Vaccine scepticism among medics sparks alarm in Europe and US

Health workers’ reluctance to have jab gives countries battling Covid another headache

Erika Solomon in Berlin, Kiran Stacey in Washington, Leila Abboud in Paris, Davide Ghiglione in Rome 

A vaccination centre in Hamburg, Germany. A poll showed half of surveyed nurses and quarter of doctors did not want to be vaccinated © Fabian Bimmer/Reuters


Signs that a relatively high number of healthcare workers are unwilling to receive the coronavirus vaccine in some parts of Europe and the US have alarmed politicians and health experts, as countries struggle to contain a surge in infections and carry out mass vaccination.

A poll released in mid-December caused surprise in Germany — the country that has been at the forefront of the race for a vaccine with biotech company BioNTech — by showing that half of surveyed nurses did not want to be vaccinated, along with a quarter of doctors. 

Those worries came back to the fore this week when the head of one German state said only a third of healthcare workers in his state were willing to get the jab.

A high degree of reluctance among medical staff has also been observed in other parts of Europe and in the US. In France, 76 per cent of senior care home staff said they did not want to get vaccinated, according to a poll of 2,000 such workers carried out last month.

In Austria, only half of the staff of care facilities in the region of Vorarlberg said they were willing to be inoculated, according to Austria’s public broadcaster. The Italian Federation of Medical Professional Associations (FNOMCEO) said about 100 doctors were unwilling to receive the immunisation across the country.

In the US, a survey released last month by the Kaiser Family Foundation health think-tank found that 29 per cent of US healthcare workers would probably or definitely not get a vaccine, a slightly higher proportion than in the overall population (27 per cent). 

Anecdotal evidence from the first weeks of rollout in the US suggests staff at care homes are particularly hesitant to be vaccinated.

Mike DeWine, the governor of Ohio, said recently he was “troubled” by the relatively low numbers of nursing home workers taking the vaccine, with around 60 per cent of nursing home staff having declined the shot.

Asked about vaccine hesitancy among health workers on Wednesday, Germany’s health minister Jens Spahn said his ministry had only anecdotal data, with starkly divergent results. 

In some nursing homes, he said, only 20 per cent of medics received a jab, while in others it was as high as 80 per cent. But he said data showed regular flu vaccines among medics was “unfortunately very, very below average”.


“Promoting vaccination of healthcare workers is very important. We work in an environment full of vulnerable people, it is our responsibility to get it,” Uwe Janssens, the author of German survey released last month, told the Financial Times. 

“If people see healthcare workers are unconvinced, how will that affect our society?”

Dr Janssens, general secretary of the German Society for Internal Intensive Care and Emergency Medicine, decided to conduct his survey after being shocked to hear several nurses express concerns over the new mRNA technology, used by the two EU-approved vaccines BioNTech/Pfizer and Moderna.

Among the 2,305 survey respondents, many feared long-term side effects, while female nursing staff expressed concerns over their ability to get pregnant. Many interviewed, he said, appeared to have seen anti-vaccination videos spread online.

Vaccine scepticism may already be impacting healthcare in parts of Germany. On Tuesday, Bodo Ramelow, head of the state of Thuringia, cited one clinic in the city of Eisenach that stopped taking Covid-19 patients — not because it was short on hospital beds, but because 100 employees were themselves sick or in quarantine.

“This leads to a real problem, because we want to make sure that these people, who work so very close to the virus, have the highest protection,” Mr Ramelow told MDR television. “I plead to everyone to go get it.”

Germany, which is struggling to contain a second surge in Covid-19 infections, has imposed no legal requirement to take the vaccine, though some lawyers specialising in labour rights say medics could potentially face dismissal should their employers argue they were posing a health risk to patients.

In Italy, authorities are investigating 13 doctors accused of anti-vaccine propaganda or playing down the severity of the virus.

“I am perplexed when I hear of fellow doctors or nurses reluctant to get the vaccine,” said Pierpaolo Sileri, Italy’s deputy health minister. “I can understand it regarding a member of the public who perhaps does not have the scientific understanding, but frankly, I think that those doctors and nurses, if they still have doubts after seeing everything that’s happened, are probably in the wrong job.”

Markus Söder, head of Germany’s state of Bavaria, said on Tuesday that a public campaign was needed “to drum up support, not only for more vaccines, but also willingness to accept this vaccine. This will be a subject of tense debate.”

The latest polls on vaccine acceptance however, suggest that the public is not growing more confident. In the spring, 79 per cent of respondents to Germany’s University of Erfurt survey were willing to be vaccinated, while in September that number had dropped to 56 per cent. 

Last month, a YouGov poll suggested 32 per cent of Germans were immediately willing to be inoculated, while another 33 per cent wanted to see how the first round of vaccination went.

In France, amid a slow rollout of the vaccination campaign, only 40 per cent of French people polled by Ipsos last week said they planned to be vaccinated, down from 54 per cent in October and 59 per cent in August.

Despite the wariness, Dr Janssens said he believed the tide will turn among medics after the first round. “I am hopeful then others will follow,” he said. “But it’s a very important signal that we need to give these people information now.”


Additional reporting by Guy Chazan in Berlin 

Free exchange

Is a wave of supply-chain reshoring around the corner?

Experience and evidence suggests they are stickier than you think


Supply-chain managers have had a stressful few years. 

From Sino-American trade wars and Brexit to covid-induced restrictions on medical exports and travel, there has been a lot to deal with. 

At the worst of the pandemic company bosses inevitably wondered if bringing production closer to consumers might help. 

In April a survey conducted by ey, an accounting firm, found that as many as 83% of multinational executives were contemplating so-called “reshoring” or “nearshoring”. 

Recent history shows how sticky supply chains can be, but might this time be different?

Politicians have long angled for companies to shift production to their shores because they want jobs for their constituents. There can be a business case for it too, in order to cut transport costs, say, or reduce inventories. 

The Reshoring Initiative, which advocates for more manufacturing in America, cites the allure of “Made in usa” branding for older Midwesterners. Some reckon technology might encourage reshoring. 

In 2017 a report by ing, a bank, predicted that 3d printing could wipe out 40% of trade flows by 2040.

Yet the experience of the past decade suggests that for every company reshoring production, there may be more doing the opposite. A survey of German manufacturers found that 2% brought production home between 2010 and mid-2012. 

Four times as many shifted operations abroad during that time. A study published in 2016 by the oecd, a club of mostly rich countries, found that the effects of reshoring on national economies were “(still) limited”.

Nor does recent history suggest that new technologies will cannibalise trade. Take 3d printing. 

A study by Caroline Freund, Alen Mulabdic and Michele Ruta of the World Bank found that its use in the hearing-aid industry increased trade by 58% over nearly a decade, compared with what it might have been expected to be otherwise. 

As the technology was useful for only part of the manufacturing process and hearing aids are cheap to transport, supply chains did not retreat. Gary Gereffi of Duke University cites the failure of Adidas to print shoes in America and Germany as evidence of the importance of highly orchestrated production networks. 

He found that a lack of locally available components meant the shoes had to be simplified so much they lost their consumer appeal. The adoption of other technologies can make importing, rather than reshoring, more attractive. 

Katherine Stapleton of the World Bank and Michael Webb of Stanford University found that Spanish firms using robots were more likely to increase their imports from low-income countries, or open affiliates there. Productivity-enhancing automation led firms to expand output, and so import more parts.

The rise in tariffs in America and elsewhere over the past four years could, in theory, have been a game-changer, encouraging companies to move supply chains nearer consumers. But evidence of a great shift towards “Made in usa” following President Donald Trump’s tariffs on Chinese imports is scant. 

Although American manufacturing imports from 14 Asian countries fell in 2019, there was no offsetting increase in gross domestic manufacturing production. A study by Ben Charoenwong of the National University of Singapore and Miaozhe Han and Jing Wu of the Chinese University of Hong Kong suggests that, while trade-policy uncertainty was associated with a reduction in the number of foreign suppliers to American companies serving the home market, on average these acquired no more domestic suppliers.

Might the pandemic prompt a shifting of supply chains? 

So far signs of reshoring are limited. 

In America import growth is outpacing domestic manufacturing production. Medical companies may be scarred by their experience of the swine-flu outbreak in 2009. At a hearing held by the United States International Trade Commission in September this year, one speaker recalled that companies ramped up production after the swine-flu pandemic, only to be driven to the verge of bankruptcy when demand fell back to normal. 

Sebastien Miroudot of the oecd finds that the evidence in favour of diversifying across many suppliers is shaky; experience suggests that firms with fewer, longer relationships recover from shocks more quickly. Rather than relocation, he has written, the research seems to argue for ensuring that production can be flexibly moved from place to place in an emergency.

The call of home

After their initial scare at the start of the pandemic, many companies now seem to have lost their urge to rush back home. A follow-up survey by ey in October found that just 37% of executives were still considering reshoring; a recent survey of firms in America and Europe by Euler Hermes, a trade-credit insurer, found that less than 15% were contemplating reshoring because of covid-19.

Some caution is in order, though. The pandemic is not over, and shifting production can be a slow business. There is some sign of movement in specialist industries: Biju Mohan of gep, a supply-chain consultancy, reports increased interest from life-sciences firms in moving production from China to America. 

And industrial policy is back in vogue, and only just gathering steam in Europe and America. 

Both have plans to subsidise chipmaking, for example, and to make home-grown renewable-energy investments. The economic plan of America’s president-elect, Joe Biden, talks of firms being “dangerously dependent on foreign suppliers”.

The resilience of supply chains so far may come down to a virtuous circle created when globalisation accelerated in the 1990s. When production networks stretch across several countries, trade restrictions can backfire, hurting both the exporter and the importer. 

That gave governments a big incentive to co-operate, and in turn meant companies were comfortable building or relying on far-flung factories. But, as Brexit, the trade war and a hobbled World Trade Organisation show, that trust is eroding, and companies’ sense of security with it. 

Companies do not want to hunker down behind borders. 

But they could yet be forced to do so. 

What Lifted Trump Could Sink Biden

Donald Trump managed to receive 74 million votes despite countless failures for the simple reason that he presided over three years of a high-pressure economy in which wages grew rapidly. If the Democrats ignore this lesson or listen to fiscal hawks already pushing for austerity, they will face a painful reckoning in 2024.

J. Bradford DeLong


BERKELEY – Very few of the people who voted for US President Donald Trump in the 2020 election are plutocrats who benefited from his and congressional Republicans’ tax cut, or even wannabe plutocrats who can hope to benefit from it in the future. 

Some Trump voters doubtless are very focused on the installation of right-wing judges on the federal bench. But many among the 74 million who voted for Trump did so for other reasons.

The one reason most of them share, however, is that Trump presided during a period when the US economy delivered handsome wage increases for the typical American household. Before the COVID-19 pandemic – and the Trump administration’s utter failure to manage it – wages in the United States were growing faster than at any other time since Bill Clinton was president.

If the US economy fails to deliver similar wage increases over the next four years, those 74 million people (and probably more) will note the differential and vote in 2024 for Trump (if he runs again) or some other Trumpian Republican like Senator Tom Cotton of Arkansas or Senator Josh Hawley of Missouri.

For the sake of comparison, it is worth remembering just how disastrous the 2000-15 period was for US incomes. Whereas the median real (inflation-adjusted) household income in 2000 was $62,500, in 2011 it was a mere $57,000. 

Only in 2016, President Barack Obama’s last year in office, did the median real household income clear its 2000 peak. And only during the first three years of the Trump presidency did incomes continue growing strongly enough to surpass the previous high tide. 

In 2019, the median household income was closing in on $69,000, more than 20% above the post-Great Recession nadir, and 10% above the previous Clinton-era peak.

What explains these trends? 

For starters, between 2001 and 2016, the US government did not emphasize the need to achieve a high-pressure economy that eliminates the economy’s demand shortfall, which is what it takes to deliver large wage increases for typical workers. 

In 2010, when the Obama administration began its pivot to austerity, it de-prioritized restoring employment to normal levels in the interest of pursuing spending cuts and fiscal consolidation.

At that time, the prime-age employment-to-population ratio was 75%, five points below its level in 2007, and seven points below the 2000 level. On those two previous occasions, there was “full employment” but no wage-push inflation.

In mid-2013, then-Federal Reserve Chair Ben Bernanke announced that the time for extraordinary monetary-policy stimulus was over, thereby delivering a depressive shock to long-term interest rates – the so-called “taper tantrum” – at a time when the prime-age employment-to-population ratio was still under 76%. 

Then, in 2015, then-Federal Reserve Chair Janet Yellen initiated the most recent cycle of interest-rate hikes, plausibly knocking a percentage point or two off of economic growth just when the recovery looked as though it might be gaining speed, with the prime-age employment-to-population ratio having ticked up to 77%.

Not until late 2019 – fully ten years after the nadir of the Great Recession business-cycle trough – would the US economy return to anything close to full employment. And yet the siren song of austerity can today be heard once again. 

A growing chorus of commentators is insisting that near-zero interest rates are unnatural, and that the deficit needs to be cut substantially.

Although fiscal hawks admit that financing the deficit and debt is not currently a problem, they worry that the situation could change at any moment. 

Interest rates could turn on a dime and start rising sharply if investor psychology undergoes one of its sudden shifts. The implication is that we will be in deep trouble unless we take steps now to cut the deficit.

Back in 2012, Lawrence H. Summers, fresh from a stint as Director of the US National Economic Council, and I tried to warn policymakers about the error of this line of thinking. 

We failed, because the consensus view of what high-quality economists supposedly think (which is different from what they actually think) had already solidified. 

Policymakers absorbed only one of the two lessons we highlighted: namely, that financing debt is not an issue as long as the demand for safe assets remains high, as that will keep Treasury interest rates low.

The more important lesson that still has not been absorbed is that in a deeply depressed economy, government borrowing and spending boosts the country’s short- and long-run prosperity, and thus expands fiscal capacity by more than it increases the debt burden. 

Under these conditions, larger deficits drive the ratio of debt to fiscal capacity down, not up. And this is true regardless of whether interest rates are high or low.

Any prosperity-linked economic objective that policymakers seek – whether related to productivity, long-term employment, or income levels – will be easier to attain in a high-pressure economy. 

If the policy successes and failures of the past generation teach us anything, it is that expansionary fiscal and monetary policies are still among the most powerful tools we have for this purpose.


J. Bradford DeLong is Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research. He was Deputy Assistant US Treasury Secretary during the Clinton Administration, where he was heavily involved in budget and trade negotiations. His role in designing the bailout of Mexico during the 1994 peso crisis placed him at the forefront of Latin America’s transformation into a region of open economies, and cemented his stature as a leading voice in economic-policy debates.

SMALL BUSINESS EXTINCTION, WALKING DEAD BONDS & GOLDEN SOLUTIONS

By Matthew Piepenburg


Regardless of one’s views as to the most realistic means of balancing human risk with economic risk, all would agree that COVID has both revealed and accelerated critical (and pre-existing) fissures in the financial landscape.

The hitherto sacred tenants of free-market price discovery, fair-play capitalism and faith in elite policy guidance have each seen a dramatic fall from grace.

Nowhere is this fall (and its staggering implications) more obvious than within: 1) the undeniable demise of U.S. small businesses and 2) the Frankenstein-like profile of a walking-dead bond market.

Small Businesses in America—Endangered to the Point of Extinction

Small businesses, from sea to shining sea in the States, are dying.

This is not fable, but fact, one easily demonstrated via objective data rather than theoretical bromides.

The Comical Profile of Fair-Play American “Capitalism”

If one were to envision a room full of 12 jockeys selected to compete in the next Kentucky Derby, the air would be thick with an excited sense of pending competition

However, if 9 of those jockeys were required to saddle donkeys and the remaining 3 were handed the reins to doped thoroughbreds, it would not take much equestrian expertise to foresee the winning trifecta…

As comical as such a rigged race might seem, the current setting of fair-play capitalism and the decline of American small businesses is closer than you might think to such a tragi-comedy.

Survival of the Biggest

In its purest form, capitalism requires a fair playing field (or race track), not a rigged platform in which the thoroughbreds are accommodated and the donkey-riders are denied hay.

Current market competition in the U.S., both pre and post COVID outbreak, has been regulated and administered (i.e. corrupted) into a system wherein survival and victory hinge less upon defined advantages and more upon engineered rules and one-sided policy measures.

For decades, governments, treasury departments, central banks and regulatory bodies have created barriers to entry, lop-sided tax schemes, capital controls and other subtle yet egregious paradigms in which a minority group is favored/protected while the majority group is left without a saddle.

Enter COVID and the Lopsided Race to the Bottom and Top

The policy response to the COVID crisis has only heightened and accelerated this distortion of fair competition.

Caught in a genuine dilemma of balancing the lives of humans against the lives of small businesses, the national shut-down policies have not only risked a mass extinction of certain small businesses, they’ve created it.

Smaller businesses in personal-contact areas like retail, travel, hospitality, spas, gyms, hair salons, day care, distinctive health care providers and specialty shops etc. have been destroyed by lockdown measures while select thoroughbred (i.e. cash rich) mega businesses have enjoyed a revenue bonanza from the same pandemic.

This imbalance is neither random nor related to the talent of the players. Instead, much of it boils down to size, not skill; and policy advantage not fair play.

Of course, policy makers initially (or superficially) sought to help the little guys in the form of PPP loans (8 weeks of salary and defined fixed expenses) and other targeted relief from the CARES Act.

Unfortunately, even for those small businesses who received such aid, they are all out of hay. Far more importantly, hundreds of thousands of small businesses saw no aid at all.

Even more troublesome, is the quantifiable fact that the biggest beneficiaries of these initial relief measures were the big boys, not the little guys.

As the graph below makes objectively clear, almost all of the relief money went to a small minority of the biggest players.


But it gets worse.

More Proof of a Rigged Track

In the wake of helter-skelter, make-it-up-as-they-go COVID policy confusions, the forced shutting down of small businesses has failed to balance human risk with business risk.

Instead, the pandemic policies merely added (and will continue to add) more risk to both.

Despite the best (or worst?) of intentions, the result has been a quantifiable disaster for U.S. small businesses, many of which are either collapsing on the track, or limping toward an ambulance, with potentially 50% about to shut their doors for good.


Small businesses are being carried off the field on their shields, while the big-boy, thoroughbreds are now poised, as Austan Goolsbee recently noted, “to swallow the world.”

The pandemic, alas, has exacerbated a clear split in the U.S. economy.

The big, large-cap names are seeing massive growth as small businesses, once the backbone of competitive capitalism, are disappearing at record pace.

This may explain, in part, an appalling (highly concentrated) stock rally in the midst of a global recession and pandemic, which has greatly favored the big boys in tech.

ETF’s—Magical Oats for the Thoroughbreds

But the tech sector is not the only beneficiary of this rigged game.

Almost all large-cap and publicly traded companies share a hidden advantage, as they are all (fast or slow, weak or strong) bundled together into ETF’s passively bought (and hence inflated) by pension funds, IRA accounts, defined benefit plan managers etc.

In short, index ETF’s (and the companies that comprise them) are passively riding a common investment wave of automatic and institutional investment, regardless of the poor surfing skills (i.e. balance sheets) of the vast majority of the companies within them.

As inflated, Fed/liquidity-supported stock markets and ETF’s rise un-naturally, their share price (rather than profit) inflation allows them to swallow up (or price out) most smaller businesses—again, like thoroughbreds racing donkeys.

Unfair Access to Cash

Big companies, even bad ones with lots of debt (see below), are still flush with liquidity (i.e. cash) compliments of a market-accommodating Fed, whose policies literally mimic the legal definition of counterfeit and fraud.

Meanwhile, the ignored mass of small businesses can’t make their lease payments, let alone a profit, in a lockdown year.

As the pandemic unfolded in 2020, the big boys on the public exchanges were already sitting upon years of post-08 stimulus and cash in a fixed race that was lopsided well before the COVID handouts kicked in.

Specifically, flows of funds from the Fed to these big-boy balance sheets stood at $4 trillion in cash in Q1, well before the Corona Virus was making its first headlines.

In short, while donkeys were dying of thirst, the thoroughbreds were literally swimming in liquidity.

Tax Advantages Too

In addition to direct Fed support, the large-cap big-boys on the S&P, DOW and elsewhere were the primary beneficiaries of the 2017 Tax Cut, as well as, of course, the all-too generous and aforementioned CARES Act of 2020, which primarily benefited large, exchange-traded names to the tune of $5 trillion in favored loans.

Such massive resources have left larger businesses at an openly unfair advantage over smaller ones.

It’s just a simple matter of open (yet largely ignored) math and policy.

The convergence of such unfair advantages has given a particular tailwind to digital tech and communication companies as well as big pharma, consumer credit, fast-food juggernauts and discount retail names, all of whom had already been enjoying unlimited liquidity (literal “monopoly money”) and hence market support from the Fed.

Monopoly Money, Monopoly Powers

Today, these same big boys are gaining increasing pricing power and hence monopoly-like powers in rents, acquisitions, innovation, and cost of (as well as access to) capital that ought to make an anti-trust lawyer blush.

Unfortunately, these lawyers aren’t too busy when it comes to helping small businesses thrive.

Federal spending on anti-trust enforcement at the Dept. of Justice and FTC has fallen dramatically as big business has been rising even more so.

Giving Life to Growth Sucking “Zombies”

The unfair competition accorded to large cap enterprises gets even worse when one just considers the equally appalling rise in the number of big-boy zombie companies masquerading as viable businesses in this twisted new backdrop of broken capitalism.

Zombie companies are those with infinitely more debt than available cash, yet due to their size, enjoy unfair access to low-rate debt/capital and stay “alive” only by borrowing today to pay yesterday’s interest, and then borrowing tomorrow to pay today’s debt interest.

Of course, the principal on the debt is not (and never will be) repaid.

Instead, “accommodating” banks engage in a rigged re-fi game of loan extend-and-pretend programs not available to small businesses, whose size makes them “riskier credits” than the too-big-to-fail large-cap zombies, who are the highest of all risk credits.

Again, the ironies (and unfairness) abound.

Thirty years ago, zombie companies were non-existent, yet based upon pre-COVID data from the BIS and OECD in 2018, more than 12% of all listed firms in the world were classified as zombies.

Today, that percentage is well above 15%

Such companies are effectively allowed to survive upon unlimited access to debt and cash, while smaller businesses die without a banker in site.

This is particularly shameful, as zombie companies quantifiably suck rather than stimulate the economic growth out of their host economies, whereas thriving small businesses were once the very backbone of the fair and thriving economy that put the U.S. ahead.

Rigged to Fail –The Corporate Bond Market

A large number of those zombie companies are hiding in a broken credit ETF near you.

But unique and unfair access to cheap debt and unlimited liquidity doesn’t just distort the natural lifespans of zombie companies.

Wall Street regulators and banks allow other large (and largely profitless) enterprises to issue bonds (that will never be repaid) which small businesses simply can’t do, and thus simply can’t compete.


Again, like donkeys racing thoroughbreds.

Sadly, the vast majority of even these debt-backed thoroughbreds are themselves just lame horses.

Greater than 60% of all corporate bond issuers in the U.S. are rated as junk, high-yield or levered loans—i.e. the very bottom of the credit risk barrel.


Debt experts who track these and other debt-ravaged enterprises are forecasting a wave of corporate defaults once COVID relief measures (and big-boy thoroughbreds) run out of breath in a current bond bubble where corporate debt to GDP has spiked to an all-time high of 57%.

Folks: That’s an appalling percentage.

The Dominos Fall Towards Physical Gold

When these debts fail, bond prices tank, yields (and hence interest rates) spike.

As the cost of debt spikes, those debt-ravaged big-boys on the big exchanges dip into earnings to cover interest expenses. But those earnings are falling.


In turn, stock prices and markets tank and hence the Fed steps in to print more money to dampen the fall, as always.

Looking forward, we can thus expect an outpouring of increased money creation and futile liquidity measures to save drowning enterprises that are already technically lifeless.

Such hyper-liquidity/money creation by definition means inflation, which in turn means the further debasement of the dollar and other major currencies.

This, in turn, means those looking to preserve their wealth will be looking to real money which stands the test of time, can’t be replicated, hacked, duplicated or distorted.

In short, and in sum, all roads lead back to physical gold.

The Measure of Financial Regulators’ Independence

The benefits of central bank independence are accepted by almost everyone nowadays. And there is growing evidence that financial regulation works best – boosting the stability of the banking system – when regulators and supervisors have similar independence.

Howard Davies


LONDON – There is a vast academic literature on central bank independence, and central bank governors address the topic at every opportunity. Most of the academic papers, and all of the governors, argue that a high degree of independence is associated with low inflation and monetary stability.

Some of these academic studies question the direction of causation, asking whether countries with highly inflation-averse populations – Germany being the most obvious example – are inclined to favor robust independence. But there is wide support for the general proposition that taking politicians out of the process of setting interest rates is associated with lower and more stable inflation. 

There is much evidence that, previously, the electoral cycle influenced interest-rate decisions, with damaging consequences.

Much less attention has been paid to the independence of financial regulators and, especially, banking supervisors. Many of the latter are of course part of central banks, but by no means all of them are.

Around a third of countries with significant banking systems operate with supervisors outside the central bank. That is true of Sweden, Japan, and Australia, for example. And in some cases, different independence regimes apply to monetary policy and supervision, even where both are brigaded within the central bank.

The question of how independent bank supervisors are is of more than theoretical interest. Regulatory and supervisory independence is one of the Basel Committee on Banking Supervision’s core principles. Yet according to the International Monetary Fund, it is the one with the lowest level of compliance across the countries the Fund reviews.

Banking supervisors’ perceived lack of independence in some eurozone countries was one of the reasons for establishing the European Union’s banking union. There is evidence that banks with direct political involvement were subject to indulgent supervision and performed especially poorly in the 2008 global financial crisis. Their bad debts were higher than might have been expected.

More recently, there have been questions about the closeness of German supervisors to the country’s finance ministry. After the accounting scandal that brought about the insolvency of the payment processing and financial services firm Wirecard, the European Securities and Markets Authority pointed to “a heightened risk of influence by the Ministry of Finance given the frequency and detail of reporting” in the Wirecard case.

Against this background, the Bank of England has produced timely new research on the link between regulatory independence and financial stability. The authors construct a novel index of independence that resembles the indices used in the monetary policy arena, but with differences in some areas.

The BOE paper incorporates the procedures for appointing the head of the regulator: 

Is there a degree of independence in the process? How long is the head’s term? How easy is it to dismiss him or her?

The authors also look at the supervisor’s ability to impose regulations without political approval, and at the budget process. Some can fund themselves through a power to levy fees on regulated firms; others need to go cap in hand to the government or legislature for money, creating the possibility of political lobbying by banks to starve the regulator of funds.

Having constructed the index, the authors then examine whether supervisory independence is positively correlated with financial stability. Compared to monetary stability, financial stability is a slippery concept. 

We tend to discover all too painfully when it is absent, but attempts to develop indices of its presence have proven to be difficult. Many explain the last crisis very well, but are somewhat less useful for predicting the next one.

As a proxy for financial stability, the BOE authors choose the level of non-performing loans in the banking system. It is not a perfect measure, perhaps, but it has the benefit of being available, on a broadly comparable basis, across a range of countries and for a meaningful number of years.

Mapping the two datasets against each other produces strong conclusions. There has been a steady increase in supervisory independence over the last 20 years. And, in the authors’ words, “reforms that bring greater regulatory and supervisory independence are associated with lower non-performing loans in banks’ balance sheets [and]…overall, our results show that increasing the independence of regulators and supervisors is beneficial for financial stability.”

Furthermore, they produce evidence that the tougher oversight associated with independent supervisors does not adversely affect the efficiency or profitability of the banking system. One might reasonably be concerned that tighter supervision might impose costly constraints, yet that does not seem to be the case. Bank efficiency, defined as the cost-to-income ratio, tends to improve when supervisors are made more independent. And there is no negative impact on banks’ bottom line.

So what’s not to like? Are we in “free lunch” territory?

Not quite. There is one drawback, which may give politicians pause. The relationship between independence and the quantum of bank lending is negative. In other words, if independent supervisors are more rigorous, banks tend to lend a little less. The scale of the effect is not dramatic, but it is negative and it is significant.

It is possible that this effect is transitional and would fade as more disciplined supervision is maintained. Moreover, the lending that has not taken place might have been to non-viable companies or over-extended consumers. It is not obvious that such lending is especially beneficial to growth and productivity.

In the public domain at least, regulatory and supervisory independence has not acquired the reputation of central bank independence. It doesn’t have its own well-used acronym, like CBI. When RSI is used, it typically refers to repetitive strain injury. The BOE research adds up to a strong case for changing that.


Howard Davies, the first chairman of the United Kingdom’s Financial Services Authority (1997-2003), is Chairman of NatWest Group. He was Director of the London School of Economics (2003-11) and served as Deputy Governor of the Bank of England and Director-General of the Confederation of British Industry.