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on Banking |
| By: | James Bullard |
| Abstract: | January 4, 2013. Presentation. "The Global Battle Over Central Bank Independence." NABE Panel Discussion: "Federal Reserve Independence in the Aftermath of the Financial Crisis: Should We Be Worried?" AEA/ASSA Annual Meeting, San Diego, California. |
| Keywords: | Banks and banking, Central ; Federal Reserve System - Independence ; Transparency |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:208&r=ban |
| By: | William C. Dudley |
| Abstract: | Remarks at the 2013 OTC Derivatives Conference, Paris, France. |
| Keywords: | Over-the-counter markets ; Derivative securities ; Financial market regulatory reform ; Systemic risk ; Financial risk management ; Competition |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsp:113&r=ban |
| By: | Chris Kenyon; Andrew Green |
| Abstract: | Regulators clearly believe that derivatives can never be risk free. Regulators have risk preferences and by imposing costly actions on banks they have made derivatives markets incomplete. These actions have idiosyncratic effects, for example the stress period for Market Risk capital is determined at the bank level, not at desk level. Idiosyncratic effects mean that no single measure makes assets and derivatives martingales for all market participants. Hence the market has no risk-neutral measure and Regulatory-compliant derivatives pricing is not risk-neutral. Market participants have idiosyncratic, multiple, risk-neutral measures but the market does not. Practically, we show that derivatives desks leak PnL (profit-and-loss) even with idealized markets providing credit protection contracts and unlimited liquidity facilities (i.e. repos with zero haircuts). This PnL leak means that derivatives desks are inherently risky as they must rely on competitive advantages to price in the costs of their risks. This strictly positive risk level means that Regulatory-required capital must also have strictly positive costs. Hence Regulatory-compliant derivatives markets are incomplete. If we relax our assumptions by permitting haircuts on repos the situation is qualitatively worse because new Regulatory-driven costs (liquidity buffers) enter the picture. These additional funding costs must be met by desks further stressing their business models. One consequence of Regulatory-driven incomplete-market pricing is that the FVA debate is resolved in favor of both sides: academics on principles (pay for risk); and practitioners on practicalities (desks do pay). As a second consequence we identify appropriate exit prices. |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1311.0118&r=ban |
| By: | Dong He (Hong Kong Monetary Authority and Hong Kong Institute for Monetary Research); Honglin Wang (Hong Kong Institute for Monetary Research) |
| Abstract: | We investigate how monetary policy in a mixed financial system such as that of China, which is characterized by a juxtaposition of quantity- and price-based policy instruments and the co-existence of regulated and market-determined interest rates, affects bank lending. Using a newly constructed loan-level dataset, we find that loan rates but not loan size are affected by both the regulated and the market-determined interest rates and that loan size is instead affected by an implicit quota that is imposed on aggregate bank lending through window guidance. We interpret this finding to be evidence of credit rationing. |
| Keywords: | Monetary Policy, Bank Lending, The People's Bank of China (PBC) |
| JEL: | E52 E58 G21 G34 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:hkm:wpaper:162013&r=ban |
| By: | Dinger, Valeriya; Craig, Ben |
| Abstract: | In this paper we relate a bank's choice between retail and wholesale liabilities to real economic uncertainty and the resulting volatility of bank loan volumes. We argue that since the volume of retail deposits is slow and costly to adjust to shocks in the volume of bank assets, banks facing more intense uncertainty and more volatile loan demand tend to employ more wholesale liabilities rather than retail deposits. We empirically confirm this argument using a unique dataset constructed from the weekly reports of the 122 largest U.S. commercial banks. The high frequency of the data allows us to employ dynamic identification schemes. Given the evidence presented in this paper we argue that regulatory measures targeting a cap on wholesale funding would limit funding uncertainty but will increase the exposure to asset-side shocks. -- |
| Keywords: | wholesale funding,retail deposits,bank uncertainty,loan volume volatility |
| JEL: | G21 E44 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:392013&r=ban |
| By: | Tobias Adrian; Nina Boyarchenko |
| Abstract: | We document the cyclical properties of the balance sheets of different types of intermediaries. While the leverage of the bank sector is highly procyclical, the leverage of the nonbank financial sector is acyclical. We propose a theory of a two-agent financial intermediary sector within a dynamic model of the macroeconomy. Banks are financed by issuing risky debt to households and face risk-based capital constraints, which leads to procyclical leverage. Households can also participate in financial markets by investing in a nonbank “fund” sector where fund managers face skin-in-the-game constraints, leading to acyclical leverage in equilibrium. The model also reproduces the empirical feature that the banking sector’s leverage growth leads the financial sector’s asset growth, while leverage in the fund sector does not precede growth in financial-sector assets. The procyclicality of the banking sector is due to its risk-based funding constraints, which give a central role to the time variation of endogenous uncertainty. |
| Keywords: | Intermediation (Finance) ; Uncertainty ; Households - Economic aspects ; Bank loans ; Business cycles |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:651&r=ban |
| By: | Patricia C. Mosser; Joseph Tracy; Joshua Wright |
| Abstract: | We explore the capital structure and governance of a mortgage-insuring securitization utility operating with government reinsurance for systemic or “tail” risk. The structure we propose for the replacement of the GSEs focuses on aligning incentives for appropriate pricing and transfer of mortgage risks across the private sector and between the private sector and the government. We present the justification and mechanics of a vintage-based capital structure, and assess the components of the mortgage guarantee fee, whose size we find is most sensitive to the required capital ratio and the expected return on that capital. We discuss the implications of selling off some of the utility’s mortgage credit risk to the capital markets and how the informational value of such transactions may vary with the level of risk transfer. Finally, we explore how mutualization could address incentive misalignments arising out of securitization and government insurance, as well as how the governance structure for such a financial market utility could be designed. |
| Keywords: | Mortgage-backed securities ; Government-sponsored enterprises ; Mortgages ; Risk management |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:644&r=ban |
| By: | Choi, Moon Jung; Gutierrez, Eva; Peria, Maria Soledad Martinez |
| Abstract: | This paper analyzes the lending behavior of foreign-owned banks during the recent global crisis. Using bank-level panel data for countries in Central and Eastern Europe, East Asia, and Latin America, the paper explores the role of affiliate and parent financial characteristics, host location, as well as the impact of parent geographic origin and reach on foreign banks'credit growth. Overall, the analysis finds robust evidence that foreign banks curtailed the growth of credit relative to other banks, independent of the host region. Banks from the United States reduced loan growth less than other parent banks. Neither the global nor regional reach of parent banks influenced the lending growth of foreign affiliates. However, the funding structure of foreign bank affiliates and the capitalization of parent banks do help explain the lending behavior of foreign banks during the global crisis. Although not the focus of the paper, it also finds that government-owned banks played a countercyclical role in all regions. |
| Keywords: | Banks&Banking Reform,Access to Finance,Debt Markets,Bankruptcy and Resolution of Financial Distress,Financial Intermediation |
| Date: | 2013–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6674&r=ban |
| By: | Abbassi, Puriya; Fecht, Falko; Weber, Patrick |
| Abstract: | We use a unique data set that comprises each bank's bids in the Eurosystem's main refinancing operations and its recourse to the LOLR facility (a) to derive banks' willingness-to-pay for liquidity through a one-week repo and (b) to show that a bank's willingness-to-pay is a good indicator for the probability that this bank draws on the LOLR facility. Our results suggest (i) that banks' willingness-to-pay for liquidity indeed reflects refinancing conditions in the interbank market and (ii) that the willingness-to-pay can serve as an early warning indicator for banking distress. -- |
| Keywords: | banks,liquidity,LOLR facility,repos,money markets,frictions |
| JEL: | D44 E42 E58 G21 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:402013&r=ban |
| By: | Lakshmi Balasubramanyan; James B Thomson; Saeed Zaman |
| Abstract: | The purpose of this study is to empirically analyze if loan loss provisioning is forward-looking. Using a confidential dataset that directly helps us identify loan demand and loan supply at the bank level, we test if the banks’ provisioning behavior is different before and after the crisis. We find, for the entire sample of banks, loan loss provisioning is forward-looking and statistically significant in the post-crisis period. Our results show that the top quartiles of banks in our dataset exhibit a forward-looking approach to loan loss provisioning both in the pre- and post-crisis period. From a policy perspective, the top quartile of banks in our sample is engaged in forward-looking loan loss provisioning. From an accounting stance, this may be suggestive of the largest banks being more engaged in earnings management and income smoothing than the smallest banks in our sample. However, from the banking regulation perspective, implementing forwardlooking loan loss provisioning is economically intuitive and will help build a countercyclical buffer, thereby strengthening bank balance sheets. |
| Keywords: | Bank loans |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:1313&r=ban |
| By: | Chaffai, Mohamed; Dietsch, Michel |
| Abstract: | The recent banking crisis has revealed the existence of strong resiliency factors in the retail banking business model. On average, retail banks suffered less than other financial institutions from unexpected market changes. This paper proposes a new methodology to measure retail banks' business risk, which is defined as the risk of adverse and unexpected changes in banks' profits coming from sudden changes in the banks' activities. This methodology is based on the efficiency frontier methodology, and, more specifically, on the duality property between the directional distance function and the profitfunction. Using the distance function to compute banks' profitability, we take the distance to the frontier of best practices as a measure of profit inefficiency, ie of unexpected losses related to underperformance. In this approach, shifts in the efficiency frontier induced by adverse shocks to banks' volumes serve as a measure of business risk. This measure of profit volatility allows a measurement to be made of the impact of volume changes on banks' profits. This method is applied to a database containing halfyearly regulatory accounting reports over the 1993-2011 period for more than 90 French banks running a retail banking business model. Our results verify a low level of business risk in retail banking, thus confirming the resiliency of the retail banks' business model. -- |
| Keywords: | Bank solvency,Retail Banking,Business Risk,Efficiency Analysis,Profit Frontier |
| JEL: | G21 D24 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:352013&r=ban |
| By: | Jost Heckemeyer (University of Mannheim); Ruud de Mooij (International Monetary Fund (IMF)) |
| Abstract: | This paper explores whether corporate tax bias toward debt finance differs between banks and nonbanks,using a large panel of micro data. On average, it finds that there is no significant difference. The marginal tax effect for both banks and non-banks is close to 0.2. However, the responsiveness differs considerably across the size distribution and the conditional leverage distribution. For nonbanks,we find a U-shaped relationship between asset size and tax responsiveness, although this pattern does not hold universally across the conditional leverage distribution. For banks, in contrast,the tax responsiveness declines linearly in asset size. Quantile regressions show further that capitaltight banks are significantly less responsive than are capital-abundant banks; the same pattern holdsfor the largest non-banks. Still, even the largest banks with high conditional leverage ratios feature a significant, positive tax response. |
| Keywords: | Corporate tax; debt bias; leverage; banks; non-financial firms; quantile regressions |
| JEL: | G21 G32 H25 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:btx:wpaper:1306&r=ban |
| By: | Zhongbo Jing; Jakob de Haan; Jan Jacobs; Haizhen Yang |
| Abstract: | We construct a money market pressure index based on central bank reserves and the short-term nominal interest rate to identify banking crises, thereby extending the index proposed by Von Hagen and Ho (2007). We compare the crises identified by both indices with banking crises according to the benchmark of Laeven and Valencia (2010). Both indices identify more crises than these benchmarks. The crises identified by our index are more in line with the benchmark than the crises identified by the Von Hagen and Ho index, while our index also gives fewer false signals. |
| Keywords: | banking crises; money market pressure index |
| JEL: | C43 E44 G21 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:397&r=ban |
| By: | Su-Hsin Chang; Silvio Contessi; Johanna L. Francis |
| Abstract: | The level of aggregate excess reserves held by U.S. depository institutions increased significantly at the peak of the financial crisis of 2007-09. Although the amount of aggregate reserves is almost entirely determined by the policy initiatives of the central bank that act on the asset side of its balance sheet, the motivations of individual banks in accumulating reserves differ and respond to the impact of changes in the economic environment on individual institutions. We undertake a systematic analysis of this massive accumulation of excess reserves using bank-level data for more than 7,000 commercial banks and almost 1,000 savings institutions during the U.S. financial crisis. We propose a testable stochastic model of reserves determination when interest is paid on reserves, which we estimate using bank-level data and censored regression methods. We find evidence primarily of a precautionary motive for reserves accumulation with some notable het- erogeneity in the response of reserves accumulation to external and internal factors of the largest banks compared with smaller banks. We combine propensity score matching and a difference-in- difference approach to determine whether the beneficiaries of the Capital Purchase Program of the Troubled Assets Relief Program accumulated lower reserves than non-beneficiaries. Contrary to anecdotal evidence, we find that banks that participated in the program accumulated fewer reserves than non-participants in the initial quarters after the capital injection. |
| Keywords: | Financial crises ; Bank reserves |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2013-029&r=ban |
| By: | Kaldasch, Joachim |
| Abstract: | An evolutionary model of the bank size distribution is presented based on the exchange and expansion of deposit money. In agreement with empirical results the derived size distribution is lognormal with a power law tail. The key idea of the theory is to regard the creation of money as a slow process compared to exchange processes of deposit money. The exchange of deposits causes a preferential growth of banks with a fitness determined by the competitive advantage to attract permanent deposits. They generate the lognormal part of the size distribution. Sufficiently large banks, however, benefit from economies of scale leading to a Pareto tail. The model suggests that the liberalization of the banking system in the last decades is the origin of an increasing skewness of the bank size distribution. -- |
| Keywords: | evolutionary economics,bank size,money,competition,Gibrat's law |
| JEL: | G21 L11 E11 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201355&r=ban |
| By: | Eric S. Rosengren |
| Abstract: | Remarks by Eric S. Rosengren, President and Chief Executive Officer, Federal Reserve Bank of Boston, at “Building a Financial Structure for a More Stable and Equitable Economy,” the 22nd Annual Hyman P. Minsky Conference on the State of the U.S. and World Economies, The Levy Economics Institute of Bard College and the Ford Foundation, New York, New York, April 17, 2013. |
| Keywords: | Financial stability ; Global Financial Crisis, 2008-2009 ; Investment banking |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbsp:71&r=ban |
| By: | Susan Herbst-Murphy |
| Abstract: | The Payment Cards Center organized a meeting at which senior officials from MasterCard shared information with Federal Reserve System payments analysts about the clearing and settlement functions that MasterCard performs for its client banks. These functions involve the transfer of information pertaining to card-based transactions (clearing) and the exchange of monetary value (settlement) that takes place between the banks whose customers are cardholders and those banks whose customers are card-accepting. This document summarizes some of the key points from that meeting. |
| Keywords: | Risk management |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpdp:13-02&r=ban |