FCA and Bank of England set out shared vision for tokenisation in UK wholesale markets
The Financial Conduct Authority and the Bank of England set out a shared vision and seek industry views on the future of UK wholesale markets
Financial institutions
PRA announces ring-fence change to reduce costs
The Prudential Regulation Authority has today announced plans to consult on reforming rules around shared operational services for ring-fenced banks.
The Bank, FCA and HM Treasury joint statement on Frontier AI models and cyber resilience
Statement from the Bank of England, Financial Conduct Authority and HM Treasury
Assessing cross-border integration of equity markets in the euro area: evidence from a gravity model
Euro area financial markets hold significant untapped potential: deeper cross-border integration would improve the allocation of savings, lower the cost of capital and strengthen capacity to finance investment and innovation. To assess how the integration of euro area equity markets has evolved over time, this box applies a structural gravity model, the workhorse of international trade analysis, to bilateral euro area equity holdings.
FEDS Paper: A Tale of Demand and Supply for Central Bank Reserves
Sriya Anbil, Sebastian Infante, Zeynep SenyuzIn an ample-reserves framework, administered rates anchor money markets but suppress information from unsecured interbank trading. We recover that information by isolating the small interbank segment of the federal funds market.
FEDS Paper: Does Banking Consolidation Harm Households?
Celso Brunetti, Jeffery H. Harris, Ioannis SpyridopoulosNo, in the mortgage market. Using confidential micro-level data combining mortgage contracts with credit and repayment records for 44 million loans spanning 5,000 bank mergers over nearly three decades, we find no changes to mortgage rates, approval rates, or delinquency rates. Local mortgage markets remain remarkably competitive despite consolidation, averaging over 100 active lenders in each county every post-merger quarter.
FEDS Paper: Anchored to the Dot Plot: Central Bank Projections and Interest Rate Expectations
Eric EngstromIn January 2012, the Federal Reserve began publishing the Summary of Economic Projections (SEP) "dot plot," revealing FOMC participants' projections for the federal funds rate. This paper documents a dual role for SEP projections in the formation of private interest-rate expectations. On one hand, SEP projections contain valuable information, achieving lower forecast errors than consensus surveys, VAR models, and several market-based measures at many horizons.
The role of judgement in supervisory scores and additional capital requirements assigned to banks
We empirically analyse the role of judgement in assigning overall scores by the euro area supervisors as part of the yearly Supervisory Review and Evaluation Process (SREP), which evaluates banks’ risks and sets supervisory actions. We also analyse its role in shaping the drivers of the Pillar 2 capital requirement (P2R) that banks must fulfil. We find that supervisors actively adjust the weight of the components of the overall score to reflect qualitative information, thereby smoothing fluctuations in the final assessment.
The role of biodiversity risk in shaping bank lending decisions
We examine whether banks incorporate firm-level biodiversity risk into their lending decisions. Using a large sample of syndicated loans matched to firm-level biodiversity risk measures, we document that borrowers with higher biodiversity risk face significantly higher loan spreads. Evidence on loan volumes is weaker, suggesting that banks primarily adjust along the pricing margin rather than restricting credit supply.
Supply chain uncertainty, energy prices, and inflation
Using U.S. and Euro area data, we document that (i) the pass-through of energy prices to inflation is state-dependent - stronger when supply chain uncertainty is elevated – and (ii) in such states, energy prices become more informative about logistical conditions. We develop a model in which firms combine energy and a specialized input transported through a capacity-constrained transportation network. When congestion binds, energy remains available in local markets at a premium, whereas the specialized input is subject to delivery delays.
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