Frankfurt: European Central Bank

This series of posts describes a study abroad course in which students visited several central banks and talked with central bankers about how they responded to—and sometimes failed to respond to—the global financial crisis, and how they are adjusting to their new roles.

by Sarah Sykstus

It seemed as though the trips to both the Federal Reserve and the Bundesbank were just pit stops on the way to the ultimate destination that we were all looking forward to visit: the European Central Bank (ECB). Just the day before, we had visited Germany’s National Bank, the Bundesbank. It was the first time we had been able to receive a perspective completely different to what we were used to. It provided us with information regarding solely Germany’s economy, however, it gave us a necessary foundation for the trip to the ECB.

At 9 am we set foot in route to the ECB. We took the subway just like we taken the previous day. On the way to the subway, we passed by the old ECB, marked by the large euro mark with gold stars surrounded by it. I would like to think it was a sign that the day would be successful. The new ECB building was visible the moment we started to climb the stairs up from the subway. It was very sleek and modern on the outside, as it was all glass that shined bright in the morning sun. The moment we walked into the building we were all in awe. It was even more beautiful on the inside. Thus, it was necessary to stop and take pictures of the ground level floor. We even had to stop and take a group picture in front of the main display: all of the flags of the European Union (EU) surrounding a wall that has the words “European Central Bank” written in all of the languages specific to the nations representing the EU.

After all of the pictures were taken we were lead further into the beautiful building, past water features and into the glass elevators. One of the students in the group, Tulsi Joshi, told us that when we were in the elevator it felt like we were in the elevators of the ministry of magic, a ficticous place in the Harry Potter Series. Once we got off we were lead to a conference room where we had the pleasure of listening to two very respected economists that work for the ECB, Dr. Demosthenes Ioannou and Dr. Florian Helder. Dr. Ioannou and Dr. Helder first gave us background information regarding the basics of the Euro Area (the group of countries that use the euro currency). Then they proceeded to provide us with how the Euro Area looked before the crisis which transitioned to the crisis and the reasons they believed it happened. Dr. Helder stated that the crisis can be summed up in the following ratio: debt/GDP (the debt is individual debt by each person).

After they provided us with background information and have caught us up through the crisis, they talked to us about the measures that the ECB is taking in helping the European Economy. It was very interesting to listen to this because it proved to be different from the duties of the Federal Reserve. The ECB is still very young and does not have as much power because they are dealing with fully developed countries that each have their own policies in place while the Federal Reserve is on the federal level and thus can overrule state law.

The presentation was followed by a tour around the building. It was definitely one of the highlights of the trip thus far. The architecture is absolutely beautiful and can be described as both modern and early 20th century because it was integrated, quite perfectly I may add, to a historic landmark that has been around since the 1920’s. We were also lucky enough to have access to one of the top floors to look at a magical view over the city of Frankfurt. The final stop included a quick lunch and the chance to sit in their cafeteria with the other employees before we had left. Unfortunately, the time to leave the ECB came too quickly. I will forever be grateful that we had the chance to not only see the state of the art building but, to meet two of the most influential economic researchers in the world ; it was definitely a memorable day that I wish I could go back to!

Frankfurt: European Central Bank

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Frankfurt: Deutsche Bundesbank

This series of posts describes a study abroad course in which students visited several central banks and talked with central bankers about how they responded to—and sometimes failed to respond to—the global financial crisis, and how they are adjusting to their new roles.

by Viola

The Deutsche Bundesbank is the central bank of the Federal Republic of Germany and since 1999 it has been part of the Eurosystem—the central banking system of the Euro area— sharing responsibility with the other original central banks and the European Central Bank (ECB) for the single common currency. The Bundesbank is independent of instruction from the Federal government. The Bundesbank uses this nationwide network to perform its operation in the area of refinancing, clash supply and banking supervision. Let me explicate. Banking supervision in Bundesbank, mainly monitoring and examining the health of banks to ensure that banking system is efficacious and stable. For Bundesbank, banking supervision does not straightly interfere in transaction conducted by banks, but entrench regulatory groundwork. In other words, banking supervision improves the quality of banking.

During our trip to Bundesbank’s central office in Frankfurt am Main, we know that the overall overriding aim behind all of the Bundesbank’s activities is to safeguard the stability of the general price level and the financial system. The Bundesbank’s stability policy also relies on the support of economic, wage and fiscal policies. In correlate with inflation as support to economy, a too continued period of low inflation rates will bring forth alternative instrument. The decline of the inflation rate is chiefly result of falling energy cost and commodity prices. In addition, Bundesbank expects the Eurozone economy to pick up, added that the bank also needed to contemplate the tractable mandate thus leading to an increase in inflation.

The recent financial chaos and its severe economic consequences founded a major challenge for central banks and banking supervisors around the world. As the publics believe, there are a very large number of opinions from which it is possible to go through such a complex phenomenon as the sovereign debt crisis. In our meeting with one of Bundesbank ‘s research group researcher Michael Scharnagl, his allusion against ECB’s potentially unlimited program to buy the government bonds of euro zone sovereigns is expansionary because such measures pay attention on the symptoms and don't cure the roots of the crisis. Moreover, in concern with economy’s growth, the bank’s priority, he pointed, is to create the necessary institutional framework and incentives through improvement of authority structures in some crisis countries, e.g. structures of banks’ activities, of employment in financial sector and of distinguishing credits between corporate and household. If banks were to fail, they would usually only insure the deposits and not the banks themselves.

Frankfurt: Deutsche Bundesbank

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Chicago: Federal Reserve Bank

This series of posts describes a study abroad course in which students visited several central banks and talked with central bankers about how they responded to—and sometimes failed to respond to—the global financial crisis, and how they are adjusting to their new roles.

by Joseph Song

May 18^th… The day we’ve all been eagerly anticipating since the conclusion of finals. Naturally I saved all of my packing for the night before we left so I was a little short on sleep during the initial stop of our trip, but it was still very enjoyable nonetheless. As for introductions my name is Joseph Song and I’m a rising senior majoring in finance. Allow me to kick things off by giving you guys a brief window into the first leg of our trip on this inaugural blog post:

Today we had the wonderful opportunity of visiting the Chicago Federal Reserve Bank. I’ve been somewhat aware of the Federal Reserve and its functions for quite some time now due to taking a variety of finance and economics classes but it was an entirely different experience to see it all in person. The building itself was very impressive and right from the get go one could tell that security was no joke. During this visit we had the opportunity to tour the facility and our tour guide—who was an absolute riot by the way—made this fact abundantly clear by pointing out numerous spots within the bank that used to house machine gun turrets. Before this trip, I’d never thought about the sheer magnitude of the amounts of money processed by the Reserve Banks on a daily basis; it was certainly a sight to behold. Jerry, our tour guide, casually tossed out figures left and right denoting exactly how much cash we were in the presence of.

In addition to receiving a tour, we also had the pleasure of listening to two speakers, David Marshall and Robert Stiegerwald. David Marshall spoke to us about the various roles the Fed fulfilled and its considerable influence on our nation’s economic and financial systems. It was very interesting to hear about the history behind the creation of the Fed—I had no idea that the original reasoning that led to us having 12 different reserve banks was due to mistrust of the East coast. Mr. Marshall also took the time to compare the balance sheets of a typical bank versus that of an industrial company, GM. This comparison served to convey the fact that banks are relatively fragile and illustrated where exactly the Fed fit into this equation. At the end of the day, the role of the Fed is to ensure that our financial system and growth of our economy is healthy.  Another point that I found interesting was that most of the marvelous financial innovations of today were born out of regulatory arbitrage. In other words, they were created due to financial engineers who had discovered loopholes within financial regulation.

Mr. Stiegerwald led us in a discussion about the various recent changes in banking regulation. The topics we covered ranged from specific titles with Dodd Frank, the overall complexity of the Fed, and systemically important financial institutions. One question that was raised as a direct result of this dialogue was whether or not tighter regulation of large banks actually resulted in a safer financial environment when taking into account the tradeoff which is increased shadow banking activity. Shadow banking can be defined as inherently non-financial institutions participating in activities such as making loans that we would commonly see only banks operating in. Additionally, it was fascinating to learn about how the Fed has evolved since the financial crisis in 2007.

All in all, our first stop at the Chicago Federal Reserve Bank was a fantastic way to kick off our tour of the European Central Banks. Moving forward, it will be intriguing to hear about how differently the banks operate throughout the different regions we’ll be visiting as we go on to the next steps within our trip. 

Chicago: Federal Reserve Bank

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Study Abroad Course: Central Banking since the Financial Crisis

This series of posts describes a study abroad course in which students visited several central banks and talked with central bankers about how they responded to—and sometimes failed to respond to—the global financial crisis, and how they are adjusting to their new roles.

by Charles Kahn, Bailey Memorial Chair Professor, Department of Finance, University of Illinois

The financial crisis changed everything. Before the dramatic events of 2007-8, most people believed that developed economies had solved the problems of guaranteeing financial and macroeconomic stability.

But then freezes of financial markets throughout the world and the failures of major banks and other financial institutions, led to a deep recession from which the world is only beginning to recover.

Nowhere was the fallout greater than in Europe. Just as the continent’s economies began to adjust to the new realities, Europe’s sovereign-debt crisis threatened the foundations of the most ambitious of all European projects: the common currency.

Central banks have the job of protecting currencies, financial systems and the macroeconomy. These jobs were regarded as routine before the financial crisis. Now many would say that they are impossible.

How have these organizations adjusted to their new challenges? That’s what we are finding out for ourselves. Our group is on a trip to meet with officials at four different central banks in Europe: the European Central Bank, the Bank of England, the German Bundesbank and the Bank of Portugal. We are learning first-hand how these institutions have changed as a result of the twin crises. We are comparing the situation in Europe with that in the United States, to learn how the institutions differ, and how these differences are related to the difference in underlying economic and political conditions.

We’ll report in these entries on what we’re learning, and also on our other activities during the trip, starting in Chicago, and then going on to Frankfurt, Lisbon and London.

Study Abroad Course: Central Banking since the Financial Crisis

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