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on Banking |
| By: | Kobayashi, Keiichiro |
| Abstract: | To analyze the macroeconomic consequences of a systemic bank run, we integrate the banking model `a la Diamond and Rajan (2001a) into a simplified version of an infinite-horizon neoclassical growth model. The banking sector intermediates the collateral-secured loans from households to entrepreneurs. The entrepreneurs also deposit their working capital in the banks. The systemic bank run, which is a sunspot phenomenon in this model, results in a deep recession through causing a sudden shortage of the working capital. We show that an increase in the probability of occurrence of the systemic run can persistently lower output, consumption, labor, capital and the asset price, even if the systemic run does not actually occur. This result implies that the slowdown of economic growth after the financial crises may be caused by the increased fragility of the banking system or the raised fears of recurrence of the systemic runs. |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:hit:piecis:515&r=ban |
| By: | Amanda Carmignani (Bank of Italy); Alessio D'Ignazio (Bank of Italy) |
| Abstract: | We exploit Italian Central Credit Register data to investigate the effectiveness of subsidized credit programs for public financing to firms via the banking system. The effect of public incentives depends on the availability of financial resources for the beneficiary firms. Financially constrained firms are likely to use the subsidies to expand output, while less constrained firms will, at least partly, use the funds to replace more costly resources. Focusing on the relationship between bank credit and subsidized loans, we find that larger firms substitute public financing for bank lending, while there is not such evidence for smaller firms. The estimated degree of substitution is substantial, ranging from an estimated 70 per cent to 84 per cent. |
| Keywords: | financial subsidies, credit constraints, banking |
| JEL: | G2 H2 O16 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_803_11&r=ban |
| By: | Rüdiger Fahlenbrach; Robert Prilmeier; René M. Stulz |
| Abstract: | We investigate whether a bank’s performance during the 1998 crisis, which was viewed at the time as the most dramatic crisis since the Great Depression, predicts its performance during the recent financial crisis. One hypothesis is that a bank that has an especially poor experience in a crisis learns and adapts, so that it performs better in the next crisis. Another hypothesis is that a bank’s poor experience in a crisis is tied to aspects of its business model that are persistent, so that its past performance during one crisis forecasts poor performance during another crisis. We show that banks that performed worse during the 1998 crisis did so as well during the recent financial crisis. This effect is economically important. In particular, it is economically as important as the leverage of banks before the start of the crisis. The result cannot be attributed to banks having the same chief executive in both crises. Banks that relied more on short-term funding, had more leverage, and grew more are more likely to be banks that performed poorly in both crises. |
| JEL: | G21 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17038&r=ban |
| By: | Helke Waelde (Department of Economics, Johannes Gutenberg-Universitaet Mainz, Germany) |
| Abstract: | Using only two risk types in the Stiglitz-Weiss model it turns out that the return function for banks has to be double hump-shaped. We derive the demand for loans and the supply of loans and find that loans are provided at two interest rates in equilibrium. The safe borrowers are rationed at the lower interest rate, whereas the risky borrowers are not rationed at all. Compared to the existing literature this suggests that the more heterogenous the risk types are, the less credit is rationed. However, credit-rationing persists in equilibrium as long as we consider a discrete number of types. |
| JEL: | E43 E52 E58 D44 |
| Date: | 2011–05–04 |
| URL: | http://d.repec.org/n?u=RePEc:jgu:wpaper:1108&r=ban |
| By: | Isabelle Agier; Ariane Szafarz |
| Abstract: | This paper estimates the impact of loan officers' subjectivity on microcredit granting by exploiting an exceptionally detailed database from a Brazilian microfinance institution. Loan officers collect field data, meet with applicants, and make recommendations to the credit committee that in turn has the final say on both loan approval and loan size. The loan officers' subjectivity is captured through the lens of disparate treatment based on gender. Indeed, our estimations show that an unfair gender gap is observed in loan size, and that this gap is almost exclusively attributable to the loan officers. We interpret this finding as evidence that, despite monitoring and wage incentivization, microcredit officers keep letting their subjective preferences interfere with loan granting. We conclude by suggesting alternative means to curb subjectivity in credit allocation to micro-entrepreneurs. |
| Keywords: | Subjectivity Loan Size; Microcredit; Gender; Loan Officer; Entrepreneurs |
| JEL: | O16 D82 J33 L31 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:2013/86108&r=ban |
| By: | Blix Grimaldi, Marianna (Monetary Policy Department, Central Bank of Sweden) |
| Abstract: | While knowing there is a financial distress 'when you see it' might be true, it is not particularly helpful. Indeed, central banks have an interest in understanding more systematically how their communication affects the markets, not least in order to avoid unnecessary volatility; the markets for their part have an interest in better deciphering the message of central banks, especially of course with regard to the conduct of future monetary policy. In this paper we use a novel approach rooted in textual analysis to begin to address these issues. Building on previous work from textual analysis, we are able to use quantitative methods to help identify and measure financial stress. We apply the techniques to the European Central Banks Monthly Bulletin and show that the results give a much more complete and nuanced picture of market distress than those based only on market data and may help improve how the Central Banks communication is designed and understood. |
| Keywords: | Financial stress; central bank communication; textual analysis; logit distribution |
| JEL: | E50 E58 G10 |
| Date: | 2011–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0252&r=ban |
| By: | Ana Fostel (Dept. of Economics George Washington University); John Geanakoplos (Cowles Foundation, Yale University) |
| Abstract: | We study endogenous leverage in a general equilibrium model with incomplete markets. We prove that in any binary tree leverage emerges in equilibrium at the maximum level such that VaR = 0, so there is no default in equilibrium, provided that agents get no utility from holding the collateral. When the collateral does affect utility (as with housing) or when agents have sufficiently heterogenous beliefs over three or more states, VaR = 0 fails to hold in equilibrium. We study commonly used examples: an economy in which investors have heterogenous beliefs and a CAPM economy consisting of investors with different risk aversion. We find two main departures from VaR = 0. First, both examples show that with enough heterogeneity among the investors, equilibrium default is normal. Second, we find that more than one contract is actively traded in equilibrium on the same collateral, that is, the same asset is bought at different margin requirements by different agents. Finally, we study the relationship between leverage and asset prices. We provide an example that shows that as the regulatory authority gradually relaxes leverage restrictions from low levels and permits leverage to rise, asset prices start to rise, but eventually increased leverage paradoxically tends to reduce asset prices because the risky bonds become substitutes for the asset used as collateral. |
| Keywords: | Endogenous leverage, Collateral equilibrium, VaR, Asset prices |
| JEL: | D52 D53 E44 G11 G12 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1800&r=ban |