De bankcrisis: Oorzaken, gevolgen en oplossingen
Paul De Grauwe
Oorzaken {
Essentie van bankieren z z z z z
Banken “borrow short and lend long” Dit creëert grote broosheid Geen probleem in normale tijden wanneer mensen vertrouwen hebben Probleem ontstaat als vertrouwen zoek is Dit kan gebeuren als één of meer banken solvabiliteitsproblemen kennen (voorbeeld: slechte leningen )
Oorzaken z
z z
z z z z
Dan is een “bank run” mogelijk: liquiditeitscrisis Sleept ook andere “onschuldige” banken mee Er ontstaat een duivelse interactie tussen liquiditeits- en solvabiliteitscrisis: solvabele banken moeten activa verkopen om terugtrekken van deposito’s op te vangen Deze verkopen doen prijzen activa dalen Waarde van de activa van de banken daalt solvabiliteitsprobleem En nieuwe liquiditeitscrisis
Oorzaken {
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De bankcrisis van de jaren Dertig en de Grote Depressie hadden geleid to hervormingen die de banksector minder broos moesten maken Deze zijn z z z
Centrale bank als “lender of last resort” Deposito verzekering Splitsing commerciële- en zakenbanken (Glass-Steagall Act 1933)
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Meeste economen dachten dat dit zou volstaan om veiligheid in te bouwen in bankstelsel En om grote bankcrisis onmogelijk te maken Dat was dus niet zo Waarom? Laten we eerst begrip “Moral Hazard” introduceren
Moral Hazard {
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De verzekering die impliciet geboden wordt door centrale banken en overheden heeft een sterke prikkel gegeven aan bankiers om meer risico te nemen. Om dit tegen te gaan hebben overheden banken onderworpen aan toezicht en controle gedurende de naoorlogse periode Maar dan gebeurde iets merkwaardigs.
Het nieuwe paradigma van de efficiënte markten {
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Het paradigma werd erg populair ook buiten academische ivoren toren Belangrijkste ingrediënten: z
z
Prijzen weerspiegelen fundamentele waarden; dus zeepbellen kunen niet ontstaan Financiële markten kunnen zichzelf reguleren; er is geen overheidsregulering nodig
Bankiers waren entousiast { { { { {
Paradigma van efficiënte markten was erg invloedrijk Bankiers gebruikten het om te pleiten voor deregulering Ze haalden hun slag thuis Banken in VS en Europa werden geleidelijk gedereguleerd Hoogtepunt van deregulering: Afschaffing van Glass-Steagall act in 1999 (Clinton-Rubin-Summers)
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Banken konden nu alle activiteiten, traditioneel gereserveerd voor zakenbanken, opnemen z
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Underwriting en beleggen in aandelen en derivaten en nieuwe financiële producten met hoog risico
De les van de Grote Depressie was vergeten
Andere factor: financiële innovaties { { { { {
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Deregulering van financiële markten viel samen met proces van financiële innovatie En werd er ook door versterkt Financiële innovatie bracht nieuwe financiële producten die toelieten traditionele leningen te verpakken in verschillende risico-klassen en te verkopen in de markt “Securisering” (“securitisation”)
Andere factor: financiële innovaties {
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Men dacht dat deze complexe producten het risico zouden spreiden over meer actoren (efficiënte marktidee) met minder systeemrisico tot gevolg En dus minder noodzaak voor toezicht en regulering De markt zou zichzelf wel reguleren
Zijn financiële markten wel efficiënt? {
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De te verwachten wonderen van deregulering waren gebaseerd op het bestaan van efficiënte markten Zijn die wel efficiënt? Antwoord: zeepbellen en ineenstortingen (“Bubbles and crashes”) maken inherent deel uit van kapitalisme
Stock market indices in euro area (Euro-Stoxx-50) and in the US (S&P-500) in 2003-08 200
180
160
140
120
100
euro area US 2008Se
2008Ma
2008Jan
2007Se
2007Ma
2007Jan
2006Se
2006Ma
2006Jan
2005Se
2005Ma
2005Jan
2004Se
2004Ma
2004Jan
2003Se
2003Ma
2003Jan
80
Nasdaq :similar story
00 ju l/ 0 ja 0 n/ 01 ju l/ 0 ja 1 n/ 02 ju l/ 0 ja 2 n/ 03 ju l/ 0 ja 3 n/ 04 ju l/ 0 ja 4 n/ 05 ju l/ 0 ja 5 n/ 06 ju l/ 0 ja 6 n/ 07 ju l/ 0 ja 7 n/ 08 ju l/ 0 8
ja n/
Vastgoedmarkt in de VS
240,00
US house prices S&P Case-Shiller Home Price index
220,00
200,00
180,00
160,00
140,00
120,00
100,00
80,00
DEM-USD 1980-87 3.3
wisselmarkten
2.8
2.3
1.8
Euro-dollar rate 1995-2004 1,3
1.3 1987
1986
1985
1984
1983
1982
1981
1980
1,2
1,1
1
0,9
0,8
0,7
0,6 6/03/95
6/03/96
6/03/97
6/03/98
6/03/99
6/03/00
6/03/01
6/03/02
6/03/03
6/03/04
“Bubbles and crashes” zullen niet verdwijnen {
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“Bubbles and crashes” zijn het resultaat van grote onzekerheid Beleggers zijn genoodzaakt gebruik te maken van “heuristics”. Voorbeeld: koop als prijs stijgt Of koop als “goeroe” het zegt dit leidt tot kuddegeest Kindleberger, Manias, Panics and Crashes: bubbles and crashes hebben bestaan sinds het begin van kapitalisme en zullen niet verdwijnen
Banken surfen op bewegingen van financiële markten {
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Ten gevolge van deregulering konden banken het hele gamma van financiële producten aanhouden Ze werden dus meegesleurd door de grote speculatieve bewegingen Hun balansen werden hypergevoelig voor de zeepbellen (hi-tech zeepbel, immobiliën zeepbel, grondstoffenzeepbel) Bankbalansen kenden inflatie
Growth rate of total bank loans (left) and Stock price index(right) in euro area 200
14%
180
12%
160
140 index
% change
10%
8% 120 6% 100 Loans
4%
Stock price 2% 2003Jan
80
60 2004Jan
2005Jan
2006Jan
2007Jan
2008Jan
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Het omgekeerde is ook waar De balansen van de banken werden ook heel gevoelig voor de crash. De trigger was de crash in de huizenmarkt in de VS Dit was slechts een trigger De crisis zou in elk geval ontstaan zijn
Additional developments: regulatory arbitrage {
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Basle I was an attempt to impose similar capital ratios in all developed countries’ banks It was based on a classification of assets according to risk and to force banks to set capital aside against these assets based on the risk
Regulatory arbitrage: case 1 { {
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Basle I put a low risk weight on loans by banks to other financial institutions This gave incentives to bank to transfer risky assets (e.g. structured products) with high risk weight off their balance sheets in special conduits to which they extended shortterm credit Banks were doing favour to each other As a result increasingly banks obtained their funding through the interbank (wholesale) market which is not insured by government High leverage
Total assets to deposits
4,5
4
3,5
3
2,5
2
1,5
1
0,5
0 Belgium
France
Germany
Italy
Netherlands
Spain
UK
US
Eurozone
Regulatory arbitrage: case 2 {
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Basle I made it possible for banks to treat assets that are insured as government securities, i.e. zero risk weight This led to explosion of CDS (credit default swaps) Created the illusion in banking system that the assets on their balance sheets had low risk This turned out to be wrong. Why?
Private insurance does not insure against tail risk very well {
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Financial models used to price CDS (but also other financial products, e.g. derivatives) are based on normal distribution of returns There is one general feature in all financial markets: returns are not normally distributed Returns have fat tails (bubbles and crashes) Implication: models based on normal distribution dramatically underestimate probability of large shocks
02-10-2006
02-10-2003
02-10-2000
02-10-1997
02-10-1994
02-10-1991
02-10-1988
02-10-1985
02-10-1982
02-10-1979
02-10-1976
02-10-1973
02-10-1970
02-10-1967
02-10-1964
02-10-1961
02-10-2006
02-10-2003
02-10-2000
02-10-1997
02-10-1994
02-10-1991
02-10-1988
02-10-1985
02-10-1982
02-10-1979
02-10-1976
02-10-1973
02-10-1970
02-10-1967
02-10-1964
02-10-1961
02-10-1958
02-10-1955
02-10-1952
02-10-1949
02-10-1946
02-10-1943
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02-10-1937
02-10-1934
02-10-1931
-0,25
02-10-1958
02-10-1955
02-10-1952
02-10-1949
02-10-1946
02-10-1943
02-10-1940
02-10-1937
02-10-1934
02-10-1931
0,1
02-10-1928
-0,3 0,15
02-10-1928
Example: stock market (DJ) Dow Jones Industrial Average 1928-2008
0,15
0,1
0,05
0
-0,05
-0,1
-0,15
-0,2
Random normal process
Changes that are higher than 5 standard deviations occur once every 7000 years if returns are normally distributed
0,05
0
-0,05
-0,1
-0,15
-0,2
-0,25
-0,3
During the last 80 years there were 76 such changes
What should we conclude?
Was last October exceptional? Yes, if you have studied finance theory and believe returns are normally distributed TABLE : Five Largest Movements of the Dow-Jones Industrial Average in October 2008
An non-Normal October (1) Date 07/10/2008 09/10/2008 13/10/2008 15/10/2008 28/10/2008
Log-Return - 0.05242 - 0.07616 + 0.105083 - 0.08201 + 0.103259
Average Frequency under Normal Law Once in 8,038 Years Once in 9,114,869,772 Years Once in 165,017,584,680,094,000,000 (2) Years Once in 597,973,260,906 Years Once in 29,955,839,072,867,400,000 (2) Years
(1) Daily returns from 01/01/1971 – 31/10/2008 (μ= 0.03%, σ = 1.06%) (2) 10 18 = “Quintillion” in Western (Arabic) Numeral = “Billion Billion” in US; modern British & Australian
No if you have not studied finance theory
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As a result, there is systematic underpricing of risk (tail risk) creating a perception of low-risk environment In addition, there were no incentives to price this tail risk because there was implicit expectation that if something very bad would happen, e.g. a liquidity crisis (a typical tail risk) central banks would provide the liquidities This created the perception in banks that liquidity risk was not something to worry about.
Samengevat { { { { { { { {
Deregulering, Afwezigheid van voldoende toezicht Het toepassen van een foute theorie Financële innovaties (securitisation) Moral hazard Bracht banken ertoe ongehoorde risico’s aan te gaan De balansen waren vervlochten met de zeepbelbewegingen in de markten En ontploften als de markten crashten.
The reaction of the authorities: central banks { {
Learning by doing: Massive liquidity provision by central banks, z
z
Provided the necessary liquidity and prevented liquidity crisis from bringing down the whole system But they also stretched balance sheets of central banks
The reaction of the authorities: governments {
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Government guarantees on interbank deposits were essential in preventing freezing of interbank market from leading to large scale liquidity crisis But are they credible?
But are they credible? Total assets to GDP
600
500
400
300
200
100
0 Belgium
France
Germany
Italy
Netherlands
Spain
UK
US
Eurozone
The reaction of the authorities: governments { {
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Recapitalization of banks :They have been massive Together with the previous interventions, these have been successful up to now in averting a bank collapse but it is unclear whether they will be sufficient to avert future crises and to bring the banking system back on track so that it can perform its function of credit creation
Fundamental problem banks face today {
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balance sheets are massively inflated because of their participation in consecutive bubbles. banks face a period during which their balance sheets will shrink substantially (“deleveraging”). This process is will not be a smooth one
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mainly because during the shrinking the devilish interaction of solvency and liquidity crises will occur. This is likely to create a further downward spiral. As a result, there is as yet no floor on the value of the banks’ assets. Governments will be called upon again to recapitalize And nationalize banks It’s not yet over
Worse to come Deleveraging will give strong incentives to banks not to extend new loans, z
z
z
thereby dragging down the real economy. How far and how long this will go, nobody knows. It is not inconceivable that this leads to a long and protracted downward movement in economic activity.
What can be done: short run { {
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A return of Keynesian economics. Governments will be forced to sustain demand in the face of dwindling tax revenue Thus massive budget deficits are likely and desirable Attempts at balancing government budgets would not work, as it would likely lead to Keynes’ savings paradox.
What can be done: short run {
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In the process of recapitalizing banks, governments will substitute private debt for government debt. This also is inevitable and desirable. As agents distrust private debt they turn to government debt deemed safer. Governments will have to accommodate for this desire. (See Hyman Minsky (1986) on this)
What can be done: short run {
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Governments and central banks will also have to support asset prices, in particular stock prices by buying assets Recapitalizing banks is clearly insufficient to stop the liquiditysolvency spiral.
Long-term reform Back to narrow banking {
We have to go back to narrow banking z z z z z
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Strict separation of commercial and investment banking The classes of assets in which banks can invest must be limited No securitization anymore Higher liquidity ratios And less leverage
Alternative of Basle II does not work
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Investment banks can do all the sophisticated asset creation and management but must fund these through the capital market with liabilities of same maturity. No short-term funding possible No funding through commercial banks
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Banking will become much less profitable but less risky bankers will scream
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International coordination at setting new rules will be necessary Otherwise race to the bottom leading to new deregulation International coordination of rule setting is most challenging
