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?
Publications
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?
Germany’s labour market is buzzing. The unemployment rate is currently close to 5%. Although the business cycle could cool down in the near future, the trend is not expected to reverse course in the coming years. In the long run, however, pessimism dominates. As automation intensifies, many observers expect an era of mass unemployment in which only highly-qualified skilled workers will have a regular employment contract. At the same time, baby boomers will retire, and the decreasing labour force might lead to a skilled labour shortage, lower growth rates and an overburdened welfare state.
Yet, empirical findings and theoretical arguments suggest that there will be neither mass unemployment, nor a dramatic skilled labour shortage. Moreover, these two problems will certainly not emerge together. Rather, the decrease in labour demand due to automation will be manageable, and partly absorbed by the simultaneously drop in the labour force. By contrast, increasing income inequality is more likely to become a key isuue.
For several decades, labour market experts and economists have been advocating what now seems to become real: in 2020, Germany’s new immigration act will come into effect. The ‘Skilled Immigration Act’ is supposed to make immigration of qualified, non-EU citizens significantly easier. In the future, qualified workers without academic degrees will have immigration opportunities which were previously open to university graduates only. Moreover, they will no longer be legally at a disadvantage compared to German nationals and EU citizens.
«From now on our nation’s answer to this great social challenge will no longer be a never-ending cycle of welfare: it will be the dignity, the power, and the ethic of work. Today we are taking an historic chance to make welfare what it was meant to be: a second chance, not a way of life…The new bill restores America’s basic bargain of providing opportunity and demanding in return responsibility».
