Enrico C. Perotti

Quote of the month
"Systemic risk is propagation risk. In a systemic crisis, an initial shock spreads beyond its own market, start a vicious spiral of price shocks and disrupt the real economy. We have learned that liquidity runs are a primary cause of propagation. Banks that suffer rapid withdrawals of short- whosale funding cause rapid fire sales in a panic, forcing others in fire sales, and propagating the shock. Accordingly, we propose to introduce liquidity risk charges as a macro prudential policy tool. Taxing short uninsured term funding is aimed at making banks internalize the negative systemic effects of fragile funding strategies. A macro prudential authority can manage the charges to prevent excess build up of liquity risk during good times. "
Liquidity Risk Charges as a Macroprudential Tool...

"With hindsight, the most glaring gap in Basel II was its neglect of unstable short term funding. Rapid capital withdrawals was the primary source of propagation in the last crisis. This occurred in combination with opaque assets. Yet other episodes of opaque asset overvaluation, such as the internet bubbles, produced huge losses but basically no propagation across markets. The explanation is simply that these investments were funded with equity. Once losses materialized, investors could not escape, and took their losses without spreading them. "
The Governance of Macro Prudential Taxation...

"Novel early stage ideas face uncertainty on the expertise needed to elaborate them, which creates a need to circulate them widely to find a match. Yet as information is not excludable, shared ideas may be stolen, reducing incentives to innovate. Still, in idea-rich environments inventors may share them without contractual protection."
The Circulation of Ideas in Firms and Markets...

Link to Official Website

         Current interests:

o        Political economy, corporate governance and financial development

o        Innovation theory; generation and circulation of novel ideas; resistance
to change

o        Systemic risk and macroprudential policy

         Policy papers:

o        Liquidity Risk Charges as a Macroprudential Tool

o        Liquidity Insurance for Systemic Crises

         Latest policy commentaries

o        Tax banks to discourage systemic-risk creation, not to fund bailouts

o        The Governance of Macro Prudential Taxation

o        Serious reform starts with a systemic risk tax

all recent contributions...

         Best things I have done recently:

o        The Circulation of Ideas in Firms and Markets

o        Standardized Enforcement: Access to Justice vs Contractual Innovation

o        Resistance to Change

o        Bank Ownership and Financial Stability

         Recent publications:

o        Entrepreneurial Ideas

o        The Political Origin of Pension Funding

o        Political Economy of Corporate Control

o        A Pigovian Approach to Liquidity Regulation

o        The Circulation of Ideas in Firms and Markets

o        CoCo design as a risk preventive tool

o        A prudential regulatory issue at the heart of Solvency II

o        The simple analytics of systemic liquidity risk regulation

         Other papers:

o        The Political Economy of Finance

o        Politics, Investor Protection and Competition

more papers...


         My music: Studies (Sor) Allegreto in E

         What is the CIFRA research center and what does it do?

         Articles in NRC Handelsblad:

o        ABN AMRO weg is harde klap (September 6, 2007)

o        Nederland vernietigt de onderzoeksdrift (October, 2004)

o        Weg met de bloedeloze universiteiten (March, 2004)