Policy Sessions
Shifting Sands of Low Interest Rates
Many central banks in the developed world dropped interest rates to the zero lower bound after the crises, and some have kept going into negative territory. But this creates problems as many institutional and individual investors require higher returns to meet their long-term commitments. Are low nominal and real rates here to stay? Are financial firms and investors assuming too much risk to "reach for yield"? How should financial market participants and supervisors respond to this low-rate environment?
Panelists:
Chair: James Bullard, President and Chief Executive Officer, Federal Reserve Bank of St. Louis [Presentation
]
Patricia "Trish" Mosser, Senior Research Scholar, School of International and Public Affairs, Columbia University [Presentation ]
Scott Sleyster, Senior Vice President and Chief Investment Officer, Prudential Financial Inc. [Presentation ]
Satish Swamy, Managing Director and Head of Core Fixed Income, Board of Regents, University of California [Presentation]
Many central banks in the developed world dropped interest rates to the zero lower bound after the crises, and some have kept going into negative territory. But this creates problems as many institutional and individual investors require higher returns to meet their long-term commitments. Are low nominal and real rates here to stay? Are financial firms and investors assuming too much risk to "reach for yield"? How should financial market participants and supervisors respond to this low-rate environment?
Panelists:
Chair: James Bullard, President and Chief Executive Officer, Federal Reserve Bank of St. Louis [Presentation
]Patricia "Trish" Mosser, Senior Research Scholar, School of International and Public Affairs, Columbia University [Presentation
]Scott Sleyster, Senior Vice President and Chief Investment Officer, Prudential Financial Inc. [Presentation
]Satish Swamy, Managing Director and Head of Core Fixed Income, Board of Regents, University of California [Presentation
]
Asset Co-movements: Features and Challenges
The dynamics of asset returns have always had both a systematic component, arising from the overall direction of the economy, and an idiosyncratic component, arising from the quality of individual investments. As the asset returns have become much more interdependent in recent years, identifying the dominant sources of risk and their impact on the shape of the asset distributions is critical for market participants and policymakers. How do investors assess risk and reallocate their portfolios in response to the changing distribution of asset returns? And how do their actions and trading strategies themselves affect the co-movements across different asset classes? Are changes in official policy responsible for this increased interdependence and shifting financial landscape? How should prudential supervisors respond to this dynamic environment?
Paper presenter: Nikolay Gospodinov, Financial Economist and Adviser, Federal Reserve Bank of Atlanta [Presentation]
Discussant: Michael Mendelson, Principal, AQR Capital Management [Presentation ]
Moderator: David Zervos, Chief Market Strategist, Jefferies
The dynamics of asset returns have always had both a systematic component, arising from the overall direction of the economy, and an idiosyncratic component, arising from the quality of individual investments. As the asset returns have become much more interdependent in recent years, identifying the dominant sources of risk and their impact on the shape of the asset distributions is critical for market participants and policymakers. How do investors assess risk and reallocate their portfolios in response to the changing distribution of asset returns? And how do their actions and trading strategies themselves affect the co-movements across different asset classes? Are changes in official policy responsible for this increased interdependence and shifting financial landscape? How should prudential supervisors respond to this dynamic environment?
Paper presenter: Nikolay Gospodinov, Financial Economist and Adviser, Federal Reserve Bank of Atlanta [Presentation
]Discussant: Michael Mendelson, Principal, AQR Capital Management [Presentation
]Moderator: David Zervos, Chief Market Strategist, Jefferies
International Coordination of Financial Supervision: Why Has It Grown? Will It Be Sustained?
National supervisors had been strengthening their coordination of prudential regulatory policies before the 2007–09 crisis, and those efforts have been significantly enhanced. However, financial firms have mounted increasingly effective challenges to international coordination as firms resist tighter regulations with the support of some of their home country officials. Has international coordination resulted in a "race to the top," creating excessive regulation that does not adequately account for local business models and conditions? Is regulation itself causing adverse shocks? On the other hand, what would happen if local supervisors went their own way? Would this promote increased regulatory arbitrage worldwide and a race to the bottom? What is the right level of coordination?
Paper presenter: Richard Herring, Jacob Safra Professor of International Banking, Professor of Finance, Wharton School of Business, University of Pennsylvania [Presentation ]
Discussant: Barbara Novick, Vice Chairman, BlackRock [Presentation ]
Discussant: Marc Saidenberg, Principal, Financial Services, Ernst & Young LLP
Moderator: Fabio Natalucci, Deputy Assistant Secretary for International Financial Stability and Regulation, U.S. Treasury
National supervisors had been strengthening their coordination of prudential regulatory policies before the 2007–09 crisis, and those efforts have been significantly enhanced. However, financial firms have mounted increasingly effective challenges to international coordination as firms resist tighter regulations with the support of some of their home country officials. Has international coordination resulted in a "race to the top," creating excessive regulation that does not adequately account for local business models and conditions? Is regulation itself causing adverse shocks? On the other hand, what would happen if local supervisors went their own way? Would this promote increased regulatory arbitrage worldwide and a race to the bottom? What is the right level of coordination?
Paper presenter: Richard Herring, Jacob Safra Professor of International Banking, Professor of Finance, Wharton School of Business, University of Pennsylvania [Presentation
]Discussant: Barbara Novick, Vice Chairman, BlackRock [Presentation
]Discussant: Marc Saidenberg, Principal, Financial Services, Ernst & Young LLP
Moderator: Fabio Natalucci, Deputy Assistant Secretary for International Financial Stability and Regulation, U.S. Treasury
Identifying Risk: An Abundance of Potential Shock Waves
Large adverse shocks to the global economy and financial system remain possible even as we experience an uneven recovery from prior shocks. Indeed, it seems easier to list plausible adverse shocks—Brexit, Eurozone, China, Japan, and even the United States—than to identify plausible positive shocks. Which of these threats should be regarded as urgent? How should investors respond to these threats? How should policymakers prepare for shocks originating from outside their jurisdictions?
Panelists:
Chair: Alicia Garcia Herrero, Chief Economist, Asia Pacific, Natixis [Presentation ]
Scott Evans, Managing Director of Geopolitical Risk, Discovery Capital Management
Robert Kahn, Steven A. Tananbaum Senior Fellow for International Economics, Council on Foreign Relations [Presentation ]
Ray Stanton, Chief Information Security Officer, Redwood Technologies Group Ltd. [Presentation]
Large adverse shocks to the global economy and financial system remain possible even as we experience an uneven recovery from prior shocks. Indeed, it seems easier to list plausible adverse shocks—Brexit, Eurozone, China, Japan, and even the United States—than to identify plausible positive shocks. Which of these threats should be regarded as urgent? How should investors respond to these threats? How should policymakers prepare for shocks originating from outside their jurisdictions?
Panelists:
Chair: Alicia Garcia Herrero, Chief Economist, Asia Pacific, Natixis [Presentation
]Scott Evans, Managing Director of Geopolitical Risk, Discovery Capital Management
Robert Kahn, Steven A. Tananbaum Senior Fellow for International Economics, Council on Foreign Relations [Presentation
]Ray Stanton, Chief Information Security Officer, Redwood Technologies Group Ltd. [Presentation
]Keynotes
The Exit from Accommodative Policies: Prospects and Challenges
Raghuram Rajan from the University of Chicago Booth School of Business opened the conference and commented on the effects of unwinding quantitative easing.
Raghuram Rajan, Katherine Dusak Miller Distinguished Service Professor of Finance, University of Chicago and former Governor of the Reserve Bank of India
Raghuram Rajan from the University of Chicago Booth School of Business opened the conference and commented on the effects of unwinding quantitative easing.
Raghuram Rajan, Katherine Dusak Miller Distinguished Service Professor of Finance, University of Chicago and former Governor of the Reserve Bank of India
2017: A Year of Uncertainties, Reactions, Hopes, and Hedges
Douglas Rediker of International Capital Strategies discusses the differences between political risks and political uncertainty.
Douglas Rediker, Executive Chairman, International Capital Strategies
Douglas Rediker of International Capital Strategies discusses the differences between political risks and political uncertainty.
Douglas Rediker, Executive Chairman, International Capital Strategies
On Market Valuation and Bank Regulation
Lawrence Summers, Harvard's Charles W. Eliot Professor and President Emeritus, asks: are major financial institutions significantly safer than they were before the crisis?
Lawrence Summers, President Emeritus and Charles W. Eliot University Professor, Harvard University
[Presentation]
Lawrence Summers, Harvard's Charles W. Eliot Professor and President Emeritus, asks: are major financial institutions significantly safer than they were before the crisis?
Lawrence Summers, President Emeritus and Charles W. Eliot University Professor, Harvard University
[Presentation
]
Research Papers
"Credit Expansion and Credit Misallocation"
Paper presenter: Alexander Bleck, Assistant Professor of Accounting, Sauder School of Business, University of British Columbia [Presentation]
Discussant: Julia Coronado, President and Founder, MacroPolicy Perspectives LLC [Presentation]
Moderator: Larry Wall, Executive Director, Center for Financial Innovation and Stability, Federal Reserve Bank of Atlanta
Paper presenter: Alexander Bleck, Assistant Professor of Accounting, Sauder School of Business, University of British Columbia [Presentation
]Discussant: Julia Coronado, President and Founder, MacroPolicy Perspectives LLC [Presentation
]Moderator: Larry Wall, Executive Director, Center for Financial Innovation and Stability, Federal Reserve Bank of Atlanta
"China's Model of Managing the Financial System"
Paper presenter: Michael Sockin, Assistant Professor of Finance, McCombs School of Business, University of Texas at Austin [Presentation]
Discussant: Neil Pearson, College of Business, University of Illinois [Presentation]
Moderator: Paula Tkac, Vice President and Senior Economist, Federal Reserve Bank of Atlanta
Paper presenter: Michael Sockin, Assistant Professor of Finance, McCombs School of Business, University of Texas at Austin [Presentation
]Discussant: Neil Pearson, College of Business, University of Illinois [Presentation
]Moderator: Paula Tkac, Vice President and Senior Economist, Federal Reserve Bank of Atlanta