Financial Markets and Institutions

Financial markets and institutions play a key role in the economy by managing risks and allocating savings to productive activities; when functioning smoothly, they enable economic growth and improvements in overall welfare.

To this end, LE Europe advises on financial sector policy aimed at both creating the conditions that allow financial markets and institutions to work well and bringing about reform when they work less well. On the latter, we have worked closely with a number of governments and financial sector firms in recent years, since the onset of the global financial crisis.

We provide research in a number of financial sector areas such as:

  • Capital market functioning (equity markets, fixed income markets, money markets and others)
  • Other credit markets
  • Insurance markets
  • Banking
  • Regulation of institutions (banks and non-banks)
  • Financial sector infrastructure (clearing and settlement and payment services)

We carry out impact assessments, financial policy evaluation, quantitative market analysis and policy analysis using the best techniques available, drawing on the latest academic and policy literature, and have our work regularly peer-reviewed.

Recent projects include:

The Impact of a Financial Transaction Tax on Corporate and Sovereign Debt – Commissioned on behalf of the International Regulatory Strategy Group, this paper examines the impact of the European Commission’s proposed financial transaction tax (FTT) on corporate and sovereign debt markets.

The Impact of the EU Financial Transactions Tax on the Real Economy – Analysis of the Impact on Corporate and Sovereign Bonds This report highlights the significance of the proposed EU financial transactions tax (FTT) to the real economy. The FTT rates are small – 0.1% on equities and bonds and 0.01% on derivatives. However, the associated total tax burden may be significant through a number‐of‐transactions effect (as securities are traded frequently) and a cascade effect (as each trade between savers involves a number of intermediate transactions).

The Impact of State Guarantees on Banks’ Debt Issuing Costs, Lending and Funding Policy – This study investigates the effectiveness of state guarantee schemes and ad hoc guarantees given to banks over 2008-10 and  analyses the market value of state guarantees as reflected in the costs banks faced in raising funds on wholesale financial markets and whether state guarantees influenced the funding and (ultimately) lending behaviour of banks. The report presents a comprehensive ex-post evaluation of one of the main tools used to restore the functioning of wholesale financial markets after the Lehman bankruptcy and onset of the financial crisis.

Economic Impact Assessments of Proposals for Computer Trading – The report provides an evidence-based analysis of a number of proposals targeted at computer trading within financial markets, with some of these measures having been included in the European Commission’s proposal for a revised Directive on markets in financial instruments (MiFID II). These measures include: increasing tick sizes and introducing control by regulators of algorithms, among others.