nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2022‒06‒27
23 papers chosen by
Georg Man

  1. Discovering the true Schumpeter: New insights into the finance and growth nexus By Bofinger, Peter; Geißendörfer, Lisa; Haas, Thomas; Mayer, Fabian
  2. Towards foreign direct investment for development in the host state? Revisiting charter cities By Forere, Malebakeng
  3. Monthly Report No. 11/2021 - FDI in Central, East and Southeast Europe By Gabor Hunya; Branimir Jovanović
  4. Macroeconomic uncertainty matters: A nonlinear effect of financial volatility on real economic activity By Nakajima, Jouchi
  5. Idiosyncrasy as a Leading Indicator By Randall Morck; Bernard Yeung; Lu Y. Zhang
  6. Bubbles and Stagnation By Inês Xavier
  7. How Bad Can Financial Crises Be? A GDP Tail Risk Assessment for Portugal By Ivan De Lorenzo Buratta; Marina Feliciano; Duarte Maia
  8. Mind the Build-up: Quantifying Tail Risks for Credit Growth in Portugal By Ivan De Lorenzo Buratta; Marina Feliciano; Duarte Maia
  9. The transmission of financial shocks and leverage of financial institutions: An endogenous regime switching framework By Kirstin Hubrich; Daniel F. Waggoner
  10. Forecasting a commodity-exporting small open developing economy using DSGE and DSGE-BVAR By Erlan Konebayev
  11. Comparing estimated structural models of different complexities: What do we learn? By José R. Maria; Paulo Júlio
  12. Real Effects of Stabilizing Private Money Creation By Chenzi Xu; He Yang
  13. What moves markets? By Kerssenfischer, Mark; Schmeling, Maik
  14. Monetary-Based Asset Pricing: A Mixed-Frequency Structural Approach By Francesco Bianchi; Sydney C. Ludvigson; Sai Ma
  15. Understanding Bank Deposit Growth during the COVID-19 Pandemic By Andrew Castro; Michele Cavallo; Rebecca Zarutskie
  16. "Since You're So Rich, You Must Be Really Smart": Talent, Rent Sharing, and the Finance Wage Premium By Böhm, Michael Johannes; Metzger, Daniel; Strömberg, Per
  17. Preference for Wealth and Life Cycle Portfolio Choice By Campanale Claudio; Fugazza Carolina
  18. Temporal networks in the analysis of financial contagion By Franch, Fabio; Nocciola, Luca; Vouldis, Angelos
  19. Assessing Regulatory Responses to Banking Crises By Padma Sharma
  20. Private Overborrowing under Sovereign Risk By Arce, Fernando
  21. Effects of Information Quality on Signaling through Sovereign Debt Issuance By Hyungseok Joo; Yoon-Jin Lee; Young-Ro Yoon
  22. The larger compensation for miners, the higher positive effect on the financial performance of cryptocurrencies By Élise Alfieri; Yann Ferrat
  23. Embedded Supervision: How to Build Regulation into Decentralised Finance By Raphael A. Auer

  1. By: Bofinger, Peter; Geißendörfer, Lisa; Haas, Thomas; Mayer, Fabian
    Abstract: Joseph A. Schumpeter is one of the most famous economists of the 20th century and the 'patron saint' of the finance and growth literature. We have discovered that the prevailing literature has, however, misinterpreted Schumpeter, which leads to puzzling empirical results and difficulties in explaining even fundamental relationships. We argue that this is due to a misrepresentation of the role of banks and liquidity creation and the role of household saving. After a critical discussion of the literature, we provide our own empirical analysis using a panel of 43 countries to explore the relationships between the important variables of the finance and growth literature. Our empirical analysis above all supports Schumpeter's view that credit growth supports GDP growth while saving is irrelevant for credit growth and GDP growth. In sum, a correct interpretation of Schumpeter helps to overcome the theoretical and empirical challenges which confront the prevailing literature.
    Keywords: Finance-growth nexus,Finance,Financial development,Economic growth,Economic development,Financial intermediation,Bank credit,Liquidity creation,Saving
    JEL: B20 B22 C10 E44 F30 F43 G21 O11 O16 O4
    Date: 2022
  2. By: Forere, Malebakeng
    Date: 2022–06–03
  3. By: Gabor Hunya (The Vienna Institute for International Economic Studies, wiiw); Branimir Jovanović (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: ​This issue of the wiiw Monthly Report replaces our earlier series of the wiiw FDI Report. FDI in Central, East and Southeast Europe Chart of the month Austrian greenfield investments in CESEE defy the COVID-19 crisis by Gábor Hunya Fragile post-COVID FDI bounce-back in CESEE by Gábor Hunya Foreign direct investment (FDI) inflows and greenfield investment commitments have experienced a COVID-related boom-bust-boom cycle over the past two years. But the resurgence in greenfield investment commitments has been less robust than that in FDI inflows, and this recovery has not reached all CESEE regions. FDI in manufacturing has declined somewhat, while commitments to ICT investments in producer-related business services have been on the rise. Investor confidence is expected to remain volatile in the months to come, but large investments are needed in technological upgrading, greening and automation. Are we already seeing some near-shoring to the Western Balkans? by Branimir Jovanović Inflows of foreign direct investment to the Western Balkans grew by 20% year on year in the first half of 2021, exceeding the level of two years ago. Most of this increase was investment that was postponed during the early stages of the pandemic, but part of it may also be attributable to post-pandemic near-shoring, especially in Bosnia and Herzegovina, Montenegro and Kosovo. Monthly and quarterly statistics for Central, East and Southeast Europe
    Keywords: FDI inflows, FDI stocks, greenfield investments, COVID-19, FDI by economic sector, greenfield FDI, supply chain disruptions, near-shoring
    Date: 2021–11
  4. By: Nakajima, Jouchi
    Abstract: A stock market volatility index is a widely-used proxy of uncertainty in the macroeconomy, and its increase is shown to dampen real economic activity. In contrast, the macroeconomic uncertainty index proposed by Jurado et al. (2015) measures the predictability of a wide range of macroeconomic indicators and thus is a comprehensive indicator of macroeconomy-wide uncertainty. This paper empirically investigates a nonlinear link between financial volatility and real economic activity depending on the level of the macroeconomic uncertainty index. Based on the United States and Japan data, empirical analysis suggests that an increase in the financial volatility lowers industrial production and business fixed investment more persistently when the macroeconomic uncertainty is higher.
    Keywords: Financial volatility, Macroeconomic uncertainty, Nonlinear effect
    JEL: E32 E52
    Date: 2022–06
  5. By: Randall Morck; Bernard Yeung; Lu Y. Zhang
    Abstract: Disequilibrating macro shocks affect different firms' prospects differently, increasing idiosyncratic variation in forward-looking stock returns before affecting economic growth. Consistent with most such shocks from 1947 to 2020 enhancing productivity, increased idiosyncratic stock return variation forecasts next-quarter real GDP growth, industrial production growth, and consumption growth both in-sample and out-of-sample. These effects persist after controlling for other leading economic indicators.
    JEL: E32 E44 G01 G14 G41
    Date: 2022–05
  6. By: Inês Xavier
    Abstract: This paper studies the consequences of asset bubbles for economies that are vulnerable to persistent stagnation. Stagnation is the result of a shortage of assets that creates an oversupply of savings and puts downward pressure on the level of interest rates. Once the zero lower bound on the nominal interest rate binds, the real rate cannot fully adjust downward, forcing output to fall instead. In such context, bubbles are useful as they expand the supply of assets, absorb excess savings and raise the natural interest rate - the real rate that is compatible with full employment - crowding in consumption and raising welfare. While safe bubbles are more likely to expand economic activity, riskier bubbles command a risk premium that, in equilibrium, lowers the real interest rate. A lower rate loosens borrowing constraints, potentially improving welfare when financing conditions are especially tight. Finally, fiscal policy that promises a bail-out transfer in case of a bubble collapse can support an existing bubble and improve welfare.
    Keywords: Bubbles; Secular stagnation; Liquidity traps
    JEL: E31 E32 E43 E44 G11
    Date: 2022–05–31
  7. By: Ivan De Lorenzo Buratta; Marina Feliciano; Duarte Maia
    Abstract: By monitoring the evolution of risks to economic activity over time, we quantify the likelihood and severity of future negative economic growth. Following the Growth-at-risk approach, we explore the non-linear relationship between the current financial situation and the distribution of future GDP growth for Portugal. We find that both financial vulnerability and risk have a negative effect on the left tail of the one-year-ahead GDP growth distribution. Financial vulnerability has the largest impact on GDP growth at the medium to long term horizon while financial risk is only significant at the short term horizon. The GDP-at-risk measure signals economic recessions, no matter whether fueled by financial stress or imbalances, reaching negative values before 2008 and stagnating at low levels before the European Sovereign Debt Crisis. To provide policymakers with better tools to signal an increase in the likelihood of a crisis, we compute a set of complementary risk measures. Among those analyzed, the distance between the tails of the conditional distribution of GDP growth complements GDP-at-risk in anticipating economic recessions since it signals the Great Financial Crisis with a clear downward trend before 2008. The moments of the GDP growth distribution have some power in signalling recessions, as they identify changes in the characteristics of the distribution. Finally, we argue that the expected shortfall and longrise can complement the GDP-at-risk measure since they encompass information which is not limited to a single percentile of the distribution.
    JEL: C53 E01 E17 E27 E32 E44 G01
    Date: 2022
  8. By: Ivan De Lorenzo Buratta; Marina Feliciano; Duarte Maia
    Abstract: We quantify the effect of cyclical systemic risk and economic sentiment on non-financial corporations and households’ (total) credit growth for Portugal between 1991Q1 and 2020Q2, following the Growth-at-risk methodology. We focus on the right-hand tail of the future credit growth distribution, as credit booms are potentially detrimental to financial stability. A set of measures of the upside tail risk in credit growth is computed to provide policymakers with more information to anticipate credit build-ups. We find that financial vulnerabilities and industrial sector economic confidence increase the upper tail risk of credit growth realizations for non-financial corporations in the short term (4 quarters horizon). At the medium to long term (12 quarters horizon), the impact of those indicators almost cancels each other out. As regards households, increasing financial vulnerabilities and consumers’ economic confidence display opposite effects on the upper tail risk of credit growth, at short and medium to long terms. Credit-at-risk anticipates credit build-ups preceding financial crises and decelerations corresponding to recessions. The upper tail to median and the upper to lower tail distances identify the upper tail dynamics as the main responsible for future credit growth uncertainty. Expected longrise reinforces Credit-at-risk results while the probabilities of observing future credit growth above its mean and credit growth one standard deviation above its current value exhibit high levels before 2008 for both non-financial corporations and households, followed by deep falls during recessions which signal credit busts. For all the measures, the 2013-2018 increase in tail risk depends on the structural change in credit growth dynamics observed in the early 2000s. The most recent results highlight the predominant role of confidence indicators, further dampened in 2020 by the COVID-19 effects on the economic outlook.
    JEL: A1
    Date: 2022
  9. By: Kirstin Hubrich; Daniel F. Waggoner
    Abstract: We conduct a novel empirical analysis of the role of leverage of financial institutions for the transmission of financial shocks to the macroeconomy. For that purpose we develop an endogenous regime-switching structural vector autoregressive model with time-varying transition probabilities that depend on the state of the economy. We propose new identification techniques for regime switching models. Recently developed theoretical models emphasize the role of bank balance sheets for the build-up of financial instabilities and the amplification of financial shocks. We build a market-based measure of leverage of financial institutions employing institution-level data and find empirical evidence that real effects of financial shocks are amplified by the leverage of financial institutions in the financial-constraint regime. We also find evidence of heterogeneity in how financial institutions, including depository financial institutions, global systemically important banks and selected nonbank financial institutions, affect the transmission of shocks to the macroeconomy. Our results confirm the leverage ratio as a useful indicator from a policy perspective.
    Keywords: Regime switching models; Time-varying transition probabilities; Financial shocks; Leverage; Bank and nonbank financial institutions; Heterogeneity
    JEL: C11 C32 C53 C55 E44 G21
    Date: 2022–06–01
  10. By: Erlan Konebayev (NAC Analytica, Nazarbayev University)
    Abstract: In this paper, we assess the forecasting performance of three types of structural models - DSGE, BVAR with Minnesota priors, and DSGE-BVAR - in the context of a commodity-exporting small open developing economy using the data for Kazakhstan. We find that BVAR and DSGE-BVAR models generally produce point forecasts that are more accurate and less biased compared to those of DSGE in the short term, and that BVAR forecasts rapidly deteriorate in quality as the length of the forecast horizon increases. The density forecast analysis shows that when all variables are considered, one of the BVAR models performs better than DSGE at the one quarter horizon, and when financial sector variables are omitted, one DSGE-BVAR and both BVAR models demonstrate superior performance in the short term.
    Keywords: DSGE; DSGE-BVAR; Bayesian estimation; forecasting; small open economy
    JEL: C11 E17 E32 E37
    Date: 2022–04
  11. By: José R. Maria; Paulo Júlio
    Abstract: We estimate various models of different complexities for the Portuguese economy. These differ along three key dimensions: the disaggregation of the final goods structure, the existence of a financial sector, and the complexity of the fiscal environment. Simpler models do get the key bullet points of storytelling right, but exacerbate the role of existing mechanisms. More complex models adress this problem, at the cost of greater potential mispecification. A more complex fiscal environment introduces a rule that adjusts labor taxes according to deviations in the fiscal balance from a target level. This mechanism may cushion or enhance the effects of other disturbances. The financial sector originates important differences in impulse responses, driven by inflationary domestic pressures that trigger a reduction in the real cost of credit. Many estimation outcomes are largely indistinguishable across models, such as smoothed shocks, standard deviations, and correlations with output growth.
    JEL: A C11 C13 E20 E32
    Date: 2022
  12. By: Chenzi Xu; He Yang
    Abstract: We show that decentralized privately created money with unstable values can hinder the traded, more transaction-friction sensitive, sector of the economy. We do so in the context of the NationalBanking Act of 1864 in the United States that created a new federally-regulated, fully-backed currency as an alternative to the pre-existing money supply, which consisted of unsecured notes printed by thousands of local private banks. Using a discontinuous change across towns in the costs of accessing this new type of stable, federally-backed money as a natural experiment, we show that places gaining access to the new currency experienced a shift in the composition of agricultural production from non-traded to traded goods and increased employment in trade-related professions. In addition, counties gaining access to the new stable money increased their manufacturing output by sourcing more inputs, and they innovated more, all consistent with the stable currency improving their market access and allowing them to expand through trade.
    JEL: E42 E44 E51 F14 G21 N11 N21
    Date: 2022–05
  13. By: Kerssenfischer, Mark; Schmeling, Maik
    Abstract: What share of asset price movements is driven by news? We build a large, time-stamped event database covering scheduled macro news as well as unscheduled events. We find that news account for about 50% of all bond and stock price movements in the United States and euro area since 2002, suggesting that a much larger share of return variation can be traced back to observable news than previously thought. Moreover, we provide stylized facts about the type of news that matter most for asset prices, the persistence of news effects, and spillover effects between the US and euro area.
    Keywords: Macro news,Asset prices,High-Frequency Identification,Event Database
    JEL: E43 E44 G12 G14
    Date: 2022
  14. By: Francesco Bianchi; Sydney C. Ludvigson; Sai Ma
    Abstract: We integrate a high-frequency monetary event study into a mixed-frequency macro-finance model and structural estimation. The model and estimation allow for jumps at Fed announcements in investor beliefs, providing granular detail on why markets react to central bank communications. We find that the reasons involve a mix of revisions in investor beliefs about the economic state and/or future regime change in the conduct of monetary policy, and subjective reassessments of financial market risk. However, the structural estimation also finds that much of the causal impact of monetary policy on markets occurs outside of tight windows around policy announcements.
    JEL: E52 E58 E7 G12
    Date: 2022–05
  15. By: Andrew Castro; Michele Cavallo; Rebecca Zarutskie
    Abstract: A notable development in the U.S. banking system following the onset of the COVID-19 pandemic has been the rapid and sustained growth in aggregate bank deposits. Total deposits at domestic commercial banks rose by more than 35 percent since the end of 2019 and stood at around $18 trillion as of the fourth quarter of 2021.
    Date: 2022–06–03
  16. By: Böhm, Michael Johannes (University of Bonn); Metzger, Daniel (Erasmus University Rotterdam); Strömberg, Per (CEPR)
    Abstract: Financial sector wages have increased extraordinarily over the last decades. We address two potential explanations for this increase: (1) rising demand for talent and (2) firms sharing rents with their employees. Matching administrative data of Swedish workers, which include unique measures of individual talent, with financial information on their employers, we find no evidence that talent in finance improved, neither on average nor at the top. The increase in relative finance wages is present across talent and education levels, which together can explain at most 20% of it. In contrast, rising financial sector profits that are shared with employees account for up to half of the relative wage increase. The limited labor supply response may partly be explained by the importance of early-career entry and social connections in finance. Our findings alleviate concerns about "brain drain" into finance but suggest that finance workers have captured rising rents over time.
    Keywords: industry wage premia, talent allocation, rent sharing, earnings inequality, compensation in financial sector
    JEL: J24 J31 G20
    Date: 2022–05
  17. By: Campanale Claudio (Department of Economics, Social Studies, Applied Mathematics and Statistics (ESOMAS) and CERP (CCA) University of Torino, Italy); Fugazza Carolina (Department of Economics, Social Studies, Applied Mathematics and Statistics (ESOMAS) and CERP (CCA) University of Torino, Italy)
    Abstract: Do participation and investment in risky assets increase with wealth? Do the wealthiest households save at higher rates than the median households and is wealth more concentrated than earnings? Based on survey data, this paper shows that this is the case. Moreover, the paper provides a theoretical framework based on an extended version of the life-cycle model of consumption and portfolio choice that enables to explain differences in behavior between the wealthiest and others.
    Keywords: Life-cycle, Portfolio Choice, Preference over Wealth, Wealth Inequality
    JEL: D15 E21 G11
    Date: 2022–06
  18. By: Franch, Fabio; Nocciola, Luca; Vouldis, Angelos
    Abstract: This paper studies the dynamics of contagion across the banking, insurance and shadow banking sectors of 16 advanced economies in the period 2006-2018. We construct Granger causality-in-risk networks and introduce higher-order aggregate networks and temporal node centralities in an economic setting to capture non-Markovian network features. Our approach uncovers the dynamics of financial contagion as it is transmitted across segments of the financial system and jurisdictions. Temporal centralities identify countries in distress as the nodes through which contagion propagates. Moreover, the banking system emerge as the primary source and transmitter of stress while banks and shadow banks are highly interconnected. The insurance sector is found to contribute less to stress transmission in all periods, except during the global financial crisis. Our approach, as opposed to one that uses memoryless measures of network centrality, is able to identify more clearly the nodes that are critical for the transmission of financial contagion. JEL Classification: C02, C22, G01, G2
    Keywords: financial networks, GARCH, Granger causality-in-tail, non-Markovian, systemic risk
    Date: 2022–06
  19. By: Padma Sharma
    Abstract: During banking crises, regulators must decide between bailouts or liquidations, neither of which are publicly popular. However, making a comprehensive assessment of regulators requires examining all their decisions against their dual objectives of preserving financial stability and discouraging moral hazard. I develop a Bayesian latent class model to assess regulators on these competing objectives and evaluate banking and savings and loan (S&L) regulators during the 1980s crises. I find that the banking authority (FDIC) conformed to these objectives whereas the S&L regulator (FSLIC), which subsequently became insolvent, deviated from them. Timely interventions based on this evaluation could have redressed the FSLIC’s decision structure and prevented losses to taxpayers.
    Keywords: Bank failures; Bank resolution; Bailout; Liquidation; Savings and loans crisis; Markov Chain Monte Carlo (MCMC); Federal Deposit Insurance Corporation; Federal Savings and Loans Insurance Corporation (FSLIC); Bayesian inference; Discrete data analysis; Latent class models
    JEL: C11 C38 G21 G33 G38
    Date: 2022–05–10
  20. By: Arce, Fernando
    Abstract: This paper proposes a quantitative theory of the interaction between private and public debt in an open economy. Excessive private debt increases the frequency of financial crises. During such crises the government provides fiscal bailouts financed with risky public debt. This response may cause a sovereign debt crisis, which is characterized by a higher probability of a sovereign default. The model is quantitatively consistent with the evolution of private debt, public debt, and sovereign spreads in Spain from 1999 to 2015, and provides an estimate of the degree of overborrowing, its effect on the spreads, and the optimal macroprudential policy.
    Keywords: Bailouts; credit frictions; financial crises; macroprudential policy; sovereign default
    JEL: E32 E44 F41 G01 G28
    Date: 2021–12–09
  21. By: Hyungseok Joo (University of Surrey); Yoon-Jin Lee (Kansas State University); Young-Ro Yoon (Wayne State University)
    Abstract: This paper develops a sovereign debt model proposing that a debt issuance can be a credible signalling channel between a sovereign government and foreign creditors. The government has private information regarding the future economy. The one with a good economic outlook would like to find a credible way to disclose it to obtain a high bond price. Foreign creditors are interested in inferring the government’s private information to assess sovereign default risk precisely. The government’s private information is imperfect, so the precision of information matters. We study how the interaction of the prior, the signal, and its precision affects the equilibrium and the resulting welfare. We propose a unique separating equilibrium where a government with a good economic outlook issues a smaller amount of bonds, even though its default risk is low, than one with a bad economic outlook. As the information becomes more precise, the signalling cost for a government with a good economic outlook increases. Interestingly, unless the prior is very pessimistic, a highly precise signal harms it, because a resulting strong signalling motive drives it to reduce bond issuance excessively (paradox of highly precise information).
    JEL: D82 F34 H63
    Date: 2022–06
  22. By: Élise Alfieri (IRG - Institut de Recherche en Gestion - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12 - Université Gustave Eiffel); Yann Ferrat (CERAG - Centre d'études et de recherches appliquées à la gestion - UGA - Université Grenoble Alpes, OFI Asset Management)
    Abstract: To cope with the weakened financial system, the innovative ecosystem of cryptocurrencies and the blockchain seem to emerge as alternative solutions. While they offer a decentralized governance, cryptocurrencies also provide exposure to social dimensions. We thus pose the following research question: is there a virtuous circle between extra-financial and financial performance for cryptocurrencies? To answer this question, we analyze the social performance, an extra-financial dimension, through miners' compensation. Using a sample of cryptocurrencies between 2015 and 2021, we follow two econometric modeling approaches, namely portfolios constituted based on miner compensation and a panel regression model. This dual approach allows an analysis of the relationship at the macro and microeconomic level as well as enhancing the robustness of our inferences. Our results show that the social and financial performance relationship is positive. Thus, enhanced value sharing in the cryptocurrency landscape appears synonymous of greater financial performance.
    Abstract: Pour faire face au système financier fragilisé, l'écosystème innovant des cryptomonnaies et de la blockchain semble être une alternative. En plus d'une gouvernance décentralisée, les cryptomonnaies offrent une exposition aux dimensions sociales. Nous posons ainsi la question suivante : existe-t-il un cercle vertueux entre performance extra-financière et financière pour les cryptomonnaies ? Nous analysons ainsi la performance sociale, une dimension extra-financière, à travers la rémunération des mineurs. En utilisant un échantillon de cryptomonnaies entre 2015 et 2021, nous réalisons une analyse de portefeuille constitué en fonction de la rémunération des mineurs et utilisons un modèle en données de panel.Cette double approche permet d'étudier la relation à l'échelle macro et microéconomique, renforçant la robustesse des inférences. Nos résultats montrent que la relation performance sociale et boursière est positive. Ainsi, un partage de la valeur ajoutée accrue pour une cryptomonnaie semble être synonyme de performance financière plus élevée.
    Keywords: Bitcoin,Cryptomonnaies,Partage de la valeur ajoutée,Performance sociale,Rendements boursiers
    Date: 2022–04–04
  23. By: Raphael A. Auer
    Abstract: The emergence of so-called “decentralised finance” (DeFi) and a shadow financial system of cryptocurrency exchanges and stablecoin issuers raises the challenge of how to apply technology-neutral regulation so that similar risks are subject to the same rules. This paper makes the case for embedded supervision, ie a regulatory framework that provides for compliance in decentralised markets to be automatically monitored by reading the market’s ledger. This reduces the need for firms to actively collect, verify and deliver data. The paper explores the conditions under which distributed ledger data may be used to monitor compliance. To this end, a decentralised market is modelled that replaces today’s intermediary-based verification of legal data with blockchain-enabled credibility based on economic consensus. The key results set out the conditions under which the market’s economic consensus would be strong enough to guarantee that transactions are economically final, so that supervisors can trust the distributed ledger’s data. The paper concludes with a discussion of the legislative and operational requirements that would promote low-cost supervision and a level playing field for small and large firms.
    Keywords: decentralised finance, DeFi, tokenisation, asset-backed tokens, stablecoins, crypto-assets, cryptocurrencies, CBDC, regtech, suptech, regulation, supervision, Basel III, proportionality, blockchain, distributed ledger technology, digital currencies, proof
    JEL: D40 D20 E42 E51 F31 G12 G18 G28 G32 G38 K22 K24 L10 L50 M40
    Date: 2022

This nep-fdg issue is ©2022 by Georg Man. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.