Financial contagion

The recent financial crisis, while having its roots in the US, spread globally in a very short span of time. Banks' interdependence played an obvious role but not much is known about world financial contagion channels. In a recent TILEC discussion paper, TILEC members Hans Degryse and María Fabiana Penas and co-author Muhammad Ather Elahi (Tilburg University) examine cross-border contagion risk over the period 1999-2006. To that purpose they use aggregate cross-border exposures of banks in seventeen countries. They find that a shock which affects the liabilities of one country may undermine the stability of the entire financial system. For instance, a shock wiping out 25% of US cross-border liabilities against non-US banks could lead to bank contagion eroding at least 94% of the recipient countries&acute banking assets. They also find that since 2006 a shock to Eastern Europe, Turkey and Russia affects most countries. Simulations also reveal that the speed of contagion has increased in recent years resulting in a higher number of directly exposed banking systems. Finally, they find that contagion is more widespread in geographical proximities. Ironically, the US is the only country immune to cross-border shocks stemming from other countries!

The naked truth about exclusive dealing

Exclusivity clauses that commit a consumer to procure a good from a unique supplier are regularly debated in competition policy circles. One of the main 'theories of harm', the so-called 'naked exclusion' story, holds that an incumbent firm can play on buyers' coordination difficulties to deny an entrant the scale it needs in order to produce efficiently. In a recent TILEC discussion paper, TILEC members Jan Boone, Wieland Müller and Sigrid Suetens report experimental results on the impact of exclusive dealing inspired by this literature. Their key findings are as follows. First, exclusion is widespread in lab markets: it occurs in more than two thirds of all cases. Second, contrary to theory, allowing incumbents to discriminate between buyers increases exclusion rates only when offers can be made sequentially and secretly. Third, allowing discrimination does not lead to significant decreases in the costs of exclusion. Behind those observations lies the fact that buyers are more likely to accept an exclusive deal the higher the payment. The authors conclude that for practical purposes, an antitrust authority should be on high alert whenever the suspected firm (i) staggered its contracts over time, and (ii) took active measures to keep previous offers secret.

Should regulation promote diversity in media markets?

Is globalization threatening cultural diversity? Participants in the TILEC workshop on "Competition Policy and Regulation in Media Markets: Bridging Law and Economics", held in Tilburg on June 4 and 5 2009, discussed these and related questions. The meeting was organized by Ilse van der Haar and Lapo Filistrucchi, with the financial support of the Dutch Royal Academy of Sciences (KNAW). While Mina Burri Nenova (University of Bern) challenged the ability of the EU Audiovisual Media Directive to protect cultural diversity, Joel Waldfogel (University of Pennsylvania) used data from world music charts to show that, while Hollywood dominates world trade in movies, the US has grown less dominant in music markets, where domestic singers are still disproportionately popular. Rachael Craufurd Smith (University of Edinburgh) discussed how media pluralism considerations played a role in recent competition policy cases in the UK and the US, while Peggy Valcke (University of Leuven) presented the results of an inter-university project attempting at constructing indicators of media pluralism for European countries. Simon Anderson (University of Virginia) explained why, even according to conventional economic theory, merger policy in media markets should have the additional objective of preserving the variety of political viewpoints in the public arena.

TILEC looking for a new manager

As a result of its considerable growth over the past years, resulting in some 60 researchers now being associated with it, and following the departure of Ilse van der Haar, TILEC currently has a vacancy for the position of manager. The position consists in maintaining and further developing the smooth functioning of the TILEC Office. The manager will be responsible for the daily management of TILEC and the supervision of the TILEC secretariat. He or she will intermediate between the scientists forming the TILEC management team and the university administration. TILEC is looking for an independent colleague who knows how to take charge. The ideal candidate is trained at the higher vocational education (HBO) or university level and has experience within a university environment. He or she also has several years of relevant work experience in management and administration, especially in taking care of project budgets. He or she is able to motivate administrative staff members and has excellent communication and social skills in Dutch as well as in English. Click here to see the full vacancy notice. The application deadline is set to 4 July 2009.

What do we really know about the banking sector?

With the unfolding of the financial crisis, the question could not have been more timely! TILEC members Hans Degryse and Steven Ongena, with co-author Moshe Kim (Haifa University), have recently published a text on the "Microeconometrics of Banking" with Oxford University Press. The book provides a compendium to the empirical work investigating the hypotheses generated by recent banking theory. It is an ideal companion to the celebrated book by Xavier Freixas and Jean-Charles Rochet on the microeconomic theory of banking. It follows the structure in Freixas and Rochet's text and arranges the relevant methodologies, applications, and results according to each of their original chapters in order to develop a coherent synthesis between available theory and supporting empirics. Each chapter in Microeconometrics of Banking contains a modest introduction (where possible and appropriate), a concise methodology section with one or more relevant methodologies, and several illustrative applications. In a "muscular" results section the authors summarize the main robust and seminal findings in the literature. Without doubt, this book will provide inspiration for many students, researchers and policy-makers concerned with financial intermediation in the years to come.