Question A:
Research on the nature and impact of bank runs has made it possible to limit substantially the wider economic damage from financial crises.
Responses
Responses weighted by each expert's confidence
Question B:
Reforms of financial regulation since 2008 (and macroprudential policies in some countries) will not substantially reduce the probability of financial crises.
Responses
Responses weighted by each expert's confidence
Question A Participant Responses
Participant | University | Vote | Confidence | Bio/Vote History |
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John Campbell |
Harvard | Bio/Vote History | ||
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John Cochrane |
Hoover Institution Stanford | Bio/Vote History | ||
I agree, though not for the usual reason. Research shows just what it takes to cause runs, and opens the door to the effective solution rather than current patches: Equity financed banking and narrow deposit taking.
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Francesca Cornelli |
Northwestern Kellogg | Bio/Vote History | ||
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Douglas Diamond |
Chicago Booth | Bio/Vote History | ||
We understand crises and systemic risk much better than 100 years ago. Crises are still possible and the magnitude of their impact is reduced by deposit insurance, supervision, regulation and ex-post intervention. I think that there remains a significant impact.
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Darrell Duffie |
Stanford | Bio/Vote History | ||
Yes, this research has made a big difference, with respect to bank runs. But we must bear in mind the Global Financial Crisis, which came well after this research was understood by regulators. Much more needs to be done.
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Janice Eberly |
Northwestern Kellogg | Bio/Vote History | ||
Better understanding run dynamics helps to identify and implement better policies. But financial crises are broader than banks and bank runs, and regulatory arbitrage (among other limitations) limits their effectiveness in practice.
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Xavier Gabaix |
Harvard | Bio/Vote History | ||
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Itay Goldstein |
UPenn Wharton | Bio/Vote History | ||
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John Graham |
Duke Fuqua | Bio/Vote History | ||
research might have reduced the economic damage but I don't think it "substantially" reduced it, as the question asks.
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Lars Hansen |
UChicago | Bio/Vote History | ||
The term ``made is possible'' is actually too strong and ``substantially limit'' is too vague. The research was an important contributor to the constructive policies that were implemented in our most recent global financial crisis.
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Campbell R. Harvey |
Duke Fuqua | Bio/Vote History | ||
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David Hirshleifer |
USC | Bio/Vote History | ||
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Harrison Hong |
Columbia | Bio/Vote History | ||
There is evidence from a number of episodes that government backstops help alleviate panics.
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Wei Jiang |
Emory Goizueta | Bio/Vote History | ||
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Steven Kaplan |
Chicago Booth | Bio/Vote History | ||
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Anil Kashyap |
Chicago Booth | Bio/Vote History | ||
Research has helped us spot and understand risks, but not always limit the damage substantially. Lots of constraints, for instance look at the money market funds. They have been a risk in plain sight yet they are still not safe. See the IGM Brookings report for more examples
-see background information here |
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Ralph Koijen |
Chicago Booth | Bio/Vote History | ||
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Camelia Kuhnen |
UNC Kenan-Flagler | Bio/Vote History | ||
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Andrew Lo |
MIT Sloan | Bio/Vote History | ||
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Michelle Lowry |
Drexel LeBow | Bio/Vote History | ||
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Sydney Ludvigson |
NYU | Bio/Vote History | ||
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Matteo Maggiori |
Stanford GSB | Bio/Vote History | ||
The research has certainly improved our understanding of these crises. Our management of the crises has improved...as for "substantially", I am not sure. Certainly better than how the Fed managed the great depression.
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Gregor Matvos |
Northwestern Kellogg | Bio/Vote History | ||
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Tobias Moskowitz |
Yale School of Management | Bio/Vote History | ||
I think we have learned what can cause or exacerbate a bank run and that he led us to enact measures and policies that might help mitigate or slow it down. But, this is not my primary area of expertise.
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Stefan Nagel |
Chicago Booth | Bio/Vote History | ||
With emphasis that "made it possible to limit" is not the same as "has in practice, everywhere limited"
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Jonathan Parker |
MIT Sloan | Bio/Vote History | ||
Examples abound, but US response to the 2008 financial crisis included an alphabet soup of programs, each designed as a roughly optimal mechanism to deal with a particular problem of asymmetric information identified in theoretical and empirical research.
-see background information here -see background information here |
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Christine Parlour |
Berkeley Haas | Bio/Vote History | ||
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Thomas Philippon |
NYU Stern | Bio/Vote History | ||
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Manju Puri |
Duke Fuqua | Bio/Vote History | ||
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Michael R. Roberts |
UPenn Wharton | Bio/Vote History | ||
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Paola Sapienza |
Northwestern Kellogg | Bio/Vote History | ||
In ST, yes. In LT, unclear. Research does not help distinguishing between crisis caused by panic or insolvency. Research showing crisis maybe generated by liquidity crisis -> governments intervened too often even when banks insolvent (Ireland 2008). Increase moral hazard in LT.
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Amit Seru |
Stanford GSB | Bio/Vote History | ||
We understand some of the economic forces. But the policies that have followed leave much to be desired.
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Robert Stambaugh |
UPenn Wharton | Bio/Vote History | ||
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Laura Starks |
UT Austin McCombs | Bio/Vote History | ||
Not sure that damages can always be substantially limited.
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Jeremy Stein |
Harvard | Bio/Vote History | ||
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Johannes Stroebel |
NYU Stern | Bio/Vote History | ||
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Amir Sufi |
Chicago Booth | Bio/Vote History | ||
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Sheridan Titman |
UT Austin McCombs | Bio/Vote History | ||
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Stijn Van Nieuwerburgh |
Columbia Business School | Bio/Vote History | ||
Research on financial fragility has informed the design of macroprudential policy, modern bank supervisory regime, stress testing, etc., all of which has made banks much safer.
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Ingrid M. Werner |
OSU Fisher School | Bio/Vote History | ||
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Toni Whited |
UMich Ross School | Bio/Vote History | ||
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Question B Participant Responses
Participant | University | Vote | Confidence | Bio/Vote History |
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John Campbell |
Harvard | Bio/Vote History | ||
Reforms have had some effect, particularly on large US banks, but there remains a meaningful risk of financial crises.
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John Cochrane |
Hoover Institution Stanford | Bio/Vote History | ||
The current wave of reform is one more larger patch on the same leaky boat. Guarantee more creditors, ever larger bailouts, promise that this time regulators will see risks ahead of time. It failed again in 2020.
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Francesca Cornelli |
Northwestern Kellogg | Bio/Vote History | ||
Although no regulatory step can eliminate the possibility that new practices may lead to crisis, recent reforms have at least eliminated some channels
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Douglas Diamond |
Chicago Booth | Bio/Vote History | ||
Although the probability remains significant, I think it is reduced. Stress tests and capital requirements in the regulated banking sector make it more stable. Risks remain as some of the risks migrate out of that sector.
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Darrell Duffie |
Stanford | Bio/Vote History | ||
Reforms have more than doubled big-bank capital buffers and significantly increased their liquidity coverage--big improvements. But, as we have seen recently (Gilt market), non-bank financial stability concerns remain, bond market design is weak, and much more needs to be done.
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Janice Eberly |
Northwestern Kellogg | Bio/Vote History | ||
There is large variation across countries in regulation and enforcement, plus dissimilar changes post-2008, so better to learn from heterogeneity than to draw broad conclusions. Moreover, the shocks going forward are not necessarily those that drove recent regulatory changes.
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Xavier Gabaix |
Harvard | Bio/Vote History | ||
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Itay Goldstein |
UPenn Wharton | Bio/Vote History | ||
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John Graham |
Duke Fuqua | Bio/Vote History | ||
it might have reduced probability of a crisis but I don't think "substantially" reduced it.
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Lars Hansen |
UChicago | Bio/Vote History | ||
Reforms across countries are heterogeneous in form and magnitude, some of which seem ill conceived and counterproductive and others that look to be prudent.
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Campbell R. Harvey |
Duke Fuqua | Bio/Vote History | ||
Though it is unlikely to be "substantial" reduction, there might be a small reduction. However, at what cost? Heavy-handed regulation may reduce growth opportunities in the economy.
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David Hirshleifer |
USC | Bio/Vote History | ||
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Harrison Hong |
Columbia | Bio/Vote History | ||
Regulations often target yesterday's problems. Financial innovations like crypto are difficult to keep up with for a variety of reasons including political economy ones.
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Wei Jiang |
Emory Goizueta | Bio/Vote History | ||
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Steven Kaplan |
Chicago Booth | Bio/Vote History | ||
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Anil Kashyap |
Chicago Booth | Bio/Vote History | ||
Too much activity has migrated into the shadow banking system. The banks, at least in US and UK, are definitely stronger and safer, but the 2008 reforms were incomplete. See the same report
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Ralph Koijen |
Chicago Booth | Bio/Vote History | ||
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Camelia Kuhnen |
UNC Kenan-Flagler | Bio/Vote History | ||
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Andrew Lo |
MIT Sloan | Bio/Vote History | ||
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Michelle Lowry |
Drexel LeBow | Bio/Vote History | ||
One of the biggest challenges in preventing future crises relates to the fact that the underlying triggers are often different.
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Sydney Ludvigson |
NYU | Bio/Vote History | ||
some previous risks will have been reduced while new macro-prudential policies could create new ones.
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Matteo Maggiori |
Stanford GSB | Bio/Vote History | ||
The question is not answerable. It is asking for a quantitative assessment about "substantially reducing a probability" without defining substantially.
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Gregor Matvos |
Northwestern Kellogg | Bio/Vote History | ||
Increased bank capital requirements help but could be substantially larger to promote stability without large social costs. Regulation generated large outflows to lightly regulated shadow banks and should also account for banks' adjustment on the retain vs. securitize margin.
-see background information here -see background information here -see background information here -see background information here -see background information here |
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Tobias Moskowitz |
Yale School of Management | Bio/Vote History | ||
Financial crises do not occur frequently, hence it is difficult to know how effective reforms to prevent or lessen them will be. However, there is increasing micro evidence that supply-side channels have impact and hence reforms that target that could plausibly matter.
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Stefan Nagel |
Chicago Booth | Bio/Vote History | ||
Banks are funded with more equity than before, which helps. But vulnerabilities may shift into poorly regulated areas. Actions taken by central banks to fight crises in the past may have unintended consequences in the future. On balance a bit better, but not much.
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Jonathan Parker |
MIT Sloan | Bio/Vote History | ||
Current regulation is largely predicated on regulators anticipating, measuring, and managing risks inside the financial sector that they sit apart from. Might not work well? Eg last week, an interest rate rise destabilized UK defined-benefit pensions and government debt markets.
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Christine Parlour |
Berkeley Haas | Bio/Vote History | ||
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Thomas Philippon |
NYU Stern | Bio/Vote History | ||
the reforms have already reduced the risk of crises, a lot, but not down to zero.
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Manju Puri |
Duke Fuqua | Bio/Vote History | ||
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Michael R. Roberts |
UPenn Wharton | Bio/Vote History | ||
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Paola Sapienza |
Northwestern Kellogg | Bio/Vote History | ||
Probably not, for several reasons. Regulation alone is not sufficient to create financial stability. This regulation was heavily lobbied. There are many possible arbitrage strategies (e.g. shadow banks). The next crisis will not be identical to the previous one.
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Amit Seru |
Stanford GSB | Bio/Vote History | ||
Some policies are sensible. A host of others (especially those that assume regulators can forecast asset price "bubbles" before market does and regulate accordingly) will be counterproductive.
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Robert Stambaugh |
UPenn Wharton | Bio/Vote History | ||
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Laura Starks |
UT Austin McCombs | Bio/Vote History | ||
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Jeremy Stein |
Harvard | Bio/Vote History | ||
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Johannes Stroebel |
NYU Stern | Bio/Vote History | ||
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Amir Sufi |
Chicago Booth | Bio/Vote History | ||
This is too strong a statement to answer either way. It is the case that there were no financial crises in advanced economies from 1940 to the mid 1970s, which is worth noting when we think of policies that will reduce probability of crises.
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Sheridan Titman |
UT Austin McCombs | Bio/Vote History | ||
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Stijn Van Nieuwerburgh |
Columbia Business School | Bio/Vote History | ||
Tighter bank capital rules and stress testing have reduced the risk of banking crises. Some of the risk has migrated to shadow banks, who are less regulated.
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Ingrid M. Werner |
OSU Fisher School | Bio/Vote History | ||
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Toni Whited |
UMich Ross School | Bio/Vote History | ||
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