Iñaki Aldasoro, Sebastian Doerr, Leonardo Gambacorta, Sukhvir Notra, Tommaso Oliviero, David Whyte
Generative artificial intelligence (gen AI) introduces novel opportunities to strengthen central banks’ cyber security but also presents new risks. This article uses data from a unique survey among cyber security experts at major central banks to shed light on these issues. Responses reveal that most central banks have already adopted or plan to adopt gen AI tools in the context of cyber security, as perceived benefits outweigh risks. Experts foresee that AI tools will improve cyber threat detection and reduce response time to cyber attacks. Yet gen AI also increases the risks of social engineering attacks and unauthorized data disclosure. To mitigate these risks and harness the benefits of gen AI, central banks anticipate a need for substantial investments in human capital, especially in staff with expertise in both cyber security and AI programming. Finally, while respondents expect gen AI to automate various tasks, they also expect it to support human experts in other roles, such as oversight of AI models.
生成式人工智能（gen AI）为加强中央银行的网络安全带来了新的机遇，但也带来了新的风险。本文利用对主要中央银行的网络安全专家进行的一项独特调查的数据来揭示这些问题。调查结果显示，大多数中央银行已经采用或计划在网络安全方面采用人工智能工具，因为他们认为人工智能工具的好处大于风险。专家们预计，人工智能工具将提高网络威胁检测能力，缩短对网络攻击的响应时间。然而，新一代人工智能也增加了社交工程攻击和未经授权的数据泄露的风险。为了降低这些风险并利用 gen AI 的优势，中央银行预计需要在人力资本方面进行大量投资，特别是在同时具备网络安全和 AI 编程专业知识的员工方面。最后，虽然受访者希望 gen AI 能够实现各种任务的自动化，但他们也希望 gen AI 能够支持人类专家发挥其他作用，如监督 AI 模型。
{"title":"Generative Artificial Intelligence and Cyber Security in Central Banking","authors":"Iñaki Aldasoro, Sebastian Doerr, Leonardo Gambacorta, Sukhvir Notra, Tommaso Oliviero, David Whyte","doi":"10.1093/jfr/fjae008","DOIUrl":"https://doi.org/10.1093/jfr/fjae008","url":null,"abstract":"Generative artificial intelligence (gen AI) introduces novel opportunities to strengthen central banks’ cyber security but also presents new risks. This article uses data from a unique survey among cyber security experts at major central banks to shed light on these issues. Responses reveal that most central banks have already adopted or plan to adopt gen AI tools in the context of cyber security, as perceived benefits outweigh risks. Experts foresee that AI tools will improve cyber threat detection and reduce response time to cyber attacks. Yet gen AI also increases the risks of social engineering attacks and unauthorized data disclosure. To mitigate these risks and harness the benefits of gen AI, central banks anticipate a need for substantial investments in human capital, especially in staff with expertise in both cyber security and AI programming. Finally, while respondents expect gen AI to automate various tasks, they also expect it to support human experts in other roles, such as oversight of AI models.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2024-08-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142176505","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Claudio Bassi, Michael Grill, Felix Hermes, Harun Mirza, Charles O’Donnell, Michael Wedow
The introduction of the Securities Financing Transactions Regulation into EU law provides a unique opportunity to obtain an in-depth understanding of repo markets. Based on the transaction-level data reported under the regulation, this article contributes to the literature with key facts about the euro area repo market. We start by providing the regulatory background, as well as highlighting some of its advantages for financial stability analysis. We then go on to present three sets of findings that are highly relevant to financial stability and focus on the dimensions of the different market segments, counterparties, and collateral, including haircut practices. Finally, we outline how the data reported under the regulation can support the policy work of central banks and supervisory authorities and contribute to the existing literature on repo markets. We demonstrate that these data can be used to make several important contributions to enhancing our understanding of the repo market from a financial stability perspective, ultimately assisting international efforts to increase repo market resilience.
{"title":"Enhancing Repo Market Transparency: The EU Securities Financing Transactions Regulation","authors":"Claudio Bassi, Michael Grill, Felix Hermes, Harun Mirza, Charles O’Donnell, Michael Wedow","doi":"10.1093/jfr/fjae009","DOIUrl":"https://doi.org/10.1093/jfr/fjae009","url":null,"abstract":"The introduction of the Securities Financing Transactions Regulation into EU law provides a unique opportunity to obtain an in-depth understanding of repo markets. Based on the transaction-level data reported under the regulation, this article contributes to the literature with key facts about the euro area repo market. We start by providing the regulatory background, as well as highlighting some of its advantages for financial stability analysis. We then go on to present three sets of findings that are highly relevant to financial stability and focus on the dimensions of the different market segments, counterparties, and collateral, including haircut practices. Finally, we outline how the data reported under the regulation can support the policy work of central banks and supervisory authorities and contribute to the existing literature on repo markets. We demonstrate that these data can be used to make several important contributions to enhancing our understanding of the repo market from a financial stability perspective, ultimately assisting international efforts to increase repo market resilience.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2024-08-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142176506","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Correction to: Could it Happen in the EU? An Analysis of Loss Distributionbetween Shareholders and AT1 Bondholders under EU Law","authors":"","doi":"10.1093/jfr/fjae007","DOIUrl":"https://doi.org/10.1093/jfr/fjae007","url":null,"abstract":"","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.0,"publicationDate":"2024-07-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141657321","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In November 2024 European banking supervision will have been operational for 10 years. The Single Supervisory Mechanism (SSM) has evolved from a start-up to a mature, well-established, and respected supervisor. Harmonized and transparent supervisory practices have been implemented, whilst the European banking sector has proved to be resilient. Nevertheless, whilst acknowledging the progress that has been made, Europe should not rest on its laurels. As the global financial landscape is continuously evolving, the European framework must also evolve. Growing geopolitical tensions, the rise of FinTech and BigTech companies, the ongoing digital transformation, and climate change not only impact banks but also add more complexity to the work of supervisors. This is due to unexpected and difficult-to-model events, the creation of new business models, products, and services, as well as the emergence of cultural, behavioural, and ethical considerations that should be taken into account. To address these challenges, supervisors should enhance their competencies, approaches, and tools to stay ahead of evolving market dynamics and to remain aligned with the rapid evolution of technology and the risks that climate change poses. Equally important, ensuring thorough and efficient supervision requires fostering and strengthening collaboration and information sharing between all relevant authorities.
{"title":"Ten Years of the Single Supervisory Mechanism: Looking into the Past, Navigating into the Future","authors":"Apostolos Thomadakis, Judith Arnal","doi":"10.1093/jfr/fjae005","DOIUrl":"https://doi.org/10.1093/jfr/fjae005","url":null,"abstract":"In November 2024 European banking supervision will have been operational for 10 years. The Single Supervisory Mechanism (SSM) has evolved from a start-up to a mature, well-established, and respected supervisor. Harmonized and transparent supervisory practices have been implemented, whilst the European banking sector has proved to be resilient. Nevertheless, whilst acknowledging the progress that has been made, Europe should not rest on its laurels. As the global financial landscape is continuously evolving, the European framework must also evolve. Growing geopolitical tensions, the rise of FinTech and BigTech companies, the ongoing digital transformation, and climate change not only impact banks but also add more complexity to the work of supervisors. This is due to unexpected and difficult-to-model events, the creation of new business models, products, and services, as well as the emergence of cultural, behavioural, and ethical considerations that should be taken into account. To address these challenges, supervisors should enhance their competencies, approaches, and tools to stay ahead of evolving market dynamics and to remain aligned with the rapid evolution of technology and the risks that climate change poses. Equally important, ensuring thorough and efficient supervision requires fostering and strengthening collaboration and information sharing between all relevant authorities.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2024-06-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141507702","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In ‘Embracing the Brave New World: A Response to Demekas and Grippa’, a response to our article ‘Walking a Tightrope: Financial Regulation, Climate Change, and the Transition to a Low-Carbon Economy’, both published in the Journal of Financial Regulation, Gruenewald, Knijp, Schoenmaker, and van Tilburg claim that climate risk is a clear and present danger to financial stability that justifies imposing higher capital requirements on supervised firms. Until the current prudential risk framework is revised to fully capture climate risk, they advocate ad hoc measures, such as adjustments to risk weights, which, they believe, would have the desired effect. In this article, we argue that these claims are misguided. Given the nature of climate risk, risk assessment models cannot provide a reliable basis for calibrating capital requirements. On the basis of the evidence, prudential tools would have only a negligible impact on the transition. And the idea of adjusting risk weights for climate exposures has been abandoned—for good reasons. Ultimately, there is nothing financial regulation can do about the energy transition that an appropriately designed carbon tax cannot do better. Central banks and financial regulators should resist the pressure to take on additional responsibilities that are essentially political and that they cannot properly discharge.
在《拥抱勇敢的新世界：对 Demekas 和 Grippa 的回应》是对我们的文章《走钢丝：中，Gruenewald、Knijp、Schoenmaker 和 van Tilburg 声称，气候风险对金融稳定构成了明确而现实的危险，因此有理由对受监管公司提出更高的资本要求。在修订现行审慎风险框架以充分反映气候风险之前，他们主张采取临时措施，如调整风险权重，他们认为这样做可以达到预期效果。在本文中，我们认为这些主张是错误的。鉴于气候风险的性质，风险评估模型无法为校准资本要求提供可靠的依据。根据证据，审慎工具对过渡的影响微乎其微。针对气候风险调整风险权重的想法已被放弃--这是有充分理由的。归根结底，对于能源转型，金融监管所能做的，只有设计合理的碳税才能做得更好。中央银行和金融监管机构应抵制压力，不承担本质上是政治性的、他们无法适当履行的额外责任。
{"title":"“Tis new to thee’: response to Gruenewald, Knijp, Schoenmaker, and van Tilburg","authors":"Dimitri Demekas, Pierpaolo Grippa","doi":"10.1093/jfr/fjae004","DOIUrl":"https://doi.org/10.1093/jfr/fjae004","url":null,"abstract":"\u0000 In ‘Embracing the Brave New World: A Response to Demekas and Grippa’, a response to our article ‘Walking a Tightrope: Financial Regulation, Climate Change, and the Transition to a Low-Carbon Economy’, both published in the Journal of Financial Regulation, Gruenewald, Knijp, Schoenmaker, and van Tilburg claim that climate risk is a clear and present danger to financial stability that justifies imposing higher capital requirements on supervised firms. Until the current prudential risk framework is revised to fully capture climate risk, they advocate ad hoc measures, such as adjustments to risk weights, which, they believe, would have the desired effect. In this article, we argue that these claims are misguided. Given the nature of climate risk, risk assessment models cannot provide a reliable basis for calibrating capital requirements. On the basis of the evidence, prudential tools would have only a negligible impact on the transition. And the idea of adjusting risk weights for climate exposures has been abandoned—for good reasons. Ultimately, there is nothing financial regulation can do about the energy transition that an appropriately designed carbon tax cannot do better. Central banks and financial regulators should resist the pressure to take on additional responsibilities that are essentially political and that they cannot properly discharge.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2024-06-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141359588","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In March 2023, the Swiss bank Credit Suisse’s so-called Additional Tier 1 (AT1) bonds were written down to facilitate the bank being taken over by UBS, its national rival. Ensuing discussion and market reactions went well beyond Swiss borders, as the write-down was completed without Credit Suisse’s shareholders first being wiped out, thereby deviating from the principle that shareholders bear losses ahead of all other investors. This article asks whether such an outcome is possible under EU law. A comprehensive analysis demonstrates how this question is governed by the combined operation of contractual clauses and the resolution authority’s statutory powers. Combining applicable EU law with empirical analysis of contractual terms employed by EU banks issuing AT1 bonds and their capital requirements, the article argues that an outcome akin to that of the Credit Suisse write-down is unlikely for EU banks. Building on this analysis, it is shown what reform is needed if EU policymakers consider it desirable to have AT1 bonds absorb losses outside of cases requiring intervention by the resolution authority.
{"title":"Could it Happen in the EU? An Analysis of Loss Distribution between Shareholders and AT1 Bondholders under EU Law","authors":"Sjur Swensen Ellingsæter","doi":"10.1093/jfr/fjae003","DOIUrl":"https://doi.org/10.1093/jfr/fjae003","url":null,"abstract":"In March 2023, the Swiss bank Credit Suisse’s so-called Additional Tier 1 (AT1) bonds were written down to facilitate the bank being taken over by UBS, its national rival. Ensuing discussion and market reactions went well beyond Swiss borders, as the write-down was completed without Credit Suisse’s shareholders first being wiped out, thereby deviating from the principle that shareholders bear losses ahead of all other investors. This article asks whether such an outcome is possible under EU law. A comprehensive analysis demonstrates how this question is governed by the combined operation of contractual clauses and the resolution authority’s statutory powers. Combining applicable EU law with empirical analysis of contractual terms employed by EU banks issuing AT1 bonds and their capital requirements, the article argues that an outcome akin to that of the Credit Suisse write-down is unlikely for EU banks. Building on this analysis, it is shown what reform is needed if EU policymakers consider it desirable to have AT1 bonds absorb losses outside of cases requiring intervention by the resolution authority.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2024-04-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140591213","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article critically assesses the European securitization industry’s claim of the existence of an uneven regulatory playing field for securitization structures vis-à-vis financial instruments deemed ‘neighbouring’ to securitization by the industry, like whole loan pools, corporate bonds, and covered bonds. According to market participants, the adverse regulatory treatment of securitization is negatively affecting the European securitization market, by pushing issuers and investors towards other financial instruments that are treated preferentially. Ultimately, this prevents the securitization market from escaping the subdued state in which it has been ever since the global financial crisis. To address this problem, market participants are advocating a fundamental recalibration of the existing regulatory framework. By examining the regulatory framework that applies to securitization structures, against the backdrop of regulation for whole loan pools, corporate bonds, and covered bonds, this article confirms that securitization structures are indeed treated adversely, as claimed by the industry. Nevertheless, a valid comparison can only be drawn between ‘true sale’ residential mortgage-backed securities (RMBS) structures and mortgage covered bonds, given the structural-economic similarities between the two financial instruments. In that regard, the adverse regulatory treatment of RMBS is found to be negatively impacting the European securitization market, by fuelling a ‘crowding out’ of RMBS by covered bonds.
{"title":"The European Securitization Market: Effects of an Uneven Regulatory Playing Field","authors":"Thomas Papadogiannis Varouchakis","doi":"10.1093/jfr/fjae002","DOIUrl":"https://doi.org/10.1093/jfr/fjae002","url":null,"abstract":"\u0000 This article critically assesses the European securitization industry’s claim of the existence of an uneven regulatory playing field for securitization structures vis-à-vis financial instruments deemed ‘neighbouring’ to securitization by the industry, like whole loan pools, corporate bonds, and covered bonds. According to market participants, the adverse regulatory treatment of securitization is negatively affecting the European securitization market, by pushing issuers and investors towards other financial instruments that are treated preferentially. Ultimately, this prevents the securitization market from escaping the subdued state in which it has been ever since the global financial crisis. To address this problem, market participants are advocating a fundamental recalibration of the existing regulatory framework. By examining the regulatory framework that applies to securitization structures, against the backdrop of regulation for whole loan pools, corporate bonds, and covered bonds, this article confirms that securitization structures are indeed treated adversely, as claimed by the industry. Nevertheless, a valid comparison can only be drawn between ‘true sale’ residential mortgage-backed securities (RMBS) structures and mortgage covered bonds, given the structural-economic similarities between the two financial instruments. In that regard, the adverse regulatory treatment of RMBS is found to be negatively impacting the European securitization market, by fuelling a ‘crowding out’ of RMBS by covered bonds.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2024-03-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140380514","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The banking turmoil in March 2023 and the associated public interventions to prevent or reduce the risk of a systemic fallout underscore the fact that despite banking systems being in a much better shape in many countries relative to the position prior to the global financial crisis, some bank run risk remains. In fact, bank run risk may be increasing. As fintech and new technologies transform banking, uninsured deposits may become near-perfectly mobile, making bank runs all but inevitable if the governance of the financial system is not appropriately adapted. In this article we discuss how digitalization and new technologies can affect bank run risk and we look at approaches to adapting governance to containing related systemic vulnerabilities in the banking system. We also briefly consider how central bank digital currencies could fit into future frameworks. We conclude that there is no silver bullet, but that adjusting frameworks will become necessary if bank deposit mobility increases.
{"title":"New Technologies and the Future Governance of Bank Run Risk","authors":"Signe Krogstrup, Thomas Sangill","doi":"10.1093/jfr/fjae001","DOIUrl":"https://doi.org/10.1093/jfr/fjae001","url":null,"abstract":"The banking turmoil in March 2023 and the associated public interventions to prevent or reduce the risk of a systemic fallout underscore the fact that despite banking systems being in a much better shape in many countries relative to the position prior to the global financial crisis, some bank run risk remains. In fact, bank run risk may be increasing. As fintech and new technologies transform banking, uninsured deposits may become near-perfectly mobile, making bank runs all but inevitable if the governance of the financial system is not appropriately adapted. In this article we discuss how digitalization and new technologies can affect bank run risk and we look at approaches to adapting governance to containing related systemic vulnerabilities in the banking system. We also briefly consider how central bank digital currencies could fit into future frameworks. We conclude that there is no silver bullet, but that adjusting frameworks will become necessary if bank deposit mobility increases.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2024-03-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140156663","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
‘Decentralized finance’ (DeFi) refers to a range of applications in the crypto-asset space that seek to disintermediate the provision of financial services through reliance on self-executing computer code (‘smart contracts’). DeFi has so far been mainly self-referential in that it has largely facilitated the financing and trading of crypto-assets rather than providing intermediation services to support real economic activity. Yet this may change in the future, should asset tokenization or the use of DeFi applications by existing financial institutions lead to greater interconnections with traditional finance (TradFi). We argue that many of the functions that DeFi tries to mimic are similar to those in TradFi, and so are many of the risks that this intermediation entails. The same economic rationale that has guided financial regulation for decades can hence be applied to the crypto and DeFi world as well. Risks in DeFi are often exacerbated by the severity of market failures (externalities and information asymmetries). Having compared the functions performed in TradFi and DeFi, we show how regulation to protect consumers, maintain market integrity, and ensure financial stability applies to DeFi. Finally, we sketch a possible approach to the regulation of DeFi that takes into account its specificities and functions.
{"title":"Decentralized Finance (DeFi): A Functional Approach","authors":"Matteo Aquilina, Jon Frost, Andreas Schrimpf","doi":"10.1093/jfr/fjad013","DOIUrl":"https://doi.org/10.1093/jfr/fjad013","url":null,"abstract":"\u0000 ‘Decentralized finance’ (DeFi) refers to a range of applications in the crypto-asset space that seek to disintermediate the provision of financial services through reliance on self-executing computer code (‘smart contracts’). DeFi has so far been mainly self-referential in that it has largely facilitated the financing and trading of crypto-assets rather than providing intermediation services to support real economic activity. Yet this may change in the future, should asset tokenization or the use of DeFi applications by existing financial institutions lead to greater interconnections with traditional finance (TradFi). We argue that many of the functions that DeFi tries to mimic are similar to those in TradFi, and so are many of the risks that this intermediation entails. The same economic rationale that has guided financial regulation for decades can hence be applied to the crypto and DeFi world as well. Risks in DeFi are often exacerbated by the severity of market failures (externalities and information asymmetries). Having compared the functions performed in TradFi and DeFi, we show how regulation to protect consumers, maintain market integrity, and ensure financial stability applies to DeFi. Finally, we sketch a possible approach to the regulation of DeFi that takes into account its specificities and functions.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2024-01-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139381688","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this article, we examine the economics of public consumer banking in the United States. Public expenditures on consumer banking can take the form of price subsidies or direct provision. The economic case for price subsidies is weak because the evidence suggests most unbanked consumers would prefer a cash grant. The economic case for public provision is also weak because the existing market failures in banking are better remedied by regulation. The exceptions to this rule are check cashing and related payment services, which could be supplied by the US Postal Service (USPS) at a lower cost than private providers. On the other hand, economic arguments for the superiority of cash transfers presume that the institutional infrastructure exists to deliver them. But an effective infrastructure for public transfers does not exist in the United States and is only possible with universal ownership of payment accounts, which in turn requires some form of public subsidy or provision. We suggest one path forward: expand the financial services currently offered to federal beneficiaries—such as Social Security recipients—by the Treasury.
{"title":"An Economic Case against Public Banking, and a Case for It","authors":"Prasad Krishnamurthy, Tucker Cochenour","doi":"10.1093/jfr/fjad012","DOIUrl":"https://doi.org/10.1093/jfr/fjad012","url":null,"abstract":"\u0000 In this article, we examine the economics of public consumer banking in the United States. Public expenditures on consumer banking can take the form of price subsidies or direct provision. The economic case for price subsidies is weak because the evidence suggests most unbanked consumers would prefer a cash grant. The economic case for public provision is also weak because the existing market failures in banking are better remedied by regulation. The exceptions to this rule are check cashing and related payment services, which could be supplied by the US Postal Service (USPS) at a lower cost than private providers. On the other hand, economic arguments for the superiority of cash transfers presume that the institutional infrastructure exists to deliver them. But an effective infrastructure for public transfers does not exist in the United States and is only possible with universal ownership of payment accounts, which in turn requires some form of public subsidy or provision. We suggest one path forward: expand the financial services currently offered to federal beneficiaries—such as Social Security recipients—by the Treasury.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2024-01-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139383853","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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