Notes from banking fragility talk
Here are my unedited notes from David Miles' talk on monetary policy and banking fragility tonight. This may not be of much sense or interest to everyone, so feel free to skip it if you're not into this topic. [ Here is the somewhat more coherent post I wrote before the talk] Miles – recently wrote a paper about the benefits (and costs) of higher bank capital. LSE is intellectual home of MPC in many ways. Links between monetary policy and financial stability: strong and significant Compared to pre-recession trend in 2007, this recession is almost as bad as 1929, and on current projections will be WORSE from 2012 onwards. Changes in banking sector since previous eras – more gross debt (now being reduced), more fiscal compensation (mostly automatic stabilisers), much higher bank leverage. There would have had to be a rebalancing of some kind, but the rebalancing is now happening in the context of a financial crisis. One challenge: policy compensations for imbalances (VA...