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on Banking |
| By: | Larsson, Bo (Dept. of Economics, Stockholm University); Wijkander, Hans (Dept. of Economics, Stockholm University) |
| Abstract: | The financial crisis that erupted 2007-2008 has reinforced demand for regulation of banks. The Basle III accord which is to be implemented January first 2013 encompasses two types of regulations with the goal to enforce more prudence among banks. One is capital adequacy regulation which stipulates a lowest ratio between bank capital and bank assets. The other is constraints on dividends and bonuses payments. Banking on these regulations to raise prudence regarding risk taking among banks may lead to disappointment. Within a dynamic model of a value maximizing bank we find that both regulations lower bank value, also in situations where regulations do not bind. None of the regulations leads to increased optimal ratio between common equity and lending. Capital adequacy regulation reinforces credit squeeze when binding. More frequent dividend payouts leads to higher equilibrium bank capital. |
| Keywords: | Banking; Dynamic Banking; Banking regulation; Capital adequacy; Dividends |
| JEL: | C61 G21 G22 |
| Date: | 2012–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sunrpe:2012_0003&r=ban |
| By: | Anginer, Deniz; Demirguc-Kunt, Asli; Zhu, Min |
| Abstract: | Using bank level measures of competition and co-dependence, the authors show a robust positive relationship between bank competition and systemic stability. Whereas much of the extant literature has focused on the relationship between competition and the absolute level of risk of individual banks, they examine the correlation in the risk taking behavior of banks, hence systemic risk. They find that greater competition encourages banks to take on more diversified risks, making the banking system less fragile to shocks. Examining the impact of the institutional and regulatory environment on systemic stability shows that banking systems are more fragile in countries with weak supervision and private monitoring, with generous deposit insurance and greater government ownership of banks, and public policies that restrict competition. Furthermore, lack of competition has a greater adverse effect on systemic stability in countries with low levels of foreign ownership, weak investor protections, generous safety nets, and where the authorities provide limited guidance for bank asset diversification. |
| Keywords: | Banks&Banking Reform,Access to Finance,Debt Markets,Emerging Markets,Financial Intermediation |
| Date: | 2012–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5981&r=ban |
| By: | Charles A.E. Goodhart; Anil K Kashyap; Dimitrios P. Tsomocos; Alexandros P. Vardoulakis |
| Abstract: | This paper explores how different types of financial regulation could combat many of the phenomena that were observed in the financial crisis of 2007 to 2009. The primary contribution is the introduction of a model that includes both a banking system and a “shadow banking system” that each help households finance their expenditures. Households sometimes choose to default on their loans, and when they do this triggers forced selling by the shadow banks. Because the forced selling comes when net worth of potential buyers is low, the ensuing price dynamics can be described as a fire sale. The proposed framework can assess five different policy options that officials have advocated for combating defaults, credit crunches and fire sales, namely: limits on loan to value ratios, capital requirements for banks, liquidity coverage ratios for banks, dynamic loan loss provisioning for banks, and margin requirements on repurchase agreements used by shadow banks. The paper aims to develop some general intuition about the interactions between the tools and to determine whether they act as complements and substitutes. |
| JEL: | G38 L51 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17909&r=ban |
| By: | Teodora Paligorova; João A. C. Santos |
| Abstract: | In an investigation of banks’ loan pricing policies in the United States over the past two decades, this study finds supporting evidence for the bank risk-taking channel of monetary policy. We show that banks charge lower spreads when they lend to riskier borrowers relative to the spreads they charge on loans to safer borrowers in periods of low short-term rates compared to periods of high short-term rates. The interest discount that banks offer riskier borrowers when short-term rates are low is robust to borrower-, loan-, and bank-specific factors as well as to macroeconomic factors known to affect loan rates. The discount is also robust to bank-firm fixed effects. Finally, our tests that build on the micro information banks provide on their lending standards in the Senior Loan Officers Opinion Survey suggest the interest rate discount that riskier borrowers receive when short-term rates are low is bank driven. |
| Keywords: | Financial institutions; Monetary policy framework |
| JEL: | G21 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:12-10&r=ban |
| By: | Laura Valderrama; German Lopez-Espinosa; Antonio Moreno; Antonio Rubia |
| Abstract: | In this paper we identify some of the main factors behind systemic risk in a set of international large-scale complex banks using the novel CoVaR approach. We find that short-term wholesale funding is a key determinant in triggering systemic risk episodes. In contrast, we find no evidence that a larger size increases systemic risk within the class of large global banks. We also show that the sensitivity of system-wide risk to an individual bank is asymmetric across episodes of positive and negative asset returns. Since short-term wholesale funding emerges as the most relevant systemic factor, our results support the Basel Committee’s proposal to introduce a net stable funding ratio, penalizing excessive exposure to liquidity risk. |
| Keywords: | Economic models , Financial institutions , Financial risk , International banks , Liquidity , |
| Date: | 2012–02–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/46&r=ban |
| By: | Lamont Black; Lieu Hazelwood |
| Abstract: | One of the largest responses of the U.S. government to the recent financial crisis was the Troubled Asset Relief Program (TARP). TARP was originally intended to stabilize the financial sector through the increased capitalization of banks. However, recipients of TARP funds were then encouraged to make additional loans despite increased borrower risk. In this paper, we consider the effect of the TARP capital injections on bank risk taking by analyzing the risk ratings of banks’ commercial loan originations during the crisis. The results indicate that, relative to non-TARP banks, the risk of loan originations increased at large TARP banks but decreased at small TARP banks. Interest spreads and loan levels also moved in different directions for large and small banks. For large banks, the increase in risk-taking without an increase in lending is suggestive of moral hazard due to government ownership. These results may also be due to the conflicting goals of the TARP program for bank capitalization and bank lending. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1043&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 forty to fifty cents. However, the extent of the lending effects was very different across branches, depending on their precrisis modes of operation in the United States. |
| Keywords: | Banks and banking, Foreign ; Recessions ; Branch banks ; Bank loans |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:545&r=ban |
| By: | Martin Koudstaal (Double Effect); Sweder van Wijnbergen (Unversity of Amsterdam) |
| Abstract: | This paper deals with the relation between excessive risk taking and capital structure in banks. Examining a quarterly dataset of U.S. banks between 1993 and 2010, we find that equity is valued higher when more risky portfolios are chosen when leverage is high, and that more risk taking has a negative impact on valuation of the debt of highly leveraged banks. We find no evidence that deposit insurance is encouraging risk taking behaviour. We do find that banks with a more troubled loan portfolio take on more risk. Banks whose share price has slumped tend to gamble for resurrection by increasing the riskiness of their asset portfolios. The results suggest that incentives embedded in the capital structure of banks contribute to systemic fragility, and so support the Basel III proposals towards less leverage and higher loss absorption capacity of capital. |
| Keywords: | bank fragility; risk shifting; deposit insurance; gambles for resurrection |
| JEL: | G21 G28 G32 |
| Date: | 2012–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20120022&r=ban |
| By: | Ross Levine; Luc Laeven; Martin Goetz |
| Abstract: | This paper assesses the impact of the geographic diversification of bank holding company (BHC) assets across the United States on their market valuations. Using two novel identification strategies based on the dynamic process of interstate bank deregulation, we find that exogenous increases in geographic diversity reduce BHC valuations. These findings are consistent with the view that geographic diversity makes it more difficult for shareholders and creditors to monitor firm executives, allowing corporate insiders to extract larger private benefits from firms. |
| Keywords: | Bank regulations , Banking , Commercial banks , Corporate governance , |
| Date: | 2012–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/50&r=ban |
| By: | Powell, Andrew (Inter American Development Bank); Maier, Antonia (University of Warwick); Miller, Marcus (University of Warwick) |
| Abstract: | The recent financial crisis has forced a rethink of banking regulation and supervision and the role of nancial innovation. We develop a model where prudent banks may signal their type through high capital ratios. Capital regulation may ensure separation in equilibrium but deposit insurance will tend to increase the level of capital required. If supervision detects risky behaviour ex ante then it is complementary to capital regulation. However, nancial innovation may erode supervisors' ability to detect risk and capital levels should then be higher. But regulators may not be aware their capacities have been undermined. We argue for a four-prong policy response with higher bank capital ratios, enhanced supervision, limits to the use of complex financial instruments and Coco's. Our results may support the institutional arrangements proposed recently in the UK. |
| Keywords: | Bank Regulation; Financial Crises; Information; Signaling. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:cge:warwcg:75&r=ban |
| By: | Rodolfo Maino; Kalin Tintchev |
| Abstract: | This paper presents an integrated framework for assessing systemic risk. The framework models banks’ capital asset ratios as a function of future losses and credit growth using a generalized method of moments to calibrate shocks to credit quality and credit growth. The analysis is complemented by a simple measure of systemic risk, which captures tail risk comovement among banks in the system. The main contribution of this paper is to advance a simple framework to integrate systemic risk scenarios that assess the impact of aggregate and idiosyncratic factors. The analysis is based on CreditRisk+, which uses analytical techniques—similar to those applied in the insurance industry - to estimate banks’ credit portfolio loss distributions, making no assumptions about the cause of default. |
| Keywords: | Banking systems , Credit expansion , Credit risk , Economic models , External shocks , Risk management , |
| Date: | 2012–02–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/53&r=ban |
| By: | Shyamala Gopinath (Asian Development Bank Institute (ADBI)) |
| Abstract: | This paper provides an overview of the Reserve Bank of India’s approach to macroprudential regulation and systemic risk management, and reviews lessons drawn from the Indian experience. It emphasizes the need for harmonization of monetary policy and prudential objectives, which may not be possible if banking supervision is separated from central banks. It also notes that supervisors need to have the necessary independence and flexibility to act in a timely manner on the basis of available information. Macroprudential regulation is an inexact science with limitations and needs to be used in conjunction with other policies to be effective. |
| Keywords: | Macroprudential regulation, Reserve Bank of India, systemic risk managemen, banking supervision |
| JEL: | E52 E58 G28 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:eab:macroe:23250&r=ban |
| By: | Tobias Körner |
| Abstract: | In this paper, a law reform is evaluated that aimed at improving the corporate governance of German savings banks by tightening accountability and legal liability of outside directors. The causal effect of this reform on bank risk is identified by difference-in-differences and triple differences strategies. The estimation results show that savings banks subject to the reform increased capital and liquidity ratios. Hence, they have become less vulnerable to unexpected losses and liquidity shocks. This indicates that the low occurrence of outside director litigation reflects incentive effects of current liability regimes. |
| Keywords: | Corporate governance; outside directors; legal liability; bank risk |
| JEL: | G21 G38 K20 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0313&r=ban |
| By: | Ralph De Haas (European Bank for Reconstruction and Development (EBRD)); Yevgeniya Korniyenko (Bank of England); Elena Loukoianova (International Monetary Fund (IMF)); Alexander Pivovarsky (European Bank for Reconstruction and Development (EBRD)) |
| Abstract: | We use data on 1,294 banks in Emerging Europe to analyze how bank ownership and the so-called Vienna Initiative impacted credit growth during the 2008-09 crisis. As part of the Vienna Initiative western European banks signed country-specific commitment letters in which they pledged to maintain exposures and to support their subsidiaries in Emerging Europe. We show that in general both domestic and foreign banks sharply curtailed credit during the crisis, but that foreign banks that participated in the Vienna Initiative were relatively stable lenders. We find no evidence of negative spillovers from countries where banks signed commitment letters to countries where they did not. |
| Keywords: | Foreign banks, Vienna Initiative, financial crisis, state support |
| JEL: | C23 F36 G21 P34 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wmofir:62&r=ban |
| By: | Mariya Teteryatnikova |
| Abstract: | Systemic risk and the scale of systemic breakdown in the banking system are the key concern for central banks charged with safeguarding overall financial stability. This paper focuses on the risk and potential impact of system-wide defaults in the frequently observed ”tiered” banking system, where relatively few first-tier head institutions are connected with second-tier ”peripheral” banks and are also connected with each other, while the peripheral banks are almost exclusively connected with the head banks. The banking network is constructed from a number of banks which are linked by interbank exposures with a certain predefined probability. In this framework, the tiered structure is represented either by a network with negative correlation in connectivity of neighboring banks, or alternatively, by a network with a scale-free distribution of connectivity across banks. The main finding of the paper highlights the advantages of tiering within the banking system in terms of both the resilience of the banking network to systemic shocks and the extent of necessary government intervention should a crisis evolve. Specifically, the tiered network structure, showing negative correlations in bank connectivity, is found to be less prone to systemic breakdown than other structures, showing either positive or zero correlations. Moreover, in the scale-free tiered system, the resilience of the system to shocks increases as the level of tiering grows. Also, the targeted bail-out policy of the government aimed at rescuing the most connected failing banks in the first place, is expected to be more effective and induce lower costs in a tiered system with high level of tiering. |
| JEL: | C63 D85 G01 G21 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:vie:viennp:1203&r=ban |
| By: | Hamid Mehran; Lindsay Mollineaux |
| Abstract: | We identify the tension created by the dual demands of financial institutions to be value-maximizing entities that also serve the public interest. We highlight the importance of information in addressing the public’s desire for banks to be safe yet innovative. Regulators can choose several approaches to increase market discipline and information production. First, they can mandate information production outside of markets through increased regulatory disclosure. Second, they can directly motivate potential producers of information by changing their incentives. Traditional approaches to bank governance may interfere with the information content of prices. Thus, the lack of transparency in the banking industry may be a symptom rather than the primary cause of bad governance. We provide the examples of compensation and resolution. Reforms that promote the quality of security prices through information production can improve the governance of financial institutions. Future research is needed to examine the interactions between disclosure, information, and governance. |
| Keywords: | Corporate governance ; Disclosure of information ; Securities ; Bank management ; Banks and banking - Regulations |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:539&r=ban |
| By: | Dietrich Domanski (Asian Development Bank Institute (ADBI)); Philip Turner |
| Abstract: | In mid-September 2008, following the bankruptcy of Lehman Brothers, international interbank markets froze and interbank lending beyond very short maturities virtually evaporated. Despite massive central bank support operations and purchases of key assets, many financial markets remained impaired for a long time. Why was this funding crisis so much worse than other past major bank failures and why has it proved so hard to cure? This paper suggests that much of that answer lies in the balance sheets of international banks and their customers. It outlines the basic building blocks of liquidity management for a bank that operates in many currencies and then discusses how the massive development of foreign exchange (forex) and interest rate derivatives markets transformed banks’ strategies in this area. It explains how the pervasive interconnectedness between major banks and markets magnified contagion effects. Finally, the paper provides some recommendations for how strategic borrowing choices by international banks could make them more stable and how regulators could assist in this process. |
| Keywords: | liquidity freeze, international banking, liquidity management, derivatives markets |
| JEL: | E44 G01 G15 G18 G24 G28 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:eab:financ:23245&r=ban |
| By: | Thomas Lux, Daniel Fricke |
| Abstract: | We explore the network topology arising from a dataset of the overnight interbank transactions on the e-MID trading platform from January 1999 to December 2010. In order to shed light on the hierarchical structure of the banking system, we estimate different versions of a core-periphery model. Our main findings are: (1) A core-periphery structure provides a better fit for these interbank data than alternative network models, (2) the identified core is quite stable over time, consisting of roughly 28% of all banks before the global financial crisis (GFC) and 23% afterwards, (3) the majority of core banks can be classified as intermediaries, i.e. as banks both borrowing and lending money, (4) allowing for asymmetric `coreness’ with respect to lending and borrowing considerably improves the fit, and reveals more concentration in borrowing than lending activity of money center banks. During the financial crisis of 2008, the reduction of interbank lending was mainly due to core banks’ reducing their numbers of active outgoing links |
| Keywords: | interbank market, network models, systemic risk, financial crisis |
| JEL: | G21 G01 E42 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1759&r=ban |
| By: | Fungacova, Zuzana (BOFIT); Korhonen, Iikka (BOFIT) |
| Abstract: | This paper provides an overview of the Chinese banking sector, which has expanded tremendously over the past two decades. We first describe aggregate developments of the sector and compare them to the situation in other countries. Also, various financial institutions that operate in China are analyzed. Our results confirm that the Chinese banking sector is truly in a class of its own, especially given the level of China’s economic development. Despite significant reforms, the state and various public organizations still own controlling shares in the largest commercial banks. The state is also present on the borrowers’ side; it is estimated that about half of state-owned commercial bank lending still goes to state-controlled companies. In this way, the banking system can serve as an important policy tool. Another distinctive feature of the Chinese banking sector is the variety of its banking institutions. New types of banking institutions, especially those serving rural areas, are emerging all the time. While equity and debt markets are still tiny relative to the banking sector and their importance as sources of financing of investment remain minor, they have evolved rapidly in recent years. |
| Keywords: | China; banking sector; state banks |
| JEL: | G21 G28 P34 |
| Date: | 2011–12–13 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2011_032&r=ban |
| By: | Thomas Flavin (Department of Economics Finance and Accounting, National University of Ireland, Maynooth); Gerald P. Dwyer (Federal Reserve Bank of Atlanta, University of Carlos III, Madrid and CAMA); Mardi Dungey (University of Tasmania, CFAP, University of Cambridge and CAMA) |
| Abstract: | The misevaluation of risk in securitized nancial products is central to understand- ing the Financial Crisis of 2007-2008. This paper characterizes the evolution of factors a¤ecting collateralized debt obligations (CDOs) based on subprime mortgages. A key feature of subprime-mortgage backed indices is that they are distinct in their vintage of issuance. Using a latent factor framework that incorporates this vintage e¤ect, we show the increasing importance of a common factor on more senior tranches during the crisis. We examine this common factor and its relationship with spreads. We estimate the e¤ects on the common factor of the nancial crisis. |
| Keywords: | asset backed securities, subprime mortgages, financial crisis, factor mod-els, Kalman filter |
| JEL: | G12 G01 C32 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:may:mayecw:n219-11&r=ban |
| By: | Thorsten Beck (Tilburg University and Centre for Economic Policy Research and Hong Kong Institute for Monetary Research); Tao Chen (The Chinese University of Hong Kong); Chen Lin (The Chinese University of Hong Kong and Hong Kong Institute for Monetary Research); Frank M. Song (The University of Hong Kong) |
| Abstract: | "Everybody talks about financial innovation, but (almost) nobody empirically tests hypotheses about it." Frame and White (2004) The financial turmoil from 2007 onwards has spurred renewed debates on the "bright" and "dark" sides of financial innovation. Using bank-, industry- and country-level data for 32, mostly high-income, countries between 1996 and 2006, this paper is the first to explicitly assess the relationship between financial innovation in the banking sector and (i) real sector growth, (ii) real sector volatility, and (iii) bank fragility. We find evidence for both bright and dark sides of financial innovation. On the one hand, we find that a higher level of financial innovation is associated with a stronger relationship between a country's growth opportunities and capital and GDP per capita growth and with higher growth rates in industries that rely more on external financing and depend more on innovation. On the other hand, we find that financial innovation is associated with higher growth volatility among industries more dependent on external financing and on innovation and with higher idiosyncratic bank fragility, higher bank profit volatility and higher bank losses during the recent crisis. |
| Keywords: | Financial Innovation, Financial R&D Intensity, Bank Risk Taking, Financial Crisis, Industrial Growth, Finance and Growth |
| JEL: | G2 G15 G28 G01 O3 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:hkm:wpaper:052012&r=ban |
| By: | Tobias Adrian |
| Abstract: | One year after passage of the Dodd-Frank Act (DFA), regulators proposed several of the rules required for its implementation. In this paper, I discuss some aspects of proposed DFA rules in light of shadow banking. The topics are risk-retention rules for securitized products and the impact of capital reforms on asset-backed commercial paper (ABCP) conduits. While the reform of securitization is resulting primarily from DFA, changes in accounting standards, together with the Basel capital reforms, have had important impacts on the economics of ABCP conduits. |
| Keywords: | Financial Regulatory Reform (Dodd-Frank Act) ; Asset-backed financing ; Commercial paper ; Assets (Accounting) |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:533&r=ban |
| By: | Carlos Arango; Dylan Hogg; Alyssa Lee |
| Abstract: | The authors present key insights from the Bank of Canada’s 2009 Methods-of-Payment survey. In the survey, about 6,800 participants completed a questionnaire with detailed information regarding their personal finances, as well as their use and perceptions of different payment methods. In addition, about 3,500 participants completed a 3-day diary recording information on each transaction, including the value and the payment instrument chosen. One of the main findings from the diaries is that, even though debit and credit cards account for close to 80 per cent of all transactions in terms of total value, cash is still the predominant payment method in terms of volume, accounting for 54 per cent of all transactions. Using the payment records from the diaries, the authors estimate a simple model of choice between cash and other payment methods. The results suggest that the main reasons why cash is still a popular payment instrument in Canada, especially for small-value transactions, are its wide acceptance among merchants, high ease of use or speed, low handling costs, simplicity as a tool to control spending, and anonymity. |
| Keywords: | Bank notes; Financial services |
| JEL: | E41 D12 L81 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:12-2&r=ban |
| By: | Francis Vitek; Scott Roger |
| Abstract: | This paper examines the transitional macroeconomic costs of a synchronized global increase in bank capital adequacy requirements under Basel III, as well as a capital increase covering globally systemically important banks. The analysis, using an estimated multi-country model, contributed to the work of the Macroeconomic Assessment Group analysis, especially in estimating the potential international spillovers associated with a global increase in capital requirements. The magnitude of the effects found in this analysis is relatively modest, especially if monetary policies have scope to ease in response to a widening of interest rate spreads by banks. |
| Keywords: | Banks , Capital , Cross country analysis , Economic models , Monetary policy , Spillovers , |
| Date: | 2012–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/44&r=ban |
| By: | Christoffer Kok Sørensen (European Central Bank); David Marqués Ibáñez (European Central Bank); Carlotta Rossi (Bank of Italy) |
| Abstract: | We model the determinants of loans to non-financial corporations in the euro area. Using the Johansen (1992) methodology, we identify three cointegrating relationships. These relationships are interpreted as the long-run loan demand, investment and loan supply equations. The short-run dynamics of loan demand for the euro area are subsequently modelled using a Vector Error Correction Model (VECM). We perform a number of specification tests, which suggest that developments in loans to non-financial corporations in the euro area can be reasonably explained by the model. We then use the estimated model to analyse the impact of permanent and temporary shocks to the policy rate on bank lending to non-financial corporations. |
| Keywords: | loans to non-financial corporations, credit. |
| JEL: | C32 C51 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_857_12&r=ban |
| By: | G. PEERSMAN |
| Abstract: | I estimate the impact of different types of bank lending shocks on the euro area economy. I first show that the dynamic effects depend on the type of shock. Whereas surges in lending caused by shocks at the supply side of the banking market have a significant positive impact on economic activity and inflation, exactly the opposite is the case for exogenous lending demand shocks. Second, the macroeconomic relevance of bank lending shocks is considerable. Overall, they account for more than half of output variation since the launch of the euro and up to 75 percent of long-run consumer prices variability. The majority of the fluctuations are caused by innovations to lending supply which are orthogonal to monetary policy. A more detailed inspection suggests that these innovations are mainly the result of shocks in the risk-taking appetite of banks triggered by shifts in long-term interest rates or the term spread. Specifically, when long-term government bond yields decline, banks reduce the volume of government loans and securities on their balance sheets whilst increasing the supply of loans to the private sector, which in turn boosts economic activity, inflation and short-run interest rates. Hence, in contrast to conventional wisdom, a falling term spread could predict rising economic activity, which has been the case for some periods within the sample. |
| Keywords: | Bank lending shocks, risk-taking, SVARs |
| JEL: | C32 E30 E44 E51 E52 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:11/766&r=ban |
| By: | Ruud A. de Mooij; Michael Keen |
| Abstract: | Understanding the impact of the asymmetric tax treatment of debt and equity on the capital structures of financial institutions is critical to shaping and assessing responses to the problem of excessive leverage that underlay the 2009 financial crisis - but there is no empirical evidence to draw on. Guided by a simple model of banks‘ financing decisions in the presence of both regulatory constraints and tax asymmetries, this paper explores the impact of corporate tax bias on bank leverage, the use of hybrid instruments and regulatory capital ratios for a panel of over 14,000 commercial banks in 82 countries over nine years. On average, the sensitivity of banks‘ debt choices proves very similar to that of non-financial firms, consistent with rough offsetting of two opposing effects suggested by the theory. As the model predicts, somewhat counter-intuitively, the impact of tax on hybrids is generally weak or insignificant. Responsiveness to taxation varies significantly across banks, however: those holding smaller equity buffers, and larger banks, are noticeably less sensitive to tax. |
| Keywords: | Commercial banks , Corporate taxes , Debt , Economic models , |
| Date: | 2012–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/48&r=ban |
| By: | Abhijit Sen Gupta (Asian Development Bank Institute (ADBI)) |
| Abstract: | Despite having a low exposure to the toxic assets involved in the sub-prime crisis and a gradualist approach towards liberalization of the financial sector, certain parts of the Indian financial sector were significantly affected by the global financial crisis. The consequent tightening of liquidity and slump in global and domestic demand had a strong adverse affect on the industrial sector, a large part of which includes small and medium-sized enterprises. There was a significant decline in employment and output in some of these enterprises. Though Indian policymakers reacted in a proactive manner and introduced a host of measures to counter the adverse effects of the financial crisis, the recovery has not been uniform; several markets and sectors are still reeling from the crisis’ aftershocks. The proposed Basel III norms are going to have a significant impact on the Indian financial sector. While it is in a comfortable position to meet some of the proposed Basel III norms, the implementation of some of the other norms will be a challenge. |
| Keywords: | Indian financial sector, financial crisis, Indian banking system, regulatory framework |
| JEL: | F41 G15 O11 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:eab:financ:23233&r=ban |
| By: | Demombynes, Gabriel; Thegeya, Aaron |
| Abstract: | The mobile revolution has transformed the lives of Kenyans, providing not just communications but also basic financial access in the form of phone-based money transfer and storage, led by the M-PESA system introduced in 2007. Currently, 93 percent of Kenyans are mobile phone users and 73 percent are mobile money customers. Additionally, 23 percent use mobile money at least once a day. New potential for mobile money has come with the rise of interest-earning bank-integrated mobile savings systems, beginning with the launch of the M-KESHO system in March 2010. The authors examine the mobile savings phenomenon, using data collected in a special survey in late 2010. They show that the usage of bank-integrated mobile savings systems like M-KESHO remains limited and largely restricted to better-off Kenyans. However, what the authors term"basic mobile savings"-- the use of simple mobile money systems as a repository for funds -- is widespread, including among those who are otherwise unlikely to have any savings. Holding other characteristics constant, those who are registered for M-PESA are 32 percent more likely to report having some savings. |
| Keywords: | Banks&Banking Reform,Emerging Markets,E-Business,Economic Theory&Research,E-Finance and E-Security |
| Date: | 2012–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5988&r=ban |
| By: | Ramdane Djoudad |
| Abstract: | Rising levels of household indebtedness have created concerns about the vulnerabilities of households to adverse economic shocks and the impact on financial stability. To assess these risks, the author presents a formal stress-testing framework that uses microdata to simulate how various economic shocks affect the distribution of the debt-service ratio (DSR) for the household sector. Data from an Ipsos Reid Canadian Financial Monitor survey are used to construct the actual DSR distribution for households. Changes in the distribution are then simulated using a macro scenario describing the evolution of some aggregate variables, and micro behavioural relationships; for example, to simulate credit growth for individual households, cross-sectional data are used to estimate debt-growth equations as a function of household income, interest rates and housing prices. The simulated distributions provide information on vulnerabilities in the household sector. The author also describes a combined methodology where changes in the probability of default on household loans are used as a metric to evaluate the quantitative impact of negative employment shocks on the resilience of households and loan losses at financial institutions. |
| Keywords: | Econometric and statistical methods; Financial stability |
| JEL: | C15 C31 D14 E51 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:12-3&r=ban |
| By: | Philip Messow |
| Abstract: | Synthetic Collateralized Debt Obligations (CDOs) were among the driving forces of the rapid growth of the market for credit derivatives in recent years. Possibly the most popular model beside the Gaussian copula for pricing CDO tranches is the Random-Factor-Loading-Model of Andersen and Sidenius (2005). We extend this model by allowing more than two regimes of default correlations. The model is calibrated to market spreads at times of financial distress and during calm periods. For both points in time the model correlation skews are similar to the steep skews observed in the market and lead to an improvement to the standard Random-Factor-Loading-Model. |
| Keywords: | Collateralized debt obligation; random-factor-loading; pricing; financial dependence; factor model; default risk; correlated defaults |
| JEL: | C58 G13 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0317&r=ban |
| By: | Fabbri, Francesca; Marin, Dalia |
| Abstract: | The compensation of executive board members in Germany has become a highly controversial topic since Vodafone's hostile takeover of Mannesmann in 2000 and it is again in the spotlight since the outbreak of the financial crisis of 2009. Based on unique panel data evidence of the 500 largest firms in Germany in the period 1977-2009 we test two prominent hypotheses in the literature on executive pay: the manager power hypothesis and the efficient pay hypothesis. We find support for the manager power hypothesis for Germany as executives tend to be rewarded when the sector is doing well rather than the firm they work for. We reject, however, the efficient pay hypothesis as CEO pay and the demand for managers increases in Germany in difficult times when the typical firm size shrinks. We find further that domestic and global competition for managers has contributed to the rise in executive pay in Germany. Lastly, we show that CEOs in the banking sector are provided with incentives for performance and that the great recession of 2009 acted as a disciplining devise on CEO pay in Germany. |
| Keywords: | manager power hypothesis; efficient pay hypothesis; domestic and global competition for managers; CEO pay in banks; CEO pay in the financial crisis |
| JEL: | F23 J3 M12 M52 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:12817&r=ban |
| By: | Hajime Tomura |
| Abstract: | The author introduces a central counterparty (CCP) into a model of a repo market. Without the CCP, there exist multiple equilibria in the model. In one of the equilibria, a repo market emerges as bond dealers and cash investors choose to arrange repos in an over-the-counter bond market. In another equilibrium, the repo market collapses due to aggregate cash shortage for dealers. Introducing a CCP into the repo market blocks the latter equilibrium. This stabilizing effect of a CCP is robust to idiosyncratic default risk of dealers and asymmetric information about the risk. |
| Keywords: | Payment, clearing, and settlement systems; Financial markets; Financial stability |
| JEL: | G24 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:12-4&r=ban |
| By: | Domenico Giannone; Michèle Lenza; Lucrezia Reichlin |
| Abstract: | This paper uses a data-set including time series data on macroeconomic variables, loans, deposits and interest rates for the euro area in order to study the features of financial intermediation over the business cycle. We find that stylized facts for aggregate monetary and real variables are re- markably similar to what has been found for the US by many studies while we uncover new facts on disaggregated loans and deposits. During the crisis the cyclical behavior of short term interest rates, loans and deposits remain stable but we identify unusual dynamics of longer term loans, deposits and longer term interest rates. |
| Keywords: | Money; Loans; Non-financial corporations; Monetary policy; euro area |
| JEL: | E32 E51 E52 C32 C51 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2013/112202&r=ban |
| By: | Pierre Henry-Labordere (SOCIETE GENERALE - Equity Derivatives Research Societe Generale - Société Générale) |
| Abstract: | The purpose of this paper is to design an algorithm for the computation of the counterparty risk which is competitive in regards of a brute force ''Monte-Carlo of Monte-Carlo" method (with nested simulations). This is achieved using marked branching diffusions describing a Galton-Watson random tree. Such an algorithm leads at the same time to a computation of the (bilateral) counterparty risk when we use the default-risky or counterparty-riskless option values as mark-to-market. Our method is illustrated by various numerical examples. |
| Keywords: | Counterparty risk valuation; BSDE; branching diffusions; semi-linear PDE; Galton-Watson tree |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00677348&r=ban |