nep-ban New Economics Papers
on Banking
Issue of 2015‒01‒26
25 papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. The Dual Role of Mobile Payment in Developing Countries By Laetitia Chaix; Dominique Torre
  2. Monetary Policy and Funding Spreads By Anella Munro; Benjamin Wong
  3. Group Lending and Endogenous Social Sanctions By Jean-Marie Baland; Rohini Somanathan; Zaki Wahhaj
  4. The impact of Basel III on trade finance: The potential unintended consequences of the leverage ratio By Auboin, Marc; Blengini, Isabella
  5. Sovereigns and banks in the euro area: a tale of two crises By Marta Gómez-Puig; Manish K. Singh; Simón Sosvilla-Rivero
  6. Centrality-based Capital Allocations By Adrian Alter; Ben Craig; Peter Raupach
  7. Supply restrictions, subprime lending and regional US house prices By André Kallåk Anundsen; Christian Heebøll
  8. Systemic risk and banking regulation: some facts on the new regulatory framework By Michele Bonollo; Irene Crimaldi; Andrea Flori; Fabio Pammolli; Massimo Riccaboni
  9. What predicts financial (in)stability? A Bayesian approach By Eidenberger, Judith; Neudorfer, Benjamin; Sigmund, Michael; Stein, Ingrid
  10. The effects of capital on bank lending in EU large banks – The role of procyclicality, income smoothing, regulations and supervision By Malgorzata Olszak; Mateusz Pipien; Sylwia Roszkowska; Iwona Kowalska
  11. Liquidity Risk and the Credit Crunch of 2007-2008: Evidence from Micro-Level Data on Mortgage Loan Applications By Adonis Antoniades
  12. Loan Sales and Bank Liquidity Risk Management: Evidence from a U.S. Credit Register By Irani, Rustom M.; Meisenzahl, Ralf R.
  13. Why Do SMEs Not Borrow More from Banks? Evidence from the People's Republic of China and Southeast Asia By Wignaraja, Ganeshan; Jinjarak, Yothin
  14. Livin' on the Edge with Ratings: Liquidity, Efficiency and Stability By Jonathan Chiu; Thorsten Koeppl
  15. What Drives Bank Funding Spreads? By King, Thomas B.; Lewis, Kurt F.
  16. Doctrine of public good in banking versus state intervention By Piotr Masiukiewicz
  17. Lend out IOU: A Model of Money Creation by Banks and Central Banking By Tianxi Wang
  18. The Impact of the Small Business Lending Fund on Community Bank Lending to Small Businesses By Amel, Dean F.; Mach, Traci L.
  19. Understanding the role of debt in the financial system By Bengt Holmstrom
  20. China’s financial crisis – the role of banks and monetary policy By Le, Vo Phuong Mai; Matthews, Kent; Meenagh, David; Minford, Patrick; Xiao, Zhiguo
  21. The International Transmission of Shocks: Foreign Bank Branches in Hong Kong during Crises By Simon Kwan; Eric T.C. Wong; Cho-hoi Hui
  22. Loan loss provisioning and procyclicality: Evidence from an expected loss model By Domikowsky, Christian; Bornemann, Sven; Duellmann, Klaus; Pfingsten, Andreas
  23. Shedding Light on Shadow Banking By Artak Harutyunyan; Alexander Massara; Giovanni Ugazio; Goran Amidzic; Richard Walton
  24. What drives the demand of monetary financial institutions for domestic government bonds? Empirical evidence on the impact of Basel II and Basel III By Lang, Michael; Schröder, Michael
  25. Do contractionary monetary policy shocks expand shadow banking? By Nelson, Benjamin; Pinter, Gabor; Theodoridis, Konstantinos

  1. By: Laetitia Chaix (University of Nice Sophia Antipolis, France; GREDEG CNRS); Dominique Torre (University of Nice Sophia Antipolis, France; GREDEG CNRS)
    Abstract: This paper analyzes the capacity of mobile-payment solutions to improve financial inclusion in developing countries. It elaborates from rural East African countries experiences where mobile payment services have developed rapidly. With a simple dynamic model which rationalizes traders' adoption process of distant mobile payment services, we analyze the role of telephonic operators in financial inclusion. We point out the interest of a diversified supply of m-payment services, including simplified solutions proposed by operators alone, in complement of more advanced services involving financial partners. We explain how such a diversified supply, including a ‘frugal’ innovative component, can be more efficient to improve financial inclusion than the only elaborated solutions provided cooperatively by operators and banks cooperatively.
    Keywords: Mobile-payment services, Financial inclusion, Developing countries, Switching costs, Frugal innovations
    JEL: E42 O33
    Date: 2015–01
  2. By: Anella Munro; Benjamin Wong (Reserve Bank of New Zealand)
    Abstract: Fluctuations in the margins banks paid (over risk-free interest rates) on their funding costs have been a significant factor since the financial crisis of 2008/09. This paper uses a model to analyse the response of New Zealand’s monetary policy to such fluctuations since 1993, On average, the 90 day bill rate moved seven times as much as the initial shock to funding cost margins.
    Date: 2014–12
  3. By: Jean-Marie Baland; Rohini Somanathan; Zaki Wahhaj
    Abstract: In recent years, microfinance institutions have expanded into group lending with individual liability, leaving out the joint liability clause which was an important feature in earlier lending contracts. Recent experimental evidence indicates that group lending may yield benefits, specifically lowering default rates, even in the absence of joint liability. In this paper, we develop a theoretical model where the public nature of group meetings means that borrowers have incentives to repay a group loan to safeguard their reputation. We show that the introduction of group loans with individual liability will cause sorting between joint liability and individual liability group loans. Specifically, borrowers who attach more importance to their reputation will select into individual liability loans, causing default rates and interest rates to rise for joint liability loans. The introduction of group loans with individual liability can even make joint liability loans infeasible in equilibrium.
    Keywords: Microfinance; Group Lending; Joint Liability; Social Sanctions; Reputation
    JEL: G21 O12 O16 D8
    Date: 2014–12
  4. By: Auboin, Marc; Blengini, Isabella
    Abstract: Trade finance, particularly in the form of short-term, self-liquidating letters of credit and the like, has received relatively favourable treatment regarding capital adequacy and liquidity under Basel III, the new international prudential framework. However, concerns have been expressed over the potential "unintended consequences" of applying the newly created leverage ratio to these instruments, notably for developing countries' trade. This paper offers a relatively simple model approach showing the conditions under which the initially proposed 100% leverage tax on non-leveraged activities such as letters of credit would reduce their natural attractiveness relative to higher-risk, less collateralized assets, which may stand in the balance sheet of banks. Under these conditions, the model shows that leverage ratio may nullify in part the effect of the low capital ratio that is commensurate to the low risk of such instruments. The decision by the Basel committee on 12 January 2014 to reduce the leverage ratio seems to be justified by the analytical framework developed in this paper.
    Keywords: trade financing,cooperation with international financial institutions,prudential supervision and trade
    JEL: E44 F13 F34 F36 O19 G21 G32
    Date: 2014
  5. By: Marta Gómez-Puig (Department of Economic Theory - Universitat de Barcelona); Manish K. Singh (Department of Economic Theory, Universitat de Barcelona); Simón Sosvilla-Rivero (Department of Quantitative Economics, Universidad Complutense de Madrid)
    Abstract: This study attempts to identify and trace inter-linkages between sovereign and banking risk in the euro area. To this end, we use an indicator of banking risk in each country based on the Contingent Claim Analysis literature, and 10-year government yield spreads over Germany as a measure of sovereign risk. We apply a dynamic approach to testing for Granger causality between the two measures of risk in 10 euro area countries, allowing us to check for contagion in the form of a significant and abrupt increase in short-run causal linkages. The empirical results indicate that episodes of contagion vary considerably in both directions over time and within the different EMU countries. Significantly, we find that causal linkages tend to strengthen particularly at the time of major financial crises. The empirical evidence suggests the presence of contagion, mainly from banks to sovereigns.
    Keywords: sovereign debt crisis, banking crisis, Granger-causality, time-varying approach, “distance-to-default”, euro area.
    JEL: C22 E44 G01 G13 G21
    Date: 2015–01
  6. By: Adrian Alter; Ben Craig; Peter Raupach
    Abstract: We look at the effect of capital rules on a banking system that is connected through correlated credit exposures and interbank lending. The rules, which combine individual bank characteristics and interconnectivity measures of interbank lending, are to minimize a measure of system-wide losses. Using the detailed German Credit Register for estimation, we find capital rules based on eigenvectors to dominate any other centrality measure, followed by closeness. Compared to the baseline case, capital reallocation based on the Adjacency Eigenvector saves about 15% in system losses as measured by expected bankruptcy costs.
    Keywords: Banking systems;Interconnectedness;Capital requirements;Credit risk;Systemic risk;Financial contagion;Econometric models;interconnectedness; systemic risk; SIFIs; network analysis
    Date: 2014–12–24
  7. By: André Kallåk Anundsen (Norges Bank (Central Bank of Norway)); Christian Heebøll (Department for Convergence and Competitiveness, European Central Bank)
    Abstract: With regard to the recent US house price cycle, we analyze how the interaction between housing supply restrictions, mortgage credit constraints and a price-to-price feedback loop affects house price volatility. Considering 247 Metropolitan Statistical Areas, we estimate a simultaneous boom-bust system for house prices, housing supply and subprime lending. The model accounts for regional differences in supply elasticities that are determined by local variations in topographical and regulatory supply restrictions. Our results suggest that tighter supply restrictions lead to both a larger house price boom and bust, and that this is due to supply restricted areas being signicantly more exposed to a financial accelerator effect and a price-to-price expectation mechanism. We further find that the presence of endogenous price acceleration mechanisms contribute to dilute the positive relationship between the total quantity response and the supply elasticity.
    Keywords: Regional boom-bust cycles, Housing supply restrictions, Subprime lending, Financial accelerator
    JEL: E32 E44 G21
    Date: 2014–12–22
  8. By: Michele Bonollo (Credito trevigiano; IMT Lucca Institute for Advanced Studies); Irene Crimaldi (IMT Lucca Institute for Advanced Studies); Andrea Flori (IMT Lucca Institute for Advanced Studies); Fabio Pammolli (IMT Lucca Institute for Advanced Studies); Massimo Riccaboni (IMT Lucca Institute for Advanced Studies)
    Abstract: The recent financial crisis highlighted the relevant role of the systemic effects of banks’ defaults on the stability of the whole financial system. In this work we draw an organic picture of the current regulations, moving from the definitions of systemic risk to the issues concerning data availability. We show how a more detailed flow of data on traded deals might shed light on some systemic risk features taken into account only partially in the past. In particular, we analyse how the new regulatory framework allows regulators to describe OTC derivatives markets according to more detailed partitions, thus depicting a more realistic picture of the system. Finally, we suggest to study sub-markets illiquidity conditions to consider possible spill over effects which might lead to a worsening for the entire system.
    Keywords: Systemic Risk, OTC Derivatives Market, Basel Regulations, European Market Infrastructure Regulation, Trade Repositories
    JEL: G01 G18 G21
    Date: 2015–01
  9. By: Eidenberger, Judith; Neudorfer, Benjamin; Sigmund, Michael; Stein, Ingrid
    Abstract: This paper contributes to the literature on early warning indicators by applying a Bayesian model averaging approach. Our analysis, based on Austrian data, is carried out in two steps: First, we construct a quarterly financial stress index (AFSI) quantifying the level of stress in the Austrian financial system. Second, we examine the predictive power of various indicators, as measured by their ability to forecast the AFSI. Our approach allows us to investigate a large number of indicators. The results show that excessive credit growth and high returns of banks' stocks are the best early warning indicators. Unstable funding (as measured by the loan to deposit ratio) also has a high predictive power.
    Keywords: financial crisis,early warning indicators,government policy and regulation,financial stress index
    JEL: G01 G28
    Date: 2014
  10. By: Malgorzata Olszak (University of Warsaw, Faculty of Management); Mateusz Pipien (Cracow University of Economics, Economic Institute, National Bank of Poland); Sylwia Roszkowska (Faculty of Economic and Social Sciences, University of £ódŸ, National Bank of Poland); Iwona Kowalska (University of Warsaw, Faculty of Management)
    Abstract: This paper aims to find out what is the impact of bank capital ratios on loan supply in the EU and what factors explain potential diversity of this impact. Applying Blundell and Bond (1998) two step GMM estimator, we show that, in the EU context, the role of capital ratio for loan growth is stronger than previous literature has found for other countries. Our study sheds some light on whether procyclicality of loan loss provisions and income smoothing with loan loss provisions contribute to procyclical impact of capital ratio on loan growth. We document that loan growth of banks that have more procyclical loan loss provisions and that engage less in income smoothing is more sensitive to capital ratios. This sensitivity is slightly increased in this sample of banks during contractions. Moreover, more restrictive regulations and more stringent official supervision reduce the magnitude of effect of capital ratio on bank lending. Taken together, our results suggest that capital ratios are important determinant of lending in EU large banks.
    Keywords: loan supply, capital crunch, procyclicality of loan loss provisions, income smoothing, bank regulation, bank supervision
    JEL: E32 G21 G28 G32
    Date: 2014–12
  11. By: Adonis Antoniades
    Abstract: Recent empirical studies have shown that during the financial crisis of 2007-2008 banks that were more heavily exposed to liquidity risk contracted their supply of credit more sharply. I contribute to the identification of this effect by relying on the use of micro-level data on US mortgage loan applications, which allows me to identify liquidity risk as an important determinant of the contraction of credit in the mortgage market, but as separate from the precipitous fall in credit demand, disruptions in the securitization and subprime markets, shifts in asset risk, and changing risk-aversion among loan officers.
    Keywords: liquidity risk, bank lending channel, credit lines, core deposits, mortgage credit
    Date: 2014–12
  12. By: Irani, Rustom M. (University of Illinois at Urbana-Champaign); Meisenzahl, Ralf R. (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: We examine the impact of banks' liquidity risk management on secondary loan sales. We track the dynamics of bank loan share ownership in the secondary market using data from the Shared National Credit Program, a credit register of syndicated bank loans administered by U.S. regulators. We analyze the 2007-2009 financial crisis as a market-wide liquidity shock and control for loan demand using a loan-year fixed effects approach. We find that banks with greater reliance on wholesale funding at the onset of the crisis were more likely to exit loan syndicates during the crisis. Our analysis identifies the importance of bank liquidity risk management as a motivation for loan sales, in addition to the credit risk transfer motive emphasized in prior literature.
    Keywords: Bank risk management; financial crisis; loan sales; wholesale funding
    JEL: G01 G21 G23
    Date: 2014–10–28
  13. By: Wignaraja, Ganeshan (Asian Development Bank Institute); Jinjarak, Yothin (Asian Development Bank Institute)
    Abstract: This study examines the relationship between firm characteristics and borrowing from commercial banks by small and medium-sized enterprises (SMEs) in the People's Republic of China (PRC) and five Southeast Asian economies (Indonesia, Malaysia, the Philippines, Thailand, and Viet Nam). Analysis of microdata from enterprise surveys highlights key aspects of SME finance since the global financial crisis, including sources of credit, lender types, and collateral types. First, SMEs typically resort to internal sources rather than external finance (including borrowing from banks) and trade credit. Second, when it comes to external finance, SMEs typically use informal non-bank credit sources more than banks. Third, there is a positive and significant association between bank borrowing and certain characteristics of SMEs, notably financial audits, firm age, and export participation. Fourth, personal assets of SME owners tend to matter more as collateral for SME borrowing from banks than other collateral types. Improving credit guarantee systems, enhancing monitoring and credit scoring by banks, and widening the scope of collateral are possible ways to facilitate increased bank borrowing by SMEs.
    Keywords: credit access; firm-level survey; collateral; credit guarantees; smes
    JEL: D22 E44 F14 L16 O14
    Date: 2015–01–13
  14. By: Jonathan Chiu (Bank of Canada); Thorsten Koeppl (Queen's University)
    Abstract: We look at the role of credit ratings when assets are issued in a primary market and sold by dealers into a secondary, over-the-counter market in order to study regulatory proposals for rating agencies. Credit ratings are used to overcome a lemons problem. When the lemons problem is moderate, ratings are used to screen issuers, but are inefficiently inaccurate. Hence, too many lemons are issued in order for dealers to prot from rate shopping where low rating standards lead to high volume, but fragile trading in the secondary market. This inefficiency arises from dealers not properly taking into account the informational rents paid indirectly by investors in the secondary market to primary issuers. We use our framework to show that in-house ratings by investors or competition in the secondary market can lead to more accurate ratings and more stable trading, while promoting in-house ratings by dealers and competition among rating agencies are ineffective. Holding dealers liable or having investors pay for accurate ratings ex-post can also improve efficiency and stability.
    Keywords: Ratings, Dealers, Liquidity, Financial Stability
    JEL: G01 G14 G18
    Date: 2014–12
  15. By: King, Thomas B. (Federal Reserve Bank of Chicago); Lewis, Kurt F. (Board of Governors of the Federal Reserve System)
    Abstract: We use matched, bank-level panel data on Libor submissions and credit default swaps to decompose bank-funding spreads at several maturities into components reflecting counterparty credit risk and funding-market liquidity. To account for the possibility that banks may strategically misreport their funding rates in the Libor survey, we nest our decomposition within a model of the costs and benefits of lying. We find that Libor spreads typically consist mostly of a liquidity premium and that this premium declined at short maturities following Federal Reserve interventions in bank funding markets. At longer maturities, credit risk explains much of the time variation in Libor, reflecting in part fluctuations in the degree to which default risk is priced in the interbank market. Our results are consistent with banks both under- and over-reporting their funding costs during the crisis but suggest that the incidence of this behavior may have subsequently declined.
    Keywords: LIBOR; liquidity; credit risk; misreporting
    JEL: E43 E58 G21
    Date: 2014–11–13
  16. By: Piotr Masiukiewicz (Warsaw School of Economics, Poland)
    Abstract: This article has a following thesis: changes in banking and a role of banks in real economy in last years, give an argument for treating banks as public good. Banks received a great support from governments as a result of the subprime crisis. G-20 and European Commission recommended new regulations for this sector after crisis. As consequence of banking development more than 90% of population use banking services in many countries. New social functions of banks appeared. Doctrines about recovery and government support for banks were changed in parallel (e.g. LoLR). Presently there are some arguments for recognition of public good doctrine in banking such as: a very big area for state regulation, state banking supervision, state system of deposits insurance, realization of task delegated by the state, social responsibility of banks and other. These arguments confirm that banks’ activity has a particular importance for society and economy and would be public good.
    Keywords: bankruptcy; bank; crisis; financial institution; public good
    JEL: G01 G21 H41
    Date: 2014–12
  17. By: Tianxi Wang
    Abstract: This paper considers the efficiency of money creation by banks and the principles of the central bank issuance to improve over it. The ability to issue deposit liability as a means of payment enlarges banks lending capacities and subjects them to fiercer competition. In curcumstances where banks issue too much money, interest-rate policy may help. In circumstances of a credit crunch, quantitative- easing policy helps, under which the central bank lends its issues to all banks. These issues are unbacked by taxation and purely nominal. The optimal quantity of the central bank's lending is unique and implements the first-best allocation.
    Date: 2014–10–23
  18. By: Amel, Dean F. (Board of Governors of the Federal Reserve System (U.S.)); Mach, Traci L. (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: Following the financial crisis, total outstanding loans to businesses by commercial banks dropped off substantially. Large loans outstanding began to rebound by the third quarter of 2010 and essentially returned to their previous growth trajectory while small loans outstanding continued to decline. Furthermore, much of the drop in small business loans outstanding was evident at community banks. To address this perceived lack of supply of credit to small businesses, the Small Business Lending Fund (SBLF) was created as part of the 2010 Small Business Jobs Act. The fund was intended to provide community banks with low-cost funding that they could then lend to their small business customers. As of December 31, 2013, the U.S. Department of the Treasury reports that SBLF participants had increased their small business lending by $12.5 billion over their baseline numbers. The current paper uses Call Report data from community banks an d thrift institutions to look at the impact of receiving funds from SBLF on their small business lending. The analysis controls for economic and demographic conditions, market structure and competition. Simple regression estimates indicate that participants in the SBLF program increased their small business lending by about 10 percent more than their non-participating counterparts, in line with numbers reported by Treasury. However, estimates that control for the ongoing growth path in small business lending indicate no statistically significant impact of SBLF participation on small business lending.
    Keywords: Community banks; government stimulus; small business lending
    Date: 2014–12–10
  19. By: Bengt Holmstrom
    Abstract: Money markets are fundamentally different from stock markets. Stock markets are about price discovery for the purpose of allocating risk efficiently. Money markets are about obviating the need for price discovery using over-collateralised debt to reduce the cost of lending. Yet, attempts to reform credit markets in the wake of the recent financial crisis often draw on insights grounded in our understanding of stock markets. This can be very misleading. The paper presents a perspective on the logic of credit markets and the structure of debt contracts that highlights the information insensitivity of debt. This perspective explains among other things why opacity often enhances liquidity in credit markets and therefore why all financial panics involve debt. These basic insights into the nature of debt and credit markets are simple but important for thinking about policies on transparency, on capital buffers and other regulatory issues concerning banking and money markets.
    Keywords: financial crisis, liquidity, money markets, shadow banking, debt, information sensitivity, pawn shops, bailouts, banking regulation
    Date: 2015–01
  20. By: Le, Vo Phuong Mai (Cardiff Business School); Matthews, Kent (Cardiff Business School); Meenagh, David (Cardiff Business School); Minford, Patrick (Cardiff Business School); Xiao, Zhiguo
    Abstract: This paper develops a model of the Chinese economy using a DSGE framework that accommodates a banking sector and money. The model is used to shed light on the period of the recent period of financial crisis. It differs from other applications in the use of indirect inference to estimate and test the fitted model. We find that the main shocks that hit China in the crisis were international and that domestic banking shocks were unimportant. Officially mandated bank lending and government spending were used to supplement monetary policy to aggressively offset shocks to demand. An analysis of the frequency of crises shows that crises occur on average about every half-century, with about a third accompanied by financial crises. We find that monetary policy can be used more vigorously to stabilise the economy, making direct banking controls and fiscal activism unnecessary.
    Keywords: DSGE model; Financial Frictions; China; Crises; Indirect Inference; Money; Credit
    JEL: E3 E44 E52 C1
    Date: 2015–01
  21. By: Simon Kwan (Federal Reserve Bank of San Francisco and Hong Kong Institute for Monetary Research); Eric T.C. Wong (Hong Kong Monetary Authority); Cho-hoi Hui (Hong Kong Monetary Authority)
    Abstract: The international transmission of shocks in the global financial system has always been an important issue for policy makers. Different types of foreign shocks have different effects and policy implications. In this paper, we examine the effects of the recent U.S. financial crisis and the European sovereign debt crisis on foreign bank branches in Hong Kong. Unlike the literature on global banking that studies a global bank's foreign operations from a home country perspective, our analysis uses foreign bank branches in Hong Kong and has a distinct host country perspective, which is more relevant to the host country policy makers. We find that global banks use their foreign branches in Hong Kong as a funding source during a liquidity crunch in the home country, suggesting that global banks manage their liquidity risk globally. After the central bank in the home country introduced a liquidity facility to relieve funding pressure, this effect disappeared. We also find strong evidence that foreign branches of banks in the crisis countries lend significantly less in Hong Kong relative to a control group, suggesting the presence of a lending channel in the transmission of shocks from the home country to the host country.
    Keywords: Shocks Transmission, Foreign Banks, Financial Crisis, Liquidity Management
    JEL: G01 G21
    Date: 2015–01
  22. By: Domikowsky, Christian; Bornemann, Sven; Duellmann, Klaus; Pfingsten, Andreas
    Abstract: Several studies have addressed, with conflicting results, the issue of procyclical effects of loan loss provisions in the past. More recently, the weak performance of incurred loss models in the financial crisis has given rise to a new debate on the sound design of credit risk provisioning schemes, which is reflected in the scheduled implementation of an expected loss model in IFRS 9. This study contributes to the extant literature by separately analyzing the cyclical effects of specific and general loan loss provisions under a legislative framework that allows provisions based on expected losses in the loan portfolio. Using three different measures of forward-looking provisioning, we find typical German banks, most of them unlisted and operating regionally, to use specific loan loss provisions countercyclically, in particular for earnings management and by anticipating non-performing loans at the closing date. The use of general loan loss provisions is predominantly motivated by tax considerations, pointing out the considerable importance of the impact of local tax law.
    Keywords: procyclicality,earnings management,hidden reserves,loan loss provisioning,expected losses,managerial discretion
    JEL: G01 G21 M41
    Date: 2014
  23. By: Artak Harutyunyan; Alexander Massara; Giovanni Ugazio; Goran Amidzic; Richard Walton
    Abstract: In this paper, we develop an alternative approach to estimate the size of the shadow banking system, using official data reported to the IMF complemented by other data sources. We base our alternative approach on the expansion of the noncore liabilities concept developed in recent literature to encompass all noncore liabilities of both bank and nonbank financial institutions. As opposed to existing measures of shadow banking, our newly developed measures capture nontraditional funding raised by traditional banks. We apply the new approach to 26 jurisdictions and analyze the results over a twelve-year span. We find that noncore liabilities are procyclical and display more volatility than core liabilities for most jurisdictions in the sample. We also compare our measures to existing measures, such as the measure developed by the Financial Stability Board. Our approach can be replicated over time using internationally-comparable data and thus may serve as an operational tool for IMF surveillance and policy analysis.
    Date: 2015–01–05
  24. By: Lang, Michael; Schröder, Michael
    Abstract: This paper examines the treatment of sovereign debt exposure within the Basel framework and measures the impact of bank regulation on the demand of Monetary Financial Institutions (MFI) for marketable sovereign debt. Our results suggest that bank regulation has a significant positive impact on MFI demand for domestic government securities. The results are representative for the MFI in the euro zone. They remain highly robust and significant after controlling for other influential factors and potential endogeneity.
    Keywords: Monetary Financial Institutions,Financial sector regulation,Sovereign bond holdings,Investment incentives
    JEL: G11 G21 G28
    Date: 2014
  25. By: Nelson, Benjamin (Bank of England); Pinter, Gabor (Bank of England); Theodoridis, Konstantinos (
    Abstract: Using vector autoregressive models with either constant or time-varying parameters and stochastic volatility for the United States, we find that a contractionary monetary policy shock has a persistent negative impact on the asset growth of commercial banks, but increases the asset growth of shadow banks and securitisation activity. To explain this ‘waterbed’ effect, we propose a standard New Keynesian model featuring both commercial and shadow banking, and we show that the model comes close to explaining the empirical results. Our findings cast doubt on the idea that monetary policy can usefully ‘get in all the cracks’ of the financial sector in a uniform way.
    Keywords: Monetary policy; financial intermediaries; shadow banking; VAR; DSGE
    JEL: E43 E52 G21
    Date: 2015–01–16

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