Y. NY:
  4. Adrian T, Brunnermeier M 2011. CoVaR NBER Work. Pap. 17454
  5. Adrian T, Crump RK, Moench E 2013. Pricing the term structure with linear regressions. J. Financ. Econ. 110:110–38
    [Google Scholar]
  6. Adrian T, Fleming M, Shachar O, Vogt E 2017. Market liquidity after the financial crisis. Annu. Rev. Financ. Econ. 9:43–83
    [Google Scholar]
  7. Adrian T, Jones B 2018. Shadow banking and market-based finance Dep. Pap. 18/14 Int. Monet. Fund Washington, DC:
  8. Adrian T, Shin HS 2010. Liquidity and leverage. J. Financ. Intermed. 19:3418–37
    [Google Scholar]
  9. Adrian T, Shin HS 2014. Procyclical leverage and value-at-risk. Rev. Financ. Stud. 27:2373–403
    [Google Scholar]
  10. Anderson M, Stulz RM 2017. Is post-crisis bond liquidity lower Work. Pap. 2017-09 Charles A. Dice Cent. Res. Financ. Econ., Ohio State Univ. Columbus, OH:
  11. Bao J, O'Hara M, Zhou X 2018. The Volcker rule and market-making in times of stress. J. Financ. Econ. 130:95–113
    [Google Scholar]
  12. BCBS (Basel Comm. Bank. Superv.). 2006. International convergence of capital measurement and capital standards Rep. 128 BCBS Basel, Switz.:
  13. BCBS (Basel Comm. Bank. Superv.). 2010. Revisions to the Basel II Market Risk Framework Rep. 193 BCBS Basel, Switz.:
  14. BCBS (Basel Comm. Bank. Superv.). 2011. Basel III: a global regulatory framework for more resilient banks and banking systems Rep. 189 BCBS Basel, Switz.:
  15. BCBS (Basel Comm. Bank. Superv.). 2013.a Basel III: the liquidity coverage ratio and liquidity risk monitoring tools Rep. 238 BCBS Basel, Switz.:
  16. BCBS (Basel Comm. Bank. Superv.). 2013.b Global systemically important banks: updated assessment methodology and the higher loss absorbency requirement Rep. 255 BCBS Basel, Switz.:
  17. BCBS (Basel Comm. Bank. Superv.). 2014. Basel III: The net stable funding ratio Rep. 295 BCBS Basel, Switz.:
  18. BCBS (Basel Comm. Bank. Superv.). 2016. Minimum capital requirements for market risk Rep. 352 BCBS Basel, Switz.:
  19. BCBS (Basel Comm. Bank. Superv.). 2017. Basel III: finalizing post-crisis reforms Rep. 424 BCBS Basel, Switz.:
  20. Beccalli E, Boitani A, Di Giuliantonio S 2015. Leverage pro-cyclicality and securitization in US banking. J. Financ. Intermed. 24:200–30
    [Google Scholar]
  21. Bessembinder H, Jacobsen S, Maxwell W, Venkataraman K 2018. Capital commitment and illiquidity in corporate bonds. J. Finance 73:1615–61
    [Google Scholar]
  22. BIS (Bank Int. Settl.). 2010. Assessing the macroeconomic impact of the transition to stronger capital and liquidity environments: final report Dec. Rep., Macroecon. Assess. Group Basel, Switz.:
  23. Bogdanova B, Fender I, Takats E 2018. The ABC of bank PBRs. BIS Q. Rev. 2018:Mar.81–95
    [Google Scholar]
  24. Boyarchenko N, Gupta P, Steele N, Yen J 2016. Trends in credit market arbitrage Staff Rep. 784 Fed. Reserve Bank N.Y. NY:
  25. Breuer P 2000. Measuring off-balance sheet leverage Work. Pap. WP/00/22 Int. Monet. Fund Washington, DC:
  26. Brunnermeier MK, Sannikov Y 2014. A macroeconomic model with a financial sector. Am. Econ. Rev. 104:2379–421
    [Google Scholar]
  27. Carlson M, Shan H, Warusawitharana M 2013. Capital ratios and bank lending: a matched bank approach. J. Financ. Intermed. 22:4663–87
    [Google Scholar]
  28. CGFS (Comm. Glob. Financ. Syst.). 2014. Market-making and proprietary trading: industry trends, drivers and policy implications Rep. 52 Bank Int. Settl. Basel, Switz.:
  29. CGFS (Comm. Glob. Financ. Syst.). 2016. Fixed income market liquidity Rep. 55 Bank Int. Settl. Basel, Switz.:
  30. Choi J, Huh Y 2017. Customer liquidity provision: implications for corporate bond transaction costs Finance Econ. Discuss. Ser. Work. Pap. 2017–116 Fed. Reserve Board Washington, DC:
  31. Coval J, Jurek J, Stafford E 2009. The economics of structured finance. J. Econ. Perspect. 23:13–25
    [Google Scholar]
  32. Dudley W 2016. Market and funding liquidity: an overview Presented at the 21st Annual Federal Reserve Bank and Financial Markets Conference Atlanta: May 1–3
  33. Federal Deposit Insurance Corporation. 2017. Global capital index: capitalization ratios for global systemically important banks Rep., Fed. Depos. Insur. Corp. Washington, DC:
  34. Fender I, Lewrick U 2015. Shifting tides–market liquidity and market-making in fixed income instruments. BIS Q. Rev. 2015:Mar.97–109
    [Google Scholar]
  35. Fender I, Lewrick U 2016. Adding it all up: the macroeconomic impact of Basel III and outstanding reform issues Work. Pap. 591 Bank Int. Settl. Basel, Switz.:
  36. FSB (Financ. Stab. Board). 2014. Key attributes of effective resolution regimes for financial institutions Rep., FSB Washington, DC:
  37. FSB (Financ. Stab. Board). 2015. Principles on loss-absorbing and recapitalization capacity of G-SIBs in resolution Rep., FSB Washington, DC:
  38. FSB (Financ. Stab. Board). 2017. Global shadow banking monitoring report 2016 Rep., FSB Washington, DC:
  39. FSB (Financ. Stab. Board). 2018. Global shadow banking monitoring report 2017 Rep., FSB Washington, DC:
  40. Furlong FT, Keeley MC 1989. Capital regulation and bank risk-taking: a note. J. Bank. Finance 13:6883–91
    [Google Scholar]
  41. Gambacorta L, Shin HS 2018. Why bank capital matters for monetary policy. J. Financ. Intermed. 35:17–29
    [Google Scholar]
  42. Geanakoplos J 2009. The leverage cycle. NBER Macroeconomic Annual 24 D Acemoglu, K Rogoff, M Woodford 1–65 Chicago: Univ. Chic. Press
    [Google Scholar]
  43. Goel T, Lewrick U, Tarashev N 2017. Bank capital allocation under multiple constraints Work. Pap. 666 Bank Int. Settl. Basel, Switz.:
  44. Gorton G, Metrick A 2012. Securitized banking and the run on repo. J. Financ. Econ. 104:3425–51
    [Google Scholar]
  45. He Z, Krishnamurthy A 2013. Intermediary asset pricing. Am. Econ. Rev. 103:2732–70
    [Google Scholar]
  46. Hendershott T, Madhavan A 2015. Click or call? Auction versus search in the over-the-counter market. J. Finance 70:419–47
    [Google Scholar]
  47. Liquidnet. 2017. Access to liquidity dominates decision-making process for fixed income firms Press Release, July 20
  48. IMF (Int. Monet. Fund). 2009. Restarting securitization markets: policy proposals and pitfalls. Global Financial Stability Report77–116 Washington, DC: Int. Monet. Fund
    [Google Scholar]
  49. IMF (Int. Monet. Fund). 2011. Toward operationalizing macroprudential policies: When to act?. Global Financial Stability Report103–147 Washington, DC: Int. Monet. Fund
    [Google Scholar]
  50. IMF (Int. Monet. Fund). 2013. Key aspects of macroprudential policy Policy Pap., IMF Washington, DC:
  51. IMF (Int. Monet. Fund). 2014. Staff guidance note on macroprudential policy Policy Pap., IMF Washington, DC:
  52. IMF (Int. Monet. Fund). 2015. Market liquidity–resilient or fleeting. Global Financial Stability Report49–82 Washington, DC: Int. Monet. Fund
    [Google Scholar]
  53. IMF (Int. Monet. Fund), FSB (Financ. Stab. Board), BIS (Bank Int. Settl.). 2016. Elements of effective macroprudential polices: lessons from international experience IMF-FSB-BIS Rep. Washington, DC:
  54. Kapan T, Minoiu C 2018. Balance sheet strength and bank lending: evidence from the global financial crisis. J. Bank. Finance 92:35–50
    [Google Scholar]
  55. Keeley MC 1990. Deposit insurance, risk, and market power in banking. Am. Econ. Rev. 80:51183–200
    [Google Scholar]
  56. Leising M, Smith M 2018. Electronic bond trading gains ground. Bloomberg Feb. 15. https://www.bloomberg.com/news/articles/2018-02-15/electronic-bond-trading-gains-ground-as-market-finally-matures
  57. McPartland K 2017. Technology transforming a vast corporate bond market Greenwich Assoc. Exec. Summ. Oct. 31 Stamford, CT:
  58. Meli J, Gupta S 2016. Behavior modification Barclays Credit Res. Rep. Wilmington, DE:
  59. Mizrach B 2015. Analysis of corporate bond liquidity Res. Note, Off. Chief Econ., FINRA Washington, DC:
  60. Ong LL 2014. A Guide to IMF Stress Testing: Methods and Models Washington, DC: Int. Monet. Fund
  61. Shin HS 2009. Securitization and financial stability. Econ. J. 119:536309–32
    [Google Scholar]
  62. Shin HS 2016. Market liquidity and bank capital Presented at the Perspectives on Liquidity and Policy Practices, AQR Asset Management Institute, London Bus. Sch. UK: Apr.
  63. Singh M 2017. Collateral reuse and balance sheet space Work. Pap. 17/113 Int. Monet. Fund Washington, DC:
  64. Singh M, Alam Z 2018. Leverage–a broader view Work. Pap. 18/62 Int. Monet. Fund Washington, DC:
  65. Thakor AV 2014. Bank capital and financial stability: an economic trade-off or a Faustian bargain. Annu. Rev. Financ. Econ. 6:185–223
    [Google Scholar]
  66. Trebbi F, Xiao K 2018. Regulation and market liquidity. Manag. Sci. In press. https://doi.org/10.1287/mnsc.2017.2876
    [Crossref]
  67. Wenying J, Pritsker M 2008. The impacts of securitization on US bank holding companies Presented at the 44th Annual Conference on Bank Structure and Competition, Federal Reserve Bank Chicago: May 14
/content/journals/10.1146/annurev-financial-110217-023113
Loading
/content/journals/10.1146/annurev-financial-110217-023113
Loading

Data & Media loading...

  • Article Type: Review Article
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error