News from Cass Business School

Head of ECB Financial Research Division speaks at Cass

Tuesday, 22 December, 2009

Dr Philipp Hartmann, Head of the Financial Research Division of the European Central Bank, delivered the keynote address at the first Emerging Scholars in Banking and Finance Conference at Cass on Wednesday 9 December.

The conference, jointly organised by the Centre for Banking Research at Cass and the Financial Markets and Institutions Special Interest Group (British Accounting Association), promotes promising young researchers and encourages them to work on relevant policy issues.

Dr Hartmann argued that a thorough analysis of systemic risk and financial instability goes beyond the traditional view of banks’ vulnerability to depositor runs and linear macroeconomic relationships. Indeed the complex and interconnected nature of financial markets, where risk is shared across banks, insurance companies and other intermediaries, plays a crucial role in the extent to which shocks may propagate and be amplified. Ultimately, a broad understanding of systemic risk can provide the rationale for banking regulation, prudential supervision, and crisis management.

As new regulations and infrastructures are created and the old ones discarded or reformed, it is necessary to study the design and impact of regulation and supervision at the system level. Dr Hartmann argued that in order to do so, it is necessary to significantly improve analytical tools to detect systemic risks early and institute macro-prudential supervision which is effective in taking remedial action to correct instabilities in the financial system.

Dr Hartmann concluded by urging academics to invest in developing a new set of aggregate models with realistic features of financial instability, as well as new methods for the early identification and assessment of systemic risks. Academics should also contribute research to help the discussions on the further identification and optimal use of macro-prudential regulatory instruments.

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