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on Banking |
| By: | Claudia Tarantola (Department of Economics, University of Pavia); Paola Vicard (Department of Economics, University of Roma Tre); Ioannis Ntzoufras (Department of Statistics, Athens University of Economics and Business) |
| Abstract: | Mystery shopping is a well known marketing technique used by companies and marketing analysts to measure quality of service, and gather information about products and services. In this article, we analyse data from mystery shopping surveys via Bayesian networks in order to examine and evaluate the quality of service offered by the loan departments of Greek banks. We use mystery shopping visits to collect information about loan products and services and, by this way, evaluate the customer satisfaction and plan improvement strategies that will assist Banks to reach their internal standards. Bayesian Networks not only provide a pictorial representation of the dependence structure between the characteristics of interest but also allow to evaluate, interpret and understand the effects of possible improvement strategies. |
| Keywords: | Bayesian networks, Customer satisfaction, Mystery shopping, Service quality improvement. |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:pav:wpaper:160&r=ban |
| By: | Pierre-Richard Agénor; K. Alper; L. Pereira da Silva |
| Abstract: | We develop a dynamic stochastic model of a middle-income, small open economy with a two-level banking intermediation structure, a risk-sensitive regulatory capital regime, and imperfect capital mobility. Firms borrow from a domestic bank and the bank borrows on world capital markets, in both cases subject to an endogenous premium. A sudden flood in capital flows generates an expansion in credit and activity, and asset price pressures. Countercyclical regulation, in the form of a Basel III-type rule based on real credit gaps, is effective at promoting macroeconomic stability (defined in terms of the volatility of a weighted average of inflation and the output gap) and financial stability (defined in terms of the volatility of a composite index of the nominal exchange rate and house prices). However, because the gain in terms of reduced volatility may exhibit diminishing returns, a countercyclical regulatory rule may need to be supplemented by other, more targeted, macroprudential instruments. |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:267&r=ban |
| By: | Michael D. Bordo; Christopher M. Meissner |
| Abstract: | The recent global crisis has sparked interest in the relationship between income inequality, credit booms, and financial crises. Rajan (2010) and Kumhof and Rancière (2011) propose that rising inequality led to a credit boom and eventually to a financial crisis in the US in the first decade of the 21st century as it did in the 1920s. Data from 14 advanced countries between 1920 and 2000 suggest these are not general relationships. Credit booms heighten the probability of a banking crisis, but we find no evidence that a rise in top income shares leads to credit booms. Instead, low interest rates and economic expansions are the only two robust determinants of credit booms in our data set. Anecdotal evidence from US experience in the 1920s and in the years up to 2007 and from other countries does not support the inequality, credit, crisis nexus. Rather, it points back to a familiar boom-bust pattern of declines in interest rates, strong growth, rising credit, asset price booms and crises. |
| JEL: | E51 N1 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17896&r=ban |
| By: | Stijn Claessens; Neeltje van Horen |
| Abstract: | This paper introduces a comprehensive database on bank ownership for 137 countries over 1995-2009, and reviews foreign bank behavior and impact. It documents substantial increases in foreign bank presence, with many more home and host countries. Current market shares of foreign banks average 20 percent in OECD countries and 50 percent elsewhere. Foreign banks have higher capital and more liquidity, but lower profitability than domestic banks do. Only in developing countries is foreign bank presence negatively related with domestic credit creation. During the global crisis foreign banks reduced credit more compared to domestic banks, except when they dominated the host banking systems. |
| Keywords: | Banking systems , Banks , Financial stability , Foreign investment , Globalization , International banking , |
| Date: | 2012–01–13 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/10&r=ban |
| By: | Charles W. Calomiris; Doron Nissim |
| Abstract: | We examine changes in the market valuation of banking activities over the last decade, focusing on the effects of the financial crisis. Our valuation model recognizes that banks create value through the types of assets and liabilities that they create and the various types of risk they undertake (including their leverage, their lending risk, and their interest rate risk). The model also allows for heterogeneous bank income streams, dividend signaling effects, and changes in capitalization rates for income streams over time depending on changing market conditions. This approach explains substantial cross-sectional variation in observed market-to-book values, allowing us to identify the market pricing of various banking activities and changes in market pricing over time. We find that the declines in bank stock values since 2007 reflect declining values of various categories of banking activity and changes in market conditions. Dividend payments matter for market values increasingly over time. “Carry-trade” effects from taking on interest rate risk are also apparent. The effects of leverage on bank valuation changed sign during the crisis; while the market rewarded high leverage with higher market values prior to the crisis, leverage become associated with lower values during and after the crisis. Contrary to the view that the declines in market-to-book values for U.S. banks from 2006-2011 mainly reflect unrecognized losses, we find that other factors explain most of the decline in market-to-book ratios. Although model parameters do change over time, more than three-quarters of the change in market-to-book values that occurred from 2006 to the end of 2008 were predictable based on changes in fundamental determinants of value using the model coefficients estimated in 2006. |
| JEL: | E32 E43 G01 G21 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17868&r=ban |
| By: | Schröder, Michael; Borell, Mariela; Gropp, Reint; Iliewa, Zwetelina; Jaroszek, Lena; Lang, Gunnar; Schmidt, Sandra; Trela, Karl |
| Abstract: | The aim of this study is to assess the contributions of investment banking to the economy with a particular focus on the German economy. To this end we analyse both the economic benefits and the costs stemming from investment banking. The study focuses on investment banks as this part of banking is particularly relevant for financing companies as well as the development and use of specific products to support the needs of private and professional clients. The assessment of benefits and costs of investment banking has been conducted from a European perspective. Nevertheless there is a focus on the German economy to allow a more detailed analysis of certain aspects as for example the use of derivatives by German companies, the success of M&As in Germany or the effect of securitization on loan supply and GDP in Germany. For comparison purposes other European countries and also the U.S. have been taken into account. The last financial crisis has shown the negative impacts of banks on the financial system and the whole economy. In a study on the contribution of investment banks to systemic risk we quantify the negative side of the investment banking business. In the last part of the study we assess how the effects of regulatory changes on investment banking. All important changes in banking and capital market regulation are taken into account such as Basel III, additional capital requirements for systemically important financial institutions, regulation of OTC derivatives and specific taxes. -- |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdok:1201&r=ban |
| By: | Chong, T.T.L.; Lu, L.; Ongena, S. (Tilburg University, Center for Economic Research) |
| Abstract: | Abstract: Banking competition may enhance or hinder the financing of small and medium enterprises. Using a survey on the financing of such enterprises in China, combined with detailed bank branch information, we investigate how concentration in local banking market affects the availability of credit. We find that lower market concentration alleviates financing constraints. The widespread presence of joint-stock banks has a larger effect on alleviating these constraints, than the presence of city commercial banks, while the presence of state-owned banks has a smaller effect. (83 words) |
| Keywords: | Banking Competition;SMEs Financing;Credit Constraints. |
| JEL: | D41 D43 G21 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2012013&r=ban |
| By: | Degryse, H.A.; Elahi, M.A.; Penas, M.F. (Tilburg University, Center for Economic Research) |
| Abstract: | Abstract: Banking systems are fragile not only within one country but also within and across regions. We study the role of regional banking system characteristics for regional banking system fragility. We find that regional banking system fragility reduces when banks in the region jointly hold more liquid assets, are better capitalized, and when regional banking systems are more competitive. For Asia and Latin-America, a greater presence of foreign banks also reduces regional banking fragility. We further investigate the possibility of contagion within and across regions. Within region banking contagion is important in all regions but it is substantially lower in the developed regions compared to emerging market regions. For cross-regional contagion, we find that the contagion effects of Europe and the US on Asia and Latin America are significantly higher compared to the effect of Asia and Latin America among themselves. Finally, the impact of cross-regional contagion is attenuated when the host region has a more liquid and more capitalized banking sector. |
| Keywords: | Banking system stability;cross-regional contagion;financial integration. |
| JEL: | G15 G20 G29 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2012015&r=ban |
| By: | Bernard Shull |
| Abstract: | Government forbearance, support, and bailouts of banks and other financial institutions deemed "too big to fail" (TBTF) are widely recognized as encouraging large companies to take excessive risk, placing smaller ones at a competitive disadvantage and influencing banks in general to grow inefficiently to a "protected" size and complexity. During periods of financial stress, with bailouts under way, government officials have promised "never again." During periods of financial stability and economic growth, they have sanctioned large-bank growth by merger and ignored the ongoing competitive imbalance. Repeated efforts to do away with TBTF practices over the last several decades have been unsuccessful. Congress has typically found the underlying problem to be inadequate regulation and/or supervision that has permitted important financial companies to undertake excessive risk. It has responded by strengthening regulation and supervision. Others have located the underlying problem in inadequate regulators, suggesting the need for modifying the incentives that motivate their behavior. A third explanation is that TBTF practices reflect the government's perception that large financial firms serve a public interest-they constitute a "national resource" to be preserved. In this case, a structural solution would be necessary. Breakups of the largest financial firms would distribute the "public interest" among a larger group than the handful that currently hold a disproportionate concentration of financial resources. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 constitutes the most recent effort to eliminate TBTF practices. Its principal focus is on the extension and augmentation of regulation and supervision, which it envisions as preventing excessive risk taking by large financial companies; Congress has again found the cause for TBTF practices in the inadequacy of regulation and supervision. There is no indication that Congress has given any credence to the contention that regulatory motivations have been at fault. Finally, Dodd-Frank eschews a structural solution, leaving the largest financial companies intact and bank regulatory agencies still with extensive discretion in passing on large bank mergers. As a result, the elimination of TBTF will remain problematic for years to come. |
| Keywords: | Too Big to Fail; Banking Policy; Antitrust; Government Policy; Regulation |
| JEL: | G21 G28 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_709&r=ban |
| By: | Moreno, Diego (Departamento de Economía, Universidad Carlos III de Madrid); Takalo , Tuomas (Bank of Finland Research) |
| Abstract: | Consider a competitive bank whose illiquid asset portfolio is funded by short-term debt that has to be refinanced before the asset matures. We show that in this setting maximal transparency is not socially optimal, and that the existence of social externalities of bank failures further lowers the optimal level of transparency. Moreover, asset risk taking recedes as the level of transparency declines towards the socially optimal level. As for the sign of the transparency impact on refinancing risk, it is negative given the risk associated with the asset, but ambiguous if one accounts for its indirect effect via risk taking. |
| Keywords: | financial stability; information disclosure; market discipline; Basel III; global games |
| JEL: | D43 D82 G14 G21 G28 |
| Date: | 2012–02–24 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2012_009&r=ban |
| By: | Francisco F. Vázquez; Pablo Federico |
| Abstract: | This paper analyzes the evolution of bank funding structures in the run up to the global financial crisis and studies the implications for financial stability, exploiting a bank-level dataset that covers about 11,000 banks in the U.S. and Europe during 2001–09. The results show that banks with weaker structural liquidity and higher leverage in the pre-crisis period were more likely to fail afterward. The likelihood of bank failure also increases with bank risk-taking. In the cross-section, the smaller domestically-oriented banks were relatively more vulnerable to liquidity risk, while the large cross-border banks were more susceptible to solvency risk due to excessive leverage. The results support the proposed Basel III regulations on structural liquidity and leverage, but suggest that emphasis should be placed on the latter, particularly for the systemically-important institutions. Macroeconomic and monetary conditions are also shown to be related with the likelihood of bank failure, providing a case for the introduction of a macro-prudential approach to banking regulation. |
| Keywords: | Bankruptcy , Banks , Financial crisis , Global Financial Crisis 2008-2009 , Risk management , |
| Date: | 2012–01–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/29&r=ban |
| By: | Falko Fecht (EBS Business School, Gustav-Stresemann-Ring 3, 65189 Wiesbaden, Germany.); Hans Peter Grüner (Universität Mannheim, Schloss, 68131 Mannheim, Germany and CEPR, London, UK.); Philipp Hartmann (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper studies the implications of cross-border financial integration for financial stability when banks' loan portfolios adjust endogenously. Banks can be subject to sectoral and aggregate domestic shocks. After integration they can share these risks in a complete interbank market. When banks have a comparative advantage in providing credit to certain industries, financial integration may induce banks to specialize in lending. An enhanced concentration in lending does not necessarily increase risk, because a well-functioning interbank market allows to achieve the necessary diversification. This greater need for risk sharing, though, increases the risk of cross-border contagion and the likelihood of widespread banking crises. However, even though integration increases the risk of contagion it improves welfare if it permits banks to realize specialization benefits. JEL Classification: D61, E44, G21. |
| Keywords: | Financial integration, specialization, interbank market, financial contagion. |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20111425&r=ban |
| By: | Niamh Sheridan; B. Jang |
| Abstract: | The paper finds that, given Australia’s conservative approach in implementing the Basel II framework, Australian banks’ headline capital ratios underestimate their capital strengths. Given their high capital quality and the progress in their funding profiles since the global financial crisis, the Australian banks are making good progress toward meeting the Basel III requirements, including the new liquidity standards. Stress tests calibrated on the Irish crisis experience show that the banks could withstand sizable shocks to their exposure to residential mortgages. However, combining residential mortgage shocks with corporate losses expected at the peak of the global financial crisis would put more pressure on Australian banks’ capital. Therefore, it would be useful to consider the merits of higher capital requirements for systemically important domestic banks. |
| Keywords: | Bank supervision , Banking sector , Capital , |
| Date: | 2012–01–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/25&r=ban |
| By: | Roy Zilberman |
| Abstract: | This paper examines the procyclical e¤ects of bank capital requirements in a simple static general equilibrium model with credit market imperfections. A "bank capital channel" is introduced by assuming that bank capital buffers increase banks' incentives to screen and monitor borrowers more carefully, thus reducing the borrowers' probability of default and allowing banks to charge a lower interest rate on loans provided for investment purposes. We also identify a "collateral channel" by assuming that higher levels of effective collateral mitigate moral hazard behaviour by firms, which raises the repayment probability and lowers the loan rate. Basel I and Basel II regulatory regimes are then de…ned in terms of the calculation of the risk weights on loans with a distinction made between the Standardized and Foundation Internal Ratings Based (IRB) approaches of Basel II. We analyze the role of the bank capital channel in the transmission of a supply shock (and associated changes in prices) when the bank capital channel dominates the collateral channel and when the collateral channel dominates the bank capital channel. Our results suggest that in the former case, the lending rate is always procyclical with respect to supply shocks while in the latter, the loan rate can be either procyclical or countercyclical. Finally, in order to compare between the different regulatory regimes, it is crucial to understand which of the abovementioned channels dominates the other. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:man:cgbcrp:161&r=ban |
| By: | J-P. Niinimaki |
| Abstract: | The paper investigates the optimal design of bank bailouts. Under three types of ex post moral hazard that tempt banks to hide loan losses, the paper analyzes banking regulation via three Prompt Corrective Action instruments: prohibition of dividends, limits on compensation to managers and early closure policy. The first two have a mitigating effort on moral hazard but the last instrument has a damaging impact. As to bad debts and the cleaning of banks' balance sheets, asset insurance and equity capital motivate banks to disclose loan losses. In some cases, prohibition of dividends or limits on compensation to managers has the same effect. |
| Keywords: | Financial intermediation, Mechanism design, Bank bailouts, Banking regulation, Prompt Corrective Action |
| JEL: | G21 G28 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:tkk:dpaper:dp69&r=ban |
| By: | Juliano J. Assunção; Efraim Benmelech; Fernando S. S. Silva |
| Abstract: | We exploit a 2004 credit reform in Brazil that simplified the sale of repossessed cars used as collateral for auto loans. We show that the change has led to larger loans with lower spreads and longer maturities. The reform expanded credit to riskier, low-income borrowers for newer, more expensive cars. Although the credit reform improved riskier borrowers’ access to credit, it also led to increased incidences of delinquency and default. Our results shed light on the consequences of a credit reform, highlighting the crucial role that collateral and repossession play in the liberalization and democratization of credit. |
| JEL: | G21 G28 K22 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17858&r=ban |
| By: | Ralf Sabiwalsky |
| Abstract: | Basel II Pillar 3 reports provide information about banks' exposure towards a number of risk factors, such as corporate credit risk and interest rate risk. Previous studies nd that the quality of such information is likely to be weak. We analyze the marginal contribution of pillar 3 exposure data to the quality of equity volatility forecasts for individual banks. Our method uses (local in time) measures of risk factor risk using a multivariate stochastic volatility model for ve risk factors, and uses measures of bank sensitivity with respect to these risk factors. We use two sets of sensitivity measures. One takes into account pillar 3 information, and the other one does not. Generally, we generate volatility forecasts as if no market prices of equity were available for the bank the forecast is made for. We do this for banks for which such data is, in fact, available so that we can conduct ex post - tests of the quality of volatility forecasts. We nd that (1) pillar 3 information allows for a better-than-random ranking of banks according to their risk, but (2) pillar 3 exposure data does not help reduce volatility forecast error magnitude. |
| Keywords: | Risk Reporting, Stochastic Volatility, Risk Factors |
| JEL: | G17 G21 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2012-008&r=ban |
| By: | Heiko Hesse; Christian Schmieder; Claus Puhr; Benjamin Neudorfer; Stefan W. Schmitz |
| Abstract: | A framework to run system-wide, balance sheet data-based liquidity stress tests is presented. The liquidity framework includes three elements: (a) a module to simulate the impact of bank run scenarios; (b) a module to assess risks arising from maturity transformation and rollover risks, implemented either in a simplified manner or as a fully-fledged cash flow-based approach; and (c) a framework to link liquidity and solvency risks. The framework also allows the simulation of how banks cope with upcoming regulatory changes (Basel III), and accommodates differences in data availability. A case study shows the impact of a "Lehman" type event for stylized banks. |
| Keywords: | Bank supervision , Banks , Financial risk , Liquidity management , Risk management , |
| Date: | 2012–01–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/3&r=ban |
| By: | Markus R. Kosters (School of Business and Economics, Maastricht University); Stefan T.M. Streatmans (Maastricht research school of Economics of Technology and Organizations); Mario Maggi (Department of Economics and Quantitative Methods, University of Pavia) |
| Abstract: | This paper investigates the pricing of full deposit insurance in Germany in the context of its political promise by the German government. We implement the characteristics of the mutual guarantee framework of German banks and the specifics of the German deposit insurance system into a Monte Carlo model. The analysis suggests that banks have an incentive to increase their riskiness if they do not have to bear the fair value of the insurance costs of their deposits. On the other hand, the government should incentivise banks to reduce their size and become more specialized to achieve better diversification in the German banking landscape. |
| Keywords: | Asset pricing, financial crisis, deposit insurance, mutual guarantee framework |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:pav:wpaper:143&r=ban |
| By: | Michiel Bijlsma; Karen van der Wiel |
| Abstract: | <p>This paper provides unique survey evidence on consumer awareness about deposit insurance and on consumer perception of the stability of small and systemic banks. </p><p>It turns out that systemic banks are perceived as less risky compared to non-systemic banks and that respondents’ own bank is considered safer than other banks. We also find that knowledge on the eligibility for deposit insurance is limited, in particular when it concerns small banks. In addition, consumers generally expect an associated payback time that well exceeds the time it has taken to pay back depositors in the past, expecting a higher as well as faster payback for large, systemic banks. This confirms that households’ awareness of the coverage and operations of deposit insurance are suboptimal. We also find that awareness about and trust in the deposit insurance system has only a marginal effect on deposit behavior in “normal” and “crisis” times. Thus, while the evidence suggests that there is ample scope to improve awareness about deposit insurance, it is far from sure that such policies will affect household behavior.</p> |
| JEL: | D83 D84 G21 G28 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:205&r=ban |
| By: | Nicola Cetorelli; Linda S. Goldberg |
| Abstract: | Foreign banks pulled significant funding from their U.S. branches during the Great Recession. We estimate that the average-sized branch experienced a 12 percent net internal fund “withdrawal,” with the fund transfer disproportionately bigger for larger branches. This internal shock to the balance sheets of U.S. branches of foreign banks had sizable effects on their lending. On average, for each dollar of funds transferred internally to the parent, branches decreased lending supply by about 40 to 50 cents. However, the extent of the lending effects was very different across branches, depending on their pre-crisis modes of operation in the United States. |
| JEL: | E44 F36 G32 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17873&r=ban |
| By: | Kumbhar, Vijay |
| Abstract: | Present research is based on empirical evidences collected through the customers’ survey regarding to the customers perception in internet banking services provided by public and private sector banks. It is efforts to examine the relationship between the demographics and customers’ satisfaction in internet banking, relationship between service quality and customers’ satisfaction as well as satisfaction in internet banking service provided by the public sector bank private sector banks. Present research shows that, demographics of the customers’ are one of the most important factors which influence using internet banking services. Overall results show that highly educated, a person who are employees, businessmen and belongs to higher income group and younger group are using this service, however, remaining customers are not using this services. Results also show that overall satisfaction of employees, businessmen and professionals are higher in internet banking service. There is significant difference in the customers’ perception in internet banking services provided by the public and privates sector banks. Private sector banks are providing better service quality of internet banking than service provided by the public sector banks. Therefore, public sector banks should improve their internet banking services according to the expectations of their customers. |
| Keywords: | Service Quality; Perception; Customers’ Satisfaction;Internet Banking Service |
| JEL: | G2 |
| Date: | 2011–12–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:36959&r=ban |
| By: | Ali Alichi; Sang Chul Ryoo; Cheol Hong |
| Abstract: | Korea has been active in implementing targeted macroprudential policies to address specific financial stability concerns. In this paper, we develop a conceptual model that could serve as a building block for the broader framework of macroprudential policy making in Korea. It is assumed that the policy maker imposes taxes on key aggregate financial ratios in the banking system to mitigate excessive leverage over the economic cycle. The model is calibrated for Korea. The results illustrate how countercyclical tools, such as simple taxes on key financial ratios, could be incorporated to enrich the broader macroprudential policy framework in the Korean context. |
| Keywords: | Banking systems , Debt , Economic models , Monetary policy , |
| Date: | 2012–01–24 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/27&r=ban |
| By: | Casu, Barbara; Clare, Andrew; Saleh, Nashwa |
| Abstract: | Using a signal extraction framework and looking at OECD countries over a 30 year period this paper attempts to identify a number of variables significant in predicting near-crises as a pre-cursor to full-fledged crises. These include growth in pension assets as an indicator for the development of liquidity bubbles, equity market dividend yields as a proxy for corporate balance sheet health, banking sector assets growth and relative size to GDP. We also study the development of asset price bubbles through an equity markets indicator and a house price indicator. Finally we also look at a banking sector funding stability indicator and liquidity indicator on a micro-level. Simultaneously, a dynamic research design improves on previous static set-ups and enhances the model predictive power and applicability to different time periods. This paper shows that as early as 2004, clear signals were being given for a number of countries that vulnerabilities were building up with out-of-sample performance better than in-sample in terms of overall noise to signal ratios, showing a significant improvement compared to earlier work. EWS design has significant implications for financial stability and financial regulation. |
| Keywords: | financial crises; financial fragility; liquidity bubbles; early warning signals; financial stability; financial regulation |
| JEL: | G18 G28 G01 |
| Date: | 2011–12–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:37043&r=ban |
| By: | Guanghui Huang; Weiqing Gu; Wenting Xing; Hongyu Li |
| Abstract: | Margin system for margin loans using cash and stock as collateral is considered in this paper, which is the line of defence for brokers against risk associated with margin trading. The conditional probability of negative return is used as risk measure, and a recursive algorithm is proposed to realize this measure under a Markov chain model. Optimal margin system is chosen from those systems which satisfy the constraint of the risk measure. The resulted margin system is able to adjust actively with respect to the changes of stock prices. The margin system required by the Shanghai Stock Exchange is compared with the proposed system, where 25,200 margin loans of 126 stocks listed on the SSE are investigated. It is found that the number of margin calls under the proposed margin system is significantly less than its counterpart under the required system for the same level of risk, and the average costs of the loans are similar under the two types of margin systems. |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1202.5180&r=ban |
| By: | Banerjee, A.; Bystrov, V.; Mizen, P. |
| Abstract: | Much of the literature on interest rate pass through assumes banks set retail rates by observing current market rates. We argue instead that banks anticipate the direction of short-term market rates when setting interest rates on loans, mortgages and deposits. If anticipated rates - captured by forecasts of short-term interest rates or future markets - are important, the empirical specifications of many previous studies that omit them could be misspecified. Including such forecasts requires a detailed consideration of the information in the yield curve and alternative forecasting models. In this paper we use two methods to extract anticipated changes to short-term market rates - a level, slope, curvature model and a principal components model - at many horizons, before including them in a model of retail rate adjustment for four interest rates in four major euro area economies. We find a significant role for forecasts of market rates in determining interest rate pass through; alternative specifications with futures information yield comparable results. We conclude that it is important to include anticipated changes in market rates to avoid misspecification in pass through estimation. |
| Keywords: | forecasting, factor models, interest rates, pass-through. |
| JEL: | C32 C53 E43 E44 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:361&r=ban |
| By: | Arthur Korteweg; Morten Sorensen |
| Abstract: | We develop and estimate a unified model of house prices, loan-to-value ratios (LTVs), and trade and foreclosure behavior. House prices are only observed for traded properties, and trades are endogenous, creating sample-selection problems for traditional estimators. We develop a Bayesian filtering procedure to recover the price path for each individual property and produce selection-corrected estimates of historical LTVs and foreclosure behavior, both showing large unprecedented changes since 2007. Our model reduces the index revision problem by nearly half, and has applications in economics and finance (e.g., pricing mortgage-backed securities). |
| JEL: | C11 C23 C24 C43 R21 R3 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17882&r=ban |
| By: | Elena-Ivona Dumitrescu (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans); Christophe Hurlin (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans); Vinson Pham (UCSC - University of California at Santa Cruz - University of California at Santa Cruz) |
| Abstract: | In this paper we propose a new tool for backtesting that examines the quality of Value-at- Risk (VaR) forecasts. To date, the most distinguished regression-based backtest, proposed by Engle and Manganelli (2004), relies on a linear model. However, in view of the di- chotomic character of the series of violations, a non-linear model seems more appropriate. In this paper we thus propose a new tool for backtesting (denoted DB) based on a dy- namic binary regression model. Our discrete-choice model, e.g. Probit, Logit, links the sequence of violations to a set of explanatory variables including the lagged VaR and the lagged violations in particular. It allows us to separately test the unconditional coverage, the independence and the conditional coverage hypotheses and it is easy to implement. Monte-Carlo experiments show that the DB test exhibits good small sample properties in realistic sample settings (5% coverage rate with estimation risk). An application on a portfolio composed of three assets included in the CAC40 market index is nally proposed. |
| Keywords: | Value-at-Risk; Risk Management; Dynamic Binary Choice Models |
| Date: | 2012–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00671658&r=ban |