|
on Banking |
| By: | Malgorzata Olszaka (University of Warsaw, Poland); Mateusz Pipien (Cracow University of Economics, Poland); Sylwia Roszkowska (National Bank of Poland, Poland) |
| Abstract: | In this paper we aim to find out whether bank specialization and bank capitalization affect the relationship between bank loan growth and bank capital ratio, both in expansions and in contractions. We hypothesize that the impact of bank capital on lending is relatively strong in cooperative banks and savings banks. We also expect that this effect is nonlinear, and is stronger in “low” capital banks than in “high” capital banks. To test our hypotheses we apply two-step GMM robust estimator (Blundell & Bond, 1998) for data spanning the years 1996 – 2011 on individual banks available in the Bankscope database. Our analysis shows that lending of poorly capitalized banks is more affected by capital ratio than lending of well capitalized banks. Loan growth of cooperative and savings banks is more capital constrained that lending of commercial banks. Capital matters for the lending activity in contractions only in the case of savings and “low” capital banks. |
| Keywords: | loan supply, capital ratio, procyclicality |
| JEL: | E32 G21 G28 G32 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:pes:wpaper:2015:no83&r=ban |
| By: | Aldasoro, Iñaki; Delli Gatti, Domenico; Faia, Ester |
| Abstract: | We present a network model of the interbank market in which optimizing risk averse banks lend to each other and invest in non-liquid assets. Market clearing takes place through a tâtonnement process which yields the equilibrium price, while traded quantities are determined by means of a matching algorithm. Contagion occurs through liquidity hoarding, interbank interlinkages and fire sale externalities. The resulting network configuration exhibits a core-periphery structure, dis-assortative behavior and low density. Within this framework we analyze the effects of prudential policies on the stability/efficiency trade-off. Liquidity requirements unequivocally decrease systemic risk but at the cost of lower efficiency (measured by aggregate investment in non-liquid assets); equity requirements tend to reduce risk (hence increasestability) without reducing significantly overall investment. |
| Keywords: | banking networks; contagion; fire sales; prudential regulation; systemic risk |
| JEL: | C63 D85 G21 G28 L14 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10540&r=ban |
| By: | Gustavo Adler; Eugenio Cerutti |
| Abstract: | The presence of foreign banks in emerging markets has increased markedly over the last two decades, raising questions about their potentially stabilizing or destabilizing role during times of financial distress. Most studies on this subject have focused on banks’ asset side (i.e., their lending behavior). This paper focuses on their liability side, studying the behavior of depositors vis-à-vis foreign banks. We rely on data from the banking crises in Argentina and Uruguay over the period 1994-2002 to conduct the study. The paper focuses on three questions; (i) are foreign banks perceived as a safe haven during bank runs?; (ii) does their legal structure (branch versus subsidiary) matter?; (iii) do perceptions depend on the nature of the crisis? Contrary to the commonly held view that foreign banks play a stabilizing role during domestic banking crises, we do not find robust evidence in this regard. Only in one (large) bank run episode, out of five studied, there is evidence of safe haven perceptions towards foreign branches. |
| Keywords: | Foreign banks;Argentina;Uruguay;Banking crisis;Bank deposits;Banking systems;Emerging markets;Cross country analysis;banking, crisis, bank run, foreign banks. |
| Date: | 2015–02–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/43&r=ban |
| By: | Luca Papi (Universit… Politecnica delle Marche, Dipartimento di Scienze economcihe e Sociali, MoFiR); Emma Sarno (Universit… di Napoli "L'Orientale"); Alberto Zazzaro (Universit… Politecnica delle Marche, MoFiR) |
| Abstract: | The evolution of the banking industry has always been affected by recurrent waves of technological, regulatory and organizational changes. All such changes have significant effects on the spatial organization of banks, the interconnectedness of geographical credit markets and the core-periphery structure of banking industry. In this chapter, we review the literature on the effects of geographical distances between the key actors of the credit market (the borrowing firm, the lending branch, the lending bank, and rival banks) on lending relationships and interbank competition. Using the metrics and graph techniques for network analysis we then provide evidence concerning the evolving geographical network of bank organizations in Italy. |
| Keywords: | Distances in credit markets, network analysis, spatial organization of banks |
| JEL: | G2 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wmofir:105&r=ban |
| By: | Ozili, PK |
| Abstract: | This study extends the literature on the determinants of NPL. I investigate whether banks anticipate non-performing loans by making balance sheet adjustments. This study draws insights into the actions taken by credit risk management teams and bank managers to minimize the size of non-performing loans. After examining 82 banks from US, Europe, Asia and Africa, the result indicate that banks adjust the level of loan loss reserves and loan growth to minimize the size of NPLs. Our results do not show evidence that loan diversification minimizes NPLs. Further, I find that banks in developing countries reduce loan growth when they expect high NPL while banks in developed countries do not anticipate the level of NPL by adjusting loan growth. Further, I find that post-crisis Basel regulation did not lead to a decrease in the size of NPLs among banks in developed countries but appear to minimize NPLs in some developing countries. Overall, the significance and predictive power of each bank-specific factor (excluding loan diversification), regulatory variable and macroeconomic indicator in explaining NPLs depends on regional factors (less significantly) and country-specific factors (more significantly). |
| Keywords: | Non-performing Loans, Credit risk, Macroeconomic determinants, bank specific determinants, banking |
| JEL: | G20 G21 G32 G38 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:63681&r=ban |
| By: | Monnet, Cyril (Federal Reserve Bank of Philadelphia); Sanches, Daniel R. (Federal Reserve Bank of Philadelphia) |
| Abstract: | We show that a competitive banking system is inconsistent with an optimum quantity of private money. Because bankers cannot commit to their promises and the composition of their assets is not publicly observable, a positive franchise value is required to induce the full convertibility of bank liabilities. Under perfect competition, a positive franchise value can be obtained only if the return on bank liabilities is sufficiently low, which imposes a cost on those who hold these liabilities for transaction purposes. If the banking system is monopolistic, then an efficient allocation is incentive-feasible. In this case, the members of the banking system obtain a higher return on assets, making it feasible to pay a sufficiently high return on bank liabilities. Finally, we argue that the regulation of the banking system is required to obtain efficiency. |
| Keywords: | Private money; Banking structure; Regulation |
| JEL: | E42 G21 G28 |
| Date: | 2015–04–09 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:15-19&r=ban |
| By: | Karolina Ruzickova (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nábreží 6, 111 01 Prague 1, Czech Republic); Petr Teply (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nábreží 6, 111 01 Prague 1, Czech Republic) |
| Abstract: | The wide change of banking models over last few decades has led to an increasing share of fee and commission income of banks. In this paper we deal with determinants of banking fees in the European Union with special emphasis on market concentration based on EU-27 data from 2007 to 2012. For the estimation we use System Generalized Method of Moments, which is appropriate for dynamic panel data, allows for time invariant and lagged dependent variables and is able to deal with endogeneity. We conclude that banks facing higher competition tend to expand more aggressively into non-traditional activities and therefore they report higher fee income shares. Moreover, we found that a higher equity to assets ratio is related with higher shares of fee income since by expanding into non-traditional businesses the bank needs more capital to prevent the potential risks of the new activity. Surprisingly, a high deposits to assets ratio tends to increase the fee income share, which may be possibly attributed to relatively high switching costs and to close relationship between depositor and bank in the EU banking sector. However, macroeconomic conditions do not seem to have a significant impact on the net fee and commission income share. |
| Keywords: | bank, fee and commission income, market concentration, GMM system |
| JEL: | C23 G21 L25 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2015_04&r=ban |
| By: | Tomáš Havránek (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nábreží 6, 111 01 Prague 1, Czech Republic; Czech National Bank); Diana Zigraiova (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nábreží 6, 111 01 Prague 1, Czech Republic) |
| Abstract: | The theoretical literature gives conflicting predictions on how bank competition should affect financial stability, and dozens of researchers have attempted to evaluate the relationship empirically. We collect 598 estimates of the competition-stability nexus reported in 31 studies and analyze the literature using meta-analysis methods. We control for 35 aspects of study design and employ Bayesian model averaging to tackle the resulting model uncertainty. Our findings suggest that the definition of financial stability and bank competition used by researchers influences their results in a systematic way. The choice of data, estimation methodology, and control variables also affects the reported coefficient. We find evidence for moderate publication bias. Taken together, the estimates reported in the literature suggest little interplay between competition and stability, even when corrected for publication bias and potential misspecifications. |
| Keywords: | Bayesian model averaging, bank competition, financial stability, publication selection bias, meta-analysis |
| JEL: | C83 C11 G21 L16 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2015_07&r=ban |
| By: | Lorenza Rossi (Department of Economics and Management, University of Pavia) |
| Abstract: | I consider a NK-DSGE model with endogenous firms' exit and entry together with a monopolistic competitive banking sector, where defaulting firms do not repay loans to banks. I show that the exit margin is an important shock trans- mission channel. It implies: i) an endogenous countercyclical number of fi rms destruction; ii) an endogenous countercyclical bank markup and spread. The interaction between i) and ii) generates a stronger propagation mechanism with respect to a model with efficient banks. Compared to a model with exogenous exit the model generates a correlation between output and firms'entry closer to the data. |
| Keywords: | firms' endogenous exit, firms dynamics, monopolistic banking, inefficient financial markets, countercyclical bank markup, interest rate spread. |
| JEL: | E32 E44 E52 E58 |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:pav:demwpp:demwp0099&r=ban |
| By: | Sophia Chen |
| Abstract: | Rollover risk imposes market discipline on banks’ risk-taking behavior but it can be socially costly. I present a two-sided model in which a bank simultaneously lends to a firm and borrows from the short-term funding market. When the bank is capital constrained, uncertainty in asset quality and rollover risk create a negative externality that spills over to the real economy by ex ante credit contraction. Macroprudential and monetary policies can be used to reduce the social cost of market discipline and improve efficiency. |
| Keywords: | Banks;Financial intermediaries;Investment;Balance sheets;Econometric models;Short-term debt, balance sheet, uncertainty, underinvestment |
| Date: | 2015–03–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/65&r=ban |
| By: | Qianqian Cao and Shimeng Liu |
| Abstract: | State foreclosure and bankruptcy laws govern the rights of mortgage lenders and borrowers during foreclosure and bankruptcy proceedings and therefore impact on lenders’ exposure to credit risk. This paper seeks to understand the effects of these state laws on the type of mortgages originated. The empirical identification is based on state-level variations in foreclosure and bankruptcy provisions and a border estimation strategy. We find that higher-risk loans (FHA and subprime loans) are more likely to be originated in a state with lender-friendly foreclosure laws. Also, higher-risk loans are less likely to be originated in a state with a more generous bankruptcy homestead exemption. In addition, our results are consistent with the idea that FHA and subprime loans share a very similar clientele and are close substitutes. These results are robust without the ordering assumption among conventional prime, FHA and subprime loans. |
| Keywords: | State foreclosure laws, homestead exemption, mortgage originations, ordered probit |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:luk:wpaper:9411&r=ban |
| By: | Marco A Espinosa-Vega; Steven Russell |
| Abstract: | This relatively simple model attempts to capture and integrate four widely held views about financial crises. [1] Interconnectedness among financial institutions (banks) can play a major role in precipitating systemic financial crises. [2] Lack of information about the quality of bank portfolios also plays a role in precipitating systemic crises. [3] Financial crises, particularly systemic ones, are often followed by severe, lengthy recessions. [4] Loss of confidence in the financial system is partly responsible for the length and severity of these recessions. In the model, banks make decisions about initiating and liquidating risky loans. Interconnectedness among their asset portfolios can obscure information about these portfolios, causing them to make inefficient decisions about liquidation, and about retention of the managers who assess credit risk. These decisions can increase the depth of recessions, and they can produce systemic financial crises. They can also reduce the effectiveness of future bank risk assessment, increasing the probability of lengthy, severe recessions. The government, acting in the interest of current and future depositors, may wish to increase the transparency of bank portfolios by limiting interconnectedness. The optimal degree of regulation, which may depend on depositors’ degree of risk aversion, may not eliminate financial crises. |
| Keywords: | Interconnectedness;Banks;Financial crises;Economic recession;Systemic risk assessment;Equilibrium. Econometric models;financial crisis, systemic risk, interconnectedness, recession |
| Date: | 2015–02–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/46&r=ban |
| By: | Frame, W. Scott (Federal Reserve Bank of Atlanta); Gerardi, Kristopher S. (Federal Reserve Bank of Atlanta); Willen, Paul S. (Federal Reserve Bank of Boston) |
| Abstract: | Stress testing has recently become a critical risk management and capital planning tool for large financial institutions and their supervisors around the world. However, the one prior U.S. experience tying stress test results to capital requirements was a spectacular failure: the Office of Federal Housing Enterprise Oversight's (OFHEO) risk-based capital stress test for Fannie Mae and Freddie Mac. We study a key component of OFHEO's model—30-year fixed-rate mortgage performance—and find two key problems. First, OFHEO had left the model specification and associated parameters static for the entire time the rule was in force. Second, the house price stress scenario was insufficiently dire. We show how each problem resulted in a significant underprediction of mortgage credit losses and associated capital needs at Fannie Mae and Freddie Mac during the housing bust. |
| Keywords: | Bank supervision; stress test; model risk; residential mortgages; government-sponsored enterprises |
| JEL: | G21 G23 G28 |
| Date: | 2015–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2015-03&r=ban |
| By: | Massa, Massimo; Zhang, Lei |
| Abstract: | We study how debt market frictions constraining the ability to replace bank with bond financing during a tightening in bank credit supply affect corporate yield spreads. We document that more inflexible firms suffer bigger increases in bond yield spreads as bank credit supply tightens. Debt inflexibility also amplifies the impact of firm-specific tightening in bank credit availability induced by the violation of loan covenants. More inflexible firms display a stronger link between yield spreads and cash flow volatility, a stronger link between yield spreads and stock volatility and a closer correlation between changes in yield spreads and stock returns. |
| Keywords: | bank credit tightening; bond yield spreads; debt and equity correlation; debt inflexibility; lending standards |
| JEL: | G12 G21 G23 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10537&r=ban |
| By: | Lena Dräger (Universität Hamburg (University of Hamburg)); Christian R. Proaño (The New School for Social Research) |
| Abstract: | Against the background of the recent housing boom and bust in countries such as Spain and Ireland, we investigate in this paper the macroeconomic consequences of cross-border banking in monetary unions such as the euro area. For this purpose, we incorporate in an otherwise standard two-region monetary union DSGE model a banking sector module along the lines of Gerali et al. (2010), accounting for borrowing constraints of entrepreneurs and an internal con- straint on the bank’s leverage ratio. We illustrate in particular how different lending standards within the monetary union can translate into destabilizing spill-over effects between the regions, which can in turn result in a higher macroeconomic volatility. This mechanism is modelled by letting the loan-to-value (LTV) ratio that banks demand of entrepreneurs depend on either re- gional productivity shocks or on the productivity shock from one dominating region. Thereby, we demonstrate a channel through which the financial sector may have exacerbated the emergence of macroeconomic imbalances within the euro area. Additionally, we show the effects of a monetary policy rule augmented by the loan rate spread as in Cúrdia and Woodford (2010) in a two-country monetary union context. |
| Keywords: | Cross-border banking, euro area, monetary unions, DSGE |
| JEL: | F41 F34 E52 |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:hep:macppr:201503&r=ban |
| By: | Magnac, Thierry |
| Abstract: | In this paper, we evaluate the impact of foreign fees, paid by consumers when they withdraw cash at banks that are not their own, on their withdrawals. We take advantage of a natural experiment whereby (non linear) payment fees for withdrawing cash at foreign ATMs were introduced at one point in time. We also use this experiment to evaluate the substitutions between foreign withdrawals and various other means of payment such as own bank or desk withdrawals, payments by card or cheque. Using panel data on accounts at one specific bank, we first estimate reduced form treatment effect models before carrying on with the estimation of a structural model. The latter allows us to compute the counterfactual impacts of changing the non linear schedule of foreign fees. Impacts are sizeable and in particular on bank profits. |
| Keywords: | Cash holding, policy evaluation, costs of means of payment, treatment effects |
| JEL: | C21 D12 G21 |
| Date: | 2015–03–06 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:29122&r=ban |
| By: | Weber, Warren E. (Bank of Canada, Federal Reserve Bank of Atlanta, University of South Carolina) |
| Abstract: | Beginning in 1864, in the United States notes of national banks were the predominant medium of exchange. Each national bank issued its own notes. E-money shares many of the characteristics of these bank notes. This paper describes some lessons relevant to e money from the U.S. experience with national bank notes. It examines historical evidence on how well the bank notes—a privately issued currency system with multiple issuers—functioned with respect to ease of transacting, counterfeiting, safety, overissuance, and par exchange (a uniform currency). It finds that bank notes made transacting easier and were not subject to overissuance. National bank notes were perfectly safe because they were insured by the federal government. Further, national bank notes were a uniform currency. Notes of different banks traded at par with each other and with greenbacks. This paper describes the mechanism that was put in place to achieve uniformity. The U.S. experience with national bank notes suggests that a privately issued e-money system can operate efficiently but will require government intervention, regulation, and supervision to minimize counterfeiting, promote safety, and provide the mechanism necessary for different media of exchange to exchange at par with each other. |
| Keywords: | bank notes; e-money; financial services |
| JEL: | E41 E42 E58 |
| Date: | 2015–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedacf:2015_002&r=ban |
| By: | Michael, Bryane |
| Abstract: | For emerging market regulators, shadow banking represents an activity which they must control. For businessmen in economies like Russia, Argentina, Saudi Arabia and Mexico, shadow banking represents an important business opportunity. By extending credit to risky (but promising) activities through shadow banking, financiers in these economies can earn far higher returns for excess-cash than placing it in cash management accounts. In this brief, we describe ways that cash-rich individuals and companies can use shadow banking activities to help themselves (by earning more money) and help the economy (by extending credit in these traditionally credit-starved economies). Some of these activities include issuing debt which shadow bankers use as collateral, chopping project-lending into privately-placed share offerings, investing in trade, real estate and insurance securities as well as centring shadow banking activities in regulation-friendly jurisdictions. |
| Keywords: | shadow banking,financial services,emerging markets,securitization |
| JEL: | G18 G21 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:108996&r=ban |
| By: | Carlos A. Arango; Oscar M. Valencia |
| Abstract: | This paper presents a DSGE model with banks that face moral hazard in management. Banks receive demand deposits and fund investment projects. Banks are subject to potential withdrawals by depositors which may force them into early liquidation of their investments. The likelihood of this happening depends on the bank management efforts to keep the bank financially sound and the degree of bank leverage. We study the properties of this model under different monetary and macro-prudential policy arrangements. Our model is able to replicate the pro-cyclicality of leverage, and provides insights on the interplay between bank leverage and bank management incentives as a result of monetary, productivity and financial shocks. We find that a combination of pro-cyclical capital requirements and a standard monetary policy are well suited to contain the effects on output and prices of a downturn, keeping the financial system in check. Yet, in an expansionary phase (i.e. a productivity shock) this policy combination may produce desirable results for some macro-variables but at the expense of a deterioration in other macro-financial indicators. |
| Keywords: | DSGE modeling, Financial frictions, Moral hazard, Macro-prudential policies. |
| JEL: | G11 D86 |
| Date: | 2015–04–10 |
| URL: | http://d.repec.org/n?u=RePEc:col:000094:012695&r=ban |
| By: | Philipp Paech |
| Abstract: | ‘Safe harbour’ is shorthand for a bundle of privileges in insolvency which are typically afforded to financial institutions. They are remotely comparable to security interests as they provide a financial institution with a considerably better position as compared to other creditors should one of its counterparties fail or become insolvent. Safe harbours have been introduced widely and continue to be introduced in financial markets. The common rationale for such safe harbours is that the protection against the fallout of the counterparty’s insolvency contributes to systemic stability, as the feared ‘domino effect’ of insolvencies is not triggered from the outset. However, safe harbours are also criticised for accelerating contagion in the financial market in times of crisis and making the market more risky. This paper submits that the more important argument for the existence of safe harbours is liquidity in the financial market. Safe harbour rules do away with a number of legal concepts, notably those attached to traditional security, and thereby allow for an exponentiation of liquidity. Normative decisions of the legislator sanction safe harbours as modern markets could not exist without these high levels of liquidity. To the extent that safe harbours accelerate contagion in terms of crisis, which in principle is a valid argument, specific regulation is well suited to correct this situation, whereas a repeal or significant restriction of the safe harbours would be counterproductive. |
| Keywords: | financial institutions; financial market; banks; insolvency; safe harbours; safe harbors; collateral; netting; set-off; close-out netting; Unidroit; FCD; Financial Collateral Directive; insolvency; bank resolution; moral hazard; systemic risk; risk management; liquidity |
| JEL: | G32 F3 G3 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:61591&r=ban |
| By: | Bank of Japan |
| Abstract: | Net income for fiscal 2013 increased by around 5 percent at major banks and around 30 percent at regional banks relative to fiscal 2012. Net income at regional banks slightly exceeded the all-time high recorded in fiscal 2005. Factors behind this increase in net income included a substantial decline in credit costs reflecting an improvement in the quality of assets as well as a rise in stock prices that boosted profits in a number of areas, as the economy continued to recover moderately. Credit costs contributed to a rise in income: reversals in credit costs increased at major banks mainly due to a decrease in the amount of additional nonperforming loans (NPLs) and in the loan-loss provision ratio, and credit costs declined significantly at regional banks. The rise in stock prices boosted profits through (1) an improvement in realized gains/losses on stockholdings reflecting a decrease in losses on devaluation of stocks (losses from impairment of stocks) and an increase in gains on sales of stocks,(2) an increase in profits from investment trusts due to cancellations (including net interest income), and (3) an increase in fees and commissions for sales of investments trusts (including net non-interest income). Interest rate spreads on loans in the domestic business sector continued to narrow. Consequently, core profitability in the domestic business sector remained on a downtrend, despite an increase in the amount outstanding of loans. This tendency was especially strong in the case of regional banks and unlike major banks, where lending in the international business sector contributed to an increase in profits. |
| Date: | 2014–10–31 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojron:ron141031a&r=ban |
| By: | Jakub Mateju (CERGE-EI, Prague, Czech Republic; Czech National Bank, Prague, Czech Republic) |
| Abstract: | This paper suggests that non-fundamental component in asset prices is one of the drivers of financial and credit cycle. Presented model builds on the financial accelerator literature by including a stock market where limitedly-liable investors trade stocks of productive firms with stochastic productivities. Investors borrow funds from the banking sector and can go bankrupt. Their limited liability induces a moral hazard problem which shifts demand for risk and drives prices of risky assets above fundamental value. Embedding the contracting problem in a New Keynesian general equilibrium framework, the model shows that loose monetary policy induces loose credit conditions and leads to a rise in both fundamental and non-fundamental components of stock prices. Positive shock to non-fundamental component triggers a financial cycle: collateral values rise, lending rate and default rate decreases. These effects reverse after several quarters, inducing a credit crunch. The credit boom lasts only while stock market growth maintains sufficient momentum. However, monetary policy does not reduce volatility of inflation and output gap by reacting to asset prices. |
| Keywords: | credit cycle, limited liability, non-fundamental asset pricing, collateral value, monetary policy |
| JEL: | E32 E44 E52 G10 |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2015_05&r=ban |
| By: | Darolia, Rajeev (Federal Reserve Bank of Philadelphia); Ritter, Dubravka (Federal Reserve Bank of Philadelphia) |
| Abstract: | Bankruptcy reform in 2005 eliminated debtors’ ability to discharge private student loan debt in bankruptcy. This law aimed to reduce costly defaults by diminishing the perceived incentive of some private student loan borrowers to declare bankruptcy even if they had sufficient income to service their debt. Using a unique, nationally representative sample of anonymized credit bureau files, we examine the bankruptcy filing and delinquency rates of private student loan borrowers in response to the 2005 bankruptcy reform. We do not find evidence that the nondischargeability provision reduced the likelihood of filing bankruptcy among private student loan borrowers as compared with other debtors whose incentives were not directly affected by the policy. |
| Keywords: | Bankruptcy; Bankruptcy Reform; BAPCPA; Default; Student Loans |
| JEL: | D14 G21 I22 K35 |
| Date: | 2015–04–09 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:15-17&r=ban |
| By: | Beck, T.H.L. (Tilburg University, Center For Economic Research); Pamuk, H. (Tilburg University, Center For Economic Research); Uras, R.B. (Tilburg University, Center For Economic Research); Ramrattan, R. |
| Abstract: | Using a novel enterprise survey from Kenya (FinAccess Business), we document a strong positive association between the use of mobile money as a method to pay suppliers and access to trade credit. We develop a dynamic general equilibrium model with heterogeneous entrepreneurs, imperfect credit markets and the risk of theft to account for this empirical pattern. Mobile money<br/>dominates at money as a medium of exchange in its capacity to avoid theft, but it comes with higher transaction costs. The interaction between risk of theft and limited access to trade credit generates demand for mobile money as a payment method with suppliers and the use of mobile money in turn raises the value of a credit relationship and hence the willingness to apply for trade credit. Calibrating the stationary equilibrium to match a set of moments that we observe in FinAccess Business and quantifying the importance of the endogenous interactions between mobile money and trade credit on entrepreneurial performance and macroeconomic development, wefind that the availability of the mobile money technology increases the macroeconomic output<br/>of the entrepreneurial sector by 0.33-0.47%. |
| Keywords: | money; trade-credit; m-pesa; allocations |
| JEL: | D14 G21 O12 O16 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiucen:3d35ab30-05ef-4a31-8710-f845325b8ce4&r=ban |
| By: | Joseph Crowley |
| Abstract: | This paper presents an overview of exposures in the balance sheets of central banks, banks, and other depository institutions during the past decade, with emphasis on asset growth and currency composition. It exploits the IMF’s SRF-based monetary data to show: (i) there was a widely observed buildup of assets prior to the global financial crisis, but there has been no significant reduction in its wake; (ii) the foreign currency composition of the balance sheets of banks and other depository institutions remained remarkably constant in spite of the crisis, significant changes in the composition of balance sheets, and globalization, and does not seem to have been significantly influenced by the behavior of exchange rates; and (iii) exposure to households increased prior to the crisis, but this increased risk was offset by increased capitalization. |
| Keywords: | Central banks;Commercial banks;Financial assets;Financial risk;Balance sheets;Global Financial Crisis 2008-2009;Asset growth, currency composition, balance sheet composition, dollarization |
| Date: | 2015–02–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/47&r=ban |
| By: | Albanesi, Stefania; Nosal, Jaromir |
| Abstract: | Using a comprehensive panel data set on U.S. households, we study the effects of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), the most substantive reform of personal bankruptcy in the United States since the Bankruptcy Reform Act of 1978. The 2005 legislation introduced a means test based on income to establish eligibility for Chapter 7 bankruptcy and increased the administrative requirements to file, leading to a rise in the opportunity cost and, especially, the financial cost of filing for bankruptcy. We study the effects of the reform on bankruptcy, insolvency, and foreclosure. We find that the reform caused a permanent drop in the Chapter 7 bankruptcy rate relative to pre-reform levels, due to the rise in filing costs associated with the reform, which can be interpreted as resulting from liquidity constraints. We find that the decline in bankruptcy filings resulted in a rise in the rate and persistence of insolvency as well as an increase in the rate of foreclosure. We find no evidence of a link between the decline in bankruptcy and a rise in the number of individuals who are current on their debt. We document that these effects are concentrated at the bottom of the income distribution, suggesting that the income means tests introduced by BAPCPA did not serve as an effective screening device. We show that insolvency is associated with worse financial outcomes than bankruptcy, as insolvent individuals have less access to new lines of credit and display lower credit scores than individuals who file for bankruptcy. Since bankruptcy filings declined much more for low income individuals, our findings suggest that BAPCPA may have removed an important form of relief from financial distress for this group. |
| Keywords: | foreclosure; insolvency; personal bankruptcy |
| JEL: | D14 D18 G21 G28 K35 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10533&r=ban |