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The Geneva Report By Charles Goodhart Financial Markets Group London School of Economics

The Geneva Report By Charles Goodhart Financial Markets Group London School of Economics. Purpose of exercise: To influence policy. What has been achieved? What remains in dispute?. What has been achieved? Framework of analysis:-

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The Geneva Report By Charles Goodhart Financial Markets Group London School of Economics

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  1. The Geneva Report By Charles Goodhart Financial Markets Group London School of Economics Purpose of exercise: To influence policy. What has been achieved? What remains in dispute?

  2. What has been achieved? • Framework of analysis:- • 1. Macro-prudential analysis and instruments (Andrew Crockett). Fallacy of composition (Persaud). Importance of externalities (Brunnermeier and Goodhart). • 2. Self-amplifying mechanisms (Brunnermeier and Shin). • 3. Importance of leverage, and de-leverage in a crisis/bust (Shin). • 4. Desirability of counter-cyclical instruments (Goodhart and Persaud).

  3. 5. Reconsideration of liquidity Regulation (Persaud). • Need for regulation of systemic financial intermediaries. • 7. ‘Systemic as part of a herd’ • 8. Structure, Macro-prudential to Central Bank: • Micro-prudential to FSA (twin pillars). • Pick up on other ideas, e.g. ‘living will’, remuneration, margin requirements on LTVs, CCPs for derivatives, etc., but not original.

  4. What remains in dispute, or uncertain. • Application of counter-cyclical CARs:- • (a) Sqam Lake, NYU, Rajan, alternative • (b) Will not help banks in crisis, because market will provide binding constraint. • (c) Too difficult and arbitrary. • Possible outturn. Maximum leverage ratio, allow this to be increased by discretion. • Definition of ‘systemic’. Time/state varying. Publication? Happy with Geneva Report position, but not taken up. • 3. What to do about systemic as a herd? Leverage reports and controls?

  5. 4. Structure of Regulation Domestic: Relative roles of Central Bank, FSA and Treasury. Crossborder: International in life; national in death. Two logical conclusions:- (a) Shift control to host countries, (IIF violently opposed). (b) Shift fiscal crisis-resolution to supra-national (fiscal) basis. EU incoherent, opposed to (i), but cannot do (ii). So what will happen? Appearance (ESRC), but not reality.

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