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Even if the importance of micro data transparency is a well-established fact, European institutions are still lacking behind the US when it comes to the provision of financial market data to academics. In this Policy Letter we discuss five different types of micro data that are crucial for monitoring (systemic) risk in the financial system, identifying and understanding inter-linkages in financial markets and thus have important implications for policymakers and regulatory authorities. We come to the conclusion that for all five areas of micro data, outlined in this Policy Letter (bank balance sheet data, asset portfolio data, market transaction data, market high frequency data and central bank data), the benefits of increased transparency greatly offset potential downsides. Hence, European policymakers would do well to follow the US example and close the sizeable gap in micro data transparency. For most cases, relevant data is already collected (at least on national level), but just not made available to academics for partly incomprehensible reasons. Overcoming these obstacles could foster financial stability in Europe and assure level playing fields with US regulators and policymakers.
This policy letter adds to the current discussion on how to design a program of government assistance for firms hurt by the Coronavirus crisis. While not pretending to provide a cure-all proposal, the advocated scheme could help to bring funding to firms, even small firms, quickly, without increasing their leverage and default risk. The plan combines outright cash transfers to firms with a temporary, elevated corporate profit tax at the firm level as a form of conditional payback. The implied equity-like payment structure has positive risk-sharing features for firms, without impinging on ownership structures. The proposal has to be implemented at the pan-European level to strengthen Euro area resilience.
The spreading of the Covid-19 virus causes a reduction in economic activity worldwide and may lead to new risks to financial stability. The authors draw attention to the urgency of the targeted mitigation strategies on the European level and suggest taking coordinated action on the fiscal side to provide liquidity to affected firms in the corporate sector. Otherwise, virus-related cashflow interruptions could lead to a new full-blown banking crisis. Monetary policy measures are unlikely to mitigate cash liquidity shortages at the level of individual firms. Coordinated action at European level is decisive to prevent markets from losing confidence in the resilience of banks, particularly in countries with limited fiscal capacity. In contrast to the euro crisis of 2011, the cause of the current crisis does not lie in the financial markets; therefore, the risk of moral hazard for banks or states is low.