|
on Banking |
| By: | Acharya, Viral V.; Skeie, David |
| Abstract: | Financial crises are associated with reduced volumes and extreme levels of rates for term inter-bank transactions, such as in one-month and three-month LIBOR markets. We provide an explanation of such stress in term lending by modelling leveraged banks’ precautionary demand for liquidity. When adverse asset shocks materialize, a bank’s ability to roll over debt is impaired because of agency problems associated with high leverage. In turn, a bank’s propensity to hoard liquidity is increasing, or conversely its willingness to provide term lending is decreasing, in its rollover risk over the term of the loan. High levels of short-term leverage and illiquidity of assets can thus lead to low volumes and high rates for term borrowing, even for banks with profitable lending opportunities. In extremis, there can be a complete freeze in inter-bank markets. |
| Keywords: | bank liquidity; bank loans; debt; financial leverage; interbank market; risk management |
| JEL: | E43 G01 G21 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8705&r=ban |
| By: | Beck, T.H.L.; Todorov, R.I.; Wagner, W.B. (Tilburg University, Center for Economic Research) |
| Abstract: | This paper analyzes the distortions that banks’ cross-border activities, such as foreign assets, deposits and equity, can introduce in the regulatory process. We find that while each individual dimension of cross-border activities distorts the incentives of a domestic regulator, a balanced amount of cross-border activities does not necessarily cause inefficiencies, as the various distortions can offset each other. In the case of imbalanced cross-border activities, a supranational regulator can improve outcomes, if her realm matches the geographic activity of banks, her capacity of extracting information is not lower than that of national supervisors, and the available resolution techniques do not cause higher external costs than under national resolution. Results from a numerical simulation exercise and empirical analysis using bank-level data from the recent crisis provide support to our theoretical findings. Specifically, banks with a higher share of foreign deposits and assets and a lower foreign equity share were intervened at a more fragile state, reflecting the distorted incentives of national regulators. |
| Keywords: | Bank regulation;bank resolution;cross-border banking. |
| JEL: | G21 G28 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2011127&r=ban |
| By: | De Jonghe, O.G.; Disli, M.; Schoors, K. (Tilburg University, Center for Economic Research) |
| Abstract: | Does better corporate governance unambiguously improve the risk/return efficiency of banks? Or does either a re-orientation of banks' revenue mix towards more opaque products, an economic downturn, or tighter supervision create off-setting or reinforcing effects? The authors relate bank efficiency to shortfalls from a stochastic risk/return frontier. They analyze how internal governance mechanisms (CEO duality, board experience, political connections, and education profile) and external governance mechanisms (discipline exerted by shareholders, depositors, or skilled employees) determine efficiency in a sample of Turkish banks. The 2000 financial crisis was a wakeup call for bank efficiency and corporate governance. As a result, better corporate governance mechanisms have been able to improve risk/return efficiency when the economic, regulatory, and supervisory environments are more stable and bank products are more complex. |
| Keywords: | corporate governance;bank risk;noninterest income;crisis;frontier. |
| JEL: | G01 G21 G28 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2011129&r=ban |
| By: | Can Bertay, A.; Demirgüc-Kunt, A.; Huizinga, H.P. (Tilburg University, Center for Economic Research) |
| Abstract: | A bank’s interest expenses are found to increase with its degree of internationalization as proxied by its share of foreign liabilities in total liabilities or a Herfindahl index of international liability concentration, especially if the bank is performing badly. Our benchmark estimation suggests that an international bank’s cost of funds raised through a foreign subsidiary is between 1.5% and 2.4% higher than the cost of funds for a purely domestic bank, which is a sizeable difference given an overall mean cost of funds of 3.3%. These results are consistent with limited incentives for national authorities to bail out an international bank, but also with an international bank recovery and resolution process that is inefficient. In any event, the operation of the financial safety net appears to be a barrier to cross-border banking. |
| Keywords: | Bank bailouts;International burden sharing;Cross-border banking. |
| JEL: | F36 G21 G28 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2011132&r=ban |
| By: | Giovanni Majnoni; Andrew Powell |
| Abstract: | The recent global financial crisis has put the spotlight on macro-prudential policies to protect firms and households from problems emanating from the financial sector. This paper proposes an analytical framework that combines exogenous and endogenous risks, the latter seen as stemming from frictions in financial markets. Arguing that endogenous risks may be systemic and costly, the paper employs a database of emerging market corporate bond spreads and finds evidence that endogenous risks are present and have amplified the effects of financial crises. Larger financial systems are found to exacerbate the impact of crises, and weaker financial systems are found to exacerbate particularly the impact of banking crises. The results suggest that policymakers should monitor time-varying systemic risks using both price and quantity signals and take actions in good times to mitigate potential amplifying effects at times of stress. |
| JEL: | E32 E44 E58 F30 G30 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:idb:wpaper:4726&r=ban |
| By: | Luis Ignacio Jácome; Tahsin Saadi Sedik; Simon Townsend |
| Abstract: | This paper investigates whether developing and emerging market countries can implement monetary policies similar to those used by advanced countries during the recent global crisis - injecting significant amounts of money into the financial system without facing major short-run adverse macroeconomic repercussions. Using panel data techniques, the paper analyzes episodes of financial turmoil in 16 Latin America during 1995-2007. The results show that developing and emerging market countries should be cautious because injecting money on a large scale into the financial system may fuel further macroeconomic instability, increasing the chances of simultaneous currency crises. |
| Keywords: | Banking sector , Cross country analysis , Developing countries , Emerging markets , Financial crisis , Financial systems , Latin America , Monetary policy , |
| Date: | 2011–11–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/258&r=ban |
| By: | Òscar Jordà; Moritz Schularick; Alan M. Taylor |
| Abstract: | This paper studies the role of leverage in the business cycle. Based on a study of nearly 200 recession episodes in 14 advanced countries between 1870 and 2008, we document a new stylized fact of the modern business cycle: more credit-intensive booms tend to be followed by deeper recessions and slower recoveries. We find a close relationship between the rate of credit growth relative to GDP in the expansion phase and the severity of the subsequent recession. We use local projection methods to study how leverage impacts the behavior of key macroeconomic variables such as investment, lending, interest rates, and inflation. The effects of leverage are particularly pronounced in recessions that coincide with financial crises, but are also distinctly present in normal cycles. The stylized facts we uncover lend support to the idea that financial factors play an important role in the modern business cycle. |
| Keywords: | Business cycles ; Financial crises |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2011-27&r=ban |
| By: | I. Garcia; J. Jimenez |
| Abstract: | We present a computational method for measuring financial risk by estimating the Value at Risk and Expected Shortfall from financial series. We have made two assumptions: First, that the predictive distributions of the values of an asset are conditioned by information on the way in which the variable evolves from similar conditions, and secondly, that the underlying random processes can be described using piecewise Gaussian processes. The performance of the method was evaluated by using it to estimate VaR and ES for a daily data series taken from the S&P500 index and applying a backtesting procedure recommended by the Basel Committee on Banking Supervision. The results indicated a satisfactory performance. |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1112.2889&r=ban |
| By: | Liliana Schumacher; Theodore M. Barnhill |
| Abstract: | This paper proposes and demonstrates a methodology for modeling correlated systemic solvency and liquidity risks for a banking system. Using a forward looking simulation of many risk factors applied to detailed balance sheets for a 10 bank stylized United States banking system, we analyze correlated market and credit risk and estimate the probability that multiple banks will fail or experience liquidity runs simultaneously. Significant systemic risk factors are shown to include financial and economic environment regime shifts to stressful conditions, poor initial loan credit quality, loan portfolio sector and regional concentrations, bank creditors’ sensitivity to and uncertainties regarding solvency risk, and inadequate capital. Systemic banking system solvency risk is driven by the correlated defaults of many borrowers, other market risks, and inter-bank defaults. Liquidity runs are modeled as a response to elevated solvency risk and uncertainties and are shown to increase correlated bank failures. Potential bank funding outflows and contractions in lending with significant real economic impacts are estimated. Increases in equity capital levels needed to reduce bank solvency and liquidity risk levels to a target confidence level are also estimated to range from 3 percent to 20 percent of assets. For a future environment that replicates the 1987-2006 volatilities and correlations, we find only a small risk of U.S. bank failures focused on thinly capitalized and regionally concentrated smaller banks. For the 2007-2010 financial environment calibration we find substantially elevated solvency and liquidity risks for all banks and the banking system. |
| Keywords: | Banking systems , Credit risk , Economic models , External shocks , Liquidity , United States , |
| Date: | 2011–11–14 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/263&r=ban |
| By: | Ralph de Haas; Iman van Lelyveld |
| Abstract: | We use data on the 48 largest multinational banking groups to compare the lending of their 199 foreign subsidiaries during the Great Recession with lending by a benchmark group of 202 domestic banks. Contrary to earlier, more contained crises, parent banks were not a significant source of strength to their subsidiaries during the 2008-09 crisis. As a result, multinational bank subsidiaries had to slow down credit growth about twice as fast as domestic banks. This was in particular the case for subsidiaries of banking groups that relied more on wholesale market funding. Domestic banks were better equipped to continue lending because of their greater use of deposits, a relatively stable funding source during the crisis.We conclude that while multinational banks may contribute to financial stability during local crisis episodes, they also increase the risk of ‘importing’ instability from abroad. |
| Keywords: | Multinational banks; financial stability; crisis transmission; funding structure |
| JEL: | F15 F23 F36 G21 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:322&r=ban |
| By: | Ian Christensen; Césaire Meh; Kevin Moran |
| Abstract: | This paper assesses the merits of countercyclical bank balance sheet regulation for the stabilization of financial and economic cycles and examines its interaction with monetary policy. The framework used is a dynamic stochastic general equilibrium model with banks and bank capital, in which bank capital solves an asymmetric information problem between banks and their creditors. In this economy, the lending decisions of individual banks affect the riskiness of the whole banking sector, though banks do not internalize this impact. Regulation, in the form of a constraint on bank leverage, can mitigate the impact of this externality by inducing banks to alter the intensity of their monitoring efforts. We find that countercyclical bank leverage regulation can have desirable stabilization properties, particularly when financial shocks are an important source of economic fluctuations. However, the appropriate contribution of countercyclical capital requirements to stabilization after a technology shock depends on the size of the externality and on the conduct of the monetary authority. |
| Keywords: | Moral hazard, bank capital, countercyclical capital requirements, leverage, monetary policy |
| JEL: | E44 E52 G21 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:lacicr:1140&r=ban |
| By: | Carbo Valverde, S.; Degryse, H.A.; Rodriguez-Fernandez, F. (Tilburg University, Center for Economic Research) |
| Abstract: | Do lending relationships mitigate credit rationing? Does securitization influence the impact of lending relationships on credit rationing? If so, is its impact differently in normal periods versus crisis periods? This paper combines several unique data sets to address these questions. Employing a disequilibrium model to identify credit rationing, we find that more intense lending relationships, measured through their length and lower number, considerable improve credit supply and reduce the degree of credit rationing. In general, we find that a relationship with a bank that is more involved in securitization activities relaxes credit constraints in normal periods; however, it also increases credit rationing during crisis periods. Finally, we study the impact of different types of securitization – covered bonds and mortgage-backed securities (MBS) – on credit rationing. While both types of securitization reduce credit rationing in normal periods, the issuance of MBS by a firm’s main bank aggravates these firm’s credit rationing in crisis periods. |
| Keywords: | lending relationships;financial crisis;securitization. |
| JEL: | G21 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2011128&r=ban |
| By: | Deniz Igan; Marcelo Pinheiro |
| Abstract: | We examine the risks to bank soundness associated with credit booms in a large set of countries. Using bank-level data in 90 countries between 1995 and 2005, we analyze the relationship between credit growth and bank soundness taking into account the potential two-way causality. We find that, while sounder banks tend to grow faster at moderate-growth periods, credit growth becomes less dependent on soundness during booms. These findings shed some light on why credit booms are often associated with financial crises. |
| Keywords: | Bank soundness , Banks , Credit expansion , Cross country analysis , Economic models , Private sector , |
| Date: | 2011–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/278&r=ban |
| By: | Patrick Slovik |
| Abstract: | Bank regulation might have contributed to or even reinforced adverse systemic shocks that materialised during the financial crisis. Capital regulation based on risk-weighted assets encourages innovation designed to circumvent regulatory requirements and shifts banks’ focus away from their core economic functions. Tighter capital requirements based on risk-weighted assets may further contribute to these skewed incentives. The estimated macroeconomic costs of redirecting banks’ attention away from such unconventional business practices are low. During a medium-term adjustment period, for each percentage point of bank equity, regulation that is not based on risk-weighted assets would affect annual GDP growth by -0.02 percentage point more than under the risk-weighted assets framework. Refocusing banks’ attention toward their main economic functions is a core requirement for durable financial stability and sustainable economic growth.<P>Banques d'importance systémique: défis pour la réglementation du capital<BR>La réglementation bancaire pourrait avoir contribué, voire renforcé, des chocs systémiques qui se sont matérialisés lors de la crise financière. La réglementation des fonds propres fondée sur des actifs pondérés par les risques encourage l'innovation conçue pour contourner les exigences réglementaires et éloigne les préoccupations des banques de leurs principales fonctions économiques. Le resserrement des exigences en capital fondées sur les actifs pondérés du risque peut exacerber ce biais d’incitation. Des estimations suggèrent que rediriger l’activité des banques hors de telles pratiques commerciales nonconventionnelles ne serait guère coûteux. Pendant une période d'ajustement de moyen terme, pour chaque point de pourcentage du ratio de capitaux propres bancaires, une réglementation qui ne s’appuie pas sur les actifs pondérés du risque réduirait la croissance annuelle du PIB de seulement 0,02 point de pourcentage de plus qu’une réglementation fondée sur les actifs pondérés par les risques. Un recentrage de l’attention des banques vers leurs principales fonctions économiques est une exigence fondamentale pour garantir la stabilité financière et une croissance économique durables. |
| Keywords: | financial regulation, financial stability, Basel accord, Basel III, capital requirements, systemically important financial institutions, Too-big-to-fail, Bank Leverage, réglementation financière, crise financière, stabilité financière, Accord de Bâle, Bâle III, institutions financières d'importance systémique, levier bancaire |
| JEL: | G01 G21 G28 |
| Date: | 2011–12–12 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:916-en&r=ban |
| By: | Sugawara, Naotaka; Zalduendo, Juan |
| Abstract: | The purpose of this paper is to stress test the resilience of Croatian households with debt to economic shocks. The shocks not only impact a household's welfare, but also increase the probability of loan default. As a result, there is a direct link between these stress-testing exercises and financial stability risks. The authors find that very few households are at risk as a result of the shocks experienced over the past few years; new vulnerable households represent about 2 percent of all households, 6 percent of households with debt, and 2-3 percent of aggregate banking system assets. This suggests that household over-indebtedness in Croatia is unlikely to become a drag on aggregate economic activity and that financial stability risks remain manageable. One caveat should be noted. Some 27-31 percent of households with debt, representing 8-9 of banking system assets, are vulnerable even before being subjected to an economic shock. Since NPLs were low before the global financial crisis, it can be argued that banks knew something about some of these households that is not captured by household budget surveys. It follows that the calculations in this paper should primarily focus on the increased vulnerability of households as a result of shocks and are likely to represent an upper bound to the financial stability risks faced by Croatia on account of household indebtedness. |
| Keywords: | Debt Markets,Bankruptcy and Resolution of Financial Distress,Emerging Markets,Banks&Banking Reform,Currencies and Exchange Rates |
| Date: | 2011–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5906&r=ban |
| By: | Adam Gersl; Jakub Seidler |
| Abstract: | Excessive credit growth is often considered to be an indicator of future problems in the financial sector. This paper examines the issue of how to determine whether the observed level of private sector credit is excessive in the context of the “countercyclical capital bufferâ€, a macroprudential tool proposed in the new regulatory framework of Basel III by the Basel Committee on Banking Supervision. An empirical analysis of selected Central and Eastern European countries, including the Czech Republic, provides alternative estimates of excessive private credit and shows that the HP filter calculation proposed by the Basel Committee is not necessarily a suitable indicator of excessive credit growth for converging countries. |
| Keywords: | Basel regulation, credit growth, financial crisis countercyclical buffer. |
| JEL: | G01 G18 G21 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:rpnrpn:2011/02&r=ban |
| By: | Degryse, H.A.; Ioannidou, V.; Schedvin, E.L. von (Tilburg University, Center for Economic Research) |
| Abstract: | Credit contracts are non-exclusive. A string of theoretical papers shows that nonexclusivity generates important negative contractual externalities. Employing a unique dataset, we identify how the contractual externality stemming from the non-exclusivity of credit contracts affects credit supply. In particular, using internal information on a creditor’s willingness to lend, we find that a creditor reduces its loan supply when a borrower initiates a loan at another creditor. Consistent with the theoretical literature on contractual externalities, the effect is more pronounced the larger the loans from the other creditor. We also find that the initial creditor’s willingness to lend does not change if its existing and future loans retain seniority over the other creditors’ loans and are secured with assets whose value is high and stable over time. |
| Keywords: | non-exclusivity;contractual externalities;credit supply;debt seniority. |
| JEL: | G21 G34 L13 L14 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2011130&r=ban |
| By: | John Krainer; Elizabeth Laderman |
| Abstract: | We study the interaction of borrower mortgage prepayment and mortgage delinquency during the period between 2001 and 2010. We show that when house prices flattened and began their subsequent decline, borrowers had increasingly slow prepayments and that this decline in prepayment rates roughly coincided with the sharp increase in their delinquency rates. Low credit score borrowers, in particular, display a pronounced negative correlation between default rates and prepayment rates. Shortfalls of actual prepayment rates from predicted rates based on an estimated prepayment model suggest that, in addition to the effects of declining house prices, tighter lending standards also may have played a role in weak prepayment activity. |
| Keywords: | Mortgage loans ; Mortgages |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2011-25&r=ban |
| By: | Ozsoz, Emre |
| Abstract: | By using data from thirteen publicly traded commercial and deposit banks this paper estimates the determinants of market risk for bank equities in the case of an emerging market setting, Turkey. The analysis reveals that maturity composition of a bank’s loans, the share of trading income in a banks’ overall revenue stream and foreign-ownership structure are important indicators of the volatility of its equity returns. Banks with shorter loan maturity positions are regarded by investors as safer companies to invest in while increases in trading income as a source of bank’s overall revenue increases the volatility of its equity returns. Foreign ownership of a bank also lowers its equity return risk. |
| Keywords: | Commercial banks; risk; Turkish Banks |
| JEL: | G28 G10 G21 |
| Date: | 2011–10–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35291&r=ban |
| By: | Rumyantsev, Mikhail I. |
| Abstract: | The paper reviews the concepts of system dynamics and its applications to the simulation modeling of financial institutions daily activity. While widely applicable, the approach is of a particular interest in transitional and developing economies. The hybrid method of banking business processes re-engineering based on a combination of system dynamics, queuing theory and ordinary differential equations (Kolmogorov equations) is introduced. By the way of method illustration, we consider the promotion of a set of banking products among some categories of clients. |
| Keywords: | banking; simulation; system dynamics; Kolmogorov equations |
| JEL: | C51 C15 G21 |
| Date: | 2011–11–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35265&r=ban |
| By: | James Felkerson |
| Abstract: | There have been a number of estimates of the total amount of funding provided by the Federal Reserve to bail out the financial system. For example, Bloomberg recently claimed that the cumulative commitment by the Fed (this includes asset purchases plus lending) was $7.77 trillion. As part of the Ford Foundation project "A Research and Policy Dialogue Project on Improving Governance of the Government Safety Net in Financial Crisis," Nicola Matthews and James Felkerson have undertaken an examination of the data on the Fed's bailout of the financial system—the most comprehensive investigation of the raw data to date. This working paper is the first in a series that will report the results of this investigation. The extraordinary scope and magnitude of the recent financial crisis of 2007-09 required an extraordinary response by the Fed in the fulfillment of its lender-of-last-resort function. The purpose of this paper is to provide a descriptive account of the Fed's response to the recent financial crisis. It begins with a brief summary of the methodology, then outlines the unconventional facilities and programs aimed at stabilizing the existing financial structure. The paper concludes with a summary of the scope and magnitude of the Fed's crisis response. The bottom line: a Federal Reserve bailout commitment in excess of $29 trillion. |
| Keywords: | Global Financial Crisis; Fed Bailout; Lender of Last Resort; Term Auction Facility; Central Bank Liquidity Swaps; Single Tranche Open Market Operation; Term Securities Lending Facility and Term Options Program; Maiden Lane; Primary Dealer Credit Facility; Asset-backed Commercial Paper Money Market Mutual Fund Liquidity Facility; Commercial Paper Funding Facility; Term Asset-backed Securities Loan Facility; Agency Mortgage-backed Security Purchase Program; AIG Revolving Credit Facility; AIG Securities Borrowing Facility |
| JEL: | E58 E65 G01 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_698&r=ban |
| By: | Mario Catalán; Adolfo Barajas |
| Abstract: | We study the behavior of private pension funds as large depositors in a banking system. Using panel data analysis, we examine whether, and if so how, pension funds influence market discipline in Argentina in the period 1998-2001. We find evidence that pension funds exert market discipline and this discipline gets stronger as the share of pension fund deposits in a bank rises. However, conflicts of interest undermine the disciplining role of pension funds. Specifically, pension funds allocate deposits to banks with weak fundamentals that own pension fund management companies. We conclude that forbidding banks’ ownership of companies involved in pension fund management can enhance market discipline. |
| Date: | 2011–12–02 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/282&r=ban |
| By: | Ashvin Ahuja; Malhar Nabar |
| Abstract: | We assess the effectiveness of macroprudential policies against a number of different indicators of property sector activity and financial stability. At the cross-country level the use of LTV caps decelerates property price growth. Both LTV and DTI caps slow property lending growth. LTV caps also affect a broader range of financial stability indicators in economies with pegged exchange rates and currency boards. For Hong Kong SAR, LTV policy tends to be forward looking, with caps lowered to counter downward movements in mortgage rates, and higher growth in mortgage loan and volumes of transactions. The reduction in caps appears to respond to small and medium size flat price appreciation, and contributes to a decline in high-end volume growth after a year and total transactions volume growth after 1½–2 years. Price growth responds favorably after 2 years. The evidence suggests LTV tightening could affect property activity through the expectations channel rather than through the credit channel. |
| Date: | 2011–12–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/284&r=ban |
| By: | Anatoli Segura (CEMFI, Centro de Estudios Monetarios y Financieros); Javier Suarez (CEMFI, Centro de Estudios Monetarios y Financieros) |
| Abstract: | We develop an infinite horizon equilibrium model in which banks finance long term assets with non-tradable debt. Banks choose the amount of debt and its maturity taking into account investors’ preference for short maturities (which better accommodate their preference shocks) and the risk of systemic liquidity crises (during which refinancing is especially expensive). Unregulated debt maturities are inefficiently short due to pecuniary externalities in the market for funds during crises and their interaction with banks’ refinancing constraints. We show the possibility of improving welfare by means of limits to debt maturity, Pigovian taxes, and private and public liquidity insurance schemes. |
| Keywords: | Liquidity premium, maturity transformation, systemic crises, liquidity regulation, pecuniary externalities, liquidity insurance. |
| JEL: | G01 G21 G32 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2011_1105&r=ban |
| By: | Jean-Marie Baland (Center for Research in the Economics of Development, University of Namur); Rohini Somanathan; Lore Vandewalle (Center for Research in the Economics of Development, University of Namur) |
| Abstract: | In this paper we provide an empirical analysis of the performance of microfinance groups, known as Self-Help groups, based on an original census we carried out in a poor area of Northern India. We examine whether traditionally disadvantaged villagers, such as members of lower castes or landless farmers, are less likely to have access to groups. We also analyze their performance in terms of access to bank loans, which is an important benefit of the groups. We nd evidence of the attrition process being selective against lower castes: they have a lower probability of becoming a permanent member of a group. The net effects in terms of their expected access to a bank loan remain however relatively limited. By contrast, even though landless farmers are more likely to fail or leave the groups, they tend to benet disproportionately. In expected terms, they receive more than two times the amounts of bank loans given to farmers owning more than one acre. Overall, the program therefore has positive and important distributional implications. |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:nam:wpaper:1117&r=ban |
| By: | Ashoka Mody; Damiano Sandri |
| Abstract: | We use the rise and dispersion of sovereign spreads to tell the story of the emergence and escalation of financial tensions within the eurozone. This process evolved through three stages. Following the onset of the Subprime crisis in July 2007, spreads rose but mainly due to common global factors. The rescue of Bear Stearns in March 2008 marked the start of a distinctively European banking crisis. During this key phase, sovereign spreads tended to rise with the growing demand for support by weakening domestic financial sectors, especially in countries with lower growth prospects and higher debt burdens. As the constraint of continued fiscal commitments became clearer, and coinciding with the nationalization of Anglo Irish in January 2009, the separation between the sovereign and the financial sector disappeared. |
| Keywords: | Banks , Cross country analysis , Economic growth , Economic models , Europe , Financial crisis , Financial sector , Global competitiveness , Sovereign debt , |
| Date: | 2011–11–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/269&r=ban |
| By: | Lijun Bo (Department of Mathematics, Xidian University - Xidian University, Xi'an 710071 China); Ying Jiao (LPMA - Laboratoire de Probabilités et Modèles Aléatoires - CNRS : UMR7599 - Université Paris VI - Pierre et Marie Curie - Université Paris VII - Paris Diderot); Xuewei Yang (School of Mathematical Sciences, Nankai University - Nankai University, 94 Weijin Road, Nankai District, Tianjin 300071 China) |
| Abstract: | We model the term structure of the forward default intensity and the default density by using Lévy random fields, which allow us to consider the credit derivatives with an after-default recovery payment. As applications, we study the pricing of a defaultable bond and represent the pricing kernel as the unique solution of a parabolic integro-differential equation. Finally, we illustrate by numerical examples the impact of the contagious jump risks on the defaultable bond price in our model. |
| Date: | 2011–12–13 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00651397&r=ban |
| By: | Greg Howard; Robert Martin; Beth Anne Wilson |
| Abstract: | This paper studies the behavior of recoveries from recessions across 59 advanced and emerging market economies over the past 40 years. Focusing specifically on the performance of output after the recession trough, we find little or no difference in the pace of output growth across types of recessions. In particular, banking and financial crisis do not affect the strength of the economic rebound, although these recessions are more severe, implying a sizable output loss. However, recovery does change with some characteristics of recession. Recoveries tend to be faster following deeper recessions, especially in emerging markets, and tend to be slower following long recessions. Most recessions are associated with a slowing, if not outright decline in house prices, but recessions with large declines in house prices also tend to have slower recoveries. Long recessions and those associated with poor housing-market outcomes can lead to sustained output losses relative to pre-crisis trends. Consistent with microeconomic studies showing permanent income loss to job-losing workers during recessions, we find that the sustained deviation in output from trend is associated with a reduction in labor input, especially linked to declines in employment and labor-force participation following recessions. On net, our results imply that the output/employment gap following a severe, long recessions is considerably smaller than is typically assumed by standard macro models, which in turn may have substantial implications for macroeconomic policy during recoveries. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1037&r=ban |
| By: | Lijun Bo (LPMA); Ying Jiao (LPMA); Xuewei Yang |
| Abstract: | We model the term structure of the forward default intensity and the default density by using L\'evy random fields, which allow us to consider the credit derivatives with an after-default recovery payment. As applications, we study the pricing of a defaultable bond and represent the pricing kernel as the unique solution of a parabolic integro-differential equation. Finally, we illustrate by numerical examples the impact of the contagious jump risks on the defaultable bond price in our model. |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1112.2952&r=ban |