As the momentum has built behind calls for policy responses towards climate change, the ECB and the Bank of England have not been the quickest central banks to act. Back in 2011, the Banco do Brasil announced that banks must incorporate ‘Environmental and Social Risk’ in their reporting and risk management strategies. In 2012, the Reserve Bank of India invoked its 1949 Priority Sector Lending legislation to encourage Indian banks to allocate credit to green projects: renewable energy infrastructures such as biomass fuel production, wind farms and solar. Last but not least, the governor of the French central bank recently suggested that the world authorities (i.e. taxpayers) should devote no less than $ 900 bn per year to address the climate problem and that the Bank will be ready to support the policymakers’ actions in this area. As a matter of fact, one of the earliest central banks to actively intervene on climate change was the People’s Bank of China. In 2007, working with other institutions like the Ministry of Environmental Protection and the China Development Bank, it acted to restrict financing from companies that failed to comply with environmental rules such as emissions targets. This might seem at odds with China’s huge programme of coal fired power station construction which is producing one new one each week.
Publications
Many people share the opinion that Mafia is a typical Italian phenomenon, something about which only Italians should worry. This opinion is wrong. Data recently released by Europol show that thousands of criminal organizations active in Europe can be labelled as of mafia-type, with about 70% of them operating in more than one country.
In many European regions there is indeed evidence of a medium-to-high share of organized crime investments over the total.
The structure of a country’s tax code is an important determinant of its economic performance. The Tax Foundation’s International Tax Competitiveness Index has ranked OECD countries’ tax systems for the last six years, and every year Estonia has been the number one country on the Index while France has remained at the bottom of the rankings.
New entrants into every aspect of banking were encouraged by two recent regulatory developments: the Open Banking initiative and the ‘sandboxing’ exemptions from regulations. Open Banking, part of the Payment Services Directive enacted October 2015, encourages customers to allow their data to be shared with licensed FinTech startups. We provided some detail previously. Sandboxing is relatively new, and identifies the remarkable regulatory practice of waiving the rules to help companies creating new financial technologies (FinTechs) get a foothold. In particular, the concept of a sandbox is that the development of new useful innovative tech will be held back if the full range of regulations need to be complied with immediately. In banking, one obvious costly impediment to startups is the required minimum level of regulatory capital. Of course, there are reasons why these minima exist, so the decision to license a startup to ‘play about in the sandbox’ rather than comply is based on matters such as the number of customers exposed to the new tech, and perceived risks to the financial system. Obviously, at the inception of any new challenger bank these risks are small. But at what point is a tech startup adjudged to be mature enough that it should leave the sandbox and play with the grown-ups? And when instructed so to do by regulators, how will these new challengers cope?
Summer is not only the season of swimming trunks and barbecues, but also of vociferous politicians. One of the warhorses of this year’s silly season are bans. Whether it is plastic cutlery, oil heating or domestic flights, calls for bans are becoming louder across the political spectrum. Bans, however, are usually not the best way to deal with negative externalities. Politicians can find calling for bans attractive regardless, provided the requested prohibitions match the preferences of their voters, or signal serious engagement. Moreover, by resorting to extreme positions policymakers try to expand their power and authority. Yet, although the demand for bans is frequently used as an instrument to gain votes, we maintain that the state should actually use them only on rare occasions.
The Joint Committee of the three European Supervisory Authorities (European Banking Authority, European Insurance and Occupational Pensions Authority, European Securities and Market Authority) publishes a quarterly report on risks and vulnerabilities in the European financial system. This report offers hints on how current concerns likely translate into regulation. The Autumn 2019 edition highlights three themes: Brexit, low interests rates, and climate risk. I shall focus on the second topic, which heralds a heavier regulation and a less competitive environment.
On September 10th, California lawmakers have passed the much disputed Assembly Bill 5 that targets a change in the status of gig economy workers, from freelancers to actual employees. The bill allegedly aims to protect workers that are treated unfairly by companies which avoid paying for unemployment benefits, social security and disability insurance. While the bill specifically stipulates that:
„Nothing in this act is intended to diminish the flexibility of employees to work part-time or intermittent schedules or to work for multiple employers.“
It still remains unclear how this bill will affect the business models of collaborative businesses, the status of Uber & Lyft drivers, and the prospects for innovation within the gig economy. Uber’s top lawyer announced that Uber won’t be treating their drivers as employees despite the new law. The reason for that is the fact that Uber does not provide rides, but rather a technology platform for digital marketplaces. The legal battle will be long and costly, just like the one in the UK, where the court ruled that drivers are staff and hence entitled to holiday pay, paid rest breaks and the minimum wage.
In May 2018, Giuseppe Conte became prime minister after an electoral campaign in which Italians were being told that a honey and milk Age was about to begin. It was clear to everybody that an unknown professor of Law, with no political legitimacy (he had not figured prominently in the electoral campaign and was not among the candidates for parliament), could easily top the list of the weakest Prime Ministers in the Italian post-war political history. Indeed, the real power was in the hands of the two ubiquitous vice prime ministers, Matteo Salvini (League) and Luigi Di Maio (5- Star Movement, 5SM). In fact, Di Maio and Salvini were so influential that many commentators considered the Conte cabinet as an original experiment in vice-presidentialism, a system of government you can hardly find in any political science or constitutional law textbook.
A cynical English expression popular in sporting circles is “All the Gear and No Idea”. This is expressed, sotto voce, at the club bar when mocking a typically well-off amateur sportsman who has shown up at the ski slope, the golf course or the clay pigeon shoot with the most expensive equipment and trendiest clothes, appearing confident. Sadly, he then falls flat on his face (literally in the skiing case), or fails to drive the golf ball past the ladies’ tee, or misses every clay. We suspect that outgoing President Draghi felt somewhat embarrassed along these lines as he delivered his penultimate press conference on September 12th, because everybody keenly awaiting his announcement knew that he and his crack team are aware that his 8-year tenure has been disappointing. The ECB has broadly two functions. In one it is paralysed – the quest for a “deeper” European Monetary Union (EMU), and in the other it is going around in circles – price stabilisation.
Central banks play a prominent role in regulating modern economies. They enjoy a high reputation for their technical competence, and provide analyses and forecasts that influence the behavior of markets and the policymakers’ decisions, with emphasis on monetary policy. What if their forecasts are systematically biased?
