Abstract

This book reflects on the innovations that central banks have introduced since the 2008 collapse of Lehman Brothers to improve their modes of intervention, regulation and resolution of financial markets and financial institutions. Authors from both academia and policy circles explore these innovations through four approaches: ‘Bank Capital Regulation’ examines the Basel III agreement; ‘Bank Resolution’ focuses on effective regimes for regulating and resolving ailing banks; ‘Central Banking with Collateral-Based Finance’ develops thought on the challenges that market-based finance pose for the conduct of central banking; and ‘Where Next for Central Banking’ examines the trajectory of central banking and its new, central role in sustaining capitalism. 

“This is the book finance experts have been waiting for. For those who seek concrete case studies and empirics on the transformative role of central banks since the financial crisis, this important volume amply fills this niche. This rigorous and novel investigation is a ‘must-read’ for all who either approve or disapprove of the unconventional instruments and practices used by central banks that have extended the mandate and blurred the traditional line between monetary and fiscal policy.” —Brigitte Young, University of Münster, Germany

“Focusing on solvency questions, this book provides a representative sample of the current state of debate, a first and useful step in the urgent project of reconceptualizing the role of central banking for the modern world.” —Perry Mehrling, Barnard College, Columbia University

“Big crises challenge our thinking and even entire paradigms of economics. Many of the authors in this volume are well known for their ideas for further regulatory reforms after the crisis. The book’s thought-provoking and sometimes controversial views are very welcome to the discussion even if one would not necessarily agree with all of them.” —Erkki Liikanen, Governor of the Bank of Finland

Since the 2008 collapse of Lehman Brothers, central banking has changed dramatically. Over the past five years central banks have intervened in both public and private debt markets, taking on functions of dealers of last resort, while simultaneously designing regulatory and resolution frameworks with the explicit aim of changing bank business models, all in order to contain and better address systemic risk. This book explores these developments through collected essays from authors from both academia and policy circles, and sets them in the context of the European crisis.

‘Central Banking at a Crossroads’ reflects on the innovations central banks have made to improve their modes of intervention, regulation and resolution of financial markets and financial institutions in four related sections: ‘Bank Capital Regulation’ examines the Basel III agreement, identifying its key novelties and shortcomings vis-à-vis its predecessor, Basel II; ‘Bank Resolution’ focuses on effective regimes for regulating and resolving ailing banks; ‘Central Banking with Collateral-Based Finance’ develops thought on the challenges that market-based finance pose for the conduct of central banking in periods of economic stability and, through a critical theoretical angle, the important role that governments play for financial markets as manufacturers of high-quality collateral or safe assets; and, finally, ‘Where Next for Central Banking’ examines the trajectory of central banking, its issues, and its new, central role in sustaining capitalism.

Charles Goodhart is director of the Financial Regulation Research Programme at the London School of Economics.

Daniela Gabor is an associate professor at the University of the West of England in Bristol.

Jakob Vestergaard is a senior researcher at the Danish Institute for International Studies in Denmark.

Ismail Ertürk is a senior lecturer at Manchester Business School at the University of Manchester, UK.

“Big crises challenge our thinking and even entire paradigms of economics. Many of the authors in this volume are well known for their ideas for further regulatory reforms after the crisis. The book’s thought-provoking and sometimes controversial views are very welcome to the discussion even if one would not necessarily agree with all of them.” —Erkki Liikanen, Governor of the Bank of Finland

“Focusing on solvency questions, this book provides a representative sample of the current state of debate, a first and useful step in the urgent project of reconceptualizing the role of central banking for the modern world.” —Perry Mehrling, Barnard College, Columbia University

“This is the book finance experts have been waiting for. For those who seek concrete case studies and empirics on the transformative role of central banks since the financial crisis, this important volume amply fills this niche. This rigorous and novel investigation is a ‘must-read’ for all who either approve or disapprove of the unconventional instruments and practices used by central banks that have extended the mandate and blurred the traditional line between monetary and fiscal policy.” —Brigitte Young, University of Münster, Germany