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Articles by Stephen Cecchetti
Rethinking Fed operations: Recommendations to the five task forces
Federal Reserve Chair Kevin Warsh has appointed five task forces to reconsider how the Fed operates: inflation frameworks, data, productivity and jobs, communications, and balance sheet policy. Together they amount to the most consequential review of U.S. monetary policy at least since the Federal Open Market Committee (FOMC) adopted a formal inflation target in 2012. The review is overdue. Five years of above-target inflation are eroding the credibility the Fed spent decades building.
Finance and Growth: What Shifts the Relationship?
1 Introduction The global financial crisis of 2007–2009 marked a watershed moment in our understanding of the relationship between finance and economic growth. Prior to the crisis, the prevailing consensus among economists was that financial development unambiguously promoted economic growth. The idea that an economy needs intermediation to match borrowers and lenders and channel resources to their most efficient uses is fundamental to economic thinking.
Is Tether the Coppernose of our time?
Stephen Cecchetti is professor in international finance at Brandeis University.
Warsh’s war on the Fed balance sheet
Stephen Cecchetti is professor in international finance at Brandeis International Business School.
Basel Endgame: Bank Capital Requirements and the Future of International Standard Setting
We thank Richard Berner, Martin Birn, Neil Esho, Marc Farag, Gregg Gelzinis, Jonathan Parker, Graham Steele, Timothy Taylor, Lawrence J. White, and Heidi Williams for comments and discussions. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. Kermit L.
Book launch: The Central Bank as Crisis Manager
The Central Bank as Crisis Manager focuses on how the world's central banks have confronted crisis after crisis in recent years—both before and since the global financial crisis. Yet many of these events seem to take central banks by surprise.
Fiscal Consequences of Central Bank Losses
Skip to main content Cecchetti is Professor and Rosen Family Chair in International Finance at the Brandeis International Business School, Senior Research Consultant at King’s College London Business School, Chair of the Advisory Scientific Committee of the European Systemic Risk Board, Research Associate at the NBER, and Research Fellow at the CEPR; Hilscher is Professor of Agricultural and Resource Economics at the University of California, Davis.
The Key Policy Lessons of SVB
Looking back at the March 2023 collapse of Silicon Valley Bank and the subsequent banking crisis, Stephen G. Cecchetti and Kermit L. Schoenholtz highlight two lessons that should guide the reform of bank regulation. The collapse of Silicon Valley Bank in March 2023 triggered a panic among regional banks.
Opinion | Ignore the bank lobby, regulators. It’s high time for banking reform.
Comment Save Stephen Cecchetti is professor in international finance at Brandeis International Business School. Kim Schoenholtz is clinical professor emeritus at NYU’s Stern School of Business. Banks are at it again. Less than a year ago, runs on regional banks led to the second-, third- and fourth-largest bank failures in U.S. history — First Republic, Silicon Valley Bank and Signature Bank.
The dangerous role of America’s weird lenders-of-next-to-last resort
Stephen Cecchetti is professor in international finance at Brandeis International Business School. Kim Schoenholtz is clinical professor emeritus at NYU’s Stern School of Business. Lawrence White is professor of economics at NYU’s Stern School of Business, and was a regulator of the FHLB system in 1986-89. Some government financial institutions strengthen the system; others do not. Nowhere is that clearer than with the tangled mess of the Federal Home Loan Bank system.
The dangerous role of America’s weird lenders-of-next-to-last resort
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A debate: Should crypto be regulated by the federal government?
Twitter Join the conversation on Twitter using #CryptoDebate The explosion of interest in cryptocurrencies and the implosion of cryptocurrency exchange FTX shine a spotlight on the fact that today’s regulatory apparatus is ill-equipped to oversee this new financial technology.
Let Crypto Burn
Stephen Cecchetti & Kim Schoenholtz FT Alphaville November 17, 2022 Just say no to legitimacy-inferring regulation Read Full Article » Show comments Hide Comments
Let crypto burn
Stephen Cecchetti is the Rosen Family chair in international finance at Brandeis International Business School.
Opinion: Corporate greed isn't to blame for high inflation Original
Editor’s Note: Stephen G. Cecchetti is Rosen Family Chair in International Finance at the Brandeis International Business School and vice chair of the Advisory Scientific Committee of the European System Board. Kermit L. Schoenholtz is Clinical Professor Emeritus at New York University’s Leonard N. Stern School of Business. He is a member of the Council on Foreign Relations. Cecchetti and Schoenholtz author a popular economics blog at www.moneyandbanking.com.
Russian sanctions: Some questions and answers
The sanctions on Russia in response to its invasion of Ukraine are the most powerful and costly punishments imposed on a major economy at least since the Cold War.
Digitalisation and the future of banking
Video might kill the radio star: Digitalisation and the future of banking Thorsten Beck, Stephen Cecchetti, Magdalena Grothe, Malcolm Kemp, Loriana Pelizzon, Antonio Sánchez Serrano 19 January 2022 New technologies are changing how banks produce and provide financial services. These changes have implications for traditional banks, creating novel sources of systemic risk which could in turn pose regulatory and policy challenges.
Central bank digital currency: The battle for the soul of the financial system
As Jon Cunliffe states in the opening quote, most people do not know this. They are unaware that when they pay for groceries, purchase a new phone, or renew a software subscription, they are using bank-created digital money. Importantly, it is the central bank that provides the foundation that enables us to rely on this system.
Central bank digital currency: The battle for the soul of the
Central bank digital currency: The battle for the soul of the financial system Central banks are thinking about whether they should substitute publicly issued digital currency for the bank-issued digital money that people use every day. How this plays out can profoundly reshape the financial system and make it less stable.
Understanding how central banks use their balance sheets
Understanding how central banks use their balance sheets: A critical categorisation Since the Global Crisis, the size of central bank balance sheets has grown significantly. Traditional goals of price and financial stability are insufficient for assessing the success of modern central banking operations. This column introduces a new framework for categorising and understanding central bank balance sheet operations.
Banking The Unbanked: How Modi’s Jan Dhan Revolution Has Benefited Millions Of India’s Poor
Financial inclusion – providing universal access to financial services and encouraging their use – is an important means for promoting economic development. As of 2014, the World Bank estimated that there were still two billion adults without a bank account, and many others with only a tenuous connection to the financial system (see Global Findex).
The euro area in the age of COVID-19
Despite significant reforms over the last two decades, the euro area remains divided, both politically and financially. This column reviews the progress towards the completion of the European monetary union and highlights the remaining gaps. The euro area remains behind the US in terms of risk sharing, banking and capital markets union, and labour mobility. In addition, there is no common fiscal policy to provide support in response to regional shocks.
A primer on helicopter money
Helicopter money is not just another version of unconventional monetary policy. Using simple central bank and government balance sheets, this column explains how helicopter money today is different from what Milton Friedman imagined back in 1969 – it is expansionary fiscal policy financed by central bank money. Helicopter money is not monetary policy. It is a fiscal policy carried out with the cooperation of the central bank.
Replacing LIBOR
Most financial experts know that LIBOR will likely cease at the end of 2021. Yet, it remains by far the most important global benchmark interest rate, forming the basis for an estimated $400 trillion of contracts. This column examines the US dollar LIBOR transition process, highlighting both the substantial progress and the major obstacles that still lie ahead.
Debate on the future of digital money
The announcement of the launch of Libra, a private global cryptocurrency, has reignited the debate on the costs and benefits of digital forms of payments controlled by the private sector. This column introduces a new Vox debate on the future of digital money intended to foster a conversation among academics and policymakers about the costs and benefits of some of these innovations and future scenarios for digital money.
Libra: A dramatic call to regulatory action
On 18 June, Facebook announced plans to issue its own currency. By giving every individual with a smart phone the ability to purchase tokens in their own domestic currency, Libra would improve the efficiency of payments, reduce costs, and expand financial access—or so Facebook argues.
Are Audit Committees Suffering from Overload?
Audit committee responsibilities have consistently increased, and practitioners have raised concerns that audit committees may be overloaded with duties. For example, in a 2005 interview, one audit committee member noted, “It’s becoming almost excessive. We get press releases almost weekly to review. It’s becoming a burden on my email at home. Earnings releases, litigation information, and acquisition information — something seems to always be coming my way” (Beasley et al. 2009).
SEC Proposes to Exempt More Firms from Required Attestation of Internal Controls
The Securities and Exchange Commission has proposed changes to its rules requiring companies to obtain attestation on their internal controls from an independent public accountant. The proposal rests on the idea that attestation’s costs often exceed its benefits.
How to keep central banks independent
Some observers say central banks can best mitigate risks to their independence by returning to the narrow price-stability mandate that served them so well prior to the global financial crisis. But this advice is misguided: central banks must revive their original role as guardians of financial stability. The global financial crisis that erupted in 2008 transformed the role of central bankers and the scale and scope of their policy toolkit.
How to keep central bankers independent
The global financial crisis that erupted in 2008 transformed the role of central bankers and the scale and scope of their policy toolkit. Today, financial stability is once again at the core of central banks’ missions, and interest rates in a number of rich countries are likely to remain at or even below zero for some time. This means that central bankers’ actions will be more visible and politically sensitive than they were even a decade ago.
Can Blockchain Create a Corporate-Governance Revolution at Public Companies?
In a new paper, we analyze the major disconnect between the theory of corporate governance, its legal expression, and the reality of corporate ownership structures, based on an “indirect holding system” (IHS), which has evolved from complex existing technological limitations. We argue that distributed ledger technology (DLT) offers the potential to redesign the company registry and securities clearing and settlement systems for public companies and realign them with theory.
Statement of Concerned Securities Law Professors Regarding Investment Advisers and Fiduciary Obligations
We circulate this statement as law professors specializing in the field of securities regulation who are concerned that the Securities and Exchange Commission (the “Commission”) has moved in a new direction that is both contrary to its past practice and harmful to the interests of investors.
Why We Shouldn’t Regulate Reputation Risk at Banks
What do payday lenders, firearms retailers, porn stars, churches, coal mines, and condom companies have in common? All have complained that regulators pressured financial institutions to close their accounts over reputation-risk concerns. In a my article (available here), forthcoming in the Georgia Law Review, I explain that broad regulation of reputation risk does not reduce bank risk and unnecessarily politicizes bank regulators.
Sound At Last? Assessing a Decade of Financial Regulation
Patrick Bolton, Stephen Cecchetti, Jean-Pierre Danthine, Xavier Vives 03 June 2019 This first report in a new series from IESE Business School and CEPR on ‘The Future of Banking’ tackles three important areas of post-crisis regulatory reform: the Basel III agreement on capital, liquidity and leverage requirements; resolution procedures to end ‘too big to fail’; and the expanded role of central banks with a financial stability remit.
Finance and blockchains
We are constantly bombarded by reports of how blockchain technology will change the world. This column describes the technology, the problem it is designed to solve, and the impact it might have on finance. Conceivably, a blockchain system could securely track the ownership of every financial instrument and exposure in the global economy. While this is a very tall order, it would be truly revolutionary. In practice, however, we are still a long way off.
Banking the masses: 2018 edition
Over the past six years, more than 1.2 billion adults have gained at least basic financial access through a financial institution or their mobile phone. This column discusses the benefits of financial inclusion, key trends regarding access since 2011, and the means for achieving the World Bank’s goal of universal financial access.
The stubbornly high cost of remittances: a way forward | Vox Talks
Global remittances total $600 billion annually - equivalent to about four times the value of development assistance. Yet despite huge innovations in the underlying technology, the cost of remittances remains persistently high, at around 7% on average. Stephen Cecchetti and Kim Schoenholtz discuss the causes of this, and suggest some options available to policymakers to lower costs.
The stubbornly high cost of remittances
Despite recent technological advances, the costs for migrants to send money across borders to their families remain extremely expensive, with fees often surpassing 5%. This column explores the various factors shaping remittance prices and identifies two key avenues for cost reduction: consumer education and competition. In particular, expanding mobile technology is helping to displace banks and squeeze remittance costs.
Financing intangible capital
Investment is shifting from tangible physical assets to intangible goods like software, data, and R&D. This column analyses the impact of this shift on the structure of firm financing. The financial system’s shift from public to private equity is, on the whole, an encouraging reflection of its response to the changing needs of the economy.
VOX, CEPR’s Policy Portal
The likelihood of another crisis-induced plunge in GDP is much lower today than it was a decade ago, but we are still at an early stage of building a financial stability policy framework that corresponds to the inflation-targeting framework that forms the basis for monetary policy.
Banking the unbanked: the Indian revolution
File photo. Jan Dhan Yojana accounts build balances over time that are economically meaningful for poor households. Photo: PIBFinancial inclusion—providing universal access to financial services and encouraging their use—is an important means for promoting economic development. As of 2014, the World Bank estimated that there were still two billion adults without a bank account, and many others with only a tenuous connection to the financial system.
Black Monday: Thirty years after
Black Monday has been referred to as the first contemporary global financial crisis. This column reviews key aspects of the 1987 crash and discusses the subsequent steps taken to improve the resilience of the financial system. It also highlights a key lingering vulnerability – the lack of a mechanism for managing the insolvency of critical payment, clearing, and settlement institutions. “[T]he real drama was not on Black Monday.
VOX, CEPR’s Policy Portal
Financial firms have paid fines totalling more than $9 billion for manipulating LIBOR, yet this flawed benchmark has not been replaced. This column argues that there are reduced incentives for banks to participate in setting the LIBOR rate, and so the potential of, and incentives for, manipulation remain. Although LIBOR is unsustainable, international regulators are working to produce more robust alternatives and to smooth the transition.
The financial crisis, ten years on
The financial crisis, ten years on There is still a notable lack of consensus over when exactly the 2007-09 financial crisis started. This column argues that the crisis began on 9 August 2007, when BNP Paribas announced they were suspending redemptions. In 2007, the US and European financial systems lacked two key shock absorbers: adequate capital to meet falls in asset values, and adequate holdings of high-quality liquid assets to meet temporary liquidity shortfalls.
The US Treasury’s missed opportunity
The US Treasury recently published the first in a series of reports designed to implement the seven core principles for regulating the US financial system announced in an Executive Order from President Trump. While Trump's stated principles provide an attractive basis for making the financial system both more cost-effective and safer, this column argues that, at least when considering the largest banks, adopting the Treasury’s recommendations would make the financial system less safe.
Bank resolution: The importance of a public backstop
In April 2017, the US House of Representatives passed a bipartisan revision of the bankruptcy code, which would expedite the resolution of adequately structured intermediaries. This column considers the new Financial Institutions Bankruptcy Act of 2017 and how it fits in with the existing Dodd-Frank mechanism. By raising the odds of an effective resolution, the Act (as a complement to Dodd-Frank) boosts the credibility of the US regime.
Better Capitalised Banks Lend More and Lend Better
"The Royal Stock Exchange, City of London, UK, at night" By Stephen G. Cecchetti & Kermit L. Schoenholtz Are higher capital requirements really a drag on economic growth? Many people seem to think so. We disagree. In this essay, we describe how better capitalised banks experience lower funding costs, and how undercapitalised banks have an incentive to “evergreen” loans to low-quality firms.
The Fed's Favorite Inflation Predictors Aren't Very Predictive | RealClearMarkets
The Fed's Favorite Inflation Predictors Aren't Very Predictive The Federal Reserve has met one part of its legal mandate: Unemployment is low enough that most people looking for a job can usually find one. Yet interest rates in the United States remain at hist…Read Full Article »
GDP-linked bonds: A primer | VOX, CEPR's Policy Portal
Policymakers and economists have been looking for ways to make it easier to manage increasing debt burdens. This column assesses one possible solution: GDP-linked bonds that tie the size of debt payments to an economy’s wellbeing. There are clear benefits to a government from issuing GDP-linked bonds, but establishing investor confidence in these instruments will require a better approach to the obstacles posed by data revisions and changes in methodology.
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