A Rear-mirror View to the 11th FIN-FIRE “Challenges to Financial Stability” Workshop
On September 25th, financial economists from all over the world travelled for the 11th time to Halle (Saale) to attend the annual FIN-FIRE Workshop at IWH. During two days, authors of ten papers covered a comprehensive overview of contemporary issues that pose potential challenges to the financial system, including data privacy in mortgage markets, climate risks in bond markets, synthetic risk transfers, the effects of geopolitical risks for lending, as well as granular perspectives on the transmission of monetary policy. An intense exchange of thoughts between authors, discussants, and the audience yielded genuinely new insights into the resilience and fragility of financial systems.
07. January 2026
https://doi.org/10.18717/ww0jtx-fr12
A particular highlight of the conference included the keynote presentation by Itay Goldstein, professor at the Wharton School of the University of Pennsylvania, director of the American and the Western Finance Association, and a renowned expert on the nature of banking panics. Professor Goldstein presented on how strategic complementarities could potentially undermine the fragility of the financial system, a topic that was recognized by the Nobel Memorial Prize in Economic Sciences of 2022 and which garnered renewed public attention during the United States banking crisis of 2023.
Banks engage in liquidity mismatches, which pose a risk to the financial sector if the banks underperform. This is because it incentivises depositors to withdraw their money, which could cause the banks to collapse. The effect can be amplified through strategic complementarities. For instance, investors' propensity to act, or withdraw funds, increases significantly if they expect other investors to do the same.
Goldstein provided evidence that a higher degree of liquidity transformation makes banks more sensitive to uninsured deposit outflows when they perform poorly. Therefore, deposit outflows do not only depend on fundamental values but also can be amplified through depositors' panic that can be caused by banks' liquidity structures. Strategic complementarities are not only affecting banks, as they also pose a threat to mutual funds. This raises the question of whether current regulatory measures are effective and how they can be improved to reduce strategic complementarities and bank runs.
As in previous years, the FIN-FIRE workshop presented also a platform especially for junior researchers, for example represented by the contribution of Alex Osberghaus, a job market candidate from the Swiss Finance Institute in the 2025/2026 season. His job market paper sheds light on a possibly important, but overlooked feature of contemporary financial systems. As the Bloomberg Editorial Board pointed out in 2024, "If you're unfamiliar with synthetic risk transfers, there's a chance you'll hear all about them when the next financial crisis hits".
The presentation by Alex Osberghaus was dedicated to this increasingly important topic, focusing on the growing market for synthetic risk transfers (SRT) and the challenges it poses to financial market stability. Although SRT is becoming increasingly important for the financial market, the topic is largely unknown outside the sector. Banks utilise SRT to transfer portions of their corporate loan portfolios to NBFI investors, thereby actively managing risk exposure.
The study provided evidence that banks strategically shift capital-intensive loans and subsequently reduce monitoring, which raises concerns about moral hazard. Osberghaus identifies the close interdependence between issuing banks and non-bank financial intermediaries that invest in these securities. This raises the question of potential round-tripping issues and how authorities should regulate SRT markets to increase transparency and overall maintain financial stability.
In times of debates whether private data serves as currency on social media platforms, another very timely topic was covered by Sarah Zhang from the University of Manchester. “Data privacy legislation can reduce racial disparities in the mortgage market” was the conclusion of Sarah Zhang's presentation.
Zhang examined how the implementation of the California Consumer Privacy Act (CCPA) affected credit discrimination between minority and non-minority groups in the US mortgage market. She found that following the implementation, interest rate differences between minorities and non-minorities have declined. Additionally, the rejection rate for minority applications has decreased significantly. The reason for the reduction in racial disparities is the shift to a more data-driven lending process, driven by enhanced transparency requirements. Furthermore, FinTech companies are helping to reduce inequality by providing more loans to minorities.
Overall, the conference was both professional and constructive. There was an in-depth exchange of ideas, and all authors received helpful comments and recommendations for their research.
The programme of the conference as well as the presentations can be found on the event page of the FIN-FIRE workshop.
