|
on Banking |
| By: | Simon Cornée (CREM - Centre de Recherche en Economie et Management - CNRS : UMR6211 - Université de Rennes 1 - Université de Caen Basse-Normandie, CERMi - Centre for European Research in Microfinance); Ariane Szafarz (CERMi - Centre for European Research in Microfinance, Centre Emile Bernheim - Université Libre de Bruxelles (ULB) - SBS-EM) |
| Abstract: | Social banks are financial intermediaries paying attention to non-economic (i.e., social, ethical, and environmental) criteria. To investigate the behavior of social banks on the credit market, this paper proposes both theory and empirics. Our theoretical model rationalizes the idea that reciprocity can generate better repayment performances. Based on a unique hand-collected dataset released by a French social bank, our empirical results are twofold. First, we show that the bank charges below-market interest rates for social projects. Second, regardless of their creditworthiness, motivated borrowers respond to advantageous credit terms by significantly lowering their probability of default. We interpret this outcome as the first evidence of reciprocity in the credit market. |
| Keywords: | Social bank; reciprocity; social identity |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00874615&r=ban |
| By: | Thomas R. Hurd; Davide Cellai; Huibin Cheng; Sergey Melnik; Quentin Shao |
| Abstract: | In the aftermath of the interbank market collapse of 2007-08, the traditional idea that systemic risk is primarily the risk of cascading bank defaults has evolved into the view that it involves both cascading bank defaults as well as funding liquidity shocks, and that both types of shocks impair the functioning of the remaining undefaulted banks. In current models of systemic risk, these two facets, namely funding illiquidity and insolvency, are treated as two separate phenomena. Our paper introduces a deliberately simplified model which integrates insolvency and illiquidity in financial networks and that can provide answers to the question of how illiquidity or default of one bank can influence the overall level of liquidity stress and default in the network. First, this paper proposes a stylized model of individual bank balance sheets that builds in regulatory constraints. Secondly, three different possible states of a bank, namely the normal state, the stressed state and the insolvent state, are identified with conditions on the bank's balance sheet. Thirdly, the paper models the behavioural response of a bank when it finds itself in the stressed or insolvent states. Importantly, a stressed bank seeks to protect itself from the default of its counterparties, but creates stress in the network by forcing its debtor banks to raise cash. Versions of these proposed models can be solved by large-network asymptotic cascade formulas. Details of numerical experiments are given that verify that these asymptotic formulas yield the expected quantitative agreement with Monte Carlo results for large finite networks. These experiments illustrate clearly our main conclusion that in financial networks, the average default probability is inversely related to strength of banks' stress response and therefore to the overall level of stress in the network. |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1310.6873&r=ban |
| By: | Valentina Bruno (American University); Hyun Song Shin (Princeton University) |
| Abstract: | We investigate global factors associated with cross-border capital flows. We formulate a model of gross capital flows through the international banking system and derive a closed form solution that highlights the leverage cycle of global banks as being a prime determinant of the transmission of financial conditions across borders. We then test the predictions of our model in a panel study of 46 countries and find that global factors dominate local factors as determinants of banking sector capital flows. |
| Keywords: | cross-border banking flows, bank leverage, global banks |
| JEL: | F32 F33 F34 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:pri:cepsud:237a%20shin&r=ban |
| By: | Anastasia Cozarenco (AMSE - Aix-Marseille School of Economics - Aix-Marseille Univ. - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales [EHESS] - Ecole Centrale Marseille (ECM)); Ariane Szafarz (Centre Emile Bernheim - Université Libre de Bruxelles (ULB) - SBS-EM, CERMi - Centre for European Research in Microfinance) |
| Abstract: | This paper compares the loans granted to male and female entrepreneurs by a French microfinance institution (MFI). The sample period is split in two: before and after the MFI implemented the French EUR 10,000 regulatory loan-size ceiling. In the first period, the MFI does not co-finance projects with mainstream banks and loan size is gender-insensitive. In the second period, the MFI does co-finance above-ceiling projects with mainstream banks, and we observe a gender gap in loan size. The results suggest that co-financing leads the originally gender-neutral MFI to import disparate treatment from mainstream banks. |
| Keywords: | microcredit; loan-size ceiling regulation; commercial bank loan; gender discrimination; glass ceiling; France |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00874448&r=ban |
| By: | Athanasoglou, Panayiotis; Ioannis, Daniilidis; Manthos, Delis |
| Abstract: | The recent global financial crisis has highlighted the importance of the procyclicality of the financial sector. The procyclicality has transformed banks from mitigation mechanisms to amplifiers of changes in economic activity, potentially affecting financial stability and economic growth. The causes of procyclicality can be attributed to market imperfections and deviations from the efficient market hypothesis, while other factors including the Basel-type regulations, accounting standards and leverage have exacerbated it. Several suggestions have been forwarded to attenuate procyclicality, in the form of rules and discretion. They are presented here according to the factors they aim to alleviate. Some of the suggestions have been adopted under the Basel III framework, which explicitly addresses the procyclicality issue. |
| Keywords: | Banking, procyclicality, demand and supply of loans, capital requirements, Basel II and III |
| JEL: | E3 E32 G2 G21 G28 G3 |
| Date: | 2013–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:50830&r=ban |
| By: | Valentina Bruno (American University); Hyun Song Shin (Princeton University) |
| Abstract: | This paper develops methods for assessing the sensitivity of capital flows to global financial conditions, and applies the methods in assessing the impact of macroprudential policies introduced by Korea in 2010. Relative to a comparison group of countries, we find that the sensitivity of capital flows into Korea to global conditions decreased in the period following the introduction of macroprudential policies. |
| Keywords: | capital flows, credit booms, macroprudential policy |
| JEL: | F32 F33 F34 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:pri:cepsud:237c%20shin&r=ban |
| By: | Landier, Augustin; Sraer, David; Thesmar, David |
| Abstract: | We show empirically that banks' exposure to interest rate risk, or income gap, plays a crucial role in monetary policy transmission. In a first step, we show that banks typically retain a large exposure to interest rates that can be predicted with income gap. Secondly, we show that income gap also predicts the sensitivity of bank lending to interest rates. Quantitatively, a 100 basis point increase in the Fed funds rate leads a bank at the 75th percentile of the income gap distribution to increase lending by about 1.6 percentage points annually relative to a bank at the 25th percentile. |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:27664&r=ban |
| By: | Antoaneta Sergueiva |
| Abstract: | Research capacity is critical in understanding systemic risk and informing new regulation. Banking regulation has not kept pace with all the complexities of financial innovation. The academic literature on systemic risk is rapidly expanding. The majority of papers analyse a single source or a consolidated source of risk and its effect. A fraction of publications quantify systemic risk measures or formulate penalties for systemically important financial institutions that are of practical regulatory relevance. The challenges facing systemic risk evaluation and regulation still persist, as the definition of systemic risk is somewhat unsettled and that affects attempts to provide solutions. Our understanding of systemic risk is evolving and the awareness of data relevance is rising gradually; this challenge is reflected in the focus of major international research initiatives. There is a consensus that the direct and indirect costs of a systemic crisis are enormous as opposed to preventing it, and that without regulation the externalities will not be prevented; but there is no consensus yet on the extent and detail of regulation, and research expectations are to facilitate the regulatory process. This report outlines an integrated approach for systemic risk evaluation based on multiple types of interbank exposures through innovative modelling approaches as tensorial multilayer networks, suggests how to relate underlying economic data and how to extend the network to cover financial market information. We reason about data requirements and time scale effects, and outline a multi-model hypernetwork of systemic risk knowledge as a scenario analysis and policy support tool. The argument is that logical steps forward would incorporate the range of risk sources and their interrelated effects as contributions towards an overall systemic risk indicator, would perform an integral analysis of ... |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1310.6486&r=ban |
| By: | BERTSCH, Christoph |
| Abstract: | This thesis comprises theoretical work on financial markets and banking. The first essay features a model of liquidity provision. I analyze how the severity of adverse selection problems in one market is a effected if alternative sources of finance, which are not subject to adverse selection problems, become more easily available. In particular, I find that the adverse selection problem can be either mitigated or amplified, giving rise to new implications for equilibrium welfare, efficiency and policy. Furthermore, I examine how and under what conditions a central bank can address a market failure during a financial crisis by using existing market institutions to re-allocate liquidity in the economy. The second essay develops a new contagion mechanism in coordination games. With our model we offer an explanation why a contagious spread of a crisis can occur even if agents learn that their country (or bank) is not exposed to crisis events elsewhere. What is more, we show that the likelihood of a spread of the crisis can be higher if agents learn that their country is not exposed to the crisis in the other country, than if agents stay uninformed about the actual exposure and believe that a cross-country exposure is possible. The third essay examines the effect of state aid on the collective competitive behavior in a repeated-game setting. We consider an application to the banking sector and find that a systematic bailout regime may increase the likelihood of (tacit) collusion in an industry characterized by idiosyncratic shocks. The reason being that state aid increases the expected profits from cooperation and simultaneously raises the probability that competitors will still be in business to carry out punishment against cheaters. |
| Keywords: | Financial economics; Money markets; Banks and banking |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euidis:urn:hdl:1814/28029&r=ban |
| By: | Dominic Quint; Pau Rabanal |
| Abstract: | In this paper, we study the optimal mix of monetary and macroprudential policies in an estimated two-country model of the euro area. The model includes real, nominal and financial frictions, and hence both monetary and macroprudential policy can play a role. We find that the introduction of a macroprudential rule would help in reducing macroeconomic volatility, improve welfare, and partially substitute for the lack of national monetary policies. Macroprudential policy would always increase the welfare of savers, but their effects on borrowers depend on the shock that hits the economy. In particular, macroprudential policy may entail welfare costs for borrowers under technology shocks, by increasing the countercyclical behavior of lending spreads. |
| Keywords: | Monetary policy;Euro Area;European Economic and Monetary Union;Macroprudential Policy;Credit expansion;Economic models;Monetary Policy, EMU, Basel III, Financial Frictions. |
| Date: | 2013–10–14 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/209&r=ban |
| By: | Aloisio Araujo (EPGE-FGV/RJ and IMPA); Bruno Funchal (FUCAPE Business School) |
| Abstract: | This study investigates the relationship between debtor punishment and the development of the credit market. We empirically analyze how the level of debtor punishment relates to the credit market expansion. We find evidence that an increase in debtor punishment tends to produce a positive effect on credit markets for states with low level of punishment and a negative effect for states with high level of punishment. Hence, there is an intermediate level of debtor punishment that maximizes the size of the personal credit market. This intermediate level accounts for the need of creditors' protection to reduce moral hazard, to encourage the supply of credit, and for the need to protect borrowers from a bad state of nature |
| Keywords: | Credit; bankruptcy; regulation and business law; personal bankruptcy law |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:bbz:fcpwps:41&r=ban |
| By: | Valentina Bruno (American University); Hyun Song Shin (Princeton University) |
| Abstract: | We study the dynamics linking monetary policy with bank leverage and show that adjustments in leverage act as the linchpin in the monetary transmission mechanism that works through fluctuations in risk-taking. Motivated by the evidence, we formulate a model of the risk-taking channel of monetary policy in the international context that rests on the feedback loop between increased leverage of global banks and capital flows amid currency appreciation for capital recipient economies. |
| Keywords: | Bank leverage, monetary policy, capital flows, risk-taking channel |
| JEL: | F32 F33 F34 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:pri:cepsud:237b%20shin&r=ban |
| By: | Wakamori, Naoki; Welte, Angelika |
| Abstract: | Recent studies find that cash remains a dominant payment choice for small-value transactions despite the prevalence of alternative methods of payment such as debit and credit cards. For policy makers an important question is whether consumers truly prefer using cash or merchants restrict card usage. Using unique shopping diary data, we estimate a payment choice model with individual unobserved heterogeneity (demandside factors) while controlling for merchants’ acceptance of cards (supply-side factors). Based on a policy simulation where we impose universal card acceptance among merchants, we find that overall cash usage would decrease by only 7.7 percentage points, implying that cash usage in small-value transactions is driven mainly by consumers’ preferences. |
| Keywords: | Money demand; Payment methods; Consumer financial behavior |
| JEL: | G2 D1 C2 |
| Date: | 2013–10–24 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:431&r=ban |
| By: | Bertsch, Christoph (Monetary Policy Department, Central Bank of Sweden) |
| Abstract: | Market distress can be the catalyst of a deleveraging wave, as in the 2007/08 financial crisis. This paper demonstrates how market distress and deleveraging can fuel each other in the presence of adverse selection problems in asset markets. At the core of the detrimental feedback loop is agents' desire to reduce their reliance on distressed asset markets by decreasing their leverage which in turn amplifies the adverse selection problem in asset markets. In the extreme case, this leads to a market breakdown. I find that adverse selection creates both an "ex-ante" inefficiency because it distorts agents' long-term leverage choices and an "interim" inefficiency because it distorts agents' short-term liquidity management. I derive important implications for central bank policy. |
| Keywords: | Leverage; endogenous borrowing constraints; financial crisis; liquidity; asymmetric information; central bank policy |
| JEL: | D82 E58 G01 G20 |
| Date: | 2013–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0277&r=ban |
| By: | Di Bu; Yin Liao |
| Abstract: | This paper extends Merton's structural credit risk model to account for the fact that the firm's asset volatility follows a stochastic process. With the presence of stochastic volatility, the transformed-data maximum likelihood estimation (MLE) method of Duan (1994, 2000) can no longer be applied to estimate the model. We devise a particle filtering algorithm to solve this problem. This algorithm is based on the general non-linear and non-Gaussian filtering with sequential parameter learning, and a simulation study is conducted to ascertain its finite sample performance. Meanwhile, we implement this model on the real data of companies in Dow Jones industrial average and find that incorporating stochastic volatility into the structural model can largely improve the model performance. |
| Keywords: | Credit risk; Merton model; Stochastic volatility; Particle Filtter; Default probability; CDS |
| JEL: | C22 |
| Date: | 2013–10–28 |
| URL: | http://d.repec.org/n?u=RePEc:qut:auncer:2013_91&r=ban |
| By: | Carmen Kislat; Lukas Menkhoff; Doris Neuberger |
| Abstract: | Apart from altruistic reasons, NGOs may engage in developing countries under conditions of conflict and war in order to secure funding and survive in the ‘market’ of humanitarian relief and development assistance. Applying a difference-in-difference-in-differences approach, we analyze empirically whether the presence of US-based NGOs in Afghanistan and Iraq improved their chances of external funding. We find that NGOs being active in Afghanistan tended to benefit from easier access to official sources of funding after the US intervention, compared to NGOs staying away. Nevertheless, there is no compelling evidence that it pays for NGOs to engage where the United States intervenes militarily |
| Keywords: | collateral, informal lenders, private Information, relationship lending, distance |
| JEL: | G21 O16 O17 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1879&r=ban |
| By: | Markus Behn; Rainer Haselmann; Paul Wachtel |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:ste:nystbu:13-11&r=ban |
| By: | Serkan Arslanalp; Raphael W. Lam |
| Abstract: | This paper examines how Japan’s long-term interest rates and Japanese banks’ interest rate risk exposures may evolve under Abenomics. Results from a panel regression analysis for major advanced economies shows that long-term government bond yields in Japan are determined to a large extent by growth and inflation outlook, fiscal conditions, demography, and the investor base of government securities. A further deterioration of fiscal conditions would push up long-term rates by about 2 percentage points over the medium term, but the rise is partly offset by higher demand for safe assets amid population aging and increased purchases by the Bank of Japan. At the same time, illustrative scenarios suggest the interest rate risk exposure of Japanese banks could decline substantially over the next two years. However, if structural and fiscal reforms are incomplete, both long-tem yields and interest-risk exposures of Japanese banks could increase over the medium term. |
| Date: | 2013–10–18 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/213&r=ban |
| By: | Michael D. Bordo; John Landon-Lane |
| Abstract: | In this paper we investigate the relationship between loose monetary policy, low inflation, and easy bank credit with asset price booms. Using a panel of up to 18 OECD countries from 1920 to 2011 we estimate the impact that loose monetary policy, low inflation, and bank credit has on house, stock and commodity prices. We review the historical narratives on asset price booms and use a deterministic procedure to identify asset price booms for the countries in our sample. We show that “loose” monetary policy – that is having an interest rate below the target rate or having a growth rate of money above the target growth rate – does positively impact asset prices and this correspondence is heightened during periods when asset prices grew quickly and then subsequently suffered a significant correction. This result was robust across multiple asset prices and different specifications and was present even when we controlled for other alternative explanations such as low inflation or “easy” credit. |
| JEL: | N1 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19585&r=ban |
| By: | Walentin, Karl (Monetary Policy Department, Central Bank of Sweden) |
| Abstract: | What are the business cycle effects of shocks to the interest rate spread between residential mortgages and government bonds of the corresponding maturity? We start by noting that the mortgage spread (i) has substantial volatility,(ii) is countercyclical and (iii) leads GDP by 2-3 quarters. Using a structural VAR, we find that innovations to the mortgage spread reduce house prices, residential investment, consumption and GDP by both economically and statistically significant magnitudes. Furthermore, the policy interest rate reacts strongly and in an offsetting direction to mortgage spread innovations. These findings highlight the relevance of financial frictions in residential mortgage markets as an unexplored source of business cycles. In addition, we show that unconventional monetary policy which affects the mortgage spread has sizable macroeconomic impact. Our results are robust to the inclusion of a corporate spread |
| Keywords: | Sources of business cycles; unconventional monetary policy; credit supply; housing demand; house prices; financial frictions |
| JEL: | E21 E32 E44 E52 R21 |
| Date: | 2013–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0275&r=ban |
| By: | Paul Wachtel |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:ste:nystbu:13-09&r=ban |