|
on Banking |
| By: | Damar, H. Evren; Gropp, Reint; Mordel, Adi |
| Abstract: | The paper employs a unique identification strategy that links survey data on household consumption expenditure to bank level data in order to estimate the effects of bank financial distress on consumer credit and consumption expenditures. Specifically, we show that households whose banks were more exposed to funding shocks report significantly lower levels of non-mortgage liabilities compared to a matched sample of households. The reduced access to credit, however, does not result in lower levels of consumption. Instead, we show that households compensate by drawing down liquid assets. Only households without the ability to draw on liquid assets reduce consumption. The results are consistent with consumption smoothing in the face of a temporary adverse lending supply shock. The results contrast with recent evidence on the real effects of finance on firms' investment, where even temporary adverse credit supply shocks are associated with significant real effects. -- |
| Keywords: | credit supply,banking,financial crisis,consumption expenditure,liquid assets,consumption smoothing |
| JEL: | E21 E44 G21 G01 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:39&r=ban |
| By: | Eufinger, Christian; Gill, Andrej |
| Abstract: | This paper proposes a new regulatory approach that implements capital requirements contingent on managerial compensation. We argue that excessive risk taking in the financial sector originates from the shareholder moral hazard created by government guarantees rather than from corporate governance failures within banks. The idea of the proposed regulation is to utilize the compensation scheme to drive a wedge between the interests of top management and shareholders to counteract shareholder risk-shifting incentives. The decisive advantage of this approach compared to existing regulation is that the regulator does not need to be able to properly measure the bank investment risk, which has been shown to be a difficult task during the 2008-2009 financial crisis. -- |
| Keywords: | Basel III,capital regulation,compensation,leverage,risk |
| JEL: | G21 G28 G30 G32 G38 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:9&r=ban |
| By: | Lambert, Claudia; Noth, Felix; Schüwer, Ulrich |
| Abstract: | This paper tests whether an increase in insured deposits causes banks to become more risky. We use variation introduced by the U.S. Emergency Economic Stabilization Act in October 2008, which increased the deposit insurance coverage from $100,000 to $250,000 per depositor and bank. For some banks, the amount of insured deposits increased significantly; for others, it was a minor change. Our analysis shows that the more affected banks increase their investments in risky commercial real estate loans and become more risky relative to unaffected banks following the change. This effect is most distinct for affected banks that are low capitalized. -- |
| Keywords: | financial crisis,deposit insurance,bank regulation |
| JEL: | G21 G28 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:38&r=ban |
| By: | Eisert, Tim; Eufinger, Christian |
| Abstract: | This paper presents a theory that explains why it is beneficial for banks to be highly interconnected on the interbank market. Using a simple network structure, it shows that, if there is a non-zero bailout probability, banks can significantly increase the expected repayment of uninsured creditors by entering into cyclical liabilities on the interbank market before investing in loan portfolios. Therefore, banks are better able to attract funds from uninsured creditors. Our results show that implicit government guarantees incentivize banks to have large interbank exposures, to be highly interconnected, and to invest in highly correlated, risky portfolios. -- |
| Keywords: | bailout,cycle flows,cyclical liabilities,interbank network,leverage |
| JEL: | G01 G21 G28 L14 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:10&r=ban |
| By: | Aldasoro, Iñaki; Angeloni, Ignazio |
| Abstract: | The analyses of intersectoral linkages of Leontief (1941) and Hirschman (1958) provide a natural way to study the transmission of risk among interconnected banks and to measure their systemic importance. In this paper we show how classic input-output analysis can be applied to banking and how to derive six indicators that capture different aspects of systemic importance, using a simple numerical example for illustration. We also discuss the relationship with other approaches, most notably network centrality measures, both formally and by means of a simulated network. -- |
| Keywords: | banks,input-output,systemic risk,too-interconnected-to-fail,networks,interbank markets |
| JEL: | C67 G00 G01 G20 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:29&r=ban |
| By: | Bluhm, Marcel; Faia, Ester; Krahnen, Jan Pieter |
| Abstract: | We develop a dynamic network model whose links are governed by banks' optimizing decisions and by an endogenous tâtonnement market adjustment. Banks in our model can default and engage in firesales: risk is trasmitted through direct and cascading counterparty defaults as well as through indirect pecuniary externalities triggered by firesales. We use the model to assess the evolution of the network configuration under various prudential policy regimes, to measure banks' contribution to systemic risk (through Shapley values) in response to shocks and to analyze the effects of systemic risk charges. We complement the analysis by introducing the possibility of central bank liquidity provision. -- |
| Keywords: | Network formation,tâtonnement,contagion |
| JEL: | G0 G2 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:12&r=ban |
| By: | Angeloni, Ignazio; Faia, Ester; Lo Duca, Marco |
| Abstract: | We assess the effects of monetary policy on bank risk to verify the existence of a risk-taking channel - monetary expansions inducing banks to assume more risk. We first present VAR evidence confirming that this channel exists and tends to concentrate on the bank funding side. Then, to rationalize this evidence we build a macro model where banks subject to runs endogenously choose their funding structure (deposits vs. capital) and risk level. A monetary expansion increases bank leverage and risk. In turn, higher bank risk in steady state increases asset price volatility and reduces equilibrium output. -- |
| Keywords: | bank runs,risk taking,monetary policy |
| JEL: | E5 G2 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:8&r=ban |
| By: | Raymond Chaudron; Jakob de Haan |
| Abstract: | We analyse three databases of banking crises and investigate their consistency in the identification and timing of crises. We find that there are large and statistically significant discrepancies between the three datasets. We also compare the dating of banking crises according to these databases using information on the number and size of bank failures for four crises for which the timing strongly differs across these databases. We conclude that information on these variables allows determining the timing of banking crises more precisely. On the basis of our findings, we consider the database compiled by Laeven and Valencia to be the most accurate. |
| Keywords: | systemic banking crises; dating of crises; bank failures; monetary statistics; financial accounts |
| JEL: | G01 G21 N20 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:406&r=ban |
| By: | Hett, Florian; Schmidt, Alexander |
| Abstract: | We show that market discipline, defined as the extent to which firm specific risk characteristics are re ected in market prices, eroded during the recent financial crisis in 2008. We design a novel test of changes in market discipline based on the relation between firm specific risk characteristics and debt-to-equity hedge ratios. We find that market discipline already weakened after the rescue of Bear Stearns before disappearing almost entirely after the failure of Lehman Brothers. The effect is stronger for investment banks and large financial institutions, while there is no comparable effect for non-financial firms. -- |
| Keywords: | Bailout,Implicit Guarantees,Too-Big-To-Fail,Market Discipline |
| JEL: | G14 G21 G28 H81 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:36&r=ban |
| By: | Camelia Minoiu; Chanhyun Kang; V.S. Subrahmanian; Anamaria Berea |
| Abstract: | The global financial crisis has reignited interest in models of crisis prediction. It has also raised the question whether financial connectedness - a possible source of systemic risk - can serve as an early warning indicator of crises. In this paper we examine the ability of connectedness in the global network of financial linkages to predict systemic banking crises. Our results indicate that increases in a country's financial interconnectedness and decreases in its neighbors' connectedness are associated with a higher probability of banking crises after controlling for macroeconomic fundamentals. |
| Keywords: | Global Financial Crisis 2008-2009;Financial crisis;Banking crisis;Financial risk;Economic integration;early warning systems, systemic risk, financial networks, banking crises |
| Date: | 2013–12–24 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/267&r=ban |
| By: | Wall, Larry D. (Federal Reserve Bank of Atlanta) |
| Abstract: | The United States is now committed to using two relatively sophisticated approaches to measuring capital adequacy: Basel III and stress tests. This paper shows how stress testing could mitigate weaknesses in the way Basel III measures credit and interest rate risk, the way it measures bank capital, and the way it creates countercyclical capital buffers. However, this paper also emphasizes the extent to which stress tests add value will depend upon the exercise of supervisor discretion in the design of stress scenarios. Whether supervisors will use this discretion more effectively than they have used other tools in the past remains to be seen. |
| Keywords: | capital adequacy; Basel capital ratios; stress test |
| JEL: | E50 G01 G21 G28 |
| Date: | 2013–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2013-15&r=ban |
| By: | Paries, Matthieu Darraq; Faia, Ester; Palenzuela, Diego Rodriguez |
| Abstract: | Euro area data show a positive connection between sovereign and bank risk, which increases with banks' and sovereign long run fragility. We build a macro model with banks subject to incentive problems and liquidity risk (in the form of liquidity based banks' runs) which provides a link between endogenous bank capital and macro and policy risk. Our banks also invest in risky government bonds used as capital buffer to self-insure against liquidity risk. The model can replicate the positive connection between sovereign and bank risk observed in the data. Central bank liquidity policy, through full allotment policy, is successful in stabilizing the spiraling feedback loops between bank and sovereign risk. -- |
| Keywords: | liquidity risk,sovereign risk,capital regulations |
| JEL: | E5 G2 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:7&r=ban |
| By: | Christian Fieberg (University of Bremen - Faculty for Business Study & Economics); Armin Varmaz (University of Applied Sciences Bremen - International Finance & Corporate Finance); Jörg Prokop (University of Oldenburg - Finance and Banking & ZenTra); Finn Marten Körner (University of Oldenburg & ZenTra) |
| Abstract: | We study the information content of about 3,300 global bank rating changes before and after the Lehman shock in September 2008 from an equity investor's perspective. Based on a multi-model event study approach, we find that while upgrades are not associated with significant abnormal bank stock returns, downgrades have a significantly negative effect. In addition, abnormal returns are more negative post-Lehman, and even when controlling for bank size, this effect is considerably stronger for small banks than for large banks. We conclude that large banks' stock prices seem to be to some extent insulated from negative rating information even post-Lehman due to an implicit "too big to fail" subsidy anticipated by equity investors. |
| Keywords: | credit rating, event study, too big to fail, SIFI, multi-factor approach |
| JEL: | G14 G15 N2 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:zen:wpaper:24&r=ban |
| By: | Gropp, Reint |
| Abstract: | In this note, a new concept for a European deposit guarantee scheme is proposed, which takes account of the strong political reservations against a mutualization of the liability for bank deposits. The three-stage model for deposit insurance outlined in the text builds on existing national deposit guarantee schemes, offering loss compensation on a European level and at the same time preventing excessive risk and moral hazard taking by individual banks. -- |
| Keywords: | bank risk,banking union,deposit insurance |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewh:6&r=ban |
| By: | Allen, D.E.; Powell, R.J.; Singh, A.K. |
| Abstract: | __Abstract__ In this paper, we develop a new capital adequacy buffer model (CABM) which is sensitive to dynamic economic circumstances. The model, which measures additional bank capital required to compensate for fluctuating credit risk, is a novel combination of the Merton structural model which measures distance to default and the timeless capital asset pricing model (CAPM) which measures additional returns to compensate for additional share price risk. |
| Keywords: | credit risk, capital buffer, distance to default, conditional value at risk, Capital adequacy buffer model |
| JEL: | G01 G21 G28 |
| Date: | 2013–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:ems:eureir:50131&r=ban |
| By: | Carlos León; Clara Machado; Andrés Murcia |
| Abstract: | This document presents an enhanced and condensed version of preceding proposals for identifying systemically important financial institutions in Colombia. Three systemic importance metrics are implemented: (i) money market net exposures network hub centrality; (ii) large-value payment system network hub centrality; and (iii) an adjusted assets measure. Two complementary aggregation methods for those metrics are implemented: fuzzy logic and principal component analysis. The two resulting indexes concur in several features: (i) the ranking and remoteness of the top-two most systemically important financial institutions; (ii) the preeminence of credit institutions in the indexes; (iii) the appearance of a brokerage firm in the top-six; (iv) the skewed nature of the indexes, which match the skewed (i.e. inhomogeneous) nature of the three metrics and their approximate scale-free distribution. The indexes are non-redundant and provide a comprehensive relative assessment of each financial institution’s systemic importance, in which the choice of metrics pursues the macro-prudential perspective of financial stability. The indexes may serve financial authorities as quantitative tools for focusing their attention and resources where the severity resulting from an institution failing or near-failing is estimated to be the greatest. They may also serve them for enhanced policy and decision-making. |
| Keywords: | Systemic Importance, Systemic Risk, Fuzzy Logic, Principal Component Analysis, Financial Stability, Macro-prudential. Classification JEL: D85, C63, E58, G28 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:800&r=ban |
| By: | Matias Costa Navajas; Aaron Thegeya |
| Abstract: | The paper tests the effectiveness of financial soundness indicators (FSIs) as harbingers of banking crises, using multivariate logit models to see whether FSIs, broad macroeconomic indicators, and institutional indicators can indeed predict crisis occurrences. The analysis draws upon a data set of homogeneous indicators comparable across countries over the period 2005 to 2012, leveraging the IMF’s FSI database. Results indicate significant correlation between some FSIs and the occurrence of systemic banking crises, and suggest that some indicators are precursors to the occurrence of banking crises. |
| Keywords: | Financial soundness indicators;Banking sector;Banking crisis;External shocks;Financial soundness indicators; banking crises; macroprudential analysis |
| Date: | 2013–12–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/263&r=ban |
| By: | Bülbül, Dilek; Schmidt, Reinhard H.; Schüwer, Ulrich |
| Abstract: | Until about 25 years ago, almost all European countries had a so-called three pillar banking system comprising private banks, (public) savings banks and (mutual) cooperative banks. Since that time, several European countries have implemented far-reaching changes in their banking systems, which have more than anything else affected the two pillars of the savings and cooperative banks. The article describes the most important changes in Germany, Austria, France, Italy and Spain and characterizes the former and the current roles of savings banks and cooperative banks in these countries. A particular focus is placed on the German case, which is almost unique in so far as the German savings banks and cooperative banks have maintained most of their traditional features. The article concludes with a plea for diversity of institutional forms of banks and argues that it is important to safeguard the strengths of those types of banks that do not conform to the model of a large shareholder-oriented commercial bank. -- |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewh:5&r=ban |
| By: | Bernanke, Ben S. (Board of Governors of the Federal Reserve System (U.S.)) |
| Date: | 2013–04–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgsq:624&r=ban |
| By: | Hyun Song Shin |
| Abstract: | This paper compares three types of early warning indicators of financial instability – those based on financial market prices, those based on normalized measures of total credit and those based on liabilities of financial intermediaries. Prices perform well as concurrent indicators of market conditions but are not suitable as early warning indicators. Total credit and liabilities convey similar information and perform better as early warning indicators, but liabilities are more transparent and the decomposition between core and non-core liabilities convey additional useful information. |
| Keywords: | Business cycles;Capital markets;Credit;Demand for money;China;Banks;Monetary aggregates;Non-core liabilities, credit cycles, financial stability |
| Date: | 2013–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/258&r=ban |
| By: | Adams, Zeno; Füss, Roland; Gropp, Reint |
| Abstract: | In this paper, we develop a state-dependent sensitivity value-at-risk (SDSVaR) approach that enables us to quantify the direction, size, and duration of risk spillovers among financial institutions as a function of the state of financial markets (tranquil, normal, and volatile). Within a system of quantile regressions for four sets of major financial institutions (commercial banks, investment banks, hedge funds, and insurance companies) we show that while small during normal times, equivalent shocks lead to considerable spillover effects in volatile market periods. Commercial banks and, especially, hedge funds appear to play a major role in the transmission of shocks to other financial institutions. Using daily data, we can trace out the spillover effects over time in a set of impulse response functions and find that they reach their peak after 10 to 15 days. -- |
| Keywords: | Risk spillovers,state-dependent sensitivity value-at-risk (SDSVaR),quantile regression,financial institutions,hedge funds |
| JEL: | G01 G10 G24 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:20&r=ban |
| By: | Michael Kumhof; Romain Ranciere; Pablo Winant |
| Abstract: | The paper studies how high household leverage and crises can arise as a result of changes in the income distribution. Empirically, the periods 1920-1929 and 1983-2008 both exhibited a large increase in the income share of high-income households, a large increase in debt leverage of the remainder, and an eventual financial and real crisis. The paper presents a theoretical model where higher leverage and crises arise endogenously in response to a growing income share of high-income households. The model matches the profiles of the income distribution, the debt-to-income ratio and crisis risk for the three decades prior to the Great Recession. |
| Keywords: | Income distribution;Private sector;Credit demand;Debt;Financial crisis;Income inequality; wealth inequality; debt leverage; financial crises; wealth in utility; global solution methods. |
| Date: | 2013–12–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/249&r=ban |
| By: | Daniel Felix Ahelegbey (Department of Economics, University of Venice Ca' Foscari); Paolo Giudici (Department of Economics and Management, University of Pavia) |
| Abstract: | The latest financial crisis has stressed the need of understanding the world financial system as a network of interconnected institutions, where financial linkages play a fundamental role in the spread of systemic risks. In this paper we propose to enrich the topological perspective of network models with a more structured statistical framework, that of Bayesian graphical Gaussian models. From a statistical viewpoint, we propose a new class of hierarchical Bayesian graphical models, that can split correlations between institutions into country specific and idiosyncratic ones, in a way that parallels the decomposition of returns in the well-known Capital Asset Pricing Model. From a financial economics viewpoint, we suggest a way to model systemic risk that can explicitly take into account frictions between different financial markets, particularly suited to study the on-going banking union process in Europe. From a computational viewpoint, we develop a novel Markov Chain Monte Carlo algorithm based on Bayes factor thresholding. |
| Keywords: | Applied Bayesian models, Graphical Gaussian Models, Systemic financial risk |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:pav:demwpp:demwp0063&r=ban |
| By: | Mercedes Garcia-Escribano |
| Abstract: | This paper investigates the transmission of monetary policy by private banks in Brazil during the recent easing cycle. The analysis presented uses a panel dataset with information on lending by private banks in Brazil and concludes that monetary transmission through lending volumes was not impaired. Instead, the observed diminished lending appears to be related to supply and demand factors, as well as to the rapid expansion of public banks’ lending. |
| Keywords: | Monetary transmission mechanism;Brazil;Monetary policy;Business cycles;Credit expansion;Banks;Private sector;Loans;monetary transmission, monetary policy, credit growth |
| Date: | 2013–12–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/251&r=ban |
| By: | Alan Taylor |
| Abstract: | Consider two views of the global financial crisis. One view looks across the border: it blames external imbalances, the unprecedented current account deficits and surpluses in recent years. Another view looks within the border: it faults domestic financial systems where risks originated in excessive credit booms. We can use the lens of macroeconomic and financial history to confront these dueling hypotheses with evidence. The credit boom explanation is the most plausible predictor of crises since the late nineteenth century; global imbalances have only a weak correlation with financial distress compared to indicators drawn from the financial system itself. |
| Keywords: | Financial crisis;Current account;Credit expansion;Capital flows;Business cycles;Financial crises, financial openness, capital controls, current account, external imbalances |
| Date: | 2013–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/260&r=ban |
| By: | Tröger, Tobias H. |
| Abstract: | This paper analyzes the evolving architecture for the prudential supervision of banks in the euro area. It is primarily concerned with the likely effectiveness of the SSM as a regime that intends to bolster financial stability in the steady state. By using insights from the political economy of bureaucracy it finds that the SSM is overly focused on sharp tools to discipline captured national supervisors and thus underincentives their top-level personnel to voluntarily contribute to rigid supervision. The success of the SSM in this regard will hinge on establishing a common supervisory culture that provides positive incentives for national supervisors. In this regard, the internal decision making structure of the ECB in supervisory matters provides some integrative elements. Yet, the complex procedures also impede swift decision making and do not solve the problem adequately. Ultimately, a careful design and animation of the ECB-defined supervisory framework and the development of inter-agency career opportunities will be critical. The ECB will become a de facto standard setter that competes with the EBA. A likely standoff in the EBA's Board of Supervisors will lead to a growing gap in regulatory integration between SSM-participants and other EU Member States. Joining the SSM as a non-euro area Member State is unattractive because the current legal framework grants no voting rights in the ECB's ultimate decision making body. It also does not supply a credible commitment opportunity for Member States who seek to bond to high quality supervision. -- |
| Keywords: | prudential supervision,banking union,regulatory capture,political economy of bureaucracy,Single Supervisory Mechanism (SSM),European Central Bank (ECB),European Banking Authority (EBA) |
| JEL: | G21 G28 H77 K22 K23 L22 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:27&r=ban |
| By: | Miguel A. Segoviano Basurto; Bradley Jones; Peter Lindner; Johannes Blankenheim |
| Abstract: | This paper examines the financial stability implications arising from securitization markets, with one eye on the past and another on the future. The paper begins by deriving a number of “lessons learned†based on an examination of key industry developments in the years before the crisis. Emphasis is placed on the various ways in which securitization markets dramatically changed shape in the years preceding the crisis, vis-à -vis their earlier (simpler) incarnation. Current impediments to securitization markets are then discussed, including a treatment of various regulatory initiatives, the operational infrastructure of securitization markets, and related official sector intervention. Finally, a broad suite of policy recommendations is presented to address the factors that either contributed to the crisis or may currently be posing obstacles to growth-supportive, sustainable securitization markets. These proposals are guided by the objective of preserving the beneficial features of securitization, while mitigating those that pose a potential risk to financial stability. |
| Keywords: | Financial crisis;Capital markets;Monetary policy;Financial instruments;Asset management;Global Financial Crisis 2008-2009;Finance; Financial Crisis; Intermediation; Bank, Mortgages, and Foreclosures; Financial Instruments; Institutional Investors; Investment Banking; Rating; Rating Agencies; Regulation. |
| Date: | 2013–12–19 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/255&r=ban |
| By: | Dumitriu, Ramona; Stefanescu, Razvan; Nistor, Costel |
| Abstract: | : In Romania, as in many Central and Eastern Europe countries, during the communist regime all the banks were owned by the state and their activities were circumscribed by rigid norms. After the communist regime had fallen, the state owned banks had to adapt to a competitive environment. The management inefficiency, the political interests and the corruption led some of these banks to critical situations. Such circumstances convinced Romanian authorities to privatize the banks owned by state. From the seven state-owned banks that activated in the 1990s in Romania, one had to be closed, four were privatized and two are still in the state propriety. In this paper we approach some turning points in the evolutions of these banks. We also try to configure the future of the remained state-owned banks. |
| Keywords: | Ownership of Banks, Transition, Political Interests, Corruption, Privatization |
| JEL: | G18 G21 G32 L33 P34 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:52768&r=ban |
| By: | Geert Bekaert; Michael Ehrmann; Marcel Fratzscher; Arnaud Mehl |
| Abstract: | We analyze the transmission of the financial crisis of 2007 to 2009 to 415 country-industry equity portfolios. We use a factor model to predict crisis returns, defining unexplained increases in factor loadings and residual correlations as indicative of contagion. While we find evidence of contagion from the U.S. and the global financial sector, the effects are small. By contrast, there has been substantial contagion from domestic markets to individual domestic portfolios, with its severity inversely related to the quality of countries' economic fundamentals. This confirms the "wake-up call" hypothesis, with markets focusing more on country-specific characteristics during the crisis. |
| Keywords: | contagion; financial crisis; equity markets; global transmission; market integration; country risk; factor model; financial policies; FX reserves, current account |
| JEL: | F3 G14 G15 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1352&r=ban |
| By: | Anton Korinek; Jonathan Kreamer |
| Abstract: | Financial regulation is often framed as a question of economic efficiency. This paper, by contrast, puts the distributive implications of financial regulation center stage. We develop a model in which the financial sector benefits from risk-taking by earning greater expected returns. However, risktaking also increases the incidence of large losses that lead to credit crunches and impose negative externalities on the real economy. We describe a Pareto frontier along which different levels of risktaking map into different levels of welfare for the two parties. A regulator has to trade off efficiency in the financial sector, which is aided by deregulation, against efficiency in the real economy, which is aided by tighter regulation and a more stable supply of credit. We also show that financial innovation, asymmetric compensation schemes, concentration in the banking system, and bailout expectations enable or encourage greater risk-taking and allocate greater surplus to the financial sector at the expense of the rest of the economy. |
| Keywords: | Financial sector;Banks;Capital;Economic models;Financial Regulation, Distributive Conflict, Rent Extraction, Growth of the Financial Sector |
| Date: | 2013–12–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/247&r=ban |
| By: | Purificacion Parrado-Martinez (Department of Financial Economics and Accounting, Universidad de Jaen); Antonio Parta Ureña (Department of Financial Economics and Accounting, Universidad de Jaen); Pilar Gomez Fernandez-Aguado (Department of Financial Economics and Accounting, Universidad de Jaen) |
| Abstract: | The latest global financial crisis has highlighted the importance of monitoring the stability and soundness of the financial system. In 1999, the International Monetary Fund (IMF) undertook an initiative to develop and compile a set of macro-prudential indicators, the so called “Financial Soundness Indicators” (FSIs). This paper inspects the usefulness of these indicators to explain the financial soundness of EU member countries. Using ordered response models and credit ratings as a proxy for country risk, we examine the impact of capital adequacy, asset quality and earnings core FSIs on the financial risk of EU for the period 2008-2011. In addition, we explore the possible relationship between the financial development level of a country and its financial soundness. Our analysis provides evidence of the ability of some of these indicators to illustrate the health of the financial sector, as well as a significant positive relationship between financial development and financial soundness of a country. |
| Keywords: | Financial Soundness Indicators, rating agencies, ordered response models, financial development, European Union |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:pab:fiecac:14.01&r=ban |
| By: | Bernanke, Ben S. (Board of Governors of the Federal Reserve System (U.S.)) |
| Date: | 2014–01–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgsq:637&r=ban |
| By: | Marcelo Bianconi (Department of Economics, Tufts University, USA); Xiaxin Hua (Department of Economics, Clark University, USA); Chih Ming Tan (Department of Economics, University of North Dakota, USA) |
| Abstract: | We study the effects of two measures of information dissemination on the determination of systemic risk. One measure is print-media consumer sentiment based while the other is volatility based. We find evidence that while the volatility measure (VIX) of future expectations has a more significant direct impact upon systemic risk of financial firms under distress, a consumer sentiment measure based on print-media news does impact upon firm’s financial stress via the externality of other firm’s financial stress. This latter effect is robust even though the VIX and the consumer sentiment have dynamic feedback in the short one and two-day horizon in levels, and contemporaneously in volatility. In reference to the internet bubble of the 1990s, the consumer sentiment measure predicts larger systemic risk in the whole period of exuberance while the VIX predicts a sharp larger systemic risk in the height of the bubble. Our evidence suggests that print-media consumer sentiment might be dominated by the VIX when predicting systemic risk. |
| Keywords: | conditional value-at-risk, VIX, externality, consumer sentiment |
| JEL: | G00 G14 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:67_13&r=ban |
| By: | Aggarwal, Raj (University of Akron); Goodell, John (University of Akron) |
| Abstract: | The preference of microfinance institutions for women borrowers is generally attributed to two reasons: women borrowers are more trustworthy and have greater social impact. However, the role of social trust with regard to this gender preference has not been adequately investigated. Controlling for the social outreach goals of MFIs, we document that MFIs favor women more in low trust countries, suggesting that women are targeted to offset low social trust. We also examine how the nature of trust formation affects this relationship between gender targeting and trust. Our results should be of considerable interest to policymakers and scholars. |
| JEL: | A14 G21 J16 J30 O16 |
| Date: | 2013–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:1317&r=ban |
| By: | Paul H. Kupiec (American Enterprise Institute); Levent Guntay |
| Abstract: | An emerging literature proposes using conditional value at risk and marginal expected shortfall to measure financial institution systemic risk. We identify two weaknesses in this literature: (1) it lacks formal statistical hypothesis tests; and, (2) it confounds systemic and systematic risk. We address these weaknesses by introducing a null hypothesis that stock returns are normally distributed. |
| Keywords: | AEI Economic Policy Working Paper Series |
| JEL: | A G |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:aei:rpaper:39862&r=ban |