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on Banking |
| By: | Ansgar Walther |
| Abstract: | Banks create excessive systemic risk through leverage and maturity mismatch, as financial constraints introduce welfare-reducing pecuniary externalities. Macroprudential regulators can achieve efficiency with simple linear constraints on banks' balance sheets, which require less information than Pigouvian taxes. These can be implemented using the Liquidity Coverage and Net Stable Funding ratios of Basel III. When bank failures are socially costly, microprudential regulation of leverage is also required. Optimally, macroprudential policy reacts to changes in systematic risk and credit conditions over the business cycle, while microprudential policy reacts to both systematic and idiosyncratic risk. |
| Keywords: | Systemic risk, leverage, maturity mismatch, macroprudential regulation, liquidiity, capital requirements, fire sales |
| JEL: | G18 G21 G28 E44 |
| Date: | 2014–09–25 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:725&r=ban |
| By: | Eugenio Cerutti; Stijn Claessens |
| Abstract: | International banks greatly reduced their direct cross-border and local affiliates’ lending as the global financial crisis strained balance sheets, lowered borrower demand, and changed government policies. Using bilateral, lender-borrower countrydata and controlling for credit demand, we show that reductions largely varied in line with markets’ prior assessments of banks’ vulnerabilities, with banks’ financial statement variables and lender-borrower country characteristics playing minor roles. We find evidence that moving resources within banking groups became more restricted as drivers of reductions in direct cross-border loans differ from those for local affiliates’ lending, especially for impaired banking systems. Home bias induced by government interventions, however, affected both equally. |
| Keywords: | Cross-border banking;International banks;Loans;Credit;Supply and demand;Banking systems;Balance sheets;Financial statements;Global banks, Credit supply, Financial crisis, Deleveraging, International capital markets |
| Date: | 2014–09–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:14/180&r=ban |
| By: | Kris James Mitchener; Matthew Jaremski |
| Abstract: | We use a novel data set spanning 1820-1910 to examine the origins of bank supervision and assess factors leading to the creation of formal bank supervision across U.S. states. We show that it took more than a century for the widespread adoption of independent supervisory institutions tasked with maintaining the safety and soundness of banks. State legislatures initially pursued cheaper regulatory alternatives, such as double liability laws; however, banking distress at the state level as well as the structural shift from note-issuing to deposit-taking commercial banks and competition with national banks propelled policymakers to adopt costly and permanent supervisory institutions. |
| JEL: | E44 G28 N11 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20603&r=ban |
| By: | Radde, Sören |
| Abstract: | This paper argues that counter-cyclical liquidity hoarding by financial intermediaries may strongly amplify business cycles. It develops a dynamic stochastic general equilibrium model in which banks operate subject to agency problems and funding liquidity risk in their inter- mediation activity. Importantly, the amount of liquidity reserves held in the financial sector is determined endogenously: Balance sheet constraints force banks to trade off insurance against funding outflows with loan scale. A financial crisis, simulated as an abrupt decline in the collateral value of bank assets, triggers a flight to liquidity, which strongly amplifies the initial shock and induces credit crunch dynamics sharing key features with the Great Recession. The paper thus develops a new balance sheet channel of shock transmission that works through the composition of banks' asset portfolios. JEL Classification: E22, E32, E44 |
| Keywords: | bank capital channel, credit crunch, funding liquidity risk, liquidity hoarding, macro-finance |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20141729&r=ban |
| By: | Lux, Thomas |
| Abstract: | This paper proposes a stochastic model of a bipartite credit network between banks and the non-bank corporate sector that encapsulates basic stylized facts found in comprehensive data sets for bank-firm loans for a number of countries. When performing computational experiments with this model, we find that it shows a pronounced non-linear behavior under shocks: The default of a single unit will mostly have practically no knock-on effects, but might lead to an almost full-scale collapse of the entire system in a certain number of cases. The dependency of the overall outcome on firm characteristics like size or number of loans seems fuzzy. Distinguishing between contagion due to interbank credit and due to joint exposures to counterparty risk via loans to firms, the later channel appears more important for contagious spread of defaults. |
| Keywords: | credit network,contagion,interbank network |
| JEL: | D85 G21 D83 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fmpwps:19&r=ban |
| By: | Alejandro Ponce (World Justice Project); Enrique Seira (Centro de Investigación Económica (CIE), Instituto Tecnológico Autónomo de México (ITAM)); Guillermo Zamarripa (FUNDEF, México) |
| Abstract: | We study how consumers allocate debt across credit cards they already hold using new data on credit card activity for a representative sample of consumers with two homogeneous cards in Mexico. We find that relative prices are a very weak predictor of the allocation of debt, purchases, and payments. On average, consumers pay 31% above their minimum financing cost. Evidence on cross-card debt elasticities with respect to interest rates and credit limits show no substitution in the price margin. Our findings offer evidence against the cost-minimizing hypothesis, provide support to behavioral explanations, and have important implications for pricing and competition. |
| Keywords: | Credit cards; household finance; consumer behavior; Mexico |
| JEL: | D12 D14 D40 G02 G20 G28 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:cie:wpaper:1406&r=ban |
| By: | Roukny, Tarik; Georg, Co-Pierre; Battiston, Stefano |
| Abstract: | In this paper, we report a descriptive investigation of the structural evolution of two of the most important over-the-counter markets for liquidity in Germany: the interbank market for credit and for derivatives. We use end-of-quarter data from the German large credit register between 2002 and 2012 and characterize the underlying networks. Surprisingly, the data show little or no impact of the 2008 crisis on the structure of credit market. The derivative market however exhibits a peak of concentration in the run up to the crisis. Globally, both markets exhibit high stability for most of the networks metrics and high correlation amongst them. |
| Keywords: | financial networks,interbank market,credit default swaps,liquidity |
| JEL: | G2 G21 D85 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:222014&r=ban |
| By: | Òscar Jordà; Moritz Schularick; Alan M. Taylor |
| Abstract: | This paper unveils a new resource for macroeconomic research: a long-run dataset covering disaggregated bank credit for 17 advanced economies since 1870. The new data show that the share of mortgages on banks' balance sheets doubled in the course of the 20th century, driven by a sharp rise of mortgage lending to households. Household debt to asset ratios have risen substantially in many countries. Financial stability risks have been increasingly linked to real estate lending booms which are typically followed by deeper recessions and slower recoveries. Housing finance has come to play a central role in the modern macroeconomy. |
| JEL: | C14 C38 C52 E32 E37 E44 E51 G01 G21 N10 N20 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20501&r=ban |
| By: | Frederic Lambert; Kenichi Ueda |
| Abstract: | Unconventional monetary policy is often assumed to benefit banks. However, we find little supporting evidence. Rather, we find some evidence for heightened medium-term risks. First, in an event study using a novel instrument for monetary policy surprises, we do not detect clear effects of monetary easing on bank stock valuation but find a deterioration of medium-term bank credit risk in the United States, the euro area, and the United Kingdom. Second, in panel regressions using U.S. banks’ balance sheet information, we show that bank profitability and risk taking are ambiguously affected, while balance sheet repair is delayed. |
| Keywords: | Monetary policy;Interest rate policy;United States;Euro Area;United Kingdom;Banks;Credit risk;Bank soundness;Balance sheets;Regression analysis;Monetary Policy, Bank Profitability, Bank Risk, Balance Sheet Repair |
| Date: | 2014–08–13 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:14/152&r=ban |
| By: | Le, Vo Phuong Mai (Cardiff Business School); Meenagh, David (Cardiff Business School); Minford, Patrick (Cardiff Business School) |
| Abstract: | This paper gives money a role in providing cheap collateral in a model of banking; besides the Taylor Rule, monetary policy can affect the risk-premium on bank lending to firms by varying the supply of M0, so at the zero bound monetary policy is effective; fiscal policy crowds out investment via the risk-premium. A rule for making M0 respond to credit conditions can enhance the economy’s stability. Both price-level and nominal GDP targeting rules for interest rates combined with this stabilise the economy further. With these rules for monetary control, aggressive and distortionary regulation of banks’ balance sheets becomes redundant. |
| Keywords: | DSGE model; Financial Frictions; Crises; Indirect Inference; money supply; QE; monetary policy; fiscal multiplier; zero bound |
| JEL: | E3 E44 E52 C1 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2014/22&r=ban |
| By: | Mendicino, Caterina; Punzi, Maria Teresa |
| Abstract: | This paper evaluates the monetary and macroprudential policies that mitigate the procyclicality arising from the interlinkage4s between current account deficits and financial vulnerabilities. We develop a two-country dynamic stochastic general equilibrium (DSGE) model with heterogeneous households and collateralised debt. The model predicts that external shocks are important in driving current account deficits that are coupled with run-ups in house prices and household dept. In this context, optimal policy features an interestrate response to credit and a LTV ration that countercyclically responds to house price dynamics. By allowing an interest-rate response to changes in financial variables, the monetary policy authority improves social welfare, because of the large welfare gains accrued to the savers. The additional use of a countercyclical LTV ratio that responds to house prices, increases the ability of borrowers to smooth consumption over the cycle and is Pareto improving. Domestic and foreign shocks account for a similar fraction of the welfare gains delivered by such a policy. |
| Keywords: | house prices,financial frictions,global imbalances,saving glut,dynamic loan-to value ratios,monetary policy,optimized simple rules |
| JEL: | C33 E51 F32 G21 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fmpwps:10&r=ban |
| By: | Ibrahim Danlami, Mohammed; Richard Mayowa, Dada |
| Abstract: | The paper examined the impact of Automated Teller Machines (ATMs) on customers’ satisfaction in Ilorin metropolis, the capital city of Kwara state, Nigeria, using three purposively selected commercial banks in the city, that is; First Bank of Nigeria Plc., Guaranty Trust Bank Plc. and First City Monument Bank Plc. The objective is to ascertain the relationship between ATM usage and customers’ satisfaction in Nigeria. The study employed primary data sourced through structured questionnaires as the data collection procedure. The questionnaires were administered to 180 customers (60 from each bank), selected randomly at the banks’ ATM terminals during the course of transactions. Descriptive and inferential statistical technique tools such as tables, percentages and charts were used to present and analyze the data, while the chi-square technique was applied to test for the hypothesis. The result revealed that there is a significant relationship between ATM usage and customers’ satisfaction. The study thus recommended among others, that restriction on cash withdrawals by customers per day should be abolished by Monetary Authority in order to enhance customer satisfaction and to promote financial inclusion in Nigeria. |
| Keywords: | ICT, Commercial banks, ePayment, Infrastructure, ATM, Remote-on-us withdrawals. |
| JEL: | O33 |
| Date: | 2014–11–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:59757&r=ban |
| By: | Leo F. Goodstadt (Hong Kong Institute for Monetary Research and Hong Kong Institute for the Humanities and Social Sciences and University of Dublin) |
| Abstract: | This paper investigates why China's leaders were unable to halt the mounting crisis in funding local government from 2009. The analysis traces a long history of co-option of the banking system by local officials. The national leadership was obstructed in monitoring and controlling the escalating dependence on banks to fund local administrations because of a long-standing failure to reform key legal, fiscal and administrative systems. The ideological reluctance to implement reforms in land ownership fostered an unauthorised and often unlawful symbiosis between local officials, property developers and bank executives. The paper argues that the Government's plans for restructuring local government finances through the use of bond flotations in particular will face considerable delay. |
| Keywords: | China, Local Government, Banking, Financial Crisis, Land Ownership, Reforms |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:hkm:wpaper:272014&r=ban |
| By: | Briglevics, Tamás; Schuh, Scott |
| Abstract: | Data from the 2012 Diary of Consumer Payment Choice (DCPC) shows substantial changes in payment instrument use of U.S. households compared to the results in Klee (2008) (which were based on data from 2001): Checks have virtually disappeared from purchase transactions, while still play a role in bill payments. Cash, on the other hand, still plays a large role for low-value transactions. The diary data is used to jointly analyse payment instrument use and consumers' demand for liquid assets. Preliminary results indicate that payment instrument choice is an integral part of consumers' cash management practices and hence cash demand; therefore, contrary to simple Baumol (1952)|Tobin (1956) models, they should be analysed together. JEL Classification: E41, E42 |
| Keywords: | cash withdrawals, Diary of Consumer Payment Choice, money demand, payment cards, payment instrument choice |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20141684&r=ban |