Talking point
European bank performance in 2014: Not so bad
Core revenues are getting better, loan losses are falling substantially and capital ratios have climbed to sustainable levels – European banks seem to have turned the corner in 2014, finally. Profits have more than doubled, asset growth has also resumed and banks have regained a bit of risk appetite. The outlook for 2015 is thus brighter than in most of the past few years. The still-elevated expenditure levels remain a significant drag on performance, though. [more]
European integration
Debate on free movement: Does the EU need new rules on social security co-ordination?
In the EU there is ongoing debate about so-called "social benefit tourism". Not only supporters of populist parties, but also broader sections of the population say that the current rules on free movement and coordination of social security systems virtually invite people from southern, central and eastern Europe to migrate into the social security systems of more prosperous partner countries and thus overstrain these systems. Reforms should, at the very least, aim at making the current law less contestable and easier for national authorities to apply. Much argues in favour of taking a generally more restrictive approach. The closer coordination of the social security systems sought in various quarters is not suitable as a driver of European integration. [more]
Global financial markets
Liquidity is key for the central clearing of derivatives
With more and more OTC derivative contracts shifting towards central clearing, the existing risk management and collateralisation practices are changing tremendously. Consequently, market participants’ attention has turned towards the determinants of central clearing. Our empirical analysis reveals that liquidity is the most important precondition for the central clearing of CDSs. By contrast, higher volatility reduces the likelihood of derivatives being centrally cleared. CCPs also seem to prefer reference entities with relatively robust financial characteristics. [more]
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