The bank/capital markets nexus goes global

Event

Summary
Date: 
November 15th 2016
Time: 12:00 - 13:00 (Refreshments available from 11:30)
Venue: LSE
Speaker: Hyun Song Shin (Economic Adviser and Head of Research, Bank for International Settlements)
 

One lesson from the Great Deleveraging of 2008 was the futility of drawing a clear distinction between banks and capital markets when wholesale funding was the margin of adjustment. In 2008, leverage and risk appetite danced to the tune of the VIX index, and a generation of researchers grew up with the VIX index as a “wonder variable” in empirical research. But the mantle of the wonder variable has slipped; the VIX index no longer works as a barometer of risk appetite. Instead, it is the US dollar which has taken on the mantle of the market risk factor. When the dollar is strong, risk appetite is weak, and market anomalies such as the breakdown of covered interest parity (CIP) become more pronounced.

This raises two questions: why is this, and does it matter?

To understand why, one has to lift one’s gaze and take in the global picture. This presentation by the BIS’s Hyun Song Shin takes the audience through the reasons for why the dollar has taken on the role of the global risk factor.  The answers turn out to shed light on real economy puzzles, too. Slow productivity growth and of international trade are two of the biggest puzzles in economics currently. Market anomalies turn out to be just the other side of the coin of the real economy puzzles. So, financial markets turn out to matter for the real economy.

Hyun Song Shin was appointed Economic Adviser and Head of Research on 1 May 2014. Before joining the BIS, Mr Shin was the Hughes-Rogers Professor of Economics at Princeton University. In 2010, on leave from Princeton, he served as Senior Adviser to the Korean president, taking a leading role in formulating financial stability policy in Korea and developing the agenda for the G20 during Korea's presidency. From 2000 to 2005, he was Professor of Finance at the London School of Economics. He holds a DPhil and MPhil in Economics from Oxford University (Nuffield College) and a BA in Philosophy, Politics and Economics from the same university. Mr Shin is author of numerous publications in the fields of monetary policy, banking, finance and issues related to financial stability and further details are available here.

The suggested hashtag for this event for Twitter users is: #LSEHyunSongShin.

Photo gallery

Full speech available here.