Disponible en Español

IV Conference on Financial Stability

November 23 - 25, 2021
Videoconference

The Conference was held on a digital format on November 23-25, 2021, and was attended by 121 representatives from 30 institutions and associates of CEMLA from the following countries: Argentina, Austria, Bahamas, Bolivia, Brazil, Canada, Colombia, Costa Rica, Ecuador, El Salvador, France, Germany, Guatemala, Haiti, Honduras, Hungary, Italy, Jamaica, Mauritius, Mexico, Morocco, Netherlands, Nicaragua, Peru, Philippines, Portugal, Spain, Switzerland, Surinam, United Kingdom, United States, and Uruguay. The conference was focused on the following topics: financial networks, banking and regulation, structural changes in the financial system precipitated by the 2020 COVID pandemic, climate-related financial risks, spillover effects in the financial system, macroprudential policy and systemic risk, monetary policy and the interactions with financial stability. The agenda included two keynote sessions by Markus Brunnermeier, Director of the Bendheim Center for Finance, Princeton University and Jing Yang, Managing Director of the Bank of Canada’s Financial Stability Department.

Among the topics of the conference, a few sessions discussed network analyses focused on interlinkages between financial entities and the importance to capture second-round effects between entities not necessarily directly connected. Also, the sessions examined the intended and unintended consequences of regulation on the global financial system and the effect of the COVID-19 crisis on the real sector. Finally, other sessions explored recent methodological advances in measuring and controlling risk in interconnected financial systems. Some of the main takeaways include the following ones:

· Emergency programs launched as a response to the COVID-19 pandemic, such as the Main Street Lending Program (MSLP), which was focused on supporting the flow of bank credit to small and medium sized firms, increased banks’ willingness to extend loans to businesses. Also, the MSLP allowed supporting the flow of credit to the real sector.
· The conference highlighted the importance of using stress testing tools for the analysis of the short-term dynamic reaction of a granular network of banks and investment funds conditional on a macro-financial shock scenario. Some results showed the importance of taking into account the inter-sectoral contagion, which significantly increases losses in the financial system.
· Based on Austrian data, researchers found that contagion losses are often not priced appropriately. The failure to price contagion losses in interbank markets creates a negative externality. These conclusions support the notion that regulatory interventions could mitigate this externality.

Tuesday, November 23

Opening remarks

Chair: Fabrizio López Gallo Dey - Banco de México.

· Manuel Ramos Francia, Director General - CEMLA.
· Alejandro Díaz de León Carrillo, Governor - Banco de México.

Keynote 1

Chair: Stefano Battiston - University of Zúrich.

· Markus K. Brunnermeier, Director of the Bendheim Center for Finance - Princeton University.

Parallel Session 1a. Financial Networks (Room 1)

Chair: Stefano Battiston - University of Zurich.

Temporal networks in the analysis of financial contagion

· Angelos Vouldis, - European Central Bank.

Discussant: Adrián Carro - Banco de España.

COVID-19, Macroeconomic Dynamics and Fear in Europe: A Network Global VAR Approach

· Paolo Pagnottoni - University of Pavia.

Discussant: Angelos Vouldis - European Central Bank.

Uncertainty, non-linear contagion and the credit quality channel: an application to the Spanish interbank market

· Adrián Carro - Banco de España.

Discussant: Paolo Pagnottoni – University of Pavia.

Parallel Session 1b. Banking and Regulation (Room 2)

Chair: Calixto López Castañón - Banco de México.

Bank Runs, Bank Competition and Opacity

· Toni Ahnert – Bank of Canada.

Discussant: José-Luis Peydró – Imperial College London, ICREA- Universitat Pompeu Fabra - CREI-Barcelona GSE and CEPR.

Bank Risk-Taking and Capital Requirements

· José-Luis Peydró – Imperial College London, ICREA- Universitat Pompeu Fabra - CREI-Barcelona GSE and CEPR.

Discussant: Sotirios Kokas – University of Essex.

Real effects of imperfect bank-firm matching

· Sotirios Kokas – University of Essex.

Discussant: Nicola Pierri – IMF.

Wednesday, November 24

Keynote 2

Chair: Grzegorz Hałaj - Bank of Canada.

· Jing Yang, Managing Director Financial Stability - Bank of Canada.

Parallel Session 2a. COVID-19 (Room 1)

Chair: Fabrizio López Gallo Dey - Banco de México.

The role of banks’ technology adoption in credit markets during the pandemic

· Edoardo Rainone – Bank of Italy.

Discussant: Andrei Zlate – Board of Governors of the Federal Reserve System.

LTCM Redux? Hedge Fund Treasury Trading and Funding Fragility during the COVID-19 Crisis

· Sumudu W. Watugala – Cornell University.

Discussant: Georgia Bush – Banco de México.

Motivating Banks to Lend? Credit Spillover Effects of the Main Street Lending Program

· Andrei Zlate – Board of Governors of the Federal Reserve System.

Discussant: Christian Friedrich – Bank of Canada.

Parallel Session 2b. Overlooked challenges to financial stability (Room 2)

Chair: Miguel Molico - Bank of Canada.

Assessing the double materiality of climate-related financial risks: an application to the EU economy and banking sector

· Irene Monasterolo – Professor of Climate Finance, EDHEC business school, EDHEC-Risk Institute.

Discussant: Serafín Martínez-Jaramillo – CEMLA and Banco de México.

Over with carbon? Investors' reaction to the Paris Agreement and the US withdrawal

· Stefano Battiston – University of Zurich.

Discussant: Carola Müller – CEMLA.

Pirates without Borders: The Propagation of Cyberattacks through Firms’ Supply Chains

· Marco Macchiavelli – Federal Reserve Board.

Discussant: Co-Pierre George – University of Cape Town.

Thursday, November 25

Parallel Session 3a. Spillover effects in the financial system (Room 1)

Chair: Grzegorz Hałaj - Bank of Canada.

Modelling fire sale contagion across banks and non-banks

· Gerardo Ferrara – Bank of England.

Discussant: Matthias Sydow – European Central Bank (ECB).

Shock amplification in an interconnected financial system of banks and investment funds

· Matthias Sydow – European Central Bank (ECB).

Discussant: Gerardo Ferrara – Bank of England.

Stress-ridden finance and growth losses: does financial development break the link?

· Matias Ossandon Busch – CEMLA.

Discussant: Thibaut Duprey – Bank of Canada.

Parallel Session 3b. Macroprudential policy and systemic risk (Room 2)

Chair: Celso Brunetti - Federal Reserve Board.

Back testing Macroprudential Stress Tests

· Amanah Ramadiah – FNA.

Discussant: Eddie Gerba – Bank of England.

Thank me later: Why is (macro)prudence desirable?

· Eddie Gerba – Bank of England.

Discussant: Michael Sigmund – Oesterreichische Nationalbank.

Do Interbank Markets Price Systemic Risk?

· Michael Sigmund – Oesterreichische Nationalbank.

Discussant: Amanah Ramadiah – FNA.

Parallel Session 4a. Banks Bail-ins and Resolution (Room 1)

Chair: Angel Estrada - Banco de España.

Fighting Failure: The Persistent Real Effects of Resolving Distressed Banks

· Stephen A. Karolyi – U.S. Department of the Treasury.

Discussant: Gábor Fukker – European Central Bank.

Assessing the Systemic Risk impact of Bank Bail-Ins

· Christoph Siebenbrunner – Harvard University.

Discussant: Stephen A. Karolyi – U.S. Department of the Treasury

On the optimal control of interbank contagion in the euro area banking system

· Gábor Fukker – European Central Bank.

Discussant: Christoph Siebenbrunner – Harvard University.

Parallel Session 4b. Monetary policy and financial stability (Room 2)

Chair: Jim MacGee - Bank of Canada.

Monetary Policy Hysteresis and the Financial Cycle

· Phurichai Rungcharoenkitkul – Bank for International Settlements.

Discussant: Baptiste Meunier – Banque de France.

A prudential trade-off? Leakages and interactions with monetary policy

· Baptiste Meunier – Banque de France.

Discussant: Yannick Timmer – Federal Reserve Board.

Mixing QE and Interest Rate Policies at the Effective Lower Bound: Micro Evidence from the Euro Area

· Yannick Timmer – Federal Reserve Board.

Discussant: Phurichai Rungcharoenkitkul – Bank for International Settlements.

Main conclusions and closing remarks

Chair: Matías Ossandon Busch - CEMLA.

· Stefano Battiston – University of Zurich.
· Iftekhar Hasan – Fordham University and Journal of Financial Stability.

Jing Yang
Managing Director
Financial Stability Department- Bank of Canada.

Jing Yang is Managing Director of the Bank of Canada’s Financial Stability Department. In this capacity, she leads the Bank’s policy advice and responses on financial sector issues in Canada and abroad, with a focus on provision of central bank liquidity, the oversight of systemically important financial market infrastructures as well as systemic risk assessment including the developments of digital currencies and climate change. Jing represents Canada at BCBS. Prior to joining the Bank of Canada, Ms. Yang worked at the Bank of England, Bank for International Settlements, also had a short span at the European Central Bank. Jing holds a Doctorate in Economics from Concordia University. Jing is a recipient of multiple Governor’s Awards of Excellence as well as a Women Worth Watching leadership Award from the Profiles in Diversity Journal.

Markus K. Brunnermeier
Director of Bendheim Center for Finance
Princeton University.

Markus K. Brunnermeier is the Edwards S. Sanford Professor in the economics department at Princeton University and director of Princeton's Bendheim Center for Finance. His research focuses on international financial markets and the macroeconomy with special emphasis on bubbles, liquidity, financial and monetary price stability, and digital money. In 2020, at the outbreak of Covid, he established a webinar series. He is a member of several advisory groups, including to the US Congressional Budget Office, the Bank for International Settlements, and the Bundesbank as well as previously to the International Monetary Fund, the Federal Reserve of New York, the European Systemic Risk Board. Brunnermeier was awarded his PhD by the London School of Economics (LSE).

Speech of the Director General