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"Ending too big to fail" is a declared policy aim and a key element of the globally coordinated financial regulatory reform. An official list of banks considered to be global systemically important (G-SIBs) is published on an annual basis since 2011. The goal of the present paper is to assess to what extent equity and CDS markets care about the official releases of the G-SIB lists and, in particular, whether the inclusion of a bank in the G-SIB list is good or bad news for bank debt and equity holders. The analysis applies both event-studies and panel regressions and relies upon European banks' CDS senior and subordinated quotes and equity prices to evaluate their reactions to the publications of the G-SIB lists. The analysis spans from the first leaked G-SIB list by the Financial Times as of 2009 to the 2017 official publication of the list. Results show that equity and senior/subordinated CDS spreads react differently to the events considered and that reactions evolve over time. During the first events considered in the analysis, CDS of banks classified as G-SIBs react less than those of other banks. Results for more recent events are more mixed, potentially reflecting that recent releases of G-SIBs lists entail less information. The analysis also devotes special attention to a subset of "intermediate" banks that in principle are eligible to enter in the G-SIBs list, as compared to other banks that will obviously be included/excluded in the list given their size and footprint. This narrowed focus allows us to obtain more efficient results., JRC.B.1-Finance and Economy

"Ending too big to fail" is a declared policy aim and a key element of the globally coordinated financial regulatory reform. An official list of banks considered to be global systemically important (G-SIBs) is published on an annual basis since 2011. The goal of the present paper is to assess to what extent equity and CDS markets care about the official releases of the G-SIB lists and, in particular, whether the inclusion of a bank in the G-SIB list is good or bad news for bank debt and equity holders. The analysis applies both event-studies and panel regressions and relies upon European banks' CDS senior and subordinated quotes and equity prices to evaluate their reactions to the publications of the G-SIB lists. The analysis spans from the first leaked G-SIB list by the Financial Times as of 2009 to the 2017 official publication of the list. Results show that equity and senior/subordinated CDS spreads react differently to the events considered and that reactions evolve over time. During the first events considered in the analysis, CDS of banks classified as G-SIBs react less than those of other banks. Results for more recent events are more mixed, potentially reflecting that recent releases of G-SIBs lists entail less information. The analysis also devotes special attention to a subset of "intermediate" banks that in principle are eligible to enter in the G-SIBs list, as compared to other banks that will obviously be included/excluded in the list given their size and footprint. This narrowed focus allows us to obtain more efficient results.

The European corporate sector currently lacks investment dynamism and one explanation is that so-called zombie firms are spreading and that they crowd out the growth of other, potentially more “lively”, companies. Zombie firms are firms that apparently are unable to repay their debt and yet, they continue operating. The note describes estimates for 2010 and 2013 of the incidence of zombie firms across 19 European countries, using firm-level data for more than one million companies and considering three alternative definitions to ensure robustness of estimates. The note finds that zombie firms are spreading in Europe, judged by estimates for 2013 compared to those for 2010. It also finds that the aggregate figures hide considerable differences across countries. Zombie firm shares as of overall corporate capital are particularly high in Greece and Spain, while low in the Czech Republic and Slovakia. The estimates distinguish between size and age of firms and suggest that larger and older firms are more likely to be zombie firms than relatively smaller and younger firms (although very young firms of less than three years of age are not included in the sample). The report also finds that the growth of zombie firms in terms of employment crowds out the growth of other, non-zombie firms, especially young ones., JRC.B.1-Finance and Economy

Government provision of a financial safety net for financial institutions has been a key element of the policy response to the current crisis, with governments extending existing guarantees and introducing new ones. These measures have been helpful in avoiding a further accelerated loss of confidence. But they are not costless. Like any guarantee, deposit insurance gives rise to moral hazard, especially if the coverage is unlimited. Clearly, in the midst of a crisis, one should not be overly concerned with moral hazard, as the immediate task is to restore confidence, and guarantees can be helpful in that respect. Nonetheless, to keep market discipline operational, it is important to specify when the extra insurance will end, and this timeline needs to be credible. To be able to establish such a timeline the root causes of the lack of confidence - that is the effects of troubled assets on financial firms' health - need to be addressed effectively. On a more fundamental level, once a government has ventured down the road of guarantee expansion, there may be a general perception that a government guarantee will always be available during crisis situations. As a consequence, other elements of the financial safety net may need to be strengthened, including the prudential and supervisory framework.

We investigate the effect of the 20 largest – in terms of insured losses – man-made or natural disasters on the insurance industry. We show via an event study that insurance markets worldwide are quite resilient to unexpected losses to capital and are even outperforming the general market subsequent to great disasters.

The authors analyze the dynamics of national saving–investment relationships to determine the degree of international capital mobility. Following Coakley and Kulasi (1997), the authors interpret the close relationship between national saving and investment in the long run as reflecting a solvency constraint, rather than as evidence of limited capital mobility (Feldstein and Horioka 1980). As in Jansen (1996, 1998), the authors also examine the short-term saving–investment relationship, especially the speed at which the variables return to the long-run equilibrium relationship once they have deviated from it. The ease with which a country can borrow or lend and run current account imbalances in the short run, before it has to ultimately reverse the transaction at some future date to satisfy the solvency constraint, is interpreted as being positively related to the degree of international capital mobility. Extending the approach by Jansen, the authors apply panel error-correction techniques to data for 20 OECD countries from 1960 to 1999, and find that saving and investment display a long-run relationship that is consistent with the interpretation that a long-run solvency constraint is binding for each country. Furthermore, capital mobility has increased over time., Les auteurs étudient la dynamique de la relation entre l'épargne et l'investissement national pour déterminer le degré de mobilité internationale du capital. Suivant les traces de Coakley et Kulasi (1997), ils interprètent cette étroite relation de long terme comme reflétant une contrainte de solvabilité plutôt que le degré de mobilité du capital (Feldstein et Horioka, 1980). À l'instar de Jansen (1996 et 1998), ils examinent également la relation de court terme entre l'épargne et l'investissement et, plus particulièrement, la vitesse à laquelle les variables reviennent à leur valeur d'équilibre. La facilité avec laquelle un pays peut emprunter ou prêter à court terme et enregistrer un déséquilibre persistant de sa balance courante, avant de devoir inverser le flux de capitaux pour satisfaire à la contrainte de solvabilité, est interprétée comme une fonction directe de la mobilité du capital. Dans la foulée des travaux de Jansen, les auteurs recourent aux techniques de l'économétrie des panels pour estimer sur la période 1960-1999 des modèles à correction d'erreurs portant sur un échantillon de 20 pays de l'OCDE. La relation de long terme qu'ils observent entre l'épargne et l'investissement est conforme à leur hypothèse voulant que chaque pays ait à respecter une contrainte de solvabilité en longue période. Ils montrent en outre que la mobilité du capital a augmenté au cours de la période considérée.

The present paper studies dependencies between European stock markets when returns are unusually large, using daily data on stock market indices for Germany, the United Kingdom, France, the Netherlands and Italy from 1973 to 2001. Dependency is measured by the conditional probability of an unusually large return in one market given an unusually large return in another and is estimated using an approach from multivariate extreme value theory. The paper finds the following. First, dependencies between markets in situations of unusually large returns have become closer over time. Second, they are generally higher for large negative returns than for large positive ones. Third, dependencies differ depending on the country pair considered. For example, stock markets in the Netherlands and France are more closely and those in the United Kingdom and Italy less closely linked to the German market. Fourth, overall dependencies are quite symmetric, in the sense that the conditional probability for an unusually large change given a large change in the other country is similar irrespective of which of the two countries the probability is conditioned on. Der vorliegende Beitrag untersucht die Abhängigkeiten zwischen Europäischen Aktienmärkten in Situationen ungewöhnlich grosser Kursschwankungen anhand von täglichen Daten der Aktienmarktindices für Deutschland, Großbitannien, Frankreich, die Niederlande und Italien von 1973 bis 2001. Abhängigkeit wird dabei gemessen anhand der bedingten Wahrscheinlichkeit einer ungewöhnlich grossen Preisveränderung auf einem Aktienmarkt, wenn eine ungewöhnlich grosse Preisveränderung auf einem anderen Markt gegeben ist. Diese Wahrscheinlichkeit wird geschätzt mit Hilfe eines Ansatzes aus der multivariaten Extremwerttheorie. Die Ergebnisse können folgendermaßen zusammengefaßt werden: Erstens sind die geschätzten Abhängigkeiten im Laufe der Zeit stärker geworden. Zweitens sind sie ausgeprägter im Falle negativer als im Falle positiver Kursbewegungen. Drittens sind sie unterschiedlich je nach betrachtetem Länderpaar. So stehen die Aktienmärkte in Frankreich und den Niederlanden in jeweils relativ starker gegenseitiger Abhängigkeit in Bezug auf den deutschen Aktienmarkt, während die Aktienmärkte in Grossbritannien und Italien weniger eng mit dem deutschen Aktienmarkt verbunden sind. Viertens sind die Abhängigkeiten zwischen zwei Märkten generell symmetrisch in dem Sinne, dass die geschätzte bedingte Wahrscheinlichkeit weitgehend unabhängig davon ist, auf welchen der beiden Märkte die Wahrscheinlichkeit konditioniert wird.

Empirical research over the last decade has uncovered predictive relationships between the slope of the yield curve and subsequent real activity and inflation. Some of these relationships are highly significant, but their theoretical motivations suggest that they may not be stable over time. We use recent econometric techniques for break testing to examine whether the empirical relationships are in fact stable. We consider continuous models, which predict either economic growth or inflation, and binary models, which predict either recessions or inflationary pressure. In each case, we draw on evidence from Germany and the United States. Models that predict real activity are more stable than those that predict inflation, and binary models are more stable than continuous models. The model that predicts recessions is stable over our full sample period in both Germany and the United States.