Timothy P Jackson
Hi, I'm an economist interested in bank reform, particularly the challenge that Dewatripont and Tirole end their seminal book on Prudential Regulation of Banks (1994). The question is: As deposit insurance reduces incentives for savers to monitor bank risk, what would happen if insurance were restricted to only cover safe assets? This is a system known as narrow banking, first suggested by Fisher (1935), as 'the Chicago Plan', supported by many economists (Tobin, 1987; Friedman, 1960) and is enjoying a recent resurgence (Kay, 2010; Benes and Kumhof 2012; Pennacchi 2012). That the consequences of limiting or removing deposit insurance remain insufficiently understood speaks to the many facets that must be considered.
A major challenge is that banks provide not one but two vital services. Bank deposits are the preferred form of safe assets used for transactions, and bank loans allow businesses to undertake risky endeavors. However, this creates a tension in bank business: deposit-holders require safety for bank liabilities to be liquid; while loan-holders want the freedom to take profitable business risks. Narrow banking argues that these two services should be provided by separate entities: narrow and wide banks. My two papers with George Pennacchi and Larry Kotlikoff attempt to model how a system without deposit insurance can provide liquidity and credit respectively.
It is important to note that in the USA, deposit insurance was enacted with the Glass-Steagall provisions that completely separated investment from retail banking. As subsequent decades have shown, strong regulation requires political will to maintain -- especially in the face of booms, international arbitrage, lobbying, and regulatory capture. Policies which re-instate market discipline on the financial sector are deserving of the increased academic attention they are receiving.
Far more is left to be done. In particular, the consequences of connecting bank savers directly to bank risk should be considered carefully. Fears of an increase in macroeconomic volatility are widespread and must be answered satisfactorily. Furthermore, the practicalities of providing sufficient and accurate information so that non-expert savers can distinguish good investments from bad are challenges for future research.
I also work with Richard Agénor on the important question of how to conduct macro-prudential policy in a world with more than one regulator. In various papers, we look at this question with two countries in a currency union; or two regulators in the same country. We consider if co-ordination is beneficial for different types of shocks, and how to make co-ordination possible.
Please find below my CV and in my working paper section, please find various papers all on the subject on bank regulation, including my Job Market Paper entitled "Tradable Risk Permits". If you are interested in banking, please feel free to contact me at firstname.lastname@example.org
Finally, I am an empathetic and passionate teacher for which I have received near-perfect feedback scores and one cake. I have invested considerable time creating my own materials to supplement lectures where I sensed students were having difficulty understanding. All these materials are available in the Teaching section of this website.
Job market paper
This paper considers whether the macroprudential aim of raising bank capitalization could be better achieved by mandating a tradable cap on risk-weighted assets, as opposed to the non-tradable cap set by the Basel III Accords. We use the analogy that the failure of a financial institution creates a negative externality and take lessons from the environmental literature in operating a cap-and-trade system. The main result is a specialization of bank services, removing the mass of banks operating on or near the regulated minimum quantity of capital. Under the current system, if this quantity proves insufficient - as it did during the GFC - many banks will be in trouble. If the cap is tradable, some banks will hold less capital - and fail quicker - while others profit from permit sales and become far safer than current due to the this extra pecuniary incentive to raise capital and reduce risk. These safe banks may weather a crisis far better than even the most prudent of today's banks.
Left An MRI scan of my brain.
Below: Me on a pile of radioactive buses used to evacuate the city of Pripyat, near Chernobyl. Don't worry, the Geiger counter gave me the all clear afterward!