|
on Banking |
| By: | Michael D. Bordo; Angela Redish; Hugh Rockoff |
| Abstract: | The financial crisis of 2008 engulfed the banking system of the United States and many large European countries. Canada was a notable exception. In this paper we argue that the structure of financial systems is path dependent. The relative stability of the Canadian banks in the recent crisis compared to the United States in our view reflected the original institutional foundations laid in place in the early 19th century in the two countries. The Canadian concentrated banking system that had evolved by the end of the twentieth century had absorbed the key sources of systemic risk—the mortgage market and investment banking—and was tightly regulated by one overarching regulator. In contrast the relatively weak, fragmented, and crisis prone U.S. banking system that had evolved since the early nineteenth century, led to the rise of securities markets, investment banks and money market mutual funds (the shadow banking system) combined with multiple competing regulatory authorities. The consequence was that the systemic risk that led to the crisis of 2008 was not contained. |
| JEL: | N20 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17312&r=ban |
| By: | Berger, A.N.; Bouwman, C.H.S.; Kick, T.; Schaeck, K. (Tilburg University, Center for Economic Research) |
| Abstract: | During times of bank distress, authorities often engage in regulatory interventions and provide capital support to reduce bank risk taking. An unintended effect of such actions may be a reduction in bank liquidity creation, with possible adverse consequences for the economy as a whole. This paper tests hypotheses regarding the effects of regulatory interventions and capital support on bank risk taking and liquidity creation using a unique dataset over the period 1999-2009. We find that both types of actions are generally associated with statistically significant reductions in risk taking and liquidity creation in the short run and long run. While the effects of regulatory interventions are also economically significant, the effects of capital support are only economically significant in the long run. Thus, both types of actions have important intended and unintended consequences with implications for policymakers. |
| Keywords: | risk taking;liquidity creation;bank distress;regulatory interventions;capital support. |
| JEL: | G21 G28 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2011088&r=ban |
| By: | Patrick Slovik; Boris Cournède |
| Abstract: | The estimated medium-term impact of Basel III implementation on GDP growth is in the range of -0.05 to -0.15 percentage point per annum. Economic output is mainly affected by an increase in bank lending spreads as banks pass a rise in bank funding costs, due to higher capital requirements, to their customers. To meet the capital requirements effective in 2015 (4.5% for the common equity ratio, 6% for the Tier 1 capital ratio), banks are estimated to increase their lending spreads on average by about 15 basis points. The capital requirements effective as of 2019 (7% for the common equity ratio, 8.5% for the Tier 1 capital ratio) could increase bank lending spreads by about 50 basis points. The estimated effects on GDP growth assume no active response from monetary policy. To the extent that monetary policy will no longer be constrained by the zero lower bound, the Basel III impact on economic output could be offset by a reduction (or delayed increase) in monetary policy rates by about 30 to 80 basis points.<P>Impact macro-économique de Bâle III<BR>L'impact estimé à moyen terme de la mise en conformité avec les règles de Bâle III sur la croissance du PIB est de l'ordre de -0,05 à -0,15 point de pourcentage par an. L’effet sur l’activité économique provient principalement de ce que les banques augmentent leurs marges de crédit afin de compenser la hausse de leurs coûts de financement provoquée par le durcissement des exigences de capital. Pour répondre aux exigences de fonds propres en 2015 (4,5% pour le ratio d'actions ordinaires, 6% pour le ratio de fonds propres de base), les banques devraient augmenter leurs marges de crédit d'environ 15 points de base en moyenne. Les exigences de capital en vigueur à compter de 2019 (7% pour le ratio d'actions ordinaires, 8,5% pour le ratio de fonds propres de base) pourraient augmenter les marges de crédit d’environ 50 points de base. Les effets estimés sur la croissance du PIB n’incorporent aucune réponse de la politique monétaire. Pour autant que la politique monétaire ne se heurte plus au plancher zéro des taux nominaux, l'impact de Bâle III sur la production économique pourrait être compensé par une réduction (ou un retard avant l’augmentation) des taux de la politique monétaire d'environ 30 à 80 points de base. |
| Keywords: | monetary policy, bank, financial intermediaries, interest rates, Basel accord, Basel III, bank regulation, bank lending, bank capital requirements, politique monétaire, banque, taux d'intérêt, intermédiaires financiers, Accord de Bâle, Bâle III, Réglementation bancaire, Crédit bancaire, Réglementation des fonds propres bancaires |
| JEL: | E52 G21 G28 |
| Date: | 2011–02–14 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:844-en&r=ban |
| By: | Monfort, A.; Renne, J-P. |
| Abstract: | In this paper, we present a general discrete-time affine framework aimed at jointly modeling yield curves associated with different debtors. The underlying fixed-income securities may differ in terms of credit quality and/or in terms of liquidity. The risk factors follow conditionally Gaussian processes, with drifts and variance-covariance matrices that are subject to regime shifts described by a Markov chain with (historical) non-homogenous transition probabilities. While flexible, the model remains tractable. In particular, bond prices are given by quasi-explicit formulas. Various numerical examples are proposed, including a sector-contagion model and credit-rating modeling. |
| Keywords: | credit risk, liquidity risk, term structure, affine model, regime switching, Car process. |
| JEL: | E43 E44 E47 G12 G24 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:340&r=ban |
| By: | Ghosh, , Swati R.; Sugawara, Naotaka; Zalduendo, Juan |
| Abstract: | This paper examines the factors that determine banking flows from advanced economies to emerging markets. In addition to the usual determinants of capital flows in terms of global push and local pull factors, it examines the role of bilateral factors, such as growth differentials and economic size, as well as contagion factors and measures of the depth in financial interconnectedness between lenders and borrowers. The analysis finds profound differences across regions. In particular, in spite of the severe impact of the global financial crisis, banking flows in emerging Europe stand out as a more stable region than is the case in other developing regions. Assuming that the determinants of banking flows remain unchanged in the presence of structural changes, the authors use these results to explore the short-term implications of Basel III capital regulations on banking flows to emerging markets. |
| Keywords: | Debt Markets,Banks&Banking Reform,Emerging Markets,Access to Finance,Economic Theory&Research |
| Date: | 2011–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5769&r=ban |
| By: | Kumiharu Shigehara; Paul Atkinson |
| Abstract: | This paper reviews key policy messages and warnings about developments in the run-up to the global financial and economic crisis that began in mid-2007 which are contained in the main publications of the IMF, the OECD and the BIS and discuss issues relevant to strengthening their surveillance activities for making appropriate policy recommendations and issuing warnings in order to prevent such crisis in the future. The review finds that the institutions did not recognize the need for monetary tightening in a timely way for either the US or the UK, two epicentres of the global crisis. While some concerns were expressed at early stages regarding financial market policies and developments, generally when risks seemed abstract or remote, warnings were too few, received too little emphasis in key editorial sections likely to attract attention and were rarely followed up. Important issues, notably the weak capital base and lack of resilience of the banking systems in the two countries, were missed almost entirely. In the light of this review, suggestions for improving surveillance are offered, relating to (1) strengthening analytical frameworks; (2) improving the current institutional context in which surveillance takes place; (3) staff and management issues; and (4) dissemination and communication. In addition, the need to re-design international frameworks for surveillance to integrate more fully new “major players” in the global economy and financial systems is briefly discussed.<P>Surveillance internationale : Les leçons de la crise financière et économique mondiale<BR>La présente étude passe en revue les principaux messages et avertissements qui ont paru dans les grandes publications du FMI, de l'OCDE et de la BRI avant le déclenchement de la crise financière et économique mondiale au milieu de 2007, et examine les améliorations qui pourraient être apportées sur plusieurs plans aux activités de surveillance de ces trois institutions, afin que leurs recommandations et mises en garde puissent prévenir une nouvelle crise de ce type dans l'avenir. S'agissant de la politique monétaire, il apparaît que les institutions en question ne se sont pas rendu compte à temps de la nécessité d'un resserrement, aussi bien pour les États-Unis que pour le Royaume-Uni, les deux épicentres de la crise mondiale. Des préoccupations se sont fait jour assez tôt concernant la régulation et l'évolution des marchés financiers, en général lorsque les risques semblaient abstraits ou éloignés, mais les avertissements ont été rares, ils n'ont pas été suffisamment mis en relief dans les éditoriaux où ils auraient pu attirer l'attention, et ils n'ont guère été suivis d'effet. Plusieurs questions importantes, notamment la faiblesse de la base de capital et le manque de résilience des systèmes bancaires dans les deux pays considérés, ont été pratiquement ignorées. A la lumière de ce bilan, plusieurs améliorations sont proposées concernant 1) les cadres analytiques de la surveillance ; 2) le contexte institutionnel ; 3) les questions de personnel et d'organisation ; et 4) la diffusion et la communication des informations. En outre, la nécessité de revoir les mécanismes internationaux de surveillance afin d'y faire une plus large place aux nouveaux “acteurs majeurs” de l'économie mondiale et des systèmes financiers est brièvement évoquée. |
| Keywords: | financial markets, OECD, United Kingdom, house prices, United States, monetary policy, bubbles, financial regulation, financial innovation, IMF, financial crisis, securitisation, BIS, prudential policy, structured products, surveillance, marchés financiers, OCDE, Royaume-Uni, États-Unis, politique monétaire, bulle, innovation financière, prix immobiliers, FMI, crise financière, titrisation, régulation financière, BRI, politique prudentielle, produits structurés, surveillance |
| JEL: | E44 E58 E65 F33 F34 G1 G2 N20 |
| Date: | 2011–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:860-en&r=ban |
| By: | Ansgar Belke; Christian Dreger |
| Abstract: | The Greek government budget situation plays a central role in the debt crisis in the euro area. The debt to GDP ratio is above 150 percent, while the defi cit to GDP ratio exceeds 10 percent. To re-establish the Maastricht criteria, respectively, strong consolidation measures need to be implemented, with potential adverse eff ects on the Greek economy, and further credit requirements. Therefore, a debt conversion might become a reasonable alternative. The aim of this paper is to provide some simulation-based calculations on the expected fi scal costs for the governments in the large European countries Germany, France, Spain and Italy arising from diff erent policy options – among them a second Greek rescue package. Under realistic conditions, a debt conversion may be the less costly strategy for Greece and the euro area partner states. A value-added of these calculations lies in a potential transfer to smaller euro area member countries. |
| Keywords: | Euro area debt crisis; debt conversion; Greece |
| JEL: | F33 F34 H63 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0273&r=ban |
| By: | Oliver D. Hart; Luigi Zingales |
| Abstract: | We study an economy where the lack of a simultaneous double coincidence of wants creates the need for a relatively safe asset (money). We show that, even in the absence of asymmetric information or an agency problem, the private provision of liquidity is inefficient. The reason is that liquidity affects prices and the welfare of others, and creators do not internalize this. This distortion is present even if we introduce lending and government money. To eliminate the inefficiency the government must restrict the creation of liquidity by the private sector. |
| JEL: | E41 E51 G21 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17299&r=ban |
| By: | Antonin, Céline (Centre de recherche en économie de Sciences Po) |
| Abstract: | Fin 2009, la Grèce doit faire face à une crise de la dette, crise aggravée par la spéculation financière et l’absence de cohésion budgétaire en zone euro. Profitant de la croissance vigoureuse des années 2000 et de la faiblesse des taux d’intérêt pour accroître massivement les dépenses publiques, le pays a retardé les réformes structurelles qui auraient permis de préserver la soutenabilité du système. Mais deux ans après la crise des subprime, quand le pays est entré en récession, la question de la soutenabilité s’est posée avec acuité. La guérison risque d’être longue. Le programme de rigueur, conduit par le gouvernement depuis le début de l’année, semble avoir porté ses fruits : le déficit public atteindrait 10 % du PIB en 2010 (contre 13,5 % en 2009). Pourtant, la Grèce n’est pas encore sortie d’affaire : l’année 2010 devrait rimer avec hausse du chômage, baisse de la consommation et de l’investissement et réduction des dépenses publiques. La crise grecque a néanmoins une vertu : en mettant en lumière les carences de l’Union européenne en matière budgétaire, elle constitue un avertissement et appelle une révision profonde de la politique budgétaire en zone euro. |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:ner:sciepo:info:hdl:2441/5l6uh8ogmqildh09h6m2n614g&r=ban |
| By: | Kalemli-Ozcan, Sebnem; Kamil, Herman; Villegas-Sanchez, Carolina |
| Abstract: | We provide evidence on the real effects of credit supply shocks utilizing a new firm-level database from six Latin American countries between 1990 to 2005. Holding creditworthiness constant through foreign currency debt exposure, we compare investment undertaken by domestic exporters to that of foreign-owned exporters, where the latter's exposure to the liquidity shock is lower. We find that foreign-owned exporters increase investment by 15 percentage points relative to domestic exporters only when the currency crisis occurs simultaneously with a banking crisis. These findings suggest that the key factor hindering investment during financial crises is the decline in credit supply. |
| Keywords: | bank lending; exports; foreign ownership; growth; short-term dollar debt; twin crisis |
| JEL: | E32 F15 F36 O16 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8543&r=ban |
| By: | Ruiz-Porras, Antonio |
| Abstract: | We study the decisions that a monopolistic bank takes to achieve risk management and profit objectives. The bank faces liquidity and solvency risks because loans may not be repaid and because unexpected deposit withdrawals may occur. The Asset-Liability-Management (ALM) banking model shows that compromise solutions are necessary to deal with the tradeoffs between liquidity management and profitability. It also shows that asset management practices increase profits. Moreover it shows that liability management practices and market power support profitability. Finally, the model confirms that banks should undertake long-term risky investments when depositors trust the viability of the asset transformation process. |
| Keywords: | Banking; ALM; multiple uncertainty; monopolistic behavior |
| JEL: | D81 L21 G32 G21 |
| Date: | 2011–07–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32873&r=ban |
| By: | Kick, Thomas; Pfingsten, Andreas |
| Abstract: | Banking supervision requires regular inspection and assessment of financial institutions. In Germany this task is carried out by the central bank ('Deutsche Bundesbank, BBK') in cooperation with the Federal Financial Supervisory Authority ('Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin'). In accordance with the Basel II approach, quantitative and qualitative information is used. It is still an open question whether supervisors provide information, based on on-site inspections, which is not known from the numbers already, or simply duplicate the quantitative information, or even overrule it by their impressions gained through visits. In our analysis we use a unique dataset on financial institutions' risk profiles, i.e. the banking supervisors' risk assessment. Methodologically, we apply a partial proportional odds model to explain the supervisor's ordinal grading by a purely quantitative CAMEL covariate vector, which is standard in many bank rating models, and we also include the bank inspector's qualitative risk assessment into the model. We find that not only the quantitative CAMEL vector is clearly important for the final supervisory risk assessment; it is, indeed, also qualitative information on a bank's internal governance, ICAAP, interest rate risk, and other qualitative risk components that plays an equally important role. Moreover, we find evidence that supervisors have become more conservative in their final judgement at the beginning of the financial crisis, i.e. the supervisory assessment seems to be more forward-looking than the mere numbers. This result underpins the importance of bank-individual on-site risk assessments. -- |
| Keywords: | Bank rating,banking supervision,generalized ordered logit |
| JEL: | C35 G21 G32 L50 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp2:201109&r=ban |
| By: | Beck, T.H.L.; Brown, M. (Tilburg University, Center for Economic Research) |
| Abstract: | This paper uses survey data for 60,000 households from 29 transition economies in 2006 and 2010 to explore how the use of banking services is related to household characteristics, as well as to bank ownership, deposit insurance and creditor protection. At the household level we find that the holding of a bank account, a bank card, or a mortgage increases with income and education in most countries and find evidence for an urban-rural gap. The use of banking services is also related to the religion and social integration of a household as well as the gender of the household head. Using the within-country variation between 2006 and 2010, we find that the privatization of state-owned banks and an increase in market share of foreign banks are associated with a stronger use of banking services. Foreign bank ownership is also associated with a higher use of bank services among highincome households and households with formal employment. State ownership, by contrast is hardly associated with more outreach to poorer households. More generous deposit insurance and stronger creditor rights also foster the use of banking services among the urban, rich, better educated and formally employed. |
| Keywords: | Access to finance;Household finance;Bank-ownership;Deposit insurance;Creditor protection. |
| JEL: | G2 G18 O16 P34 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2011089&r=ban |
| By: | Calem, P.; Cannon, M.; Nakamura, L.I. (Tilburg University, Center for Economic Research) |
| Abstract: | We empirically study how the underlying riskiness of the pool of home equity line of credit originations is affected over the credit cycle. Drawing from the largest existing database of U.S. home equity lines of credit, we use county-level aggregates of these loans to estimate panel regressions on the characteristics of the borrowers and their loans, and competing risk hazard regressions on the outcomes of the loans. We show that when the expected unemployment risk of households increases, riskier households tend to borrow more. As a consequence, the pool of households that borrow on home equity lines of credit worsens along both observable and unobservable dimensions. This is an interesting example of a type of dynamic adverse selection that can worsen the risk characteristics of new lending, and suggests another avenue by which the precautionary demand for liquidity may affect borrowing. |
| Keywords: | Home equity loan;adverse selection;liquidity;consumption;housing finance. |
| JEL: | D14 D82 G21 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2011086&r=ban |
| By: | Gene Amromin; Jennifer Huang; Clemens Sialm; Edward Zhong |
| Abstract: | We investigate the characteristics and the default behavior of households who take out complex mortgages. Unlike traditional fixed rate or adjustable rate mortgages, complex mortgages are not fully amortizing and enable households to postpone loan repayment. We find that complex mortgages are used by sophisticated households with high income levels and prime credit scores, in contrast to the low income population targeted by subprime mortgages. Complex mortgage borrowers have significantly higher delinquency rates than traditional mortgage borrowers even after controlling for leverage, payment resets, and other household and loan characteristics. The difference in the delinquency rates between complex and traditional borrowers increases with measures of financial sophistication and leverage, suggesting that complex borrowers are more strategic in their default decisions than traditional borrowers. |
| JEL: | E60 G10 H31 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17315&r=ban |
| By: | Ana Fostel (Dept. of Economics, George Washington University); John Geanakoplos (Cowles Foundation, Yale University) |
| Abstract: | We show how the timing of financial innovation might have contributed to the mortgage bubble and then to the crash of 2007-2009. We show why tranching and leverage first raised asset prices and why CDS lowered them afterwards. This may seem puzzling, since it implies that creating a derivative tranche in the securitization whose payoffs are identical to the CDS will raise the underlying asset price while the CDS outside the securitization lowers it. The resolution of the puzzle is that the CDS lowers the value of the underlying asset since it is equivalent to tranching cash. |
| Keywords: | Financial innovation, Endogenous leverage, Collateral equilibrium, CDS, Tranching and asset prices |
| JEL: | D52 D53 E44 G10 G12 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1809r&r=ban |
| By: | Sarlin, Peter (BOFIT); Peltonen, Tuomas A. (BOFIT) |
| Abstract: | The paper uses the Self-Organizing Map for mapping the state of financial stability and visualizing the sources of systemic risks on a two-dimensional plane as well as for predicting systemic financial crises. The Self-Organizing Financial Stability Map (SOFSM) enables a two-dimensional representation of a multidimensional financial stability space and thus allows disentangling the individual sources impacting on systemic risks. The SOFSM can be used to monitor macro-financial vulnerabilities by locating a country in the financial stability cycle: being it either in the pre-crisis, crisis, post-crisis or tranquil state. In addition, the SOFSM performs better than or equally well as a logit model in classifying in-sample data and predicting out-of-sample the global financial crisis that started in 2007. Model robustness is tested by varying the thresholds of the models, the policymaker’s preferences, and the forecasting horizon. |
| Keywords: | systemic financial crisis; systemic risk; self-organizing maps; visualisation; prediction; macroprudential supervision |
| JEL: | E44 E58 F01 F37 |
| Date: | 2011–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2011_018&r=ban |
| By: | Helder Ferreira de Mendonça; Délio José Cordeiro Galvão; Renato Falci Villela Loures |
| Abstract: | This article examines the relationship between the level of regulation and transparency of financial institutions from 37 countries and the impacts of the subprime crisis on the stock market, through a regulation and transparency index. Furthermore, with the objective of detecting reasons for the success of some emerging economies in avoiding the crisis, empirical evidence for the presence of market discipline in the Brazilian banking industry is shown. The results are that a higher degree of regulation and transparency is related to higher returns and lower volatility in the stock market during the subprime crisis. Moreover, one of the main reasons for the apparent success of the Brazilian case in facing the crisis is the combination of a strong regulation of the financial system and the presence of market discipline. |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:248&r=ban |
| By: | Carol Bertaut; Laurie Pounder DeMarco; Steve Kamin; Ralph Tryon |
| Abstract: | The "global saving glut" (GSG) hypothesis argues that the surge in capital inflows from emerging market economies to the United States led to significant declines in long-term interest rates in the United States and other industrial economies. In turn, these lower interest rates, when combined with both innovations and deficiencies of the U.S. credit market, are believed to have contributed to the U.S. housing bubble and to the buildup in financial vulnerabilities that led to the financial crisis. Because the GSG countries for the most part restricted their U.S. purchases to Treasuries and Agency debt, their provision of savings to ultimately risky subprime mortgage borrowers was necessarily indirect, pushing down yields on safe assets and increasing the appetite for alternative investments on the part of other investors. We present a more complete picture of how capital flows contributed to the crisis, drawing attention to the sizable inflows from European investors into U.S. private-label asset-backed securities (ABS), including mortgage-backed securities and other structured investment products. By adding to domestic demand for private-label ABS, substantial foreign acquisitions of these securities contributed to the decline in their spreads over Treasury yields. Through a combination of empirical estimation and model simulation, we verify that both GSG inflows into Treasuries and Agencies, as well as European acquisitions of ABS, played a role in contributing to downward pressures on U.S. interest rates. |
| Keywords: | Capital movements ; Financial crises ; Asset-backed financing ; Interest rates |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1028&r=ban |
| By: | Michel Alexandre da Silva |
| Abstract: | The aim of this paper is to analyze the impact of the Brazilian Cooperative Credit System (CCS) in the macroeconomic efficiency of the National Financial System (NFS), meant here as the capacity in supplying cheap financial services in a uniform way. Two aspects were evaluated: the participation of the CCS in the credit supply and the capillarity of the CCS. The paper concludes that the CCS contributes to the NFS efficiency in some aspects (e.g., greater share in poor-targeted credit), but not in others (e.g., greater absence in less developed regions). |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:246&r=ban |
| By: | Nikolov, Kalin |
| Abstract: | In this paper, we build a framework which can generate endogenous fluctuations in downpayment requirements. We extend the model of Kiyotaki and Moore (1997) by considering an environment, in which savers can keep their anonymity but borrowers cannot. This allows lenders to punish defaulting borrowers by excluding them from future borrowing. They cannot however stop them from saving in the anonymous financial market. We show how the possibility of such market exclusion can lead to the emergence of intangible collateral in equilibrium alongside the tangible collateral which is usually studied in the literature. Fluctuations in the value of intangible collateral are isomorphic to fluctuations in the amount of borrowing firms can secure against the value of their tangible assets. We find that, when we combine the intangible collateral mechanism in our paper with counter-cyclical variance of idiosyncratic productivity shocks, this helps to generate realistic negative co-movement of downpayment requirements and aggregate output over the business cycle. In this case, the presence of intangible collateral increases the amplification of business cycle fluctuations relative to the standard Kiyotaki-Moore (1997) model. |
| Keywords: | Collateral constraints; Aggregate fluctuations |
| JEL: | E32 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32939&r=ban |
| By: | Adam Copeland; Antoine Martin; Michael Walker |
| Abstract: | This paper provides a quantitative account of the tri-party repo market during the recent financial crisis. Using data from July 2008 to January 2010, we show that the level of haircuts and the amount of funding were surprisingly stable in this market. The stability of the haircuts contrasts with evidence from the bilateral repo market, where, as shown by Gorton and Metrick (2011), haircuts increased sharply. During the crisis, adjustments in the volume of funding to dealers were not gradual; instead, the amount of funding in the tri-party repo market can decrease precipitously. Our findings suggest that runs in the tri-party repo market resemble traditional bank runs. |
| Keywords: | Repurchase agreements ; Liquidity (Economics) ; Financial crises |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:506&r=ban |
| By: | Katsushi Imai; Raghav Gaiha; Ganesh Thapa; Samuel Kobina AnnimAditi Gupta; Aditi Gupta |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:man:sespap:1116&r=ban |