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on Banking |
| By: | Viral V. Acharya; Philipp Schnabl; Gustavo Suarez |
| Abstract: | We analyze asset-backed commercial paper conduits which played a central role in the early phase of the financial crisis of 2007-09. We document that commercial banks set up conduits to securitize assets while insuring the newly securitized assets using credit guarantees. The credit guarantees were structured to reduce bank capital requirements, while providing recourse to bank balance sheets for outside investors. Consistent with such recourse, we find that banks with more exposure to conduits had lower stock returns at the start of the financial crisis; that during the first year of the crisis, asset-backed commercial paper spreads increased and issuance fell, especially for conduits with weaker credit guarantees and riskier banks; and that losses from conduits mostly remained with banks rather than outside investors. These results suggest that banks used this form of securitization to concentrate, rather than disperse, financial risks in the banking sector while reducing their capital requirements. |
| JEL: | G21 G28 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15730&r=ban |
| By: | Jean Pisani-Ferry; André Sapir |
| Abstract: | Director Jean Pisani-Ferry and Senior Fellow André Sapir provide an in-depth examination of the the banking crisis in the European Union, starting with a discussion of the pre-crisis banking landscape and including an assessment of the management of the crisis and the lessons learned going forward. The authors argue that the EU was institutionally ill-prepared to manage the crisis, with the response characterised by ad hoc actions and a lack of transparency. They say, however, that coordination has remarkably not been impeded by a divide within the euro area and policy performance has been better than expected given the sub-optimal nature of EU financial institutional arrangements. |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:bre:wpaper:375&r=ban |
| By: | Adam Posen; Nicolas Véron |
| Abstract: | Nicolas Véron and Adam Posen believe Europe should build new long term European joint-action to face the likely high rising number of insolvent banks on the continent. The authors propose on the one hand, a centralised triage and restructuring process of bad European banks lead by a new temporary European Institution, a European Bank Support Authority (EBSA), and on the other hand, long-term EU Institutions dedicated to the completion of an integrated market. |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polbrf:325&r=ban |
| By: | Massimiliano Affinito (Banca d'Italia); Edoardo Tagliaferri (Banca d'Italia) |
| Abstract: | This paper investigates the ex-ante determinants of bank loan securitization by using different econometric methods on Italian individual bank data from 2000 to 2006. Our results show that bank loan securitization is a composite decision. Banks that are less capitalized, less profitable, less liquid and burdened with troubled loans are more likely to perform securitization, for a larger amount and earlier. |
| Keywords: | securitization, credit risk transfer, capital requirements, liquidity needs |
| JEL: | G21 G28 C23 C24 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_741_10&r=ban |
| By: | ?tefan Rychtárik; Franco Stragiotti |
| Abstract: | Over the last 12 months, the supervision of liquidity has become one of the most discussed issues by the central banks and the financial market authorities. The objective of this paper is to describe the off-site liquidity monitoring framework recently implemented as one of the supervisory tools of the Banque centrale du Luxembourg. In our approach, the liquidity position of every bank is described by two different scores that take into account the bank?s liquidity position across ?peer? banks as well as over time. The framework has three major outputs. First of all, it helps supervisors to identify banks with weaker liquidity positions. Secondly, the scores can be decomposed among 21 risk factors. Finally, the framework creates a basis to draw conclusions about the general trends within the Luxembourg banking sector for the purpose of ensuring financial stability. Unlike common supervisory scoring systems generally based on banks? balance sheet and profit and loss data, our framework integrates on- and off-balance sheet data and general and idiosyncratic market data as well as macroeconomic data. |
| Keywords: | Liquidity risk, Stress-test, Banking sector, Prudential supervision, Scoring system, Off-site supervision |
| JEL: | G21 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:bcl:bclwop:cahier_etudes_43&r=ban |
| By: | Agnès Bénassy-Quéré; Benoît Coeuré; Pierre Jacquet; Jean Pisani-Ferry |
| Abstract: | Bruegel Director Jean Pisani-Ferry, with Agnès Bénassy-Quéré (CEPII, University Paris-Ouest and Ecole Polytechnique, Paris), Benoît Coeuré (Ecole Polytechnique, Paris) and Pierre Jacquet (ENPC, Paris, and Agence Française de Développement) provide an in-depth analysis of the financial crisis. The authors review the main causes of the crisis, pointing to three different, non-mutually exclusive lines of explanation: wrong incentives in the financial sector, unsustainable macroeconomic outcomes, and misunderstood and mismanaged systemic complexity. They also discuss supervisory and regulatory reform going forward, including an examination of the issues of moral hazard, the separation of retail and investment banking, the desirable size of financial institutions, risk management, the role of central banks, and other issues. This working paper was previously published as CEPII (Centre d'études prospectives et d'informations internationales) working document 2009-28. |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:bre:wpaper:374&r=ban |
| By: | Paolo Angelini (Bank of Italy); Andrea Nobili (Bank of Italy); Maria Cristina Picillo (Bank of Italy) |
| Abstract: | The outbreak of the financial crisis coincided with a sharp increase of worldwide interbank interest rates. We analyze the micro and macroeconomic determinants of this phenomenon, finding that before August 2007 interbank rates were insensitive to borrower characteristics, whereas afterwards they became reactive to borrowers’ creditworthiness. At the same time, conditions for large borrowers became relatively more favorable, both before and after the failure of Lehman Brothers. This suggests that banks have become more discerning in their lending, a welcome change, but that moral hazard considerations related to the â€too big to fail†argument should remain a main concern for central banks. |
| Keywords: | Interbank markets, Spreads, Financial crisis |
| JEL: | E43 E52 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_731_09&r=ban |
| By: | Franco Stragiotti |
| Abstract: | This paper analyzes the current practices adopted by a sample of Luxembourg banks on liquidity stress testing and contingency funding plans. The paper covers four main topics: liquidity stress testing coverage, scenario design, policy issues and contingency funding plans. We compare, when relevant, these results to a larger sample of EU peer banks. The results, collected through a questionnaire addressed to forty-seven banking groups, are analyzed by the means of the principal component technique. The paper also highlights the main features and shortcomings of local banks in this field. |
| Keywords: | liquidity risk, liquidity stress testing, contingency funding plan, principal component analysis. |
| JEL: | G21 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:bcl:bclwop:cahier_etudes_42&r=ban |
| By: | Ojo, Marianne |
| Abstract: | This paper is primarily aimed at highlighting the role and significance of asymmetric information in contributing to financial contagion. Furthermore, in emphasising the importance of greater disclosure requirements and the need for the disclosure of information relating to “close links”, such disclosure being considered vital in assisting the regulator in identifying potential sources of material risks, it illustrates the fact that incentives (such as the reduction in the levels of capital to be retained by institutions), which have the potential to facilitate market based regulation (through non binding regulations), may not necessarily serve as suitable means in the realisation of some of Basel II’s objectives – namely the achievement of “prudentially sound, incentive-compatible and risk sensitive capital requirements”. The paper also attempts to raise the awareness that the operation of risk mitigants does not justify a reduction in the capital levels to be retained by banks – since banks operating with risk mitigants could still be considered inefficient operators of their management information systems (MIS), internal control systems, and risk management processes. The fact that banks possess risk mitigants does not necessarily imply that they are complying with Basel Core Principles for effective supervision (particularly Core Principles 7 and 17) – as the paper will seek to demonstrate. Core Principle 7 not only stipulates that “banks and banking groups satisfy supervisory requirements of a comprehensive management process, ensure that this identifies, evaluates, monitors and controls or mitigates all material risks and assesses their overall capital adequacy in relation to their risk profile, but that such processes correspond to the size and complexity of the institution.” Certain incentives which assume the form of capital reductions are considered by the Basel Committee to “impose minimum operational standards in recognition that poor management of operational risks (including legal risks) could render such risk mitigants of effectively little or no value and that although partial mitigation is rewarded, banks will be required to hold capital against residual risks”. Information disclosure should be encouraged for several reasons, amongst which include the fact that imperfect information is considered to be a cause of market failure – which “reduces the maximisation potential of regulatory competition”, and also because disclosure requirements would contribute to the reduction of risks which could be generated when granting reduced capital level rewards to banks who may have poor management systems. |
| Keywords: | incentives; risk; mitigants; Basel; regulation; regulatory competition; disclosure |
| JEL: | D53 K2 F3 E5 D82 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:20404&r=ban |
| By: | Pierre Collin-Dufresne; Robert S. Goldstein; Jean Helwege |
| Abstract: | Empirical tests of reduced form models of default attribute a large fraction of observed credit spreads to compensation for jump-to-default risk. However, these models preclude a "contagion-risk'' channel, where the aggregate corporate bond index reacts adversely to a credit event. In this paper, we propose a tractable model for pricing corporate bonds subject to contagion-risk. We show that when investors have fragile beliefs (Hansen and Sargent (2009)), contagion premia may be sizable even if P-measure contagion across defaults is small. We find empirical support for contagion in bond returns in response to large credit events. Model calibrations suggest that while contagion risk premia may be sizable, jump-to-default risk premia have an upper bound of a few basis points. |
| JEL: | G12 G13 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15733&r=ban |
| By: | Saffi, Pedro A.C. (IESE Business School); Sturgess, Jason (McDonough School of Business) |
| Abstract: | Using proprietary data on equity lending supply, loan fees and quantities, we examine the link between institutional ownership structure and the market for equity lending and stock prices. We find that both total institutional ownership and ownership concentration (measured by the Herfindahl index, single largest holding and number of investors) are important determinants of equity lending supply and short sale constraints. More concentrated ownership structures increase short sale constraints (including loan fees, recall risk and arbitrage risk) and force arbitrageurs to decrease demand for equity borrowing and demand greater compensation for borrowing stock. The results suggest that the impact of institutional ownership structure in the equity lending market may create limits to arbitrage. |
| Keywords: | Equity lending markets; short selling; ownership structure; lending supply; |
| JEL: | G10 G11 G14 G18 G28 G32 |
| Date: | 2009–11–09 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0836&r=ban |
| By: | Cécile Carpentier; Jean-François L'Her; Jean-Marc Suret |
| Abstract: | Most of the analyses of small firms’ decision to seek outside equity financing and the conditions thereof have concerned private firms. Knowledge of the risk and return of entrepreneurial ventures for outside investors is consequently limited. This paper attempts to fill this gap by examining the Canadian context, where small and medium-sized enterprises (SMEs) are allowed to list on a stock market. We analyze seasoned equity offerings launched by SMEs over the last decade. These public issuers can be considered low quality firms with poor operating performance. Managers issue equity before a large decrease in operating and stock market performance. Individual investors do not price the stocks correctly around the issue and incur significant negative returns in the years following the issue. This is particularly true for constrained issuers. We confirm that entrepreneurial outside equity attracts lemons, and that individual investors cannot invest wisely in emerging ventures. Probably as a consequence of individual investors’ lack of skill and rationality, the cost of outside equity financing of Canadian public SMEs is abnormally low. <P>La plupart des analyses de la décision et des conditions de financement des petites entreprises portent sur des entités privées. Le risque et le rendement que ces entreprises représentent pour les investisseurs sont donc très mal connus. Ce papier tente de combler cette lacune en utilisant le contexte canadien, où les petites et moyennes entreprises (PMEs) sont autorisées à s’introduire en bourse. Nous analysons les financements par fonds propres levés par ces PMEs au cours de la dernière décennie. Ces émetteurs peuvent être considérés comme des entreprises de faible qualité présentant une piètre performance opérationnelle. Les dirigeants émettent des actions juste avant une forte diminution de la performance comptable et boursière. Les investisseurs individuels n’évaluent pas correctement les actions au moment de l’émission et subissent des rendements négatifs significatifs au cours des années postérieures. Ceci est particulièrement vrai pour les émetteurs contraints financièrement. Nous confirmons que le marché du financement externe des PMEs attire des « citrons », et que les investisseurs individuels ne peuvent pas investir de façon avisée dans les entreprises en développement. Conséquence probable d’un manque d’expérience et de rationalité des investisseurs individuels, le coût des fonds propres externes est anormalement bas pour les PMEs inscrites en bourse au Canada. |
| Keywords: | financing decision, equity offerings, small business, long-run performance, cost of equity, financial constrain, décision de financement, financement par fonds propres, petites entreprises, coût des fonds propres, performance, contrainte financière |
| JEL: | G14 G32 L26 |
| Date: | 2010–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2010s-07&r=ban |
| By: | Pawe{\l} Sieczka; Didier Sornette; Janusz A. Ho{\l}yst |
| Abstract: | Inspired by the bankruptcy of Lehman Brothers and its consequences on the global financial system, we develop a simple model in which the Lehman default event is quantified as having an almost immediate effect in worsening the credit worthiness of all financial institutions in the economic network. In our stylized description, all properties of a given firm are captured by its effective credit rating, which follows a simple dynamics of co-evolution with the credit ratings of the other firms in our economic network. The existence of a global phase transition explains the large susceptibility of the system to negative shocks. We show that bailing out the first few defaulting firms does not solve the problem, but does have the effect of alleviating considerably the global shock, as measured by the fraction of firms that are not defaulting as a consequence. This beneficial effect is the counterpart of the large vulnerability of the system of coupled firms, which are both the direct consequences of the collective self-organized endogenous behaviors of the credit ratings of the firms in our economic network. |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1002.1070&r=ban |
| By: | Garry Schinasi |
| Abstract: | Visiting Scholar Garry Schinasi examines the European proposals for the creation of both a European Systemic Risk Board (ESRB) to oversee macroprudential regulation and a European System of Financial Supervision (ESFS) to strengthen microprudential supervision. He argues that structural vulnerabilities of this regulatory framework need to be addressed to ensure that the early-warning systems will be adequate to avoid future crises. Specifically, Schinasi points to the fact that the ESRB lacks binding powers to enforce regulation as well as the lack of a legislative framework to resolve the insolvency of systemically important financial institutions (SIFIs). |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polbrf:357&r=ban |
| By: | Nicolas Véron |
| Abstract: | Nicolas Véron argues rating agencies have failed the marketplace in the run-up to the crisis, as their risk assessment processes have been found wanting on a number of counts. It is not clear that conflicts of interests have been the root cause of this serious failure, even if such conflicts may have existed. More regulation of rating agencies will not be a sufficient response to the challenge posed by the agencies recent failings, and carries risks of its own. What is needed is a deeper change in the structure of the market for financial risk assessment services. |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polcon:245&r=ban |
| By: | Matthews, Kent (Cardiff Business School) |
| Abstract: | Risk Management in Chinese banks has traditionally been the Cinderella of its internal functions. Political stricture and developmental imperative have often overridden standard practice of risk management resulting in large non-performing loan (NPL) ratios. One of the stated aims of opening up the Chinese banks to foreign strategic investment is the development of risk management functions. In recent years NPL ratios have declined through a mixture of recovery, asset management operation and expanded balance sheets. However, the training and practice of risk managers remain second class compared with foreign banks operating in China. This paper evaluates bank performance using a Network DEA approach where an index of risk management practice and an index of risk management organisation are used as intermediate inputs in the production process. The two indices are constructed from a survey of risk managers in domestic banks and foreign banks operating in China. The use of network DEA aids the manager in identifying the stages of production that need attention. |
| Keywords: | Risk management; risk organisation; managerial efficiency; Network DEA |
| JEL: | D23 G21 G28 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2010/1&r=ban |
| By: | Richard Herd; Samuel Hill; Charles Pigott |
| Abstract: | Reforms to modernise and strengthen the financial sector have continued in recent years. The cleaning-up of the stock of non-performing loans is largely completed and considerable progress has been made in improving commercial banks’ corporate governance structures and risk management systems. These reforms have given rise to stronger Chinese banks which have so far weathered the global slowdown well. Reform of capital markets has focused on phasing out trading prohibitions on non-traded shares and modernising securities market institutions. Efforts have also been made to improve credit access to underserved segments, notably small and medium-sized enterprises and rural China. Despite progress in opening up the financial sector to international investors and in allowing domestic investors to invest abroad, liberalisation has been slow and in most market segments the foreign share remains very small. Ownership of financial institutions remains dominated by the State, raising issues concerning the financial system’s ability to serve the private sector as well as the extent to which banks lending decisions are based purely on commercial considerations. Although the bond market has continued to grow, corporate bond issuance remains relatively small and this segment will need to be further developed in order to address the over-reliance on the banking system<P>Les réformes financières en Chine<BR>Les réformes visant à moderniser et à renforcer le secteur financier ont continué dans les années récentes. L’assainissement des bilans a beaucoup avancé et on a assisté à une nette amélioration des systèmes de gouvernance et de gestion des risques dans les banques commerciales. Ces changements ont abouti à une consolidation des banques chinoises, qui jusqu’ici ont bien résisté au ralentissement mondial. La réforme des marchés de capitaux a privilégié la suppression progressive des restrictions concernant les actions non négociables et la modernisation des institutions opérant sur les marchés de titres. On a aussi pris des mesures pour faciliter l’accès au crédit des secteurs mal desservis, notamment les PME et le milieu rural. Malgré l’ouverture progressive du secteur financier aux investisseurs internationaux et l’autorisation postérieure donnée aux investisseurs nationaux d’opérer à l’étranger, la libéralisation a été lente et la part étrangère reste très réduite dans la plupart des compartiments du marché. L’État demeure le principal propriétaire des institutions financières, ce qui amène à s’interroger sur leur capacité à servir le secteur privé et sur le degré auquel les décisions de prêt des banques sont guidées par des considérations commerciales. Bien que le marché obligataire continue à se développer, l’émission de titres de sociétés est encore relativement limitée et devra s’accroître pour réduire le recours excessif au système bancaire. |
| Keywords: | risk, financial sector, capital markets, liberalisation, China, management, SMEs, libéralisation, secteur financier, marchés de capitaux, gestion des risques, Chine, PME, banques commerciales, mouvements de capitaux internationaux, prêts non productifs, actions non-négociables |
| JEL: | G00 H80 |
| Date: | 2010–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:747-en&r=ban |
| By: | Zagaglia, Paolo |
| Abstract: | I address the role of information heterogeneity in the Euro interbank market for unsecured term lending. I use high-frequency quotes of bid and ask prices to estimate probabilities of informed trading for contract maturities from one month to one year. The dataset spans from November 2000 to March 2008, and includes the relevant events that characterize the developments of the Euro area money market. I obtain four main results. First, I show that the loose supply of liquidity of the ECB has not dampened the distortions arising from asymmetric information in the unsecured money market. I also find that the probability of trading with a better informed bank is higher on days when open market operations take place, and at the end of the maintenance period. This effect has strengthened during the turmoil. The results indicate that information is segmented, in the sense that heterogenous knowledge among banks is maturity-specific. Finally, the paper presents some evidence suggesting that the risk of trading with a counterparty that enjoys an enhanced information set is priced. |
| Keywords: | Market microstructure; PIN model; money markets; term structure |
| JEL: | G14 E52 |
| Date: | 2010–02–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:20415&r=ban |
| By: | Pirovano M.; Vanneste J.; Van Poeck A. |
| Abstract: | In this paper we estimate a dynamic panel model (Arellano-Bond GMM) explaining the volume of portfolio and short-term capital inflows (predominantly bank loans) in the new and potential EU member States as a function of a set of variables representing macroeconomic fundamentals (both domestic and foreign), macroeconomic policies and development of the financial sector. We find that while inflows of short-term bank loans are significantly explained by macroeconomic factors, exchange rate regime and liquidity of the banking sector, portfolio inflows seem to be meaningfully influenced only by the level of foreign GDP. We suggest two explanations for the latter result. First, the inability of aggregate data to capture the risk and expected profitability dimensions that typically underlie portfolio decisions. Second, portfolio capital in the form of bonds might react to interest rates other than the domestic and the European ones. During the last decade, the volume of short-term capital in the form of bank loans to the New and potential member States increased (with some heterogeneity across countries). In light of the econometric results, their vulnerability to reversals could be mitigated by adequate macroeconomic policies and further improvement of their financial sector. |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:ant:wpaper:2009018&r=ban |
| By: | Kondo, Kazumine |
| Abstract: | This paper examines what types of Japanese regional banks are more likely to obtain credit ratings at the present time when disclosures by financial institutions are becoming more and more important. We found that banks in more competitive markets, those that have larger assets, and those whose bad ratio is lower are more likely to disclose credit ratings. It was also revealed that regional banks in the same region (prefecture) as other banks that go bankrupt often feel it necessary to actively demonstrate their own solidness in the market by obtaining foreign credit ratings. We also analyzed whether regional banks that disclose more credit ratings succeed in obtaining financing from depositors. Our results indicate that regional banks that obtain more credit ratings, in particular foreign ratings, succeed in increasing their bank balances. |
| Keywords: | disclosure; credit ratings; market disciplines; scale of economies; bank balances. |
| JEL: | G2 G20 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:20468&r=ban |
| By: | Andrea Gerali (Bank of Italy); Stefano Neri (Bank of Italy); Luca Sessa (Bank of Italy); Federico M. Signoretti (Bank of Italy) |
| Abstract: | This paper studies the role of credit-supply factors in business cycle fluctuations. For this purpose, we introduce an imperfectly competitive banking sector into a DSGE model with financial frictions. Banks issue collateralized loans to both households and firms, obtain funding via deposits and accumulate capital from retained earnings. Margins charged on loans depend on bank capital-to-assets ratios and on the degree of interest rate stickiness. Bank balance-sheet constraints establish a link between the business cycle, which affects bank profits and thus capital, and the supply and cost of loans. The model is estimated with Bayesian techniques using data for the euro area. The analysis delivers the following results. First, the existence of a banking sector partially attenuates the effects of demand shocks, while it helps propagate supply shocks. Second, shocks originating in the banking sector explain the largest share of the fall of output in 2008 in the euro area, while macroeconomic shocks played a limited role. Third, an unexpected destruction of bank capital has a substantial impact on the real economy and particularly on investment. |
| Keywords: | collateral constraints, banks, banking capital, sticky interest rates |
| JEL: | E30 E32 E43 E51 E52 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_740_10&r=ban |
| By: | Kris James Mitchener; David C. Wheelock |
| Abstract: | This paper examines the relationship between the structure of banking markets and economic growth using a new dataset on manufacturing industry-level growth rates and banking market concentration for U.S. states during 1899-1929—a period when the manufacturing sector was expanding rapidly and restrictive branching laws segmented the U.S. banking system geographically. Unlike studies of modern developing and developed countries, we find that banking market concentration had a positive impact on manufacturing sector growth in the early twentieth century, with little variation across industries with different degrees of dependence on external financing or access to capital. However, because regulations affecting bank entry varied considerably across U.S. states and the industrial organization of the U.S. banking system differs markedly from those of other countries, we also examine the impact of other aspects of banking market structure and policy on growth. We continue to find that banking market concentration boosted industrial growth. In addition, we find evidence that a greater prevalence of branch banking and more banks per capita increased the growth of industries that rely relatively heavily on external financing or have greater access to external funding sources, while deposit insurance depressed growth in the manufacturing sector. Regulations on bank entry and other banking market characteristics thus appear to exert an independent influence on manufacturing growth in geographically fragmented banking markets. |
| JEL: | E44 G21 G38 N11 N12 N21 N22 O16 O47 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15710&r=ban |
| By: | Lorenzo Cappiello (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Arjan Kadareja (Bank of Albania, Sheshi “Skënderbej”, No.1 Tirana, Albania.); Christoffer Kok Sørensen (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Marco Protopapa (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | Applying the identification strategy employed by Driscoll (2004) for the United States, this paper provides empirical evidence for the existence of a bank lending channel of monetary policy transmission in the euro area. In addition, and in contrast to recent findings for the US, we find that in the euro area changes in the supply of credit, both in terms of volumes and in terms of credit standards applied on loans to enterprises, have significant effects on real economic activity. This highlights the importance of the monitoring of credit developments in the toolkit of monetary policy and underpins the reasoning behind giving monetary and credit analysis a prominent role in the monetary policy strategy of the ECB. It also points to the potential negative repercussions on real economic growth of bank balance sheet impairments arising in the context of the financial crisis erupting in mid-2007 which led to the need for banks to delever their balance sheets and possibly to reduce their loan supply. JEL Classification: C23, E51, E52, G21. |
| Keywords: | bank credit, bank lending channel, euro area, panel data. |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101150&r=ban |