Daniela Gabor | University of the West of England (original) (raw)

Books by Daniela Gabor

Papers by Daniela Gabor

This article examines a neglected structural transformation in European finance: the growing impo... more This article examines a neglected structural transformation in European finance: the growing importance of government debt as collateral for Europe's repo markets, where banks borrow cash against collateral. Seduced by the promises of repo market-driven financial integration, the EU institutions and Member States encouraged private finance to generate its own architecture for the European repo market in the early years of the euro, sidelining known problems about systemic fragilities. These fragilities materialized after Lehman Brothers’ collapse and were exacerbated by the ECB's collateral policies. The European sovereign debt crisis shows that governments, just like private asset issuers, can rapidly become vulnerable to repo pro-cyclicality and collateral crises. Through its collateral policies, the ECB behaves like a shadow bank .

Journal of European Public Policy

This paper focuses on the European Commission's proposals to include the repo market – a market s... more This paper focuses on the European Commission's proposals to include the repo market – a market systemic to European (shadow) banking – in the financial transactions tax (FTT). It asks why the FTT governments negotiating under the enhanced co-operation procedure quickly removed the repo market from the scope of the FTT. It argues that the European repo market, rather than a shadow market energized by regulatory arbitrage, as it is customary to portray it, grew out of a public–private joint venture before the crisis. Thus, regulators became deeply embedded – through their government bond markets and policy frameworks – in (repo) market-based finance. This convergence in public and private interests creates new trade-offs and ambiguous preferences that allow private finance to successfully mobilize resistance to reform, creating coalitions with public actors such as the European Central Bank.

Review of Political Economy

What shapes central banks’ learning from the policy experiments of their peers? Both economic ide... more What shapes central banks’ learning from the policy experiments of their peers? Both economic ideas and organizational interests play important roles. Thus, New Keynesian ideas led central banks to interpret Japan's experience with quantitative easing (2001–2006) through the impact on risk spreads, although the Japanese central bank never intended such effects. In turn, scholars and policy-makers alike ignored one critical lesson: successful policy innovations depend on banks’ funding models. It is argued here that this was a crucial omission because the shift to market-based funding impairs the effectiveness of the traditional crisis toolkit. Central banks must intervene directly in asset markets of systemic importance for funding conditions, as the Bank of Japan did by buying government bonds. Hence, market-based finance engenders a trade-off between financial stability and institutional stability defined through central bank independence. During critical periods, central banks cannot preserve both. The ECB illustrates this trade-off well. Early in the crisis, it outsourced financial stability to a (largely) market-dependent banking system to protect its independence. With the introduction of Outright Monetary Transactions in September 2012, the Bank recognized that the market-based nature of European banking required outright purchases of sovereign bonds. This new instrument gave the ECB additional powers to shape national fiscal decisions in the name of an independence that no longer has theoretical justifications.

Political economy approaches to shadow banking should take into account interconnectedness. Rathe... more Political economy approaches to shadow banking should take into account interconnectedness. Rather than tracing institutions crossing porous regulatory perimeters, analytical efforts would be better placed to theorize collateral networks, the institutions that act as key nodes in those networks, and the common exposure they create. The paper argues that the collateral intensive nature of shadow banking underpins two mechanisms of interconnectedness: the risk management framework and the re-use/re-hypothecation channel. Both have systemic implications, together generating an important political conflict for the management of shadow banking because private leverage is born in, and can destabilize, government debt markets. Collateral-intensive finance thus confronts central banks and governments with a deeply political question: what governance arrangement is best suited to manage the systemic risks generated through shadow activities that blur the lines between financial stability policy and fiscal policy? Institutional innovations that ensure coordination between the central bank and government work best to manage ‘shadow’ interconnectedness.

This paper explores the importance of geographies of bank funding for the design of central banks... more This paper explores the importance of geographies of bank funding for the design of central banks' crisis interventions in financial markets.

Abstract: What shapes central banks' learning from the policy experiments of their peers? This pa... more Abstract: What shapes central banks' learning from the policy experiments of their peers? This paper addresses the role of economic ideas and organizational interests in the diffusion of central bank policies during crisis. By tracing the journey of 'unconventional'monetary policies from Japan to the UK, US and Eurozone, it finds that New Keynesian ideas led large central banks to focus on interest rate spreads although the Japanese central bank never intended such effects.

This thesis has a twofold aim. It first argues that monetary policy is inherently political becau... more This thesis has a twofold aim. It first argues that monetary policy is inherently political because it involves struggles over meaning. It modifies Niebyl's (1946) conceptual approach with an explicit attention to meaning, advancing a theory/policy discourse/institutional practices nexus for exploring central banking.

Europe-Asia Studies, Apr 2013

Political risk—risk that investments are damaged by policy action of authorities—increased during... more Political risk—risk that investments are damaged by policy action of authorities—increased during the financial crisis due to controversies about the distribution of accumulated losses among stakeholders. Authorities interconnected by cross-border banks considered unilateral policies that minimised losses for domestic stakeholders at the expense of their foreign counterparts. This is at odds both with the assumption behind financial integration which presumes multilateral responses to cross-border shocks and with the typical definition of political risks that ignores the fact that not only host-country, but also home-country authorities can create such risks. This paper recasts the definition of political risk and reviews instances when political risk materialised within the EU banking market between 2007 and 2011. The analysis reveals that the EU regulatory framework needs to be enhanced to contain resurgent political risks systematically rather than through ad hoc interventions of the EU and international bodies.

At the beginning of 2009, a new phrase was coined in the quickly developing financial crisis voca... more At the beginning of 2009, a new phrase was coined in the quickly developing financial crisis vocabulary: Central and Eastern Europe (CEE), the subprime region. In the positive scenario, the region would contract at an average of at least 5% of GDP in 2009, while in the negative scenario an economic apocalypse loomed over, possibly worse than the US subprime crisis (Economist, 2009).

What shapes central banks’ learning from the policy experiments of their peers? This paper addres... more What shapes central banks’ learning from the policy experiments of their peers? This paper addresses the role of economic ideas and organizational interests in the diffusion of central bank policies during crisis. By tracing the journey of ‘unconventional’ monetary policies from Japan to the UK, US and Eurozone, it finds that New Keynesian ideas led large central banks to focus on interest rate spreads although the Japanese central bank never intended such effects. In turn, the scholarship on crisis left unexamined the rise of market-based finance although the Japanese experience drew attention to a key implication: financial institutions expect central banks to deploy unconventional policy instruments that ensure adequate collateral market liquidity. From a political economy perspective, this was a crucial omission because sovereign bond markets have become the key source of collateral. To stabilize such collateral markets, central banks must abandon the separation between fiscal and monetary policy underpinning central bank independence. Reluctant to do so, the European Central Bank alone opted for enhanced liquidity operations in response to the crisis, despite limited evidence of their effectiveness in Japan. Eventually, it recognized that the market-based nature of European banking required direct interventions in sovereign bond markets. Yet interventions did not mark a radical rethink of crisis models, but rather functioned as a political instrument to preserve the central bank’s role in the European institutional architecture.

The global financial crisis forcefully highlighted the importance of curbing the impact of large ... more The global financial crisis forcefully highlighted the importance of curbing the impact of large and volatile capital inflows on growth and financial stability in developing countries. It led the IMF to reconsider its long-standing rejection of capital controls. Yet its new ‘macroeconomic policy first’ approach has to be reconciled with the hybrid nature of banking activity and its role in transmitting global shocks. A consideration of dominant actors and strategies of intermediating capital inflows offers distinct policy options, ranging from carefully designed central bank strategies to institutional changes that realign bank incentives towards longer horizons and sustainable growth models.

This paper examines the ECB’s policies since 2008 to argue that the Eurozone crisis is (also) a c... more This paper examines the ECB’s policies since 2008 to argue that the Eurozone crisis is (also) a crisis of central banking. It first offers a detailed timeline of the crisis measures adopted since September 2008, including the introduction of long-term liquidity provision, the adoption of the covered bond program (CBP) in May 2009 and then the securities market program (SMP) in May 2010. It then identifies three turning points in the ECB’s struggle to reconcile its allegiance to sound money principles with the consequences of securitized (shadow) banking, documenting how exit strategies predicated on traditional models of financial intermediation contributed to the spread of sovereign debt pressures from Greece to Ireland, Portugal, then Spain and Italy. The paper lastly proposes that the ECB's lender of last resort activity should be extended to include a buyer of last resort arm that recognizes that the role of sovereign debt instruments as collateral in repo transactions renders volatility in sovereign debt markets a threat to financial stability.

Comparative Economic Studies, Jan 1, 2008

In August 2005, the National Bank of Romania changed its monetary policy framework in an attempt ... more In August 2005, the National Bank of Romania changed its monetary policy framework in an attempt to sharpen its influence on monetary conditions in the economy. It replaced the strategy of targeting monetary aggregates used since 1990 with inflation targeting, a ‘fashionable’ policy stance grounded in a systematic commitment to a single, low inflation target. This paper will argue that the regime switch has failed to bridge the gap between policy theory and practice that prevailed during the monetary targeting years, as the new policy regime is similarly at odds with the structural conditions in the Romanian economy.

Discussion Papers, Jan 1, 2011

The global financial crisis forcefully highlighted the importance of developing mechanisms to cur... more The global financial crisis forcefully highlighted the importance of developing mechanisms to curb the effects of large and volatile capital inflows on growth and financial stability in developing countries. It led the IMF to reconsider its long-standing rejection of capital controls. This paper explores the analytical framework underlying the IMF’s new position, arguing that its sequencing strategy offers a formulaic solution that neglects the institutional make-up of money and currency markets, is asymmetric in its emphasis on the upturn of the liquidity cycle and sanctions capital-controls only as a last-resort solution. The new approach can have perverse impacts, increasing vulnerability where banks play an important role in the intermediation of capital inflows. The paper offers alternative policy solutions that focus on realigning bank incentives towards longer horizons and sustainable growth models, combining carefully designed central bank liquidity strategies and institutional changes in the banking sector.

Competition and Change, 14, Jan 1, 2010

This paper investigates how financialization pressures in Eastern Europe shaped vulnerabilities t... more This paper investigates how financialization pressures in Eastern Europe shaped vulnerabilities to the 2007 global deleveraging and to what extent policy responses to crisis have sought to reinforce or delink from financialization. It explores the technical devices underpinning financialization, linked to the dominance of carry-trade strategies in foreign-owned banks and non-resident investors, validated by a set of central bank practices that changed the relationship between wholesale money markets and currency markets. Three distinct periods in the timeline of crisis show that central bank interventions were crucial in resuscitating financialization and that attempts to re-embed finance cannot be successful if public debt dynamics are neglected.

This article examines a neglected structural transformation in European finance: the growing impo... more This article examines a neglected structural transformation in European finance: the growing importance of government debt as collateral for Europe's repo markets, where banks borrow cash against collateral. Seduced by the promises of repo market-driven financial integration, the EU institutions and Member States encouraged private finance to generate its own architecture for the European repo market in the early years of the euro, sidelining known problems about systemic fragilities. These fragilities materialized after Lehman Brothers’ collapse and were exacerbated by the ECB's collateral policies. The European sovereign debt crisis shows that governments, just like private asset issuers, can rapidly become vulnerable to repo pro-cyclicality and collateral crises. Through its collateral policies, the ECB behaves like a shadow bank .

Journal of European Public Policy

This paper focuses on the European Commission's proposals to include the repo market – a market s... more This paper focuses on the European Commission's proposals to include the repo market – a market systemic to European (shadow) banking – in the financial transactions tax (FTT). It asks why the FTT governments negotiating under the enhanced co-operation procedure quickly removed the repo market from the scope of the FTT. It argues that the European repo market, rather than a shadow market energized by regulatory arbitrage, as it is customary to portray it, grew out of a public–private joint venture before the crisis. Thus, regulators became deeply embedded – through their government bond markets and policy frameworks – in (repo) market-based finance. This convergence in public and private interests creates new trade-offs and ambiguous preferences that allow private finance to successfully mobilize resistance to reform, creating coalitions with public actors such as the European Central Bank.

Review of Political Economy

What shapes central banks’ learning from the policy experiments of their peers? Both economic ide... more What shapes central banks’ learning from the policy experiments of their peers? Both economic ideas and organizational interests play important roles. Thus, New Keynesian ideas led central banks to interpret Japan's experience with quantitative easing (2001–2006) through the impact on risk spreads, although the Japanese central bank never intended such effects. In turn, scholars and policy-makers alike ignored one critical lesson: successful policy innovations depend on banks’ funding models. It is argued here that this was a crucial omission because the shift to market-based funding impairs the effectiveness of the traditional crisis toolkit. Central banks must intervene directly in asset markets of systemic importance for funding conditions, as the Bank of Japan did by buying government bonds. Hence, market-based finance engenders a trade-off between financial stability and institutional stability defined through central bank independence. During critical periods, central banks cannot preserve both. The ECB illustrates this trade-off well. Early in the crisis, it outsourced financial stability to a (largely) market-dependent banking system to protect its independence. With the introduction of Outright Monetary Transactions in September 2012, the Bank recognized that the market-based nature of European banking required outright purchases of sovereign bonds. This new instrument gave the ECB additional powers to shape national fiscal decisions in the name of an independence that no longer has theoretical justifications.

Political economy approaches to shadow banking should take into account interconnectedness. Rathe... more Political economy approaches to shadow banking should take into account interconnectedness. Rather than tracing institutions crossing porous regulatory perimeters, analytical efforts would be better placed to theorize collateral networks, the institutions that act as key nodes in those networks, and the common exposure they create. The paper argues that the collateral intensive nature of shadow banking underpins two mechanisms of interconnectedness: the risk management framework and the re-use/re-hypothecation channel. Both have systemic implications, together generating an important political conflict for the management of shadow banking because private leverage is born in, and can destabilize, government debt markets. Collateral-intensive finance thus confronts central banks and governments with a deeply political question: what governance arrangement is best suited to manage the systemic risks generated through shadow activities that blur the lines between financial stability policy and fiscal policy? Institutional innovations that ensure coordination between the central bank and government work best to manage ‘shadow’ interconnectedness.

This paper explores the importance of geographies of bank funding for the design of central banks... more This paper explores the importance of geographies of bank funding for the design of central banks' crisis interventions in financial markets.

Abstract: What shapes central banks' learning from the policy experiments of their peers? This pa... more Abstract: What shapes central banks' learning from the policy experiments of their peers? This paper addresses the role of economic ideas and organizational interests in the diffusion of central bank policies during crisis. By tracing the journey of 'unconventional'monetary policies from Japan to the UK, US and Eurozone, it finds that New Keynesian ideas led large central banks to focus on interest rate spreads although the Japanese central bank never intended such effects.

This thesis has a twofold aim. It first argues that monetary policy is inherently political becau... more This thesis has a twofold aim. It first argues that monetary policy is inherently political because it involves struggles over meaning. It modifies Niebyl's (1946) conceptual approach with an explicit attention to meaning, advancing a theory/policy discourse/institutional practices nexus for exploring central banking.

Europe-Asia Studies, Apr 2013

Political risk—risk that investments are damaged by policy action of authorities—increased during... more Political risk—risk that investments are damaged by policy action of authorities—increased during the financial crisis due to controversies about the distribution of accumulated losses among stakeholders. Authorities interconnected by cross-border banks considered unilateral policies that minimised losses for domestic stakeholders at the expense of their foreign counterparts. This is at odds both with the assumption behind financial integration which presumes multilateral responses to cross-border shocks and with the typical definition of political risks that ignores the fact that not only host-country, but also home-country authorities can create such risks. This paper recasts the definition of political risk and reviews instances when political risk materialised within the EU banking market between 2007 and 2011. The analysis reveals that the EU regulatory framework needs to be enhanced to contain resurgent political risks systematically rather than through ad hoc interventions of the EU and international bodies.

At the beginning of 2009, a new phrase was coined in the quickly developing financial crisis voca... more At the beginning of 2009, a new phrase was coined in the quickly developing financial crisis vocabulary: Central and Eastern Europe (CEE), the subprime region. In the positive scenario, the region would contract at an average of at least 5% of GDP in 2009, while in the negative scenario an economic apocalypse loomed over, possibly worse than the US subprime crisis (Economist, 2009).

What shapes central banks’ learning from the policy experiments of their peers? This paper addres... more What shapes central banks’ learning from the policy experiments of their peers? This paper addresses the role of economic ideas and organizational interests in the diffusion of central bank policies during crisis. By tracing the journey of ‘unconventional’ monetary policies from Japan to the UK, US and Eurozone, it finds that New Keynesian ideas led large central banks to focus on interest rate spreads although the Japanese central bank never intended such effects. In turn, the scholarship on crisis left unexamined the rise of market-based finance although the Japanese experience drew attention to a key implication: financial institutions expect central banks to deploy unconventional policy instruments that ensure adequate collateral market liquidity. From a political economy perspective, this was a crucial omission because sovereign bond markets have become the key source of collateral. To stabilize such collateral markets, central banks must abandon the separation between fiscal and monetary policy underpinning central bank independence. Reluctant to do so, the European Central Bank alone opted for enhanced liquidity operations in response to the crisis, despite limited evidence of their effectiveness in Japan. Eventually, it recognized that the market-based nature of European banking required direct interventions in sovereign bond markets. Yet interventions did not mark a radical rethink of crisis models, but rather functioned as a political instrument to preserve the central bank’s role in the European institutional architecture.

The global financial crisis forcefully highlighted the importance of curbing the impact of large ... more The global financial crisis forcefully highlighted the importance of curbing the impact of large and volatile capital inflows on growth and financial stability in developing countries. It led the IMF to reconsider its long-standing rejection of capital controls. Yet its new ‘macroeconomic policy first’ approach has to be reconciled with the hybrid nature of banking activity and its role in transmitting global shocks. A consideration of dominant actors and strategies of intermediating capital inflows offers distinct policy options, ranging from carefully designed central bank strategies to institutional changes that realign bank incentives towards longer horizons and sustainable growth models.

This paper examines the ECB’s policies since 2008 to argue that the Eurozone crisis is (also) a c... more This paper examines the ECB’s policies since 2008 to argue that the Eurozone crisis is (also) a crisis of central banking. It first offers a detailed timeline of the crisis measures adopted since September 2008, including the introduction of long-term liquidity provision, the adoption of the covered bond program (CBP) in May 2009 and then the securities market program (SMP) in May 2010. It then identifies three turning points in the ECB’s struggle to reconcile its allegiance to sound money principles with the consequences of securitized (shadow) banking, documenting how exit strategies predicated on traditional models of financial intermediation contributed to the spread of sovereign debt pressures from Greece to Ireland, Portugal, then Spain and Italy. The paper lastly proposes that the ECB's lender of last resort activity should be extended to include a buyer of last resort arm that recognizes that the role of sovereign debt instruments as collateral in repo transactions renders volatility in sovereign debt markets a threat to financial stability.

Comparative Economic Studies, Jan 1, 2008

In August 2005, the National Bank of Romania changed its monetary policy framework in an attempt ... more In August 2005, the National Bank of Romania changed its monetary policy framework in an attempt to sharpen its influence on monetary conditions in the economy. It replaced the strategy of targeting monetary aggregates used since 1990 with inflation targeting, a ‘fashionable’ policy stance grounded in a systematic commitment to a single, low inflation target. This paper will argue that the regime switch has failed to bridge the gap between policy theory and practice that prevailed during the monetary targeting years, as the new policy regime is similarly at odds with the structural conditions in the Romanian economy.

Discussion Papers, Jan 1, 2011

The global financial crisis forcefully highlighted the importance of developing mechanisms to cur... more The global financial crisis forcefully highlighted the importance of developing mechanisms to curb the effects of large and volatile capital inflows on growth and financial stability in developing countries. It led the IMF to reconsider its long-standing rejection of capital controls. This paper explores the analytical framework underlying the IMF’s new position, arguing that its sequencing strategy offers a formulaic solution that neglects the institutional make-up of money and currency markets, is asymmetric in its emphasis on the upturn of the liquidity cycle and sanctions capital-controls only as a last-resort solution. The new approach can have perverse impacts, increasing vulnerability where banks play an important role in the intermediation of capital inflows. The paper offers alternative policy solutions that focus on realigning bank incentives towards longer horizons and sustainable growth models, combining carefully designed central bank liquidity strategies and institutional changes in the banking sector.

Competition and Change, 14, Jan 1, 2010

This paper investigates how financialization pressures in Eastern Europe shaped vulnerabilities t... more This paper investigates how financialization pressures in Eastern Europe shaped vulnerabilities to the 2007 global deleveraging and to what extent policy responses to crisis have sought to reinforce or delink from financialization. It explores the technical devices underpinning financialization, linked to the dominance of carry-trade strategies in foreign-owned banks and non-resident investors, validated by a set of central bank practices that changed the relationship between wholesale money markets and currency markets. Three distinct periods in the timeline of crisis show that central bank interventions were crucial in resuscitating financialization and that attempts to re-embed finance cannot be successful if public debt dynamics are neglected.

Development and Change, Jan 1, 2010

This article focuses on a key element of the IMF's agenda for change: the repackaging of its econ... more This article focuses on a key element of the IMF's agenda for change: the repackaging of its economics of crisis around inflation targeting. It examines how this new policy regime redefines the political economy of the IMF's policy advice, and contextualizes it by focusing on Eastern Europe, the region worst affected by the global financial crisis which began in 2007. The article compares the conditionalities designed under the new and old policy regimes and argues that the mainstreaming of inflation targeting reproduces the IMF's function within a neoliberal political economy. It shows how, depending on the role of the IMF in the policy process, the models that inform policy are employed differently. During ‘normal’ times, models engender a contractionary bias that favours speculative capital. When acting as ‘lender of last resort’, the IMF retains the traditional emphasis on fiscal contractions, paying only lip service to its new economics of crisis while further ignoring crucial questions of macroeconomic policy coordination or the destabilizing potential of short-term capital inflows.

Narratives of macroeconomic stabilization played an important part in the financialization of the... more Narratives of macroeconomic stabilization played an important part in the financialization of the formerly planned economies. The excess demand narrative, one of the least contested ‘problems’ of post-socialist transformation, shaped central banks’
liquidity policies and thus translated the priorities of financialized capitalism into policy goals and practices. The paper challenges the boundaries of the debates on post-socialist economic developments, contextualizes the representation of the stabilization ‘problem’ in those debates and reinterprets them from the standpoint of financialization. If the excess demand narrative is treated as a contested account of the stabilization
‘imperative’, its role as catalyst for the financialization of the banking sector and the shift to impatient finance becomes apparent. An alternative approach to stabilization is further outlined, drawing on institutionalist conceptualizations of the role of money in capitalist production.

At the end of September 2015, the European Commission launched its Action Plan for a European Cap... more At the end of September 2015, the European Commission launched its Action Plan for a European Capital Markets Union (CMU). By European standards, this ‘most significant EU
proposal for the last 10 years’ has proceeded at rapid pace under the leadership of the British Commissioner Lord Hill. The CMU’s ambitions are great: SME financing and job creation, growth via capital markets. Yet, we argue, if the CMU is to make
a substantial and lasting contribution to investment and job creation in Europe, it must be accompanied by reforms that address systemic risk in securities-based financial systems and
enhance pan-European supervision of securitization and repo markets.