Tim Geithner and the Yale Program on Financial Stability
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- Authors: CHRIS WELLISZ
- Published: December 1, 2018
Program purpose and origins
- Purpose: create a body of knowledge and practical manual for crisis managers to avoid repeating past mistakes in fighting financial crises.
- Genesis:
- Timothy Geithner’s experience across crises (peso crisis of 1994, the Asian crisis of 1997, the global financial crisis of 2008) exposed the absence of predecessor guidance—“the desk drawer was always empty.”
- Andrew Metrick founded and runs the Yale Program on Financial Stability to fill the gap between academic research and actionable policy tools.
- Launch and support:
- Program got off the ground in 2014 with donations from organizations including the Alfred P. Sloan Foundation.
- Timothy Geithner joined soon after, teaching, raising money, and chairing the advisory board.
Practical focus and the New Bagehot Crisis-Response Project
- Project name: New Bagehot Crisis-Response Project.
- Inspiration: Walter Bagehot, author of Lombard Street: A Description of the Money Market.
- Scope and methods:
- 14 researchers compile case studies of responses to the global financial crisis and the euro crisis.
- Aim to eventually study manias and panics going back to the South Sea Bubble in the 18th century.
- Focus on analyzing systematically “what kinds of government actions worked, what didn’t, and why.”
- Architects of crisis-fighting programs in various countries serve as consultants on the project.
- Intended outputs:
- An online tool crisis managers can consult in real time for actions such as recapitalizing a bank or setting up an emergency liquidity facility.
- Clear documentation of actions to avoid, illustrated by example: “Ireland’s decision to guarantee the liabilities of its banks, which transformed a bank run into a far more serious sovereign debt crisis.”
- Emphasis: “Our focus is really on the technical details of the interventions,” says Andrew Metrick.
Training, courses, and forums
- Summer symposium:
- Described by Geithner as a “war college.”
- Format: a two-week workshop for central bankers and regulators.
- Participants have included the central banks of China, Europe, Japan, and the United States, and agencies like the Bank for International Settlements and the European Stability Mechanism.
- Financial Crisis Forum:
- Format: a two-day Financial Crisis Forum.
- Features veterans (example: former Treasury Secretary Henry Paulson) offering insights on subjects from capital injections to frozen money markets.
- Purpose: help current officials, especially younger ones, “learn from history” and from crises that were averted or successfully contained, as Paul Tucker notes.
- Academic offering:
- Yale’s one-year master’s degree in systemic risk.
- Example alumna: Özgü Özen Çavuşoğlu, returned to the financial stability division of Turkey’s central bank and is now researching an early-warning system for the country’s economy.
- Networking benefit: “We are living in an interconnected world,” Özen Çavuşoğlu says. “That’s why the network of people with the same understanding will play an important role in having a stable global economy.”
Key quotes and perspectives
- Timothy Geithner:
- “Financial crises are probably the most devastating economic events that can happen to a country.”
- On institutional memory: “Because the classic panic happens pretty rarely in the same country, even though it happens around the world with pretty appalling frequency, there’s not actually that much institutional memory, and there certainly wasn’t at the Treasury or the Fed, about how you deal with a systemic financial crisis.”
- Andrew Metrick:
- On gap between academia and policy: “There was no real great connection between academic knowledge, economic intuition, and what we actually could put in the law because there just wasn’t a good body of research there.”
- On project focus: “Our focus is really on the technical details of the interventions.”
- Paul Tucker:
- On learning from history: “For the current generation of officials, especially the younger ones who attend the conference, learning from history is vital.”
Key statistics and timelines (as presented)
- Crises referenced: 1994 (peso crisis), 1997 (Asian crisis), 2008 (global financial crisis); six months after the collapse of Lehman Brothers in September 2008 Metrick moved to Washington.
- Program milestones:
- Program launched in 2014.
- Summer symposium: two-week workshop.
- Financial Crisis Forum: two-day forum.
- Master’s degree: one-year program.
Content from Tim Geithner and the Yale Program on Financial Stability – IMF Finance & Development Magazine | December 2018
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