Abstract

The next St Catharine’s Political Economy Seminar in the series on the Economics of Austerity, will be held on Wednesday 5th March 2014 – Charles Goodhart will give a talk on ‘Bail-out or Bail-in?’. The seminar will be held in the McGrath Centre at St Catharine’s College from 6.00-7.30 pm. All are welcome.

CHARKES GOODHART , CBE, FBA is Emeritus Professor of Banking and Finance with the Financial Markets Group at the London School of Economics, having previously, 1987-2005, been its Deputy Director. Until his retirement in 2002, he had been the Norman Sosnow Professor of Banking and Finance at LSE since 1985. Before then, he had worked at the Bank of England for seventeen years as a monetary adviser, becoming a Chief Adviser in 1980. In 1997 he was appointed one of the outside independent members of the Bank of England’s new Monetary Policy Committee until May 2000. Earlier he had taught at Cambridge and LSE . Besides numerous articles, he has written a couple of books on monetary history; a graduate monetary textbook, Money, Information and Uncertainty (2nd Ed. 1989); two collections of papers on monetary policy, Monetary Theory and Practice (1984) and The Central Bank and The Financial System (1995); and a number of books and articles on Financial Stability, on which subject he was Adviser to the Governor of the Bank of England, 2002-2004, and numerous other studies relating to financial markets and to monetary policy and history. His latest books include The Basel Committee on Banking Supervision: A History of the Early Years, 1974-1997, (2011), and The Regulatory Response to the Financial Crisis, (2009).

CONTENT : In this presentation Charles Goodhart will argue that in previous crises the failures of large, systemic banks (G-SIFIs) have mostly been handled by arranging their merger with a stronger bank, (Lloyds/HBoS, JPM /Bear Stearns, BoA/Merrill Lynch, etc.). For a variety of reasons, that route is now largely blocked. The liquidation of a G-SIFI remains unacceptably dangerous. So the final alternative is recapitalisation. But who then pays for such recapitalisation? The alternatives are bail-out, via taxpayers, or bail-in, via junior creditors. There is a general political revulsion against taxpayer bail-outs, and therefore a strong current momentum, e.g. in the EU SRM proposals, to require much more bail-in. But in this rush towards bail-in, its proponents have tended to overlook its many disadvantages. Charles Goodhart will argue that these latter flaws will make bail-in even worse than bail-out. But if bail-out should continue, what will mitigate moral hazard and the unfair advantages of larger banks? Charles Goodhart will offer suggestions.

Please contact the seminar organisers Philip Arestis (pa267@cam.ac.uk) and Michael Kitson (m.kitson@jbs.cam.ac.uk) in the event of a query.