Author Archives: Lawrence Goodman

Artificial intelligence and systemic risk

Posted on by

CFS senior fellow and European Systemic Risk Board advisory scientific committee member Robin Lumsdaine and her colleagues, Stephen Cecchetti, Tuomas Peltonen, and Antonio Sanchez Serrano published a superb piece “Artificial intelligence (AI) and systemic risk.”

The report emphasizes substantial benefits from AI, but it also examines how the technology could amplify or alter existing systemic risks or create new ones.

The paper concludes with key policy proposals as well as future areas for investigation.

The full report is available at
https://www.esrb.europa.eu/pub/pdf/asc/esrb.ascreport202512_AIandsystemicrisk.en.pdf?9c33e4591f138527d8b39dab792d242f

New Strategic Partnership: Shadow Open Market Committee and Center for Financial Stability

Posted on by

The Center for Financial Stability (CFS) and the Shadow Open Market Committee (SOMC) announce a new strategic partnership in pursuit of shared goals.

Both organizations strongly believe that sound monetary policy is a necessity for financial stability, and well-functioning financial markets are critical to monetary stability.

The SOMC is an independent group of some of the world’s leading economists to provide external perspectives on policy choices by the Federal Reserve and other leading central banks.  The Committee addresses a wide range of macroeconomic issues, including monetary policy, banking and financial regulations, and fiscal policy matters that bear on monetary policy decisions.  The SOMC was founded in 1973 by Professor Karl Brunner of the University of Rochester, Professor Allan Meltzer of Carnegie Mellon University, and Anna Schwartz of the National Bureau of Economic Research.

The CFS is an independent, nonpartisan, and nonprofit educational institution focused on financial markets for the benefit of investors, officials, academics, and the public.  CFS is keenly focused on the future.  Areas of emphasis include financial crisis detection and prevention, provision of unique data and analytics to improve the study of financial markets and institutions, as well as leading working groups with high level participants representing a wide range of interests.  CFS accomplishes its objectives through the work of highly accomplished experts and input from its distinguished Advisory Board.  CFS has global reach in 188 countries.

CFS is the SOMC’s new home.

For more information on the SOMC:
https://centerforfinancialstability.org/SOMC.php

For more information on the CFS:
https://centerforfinancialstability.org/

Best regards,
Mickey Levy and Lawrence Goodman

WSJ op-ed: “Trump Forces a Fed Guessing Game”

Posted on by

Today, The Wall Street Journal published an op-ed by Mickey Levy of the Shadow Open Market Committee (SOMC) member.

Mickey questions whether future rate cuts constitute the right monetary policy, highlighting how lower rates would present a dilemma for the Fed, as:

– Employment will be prioritized over price stability,
– Inflation is now further above its 2% target than it was below target in 2016-19, and
– Tariffs and immigration policy are under-cutting economic growth.

We look forward to any comments you might have.

To view the full article:
https://www.wsj.com/opinion/trump-forces-a-fed-guessing-game-8b5e7c18

WSJ op-ed: “A Government Agency Worth Saving”

Posted on by

The Wall Street Journal published an op-ed titled “A Government Agency Worth Saving” by Sheila Bair and me in today’s Weekend Edition.  We note that:

– Some underperforming government agencies should be restructured rather than closed. This is true of the Office of Financial Research, which Congress created after the 2008-09 financial crisis to help anticipate and avert future crises.

– To be sure, the OFR has not measured up to its original purpose.  But it would be a huge mistake to end access to the data and intelligence that OFR collects during a time of international uncertainty and market turmoil.

– We offer concrete steps on crisis detection and prevention, data and analytics, as well as governance to restructure and refocus OFR – not close it down.

We look forward to any comments you might have.

View the full article here.

CFS Congratulates Dr. William A. Barnett, Whose Work has been Recognized as a Top Cited Article

Posted on by

We are delighted to share that “The Credit-Card-Services Augmented Divisia Monetary Aggregates”, published in “Journal of Money, Credit and Banking”, is among the top 10 most-cited papers published by the journal in 2023. Congratulations to the authors – Professor William A. Barnett (CFS director of Advances in Financial and Monetary Measurement), Marcelle Chauvet, Danilo Leiva-Leon, and Liting Su.

You can find the paper at
https://onlinelibrary.wiley.com/doi/10.1111/jmcb.13088

New Book on Economic Bifurcation and Chaos

Posted on by

Professor William A. Barnett (CFS Director of Advances of Monetary and Financial Measurement) just published the book, Economic Bifurcation and Chaos, with co-author Ruoning Han. The span of research begins with Bill’s initial finding of chaos in economic data and follows with over 30 years of his research on bifurcation and chaos in economics with applications to central bank policy.

Nobel Laureate James J. Heckman notes that the book “is a guide to understanding the deep structural features of modern economics and how to account for them in policy analysis. This research imposes a new level of rigor on the field of macroeconomics that serves to make it more credible.”

Economic Bifurcation and Chaos is available in hardcover or e-book form (with the latter containing additional color graphics).
https://www.worldscientific.com/worldscibooks/10.1142/13852#t=aboutBook or Amazon. To receive a 25% discount at World Scientific until March 31, 2025, quote code BUS25.

WSJ letter: The Fed Needs to Change but Stay Independent

Posted on by

Former Fed Governor Robert Heller wrote an important WSJ letter “The Fed Needs to Change but Stay Independent” (see below).

In addition to Fed independence, Bob notes that “Where the Federal Open Market Committee has fallen short in recent years is by not focusing on the monetary and credit aggregates.” Our research and provision of monetary aggregates for over a decade supports his view (see “A Story of Money, Inflation, and the CFS” below).

His piece continues “one will look in vain to find the word ‘money’ in any of the decisions of the FOMC during the past three years.” Indeed, the Fed’s explanation of the failure of the SVB crisis neglected to utter the word “monetary” once in the combined 171 pages in the Barr report and the Fed’s IG study.

In the early stages of Covid, Charles Goodhart wrote a CFS paper (see “After Coronavirus: Deflation or Inflation?” below). Here, he contrasted two strongly held, but competing views regarding the future path of inflation following recovery.

  • “A mainstream position suggested that inflationary pressures would remain muted for the foreseeable future.”
  • “In contrast, a contrary view believed that expansionary monetary and fiscal policies would generate inflation.”

Charles concluded that “apart from the important practical implications of finding out which of these positions is more nearly correct, it will affect macroeconomic theory and teaching, perhaps forever.”

We now have sufficient evidence to show why money and credit needs to be incorporated into the Fed’s policy calculus.

The Fed Needs to Change but Stay Independent
https://www.wsj.com/articles/federal-reserve-fed-monetary-independence-trump-cc314765?mod=letterstoeditor_article_pos8

A Story of Money, Inflation, and the CFS
https://www.centerforfinancialstability.org/research/Money_Story_060623.pdf

After Coronavirus: Deflation or Inflation?
https://www.centerforfinancialstability.org/research/Goodhart_Deflation_Inflation_081420.pdf

Bair and Goodhart: Bank failures are looming. Let’s make sure executives have skin in the game

Posted on by

Sheila Bair and Charles Goodhart penned an opinion piece in The Washington Post – “Bank failures are looming. Let’s make sure executives have skin in the game.” Key themes are:

  • Serious challenges remain for the U.S. banking system.
  • Lessons from three high-profile regional bank failures have been forgotten.
  • Accountability for executives of failed banks should increase. Passage of the Recoup Act would help.

The Washington Post piece is at
https://www.washingtonpost.com/opinions/2024/02/20/sheila-bair-pass-banking-reform-accounability/

For more on lessons from regional bank failures, please find papers where Sheila (Chair) and Charles contributed in their role as CFS Advisory Board members.

“Supervision and Regulation after Silicon Valley Bank”
www.CenterforFinancialStability.org/research/CFSRegPaper101623.pdf
“The Role of Monetary and Fiscal Policies in Recent Bank Failures”
www.CenterforFinancialStability.org/research/CFSMonPaper101623.pdf

FT: “Learning British Financial Stability Lessons. Seriously!”

Posted on by

Today, the Financial Times‘ Robin Wigglesworth released a well-researched article “Learning British Financial Stability Lessons.  Seriously!” – which covered CFS reports – https://on.ft.com/3ZZ8Rpc . 

CFS will put a finer point on on aspects of the reports in two upcoming events.

Please take a look at this article and our papers, which can be found on CFS’ website- www.CenterforFinancialStability.org.

CFS Releases New Reports on Banking Stress and Monetary Policy

Posted on by

A group of senior advisors to the Center for Financial Stability – Sheila Bair (Chair), Joyce Chang, Charles Goodhart, Lawrence Goodman, Barbara Novick, and Richard Sandor – undertook an assessment of the root causes of recent bank failures.

The work was done with a keen eye on present and future financial system stresses.  For instance, bond market losses continue; bank earnings remain under pressure; cumulative Fed rate hikes are now 525 basis points; the fiscal deficit is now $600 billion deeper in the red than last year; and bank stocks remain at or near post crisis lows.

The group represents a wide array of backgrounds in government, academia, and industry and a full range of policy views. While there were differences of opinions on some specific proposals, there was also strong consensus on the main drivers of the failures and key issues related to proffered reforms.

Later in the week, Randal Quarles (CFS Advisory Board Chair) will lead panel discussions with the authors on the reports’ findings.

We look forward to any comments you might have.

To view
“The Role of Monetary and Fiscal Policies in Recent Bank Failures”
www.CenterforFinancialStability.org/research/CFSMonPaper101623.pdf

“Supervision and Regulation after Silicon Valley Bank”
www.CenterforFinancialStability.org/research/CFSRegPaper101623.pdf