nep-ban New Economics Papers
on Banking
Issue of 2016‒02‒17
thirty papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Deposit Withdrawals from Distressed Commercial Banks By Guin, Benjamin; Brown, Martin; Morkötter, Stefan
  2. Drivers of Systemic Risk: Do National and European Perspectives Differ? By Krause, Thomas; Buch, Claudia M.; Tonzer, Lena
  3. The Political Economy of Bank Bailouts By Haselmann, Rainer; Kick, Thomas; Behn, Markus; Vig, Vikrant
  4. Capital regulation and trade in banking services By Haufler, Andreas; Wooton, Ian
  5. Uncertainty and International Banking By Tonzer, Lena; Buch, Claudia M.; Buchholz, Manuel
  6. Safe, or not safe? Covered bonds and Bank Fragility By Ahnert, Toni; Anand, Kartik; Gai, Prasanna; Chapman, James
  7. Relationships between bank customers’ risk attitudes and their balance sheets By Hermansson, Cecilia
  8. Causes of Shadow Banking - Two Regimes of Credit Risk Transformation and its Regulation By Flore, Raphael
  9. From financial to real economic crisis. Evidence from individual firm-bank relationships in Germany By Dwenger, Nadja; Dr. Fossen, Frank; Dr. Simmler, Martin
  10. Property rights, collateral and interest rates. Evidence from Vietnam By Hainz, Christa Maria; Danzer, Alexander
  11. Global Imbalances and Bank Risk-Taking By te Kaat, Daniel Marcel; Dinger, Valeriya
  12. Banks, Shadow Banking, and Fragility By Luck, Stephan; Schempp, Paul
  13. Banks Net Interest Margin and the Level of Interest Rates By Busch, Ramona; Memmel, Christoph
  14. The Role of Corporate Culture in the Financial Industry By Barth, Andreas
  15. The Exposure of Microfinance Institutions to Financial Risk By Gietzen, Thomas
  16. What drives the demand of monetary financial institutions for domestic government bonds? Empirical evidence on the impact of Basel II and Basel III By Schröder, Michael
  17. How Do Political Factors Shape the Bank Risk-Sovereign Risk Nexus in Emerging Markets? By Eichler, Stefan
  18. Liquidity provision to banks as a monetary policy tool: the ECB's non-standard measures in 2008-2011 By Quint, Dominic; Tristani, Oreste
  19. Regional Bank Efficiency and its Effect on Regional Growth in Normal and Bad Times By Haskamp, Ulrich; Setzer, Ralph; Belke, Ansgar
  20. Does the Eurosystem's lender of last resort facility has a structurally di fferent option value across banks? By Weber, Patrick
  21. Getting to Bail-in: Effects of Creditor Participation in European Bank Restructuring By Schäfer, Alexander; Schnabel, Isabel; Weder di Mauro, Beatrice
  22. Credit Supply Shocks in the Netherlands By Adam Elbourne; Fabio Duchi
  23. Trade Credit: Contract-Level Evidence Contradicts Current Theories By Ellingsen, Tore; Jacobson, Tor; von Schedvin, Erik
  24. Providing Insurance for Good Repayment Performance: The Individual Emergency Fund, Philippines By Kemper, Niels; Frölich, Markus; Naima Unte, Pia
  25. The Currency Composition of Firms' Balance Sheets and its Effect on Asset Value Correlations and Capital Requirements By Byström, Hans
  26. Contagion and fire sales in banking networks By Sara Cecchetti; Marco Rocco; Laura Sigalotti
  27. Does Financial Deregulation Boost Top Incomes? Evidence from the Big Bang By Tanndal, Julia; Waldenström, Daniel
  28. Shedding a clearer light on financial stability risks in the shadow banking system By Koen van der Veer; Eric Klaaijsen; Ria Roerink
  29. Monetary policy under the microscope: Intra-bank transmission of asset purchase programs of the ECB By Cycon, Lisa; Koetter, Michael
  30. An Analysis of Allowance Banking in the EU ETS By Zaklan, Aleksandar; Ellerman, Denny; Valero, Vanessa

  1. By: Guin, Benjamin; Brown, Martin; Morkötter, Stefan
    Abstract: We study retail deposit withdrawals from European commercial banks which incurred investment losses in the wake of the U.S. subprime crisis. We document a strong propensity of households to withdraw deposits from distressed banks, especially when a bank receives a public bailout. However, the withdrawal risk for a distressed bank is mitigated by strong bank-client relationships and household-level switching costs: Households which rely on a single deposit account, which do not live close to a non-distressed bank, or which maintain a credit relationship with a distressed bank are significantly less likely to withdraw deposits. Our findings provide empirical support to the Basel III liquidity regulations which emphasize the role of well-established client relationships for the stability of bank funding.
    JEL: D14 G21 G28
    Date: 2015
  2. By: Krause, Thomas; Buch, Claudia M.; Tonzer, Lena
    Abstract: Mitigating the negative externalities that systemic risk can create for the financial system is the goal of macroprudential supervision. In Europe, macroprudential supervision is conducted both, at the national and at the European level. In principle, national regulators are responsible for macroprudential policies. Since the establishment of the Banking Union in 2014, the largest banks in the Euro Area are under the direct supervision of the European Central Bank (ECB). In this capacity, the ECB can tighten macroprudential measures implemented at the national level. In this paper, we ask whether the drivers of systemic risk differ when applying a national versus a European perspective. We use market data for about 100 listed European banks to measure each bank's contribution to systemic risk (SRISK) at the national and at the Euro Area level. Our research has three main findings. First, on average, systemic risk has increased during the financial crisis. The difference between systemic risk at the national and the European level is not very large but there is a considerable degree of heterogeneity both across countries and banks. Second, we explore the drivers of systemic risk. A bank s contribution to systemic risk increases in bank size, in bank profitability, and in the share of banks nonperforming loans. It decreases in the share of loans to total assets and in the importance of non-interest income. Third, the qualitative determinants of systemic risk are similar at the national and at the European level while the quantitative importance of some factors differs.
    JEL: G01 G21 G28
    Date: 2015
  3. By: Haselmann, Rainer; Kick, Thomas; Behn, Markus; Vig, Vikrant
    Abstract: In this paper, we examine how the institutional design affects the outcome of bank bailout decisions. In the German savings bank sector, distress events can be resolved by local politicians or a state-level association. We show that decisions by local politicians with close links to the bank are distorted by personal considerations: While distress events per se are not related to the electoral cycle, the probability of local politicians injecting taxpayers' money into a bank in distress is 30~percent lower in the year directly preceding an election. Using the electoral cycle as an instrument, we show that banks that are bailed out by local politicians experience less restructuring and perform considerably worse than banks that are supported by the savings bank association. Our findings illustrate that larger distance between banks and decision makers reduces distortions in the decision making process, which has implications for the design of bank regulation and supervision.
    JEL: G21 G28 D72
    Date: 2015
  4. By: Haufler, Andreas; Wooton, Ian
    Abstract: We set up a two-country, regional model of trade in financial services. Competitive firms in each country manufacture untraded consumer goods in an uncertain productive environment, borrowing funds from a bank in either the home or the foreign market. Duopolistic banks can choose their levels of monitoring of firms and thus the level of risk-taking, where the risk of bank failure is ultimately borne by taxpayers in the bank's home country. Moreover, each bank chooses the share of lending allocated to domestic and to foreign firms, respectively, but the bank's overall loan volume may be fixed by a capital requirement set in its home country. In this setting we consider two types of financial integration. A reduction in the transaction costs of cross-order banking reduces aggregate output and increases risk-taking, thus harming consumers and taxpayers in both countries. In contrast, a reduction in the costs of screening foreign firms is likely to be beneficial for banks, consumers, and taxpayers alike.
    JEL: F36 G18 H81
    Date: 2015
  5. By: Tonzer, Lena; Buch, Claudia M.; Buchholz, Manuel
    Abstract: We develop a new measure of uncertainty derived from bank-level data. We apply the measure of firm-level uncertainty developed by Bloom and others (2012) to banking. Uncertainty is measured as the cross-sectional dispersion of shocks to banking-sector specific variables. We then analyze how uncertainty in banking affects lending by domestic and foreign-owned banks. We find that, first, higher uncertainty in banking has negative effects on bank lending. Second, the effect is heterogeneous across banks: Lending by banks which are better capitalized and have higher liquidity buffers tends to be affected less. Third, foreign-owned banks do not react differently to uncertainty in the host country compared to domestically-owned banks.
    JEL: G01 F34 G21
    Date: 2015
  6. By: Ahnert, Toni; Anand, Kartik; Gai, Prasanna; Chapman, James
    Abstract: We explore the relationship between asset encumbrance and bank funding in the context of covered bonds a form of collateralized debt. Covered bond issuance influences the incidence of bank runs by unsecured creditors and, in turn, conditions in the unsecured funding market influence the bank s choice of asset encumbrance. The more reliant is the bank on secured finance and the more it encumbers assets on its balance sheet, the more concentrated are losses on unsecured creditors and the more fragile the bank. But as more stable long-term debt is added to the funding mix, the greater is the expected value of bank equity. We solve for the optimal choice of asset encumbrance and wholesale funding. Our model sheds light on how losses of confidence in funding markets, macroeconomic shocks, and improved crisis resolution frameworks affect the extent of balance sheet collateralization.
    JEL: G01 G21 D82
    Date: 2015
  7. By: Hermansson, Cecilia (Department of Real Estate and Construction Management, Royal Institute of Technology)
    Abstract: This paper analyzes relationships between Swedish bank customers’ risk appetite and their financial assets and debt, controlling for demographic, socio-economic, financial and educational variables including financial literacy. We use subjective risk measures, i.e. risk tolerance and risk preference, as well as an objective risk measure, i.e. relating customers’ saving deposits to more risky stocks and mutual funds as a share of total financial assets. Bank customers with high risk appetite have significantly more financial assets compared with those with medium and low risk appetite. The subjective risk measures show that those with high risk appetite have significantly higher debt than those with low risk appetite. The objective risk measure shows the opposite. The paper concludes that it is important to use several measures of risk. Also, policy makers and banks need to measure bank customers’ risk appetite in a more systematic and transparent way, in order to improve both the banks’ and their customers’ risk management, and not less importantly, to decrease macroeconomic risks.
    Keywords: Household saving; debt; risk attitudes
    JEL: D12 D14 E58 G21
    Date: 2016–02–02
  8. By: Flore, Raphael
    Abstract: This paper presents of a model of banking in order to study why different agents may prefer a 'regulation by the market' over the regulation by a governmental agency, and it illustrates the interaction of two sectors regulated in such alternative ways. Financial intermediaries can operate either as commercial bank, which is regulated by an agency that also insures its deposits, or as uninsured 'shadow bank' whose leverage is constrained by the risk-aversion of investors. The analysis shows that there are exactly three possible reasons for choosing shadow banking: First, lower operational costs, second, heterogeneous beliefs about the aggregate risk, and third, the sponsoring of shadow banks by commercial banks. Heterogeneous beliefs lead to a self-selection of optimistic depositors and pessimistic intermediaries into shadow banking, with the latter profiting from the optimism of the former. Sponsored shadow banking impairs the solvency of the sponsor in downturns, but it is more profitable than independent shadow banking. It does not only allow for a shift to a system 'regulated by markets', but it allows for multiplicative leverage owing to the combination of two balance sheets. It is an unambiguous sign of regulatory arbitrage, as it becomes unprofitable if the regulation is adjusted to avoid contagion.
    JEL: G21 G23 G28
    Date: 2015
  9. By: Dwenger, Nadja; Dr. Fossen, Frank; Dr. Simmler, Martin
    Abstract: What began as a financial crisis in the U.S. in 2007/8 quickly became a massive crisis of the global real economy. We investigate the importance of the bank lending and firm borrowing channel in the international transmission of bank distress to the real economy, in particular to firm investment. We exploit a unique data set for Germany which contains financial statements at the level of the firm for the period 2004 2010 together with the financial statements of each firm s relationship bank(s). The data include small and medium sized firms. Using instrumental variable estimations in first differences to eliminate firm- and bank-specific effects, we find that banks which were affected at the onset of the financial crisis due to proprietary trading activities cut back lending more strongly relative to non-affected banks. Firms whose relationship banks reduce lending downsize real investment significantly. The effect tends to be larger for smaller and younger firms as well as for firms unable to provide much collateral. We also document that some of the firms partially offset reduced credit supply by using up internal funds, by issuing new equity, and by establishing new bank relationships.
    JEL: D22 D92 G01
    Date: 2015
  10. By: Hainz, Christa Maria; Danzer, Alexander
    Abstract: This paper investigates the causal effect of the quality of property rights on the price of collateralized consumer loans. Identification stems from exogenous variation in the improvement of property rights in Vietnam following recent accelerations of the land titling program as well as political change in provincial leaderships. We exploit a unique data set which comprises the complete loan data of one of the largest private Vietnamese banks, regional level information on the quality of property rights and legal institutions as well as an exact measure of bank competition derived from the complete relevant georeferenced bank data of Vietnam. Our findings clearly indicate that more secure property rights reduce the cost of credit, and these results are very robust to the inclusion of competition in our regression model. Owing to an institutional peculiarity of the Vietnamese banking practice, we support our findings with a falsification exer-cise on employer-insured loans.
    JEL: O16 D23 G21
    Date: 2015
  11. By: te Kaat, Daniel Marcel; Dinger, Valeriya
    Abstract: Financial crises are usually preceded by large current account deficits. However, the channel through which international capital flows affect financial stability is hardly identified, yet. In this paper, we study the impact of current account balances on bank risk-taking making use of the exogenous and huge variation in capital flows within the euro area between the years 2001 and 2012. We find that bank risk-taking is positively associated with current account deficits. We provide a series of tests showing that this is the case both because banks in countries with large external deficits substitute new investments in asset markets (e.g. sovereign debt) with loans that are typically riskier and because the average quality of bank loans deteriorates.
    JEL: F32 F41 G01
    Date: 2015
  12. By: Luck, Stephan; Schempp, Paul
    Abstract: We study a banking model in which regulatory arbitrage induces the existence of shadow banking next to regulated banks. We show that the size of the shadow banking sector determines its stability. Panic-based runs become possible only if this sector is large. Moreover, if regulated banks conduct shadow banking, a relatively larger shadow banking sector is sustainable. However, crises become contagious and spread to the regulated banking sector. We argue that deposit insurance may fail to eliminate adverse run equilibria in the presence of regulatory arbitrage. It may become tested in equilibrium if regulated banking and shadow banking are intertwined.
    JEL: G21 G23 G28
    Date: 2015
  13. By: Busch, Ramona; Memmel, Christoph
    Abstract: An increase in the level of interest rates is said to have a negative impact on banks net interest margins in the short run. Using a time series of more than 40 years for the German banking system, we show that the opposite effect exists in the long run, where an increase in the level of interest rates by 100 basis points leads to an estimated increase of 7 basis points in the banks net interest margin. In addition, we analyze the consequences of the low-interest rate environment and find that banks interest margins for retail deposits, especially for term deposits, have declined by up to 97 basis points.
    JEL: G21 C32 E43
    Date: 2015
  14. By: Barth, Andreas
    Abstract: This paper analyzes the role of corporate culture in the financial industry. Theoretical literature emphasizes the role of corporate culture in the sorting process of workers into firms. We take this argument to the empirics and analyze whether banks that differ in their corporate culture use different compensation schemes in order to attract a specific type of workers. In a second step, we combine the role of corporate culture with the literature on CEO compensation and risk-taking and analyze empirically the impact of corporate culture on banks' risk-taking as well as on banks' performance. More precisely, we argue that the incentives arising from CEO compensation schemes are diluted once we control for the self-sorting mechanism of CEOs in firms with different corporate cultures. We find that CEOs of banks with a strong competition-oriented corporate culture have a larger share of variable payments in their total compensation. Moreover, we find that a more competition-oriented corporate culture is associated with a higher credit risk as well as with a higher buy-and-hold stock market return.
    JEL: G21 G34 M14
    Date: 2015
  15. By: Gietzen, Thomas
    Abstract: This study examines the exposure of microfinance institutions to liquidity, interest rate and foreign exchange (FX) risk. It builds on a manually collected set of data on the maturity structure of assets and liabilities of the 309 largest microfinance institutions (out of which 112 actually report the maturity structure). The data suggests that, on average, microfinance institutions in the sample face virtually no liquidity risk and that exposure to FX risk is lower than generally assumed. Linking risk exposure to institutional characteristics, I find that legal status and regional affiliation are correlated to risk exposure while regulatory quality is not.
    JEL: G21 G32 O16
    Date: 2015
  16. By: 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.
    JEL: G11 G21 G28
    Date: 2015
  17. By: Eichler, Stefan
    Abstract: This paper studies the role of conditioning political factors for determining the impact of banking crises on sovereign bond yield spreads for a sample of 33 emerging economies in the period 1995-2010. Accounting for the endogenous nature of banking crisis outbreaks, I find that sovereign bond yield spreads increase, on average, by 13 to 17 percentage points during banking crisis episodes. I find that the adverse impact of banking crises on sovereign solvency is less pronounced (or even insignificant) for countries run by powerful and effective governments, low levels of public debt, and a high degree of political stability.
    JEL: G01 G21 G12
    Date: 2015
  18. By: Quint, Dominic; Tristani, Oreste
    Abstract: We study the macroeconomic consequences of the money market tensions associated with the financial crisis of 2008-2009. Our structural model includes the banking model of Gertler and Kyiotaki (2011) in the Smets and Wouters (2003) framework. We highlight two main results. First, a financial shock calibrated to account for the observed increase in spreads on the interbank market can account for one third of the observed, large fall in aggregate investment after the financial crisis of 2008. Second, the liqudity injected on the market by the ECB played an important role in attenuating the macroeconomic impact of the shock. In their absence, aggregate investment would have fallen much more--by between 50 and 70 percent. These effects are somewhat larger than estimated in other available studies.
    JEL: E58 E44 E52
    Date: 2015
  19. By: Haskamp, Ulrich; Setzer, Ralph; Belke, Ansgar
    Abstract: The financial crisis affected regions in Europe in a different magnitude. We examine whether regions which incorporate banks with a higher intermediation quality grow faster using a sample which includes the aftermath of the financial crisis. We measure the intermediation quality of a bank by estimating a its profit and cost efficiency. Next, we aggregate the efficiencies of all banks within a NUTS 2 region to obtain a regional proxy for financial quality in twelve European countries. Our results show that relatively more profit efficient banks foster the economic growth in their region. The link between financial quality and growth is valid in normal times as well as in bad ones.
    JEL: G21 O47 O52
    Date: 2015
  20. By: Weber, Patrick
    Abstract: Using a unique data set, I study whether structural bank characteristics can help to explain a bank's propensity to take recourse to the ECB's marginal lending facility (MLF). My key finding is that besides structural measures capturing a bank's business model, indicators for its liquidity risk management have a highly significant predictive power for a bank's access to the lender-of-the-last-resort (LLR) facility. A bank with volatile reserve holdings, a lower average reserve fulfillment and a more aggressive bidding behavior in the main refinancing operations, is significantly more likely to revert to the MLF. These results suggest that the option value of having access to the ECB's LLR varies significantly across banks. Thus (i) a uniform Marginal Lending rate undermines market efficiency and (ii) structural bank characteristics could be used to adequately adjust the pricing of the MLF to bank specific structural liquidity risks.
    JEL: E58 G01 G21
    Date: 2015
  21. By: Schäfer, Alexander; Schnabel, Isabel; Weder di Mauro, Beatrice
    Abstract: The declared intention of policy makers is that future bank restructuring should be conducted through bail-in rather than bail-out. Over the past years there have been a few cases of European bank restructuring where bail-in was implemented. This paper exploits these events to investigate the market reactions of stock prices and credit default swap (CDS) spreads of other European banks in order to gauge the evolving expectation that bail-in will indeed become the new regime. We find evidence of increased CDS spreads and falling stock prices after bail-in most notably after the events in Cyprus. We also find that bail-in expectations seem to depend on the sovereign s strength, i. e., reactions are stronger for banks in countries with little fiscal space for bail-out. Conversely, bail-out expectations seem to have hardly declined in fiscally stronger countries, such as Germany.
    JEL: G21 G28 G01
    Date: 2015
  22. By: Adam Elbourne; Fabio Duchi
    Abstract: This study looks at the effects of credit supply shocks in the Netherlands and provides estimates of how important credit supply disturbances have been for explaining the recent disappointing economic growth. We find that domestic credit supply shocks can account for about half of the below trend growth in 2009 but that they have played very little role from the end of 2012 until the end of our sample period in 2014. The banking crisis in 2008 has been followed by a sustained period of low growth. Whilst this is a common finding after a banking crisis, many other things have happened beside problems with the banks. For example, the collapse of world trade, the euro crisis and government austerity. How much of our recent disappointing economic performance is due to contractions in credit supply and how much to these other factors? To answer this we use a vector auto regression (VAR) identified with sign and zero restrictions on data from 1998 to 2014. We start by looking at what a contraction in credit supply does to the macro economy before estimating when credit supply shocks hit the Netherlands and how big they were. The set of restrictions we use relies on supply and demand shocks pushing prices and quantities in different directions. An adverse credit supply shock raises the price of credit but contracts the quantity of loans. In contrast, an adverse loan demand shock decreases both the price and the quantity. With enough of these restrictions we can use the model to back out a time series of the size and timing of the shocks that hit the economy. We find that a typical credit supply shock depresses inflation, GDP growth and lending growth. Interestingly, we find evidence across all of the specifications we estimate that lending growth recovers more quickly than GDP growth, which suggests that firms and households can, with time, switch some of their external finance needs to other sources of credit. We also look at investments and consumption separately, since there have been many reports of households and small firms being unable to obtain credit. We find that investments are hit considerably harder than consumption but that they recover much more quickly.
    JEL: C32 E51 G01
    Date: 2016–01
  23. By: Ellingsen, Tore (Stockholm School of Economics); Jacobson, Tor (Research Department, Central Bank of Sweden); von Schedvin, Erik (Research Department, Central Bank of Sweden)
    Abstract: We study 52 million trade credit contracts, issued by 51 suppliers over 9 years to about 199,000 unique customers. The data contain information on contract size, due dates, actual time to payment, and firm characteristics. Our empirical analysis contradicts the conventional view that trade credit is an inferior source of funding. Specifically, while we replicate the usual finding that payables are negatively related to customers’ financial strength, our disaggregated data reveal that improvements in customers’ financial conditions are primarily associated with a reduced value of input purchases rather than smaller trade credit usage. In fact, customers’ financial conditions are unrelated to agreed contract duration and only modestly affect overdue payments. Moreover, the customer’s size and share of the supplier’s sales both have a positive impact on the due date. Overall, the evidence indicates that customers prefer trade credit over other available sources of funding and thus calls for a new theory of short-term finance.
    Keywords: Trade credit; Credit contracts; Financing constraints
    JEL: G32 G33
    Date: 2016–01–01
  24. By: Kemper, Niels; Frölich, Markus; Naima Unte, Pia
    Abstract: Asymmetric information impairs the functioning of credit markets, in particular in developing countries where incomplete property rights and lack of collateral are a common joint occurrence. In such an environment financial institutions enable lending by transferring the responsibilities for the screening and monitoring of the borrowers as well as the enforcement of credit contracts, to the borrowers themselves to ease problems of asymmetric information. This comprises non-collateral based lending methodologies such as peer monitoring through co-signers (Klonner and Rai, 2010) and, especially, peer screening and monitoring in individual and joint liability group lending with the possibility to impose social sanctions (Gin and Karlan, 2014). In addition, improved personal identification through fingerprints may alleviate credit market imperfections (Gin et al., 2012). These approaches have in common that they rely on the punishment of non-compliance with credit contracts as principle enforcement mechanism, e.g. through legal action or social sanctions. They contrast with alternative mechanisms which reward compliance, rather than punishing non-compliance, with credit contracts. One example is dynamic incentives, i.e. offering bigger loans sizes to clients when the build up a positive credit history. Another example, and subject to this impact evaluation, is conditioning gratuitous insurance provision for the client through the financial institution on clients' good standing with the financial institution (clients are in good standing if they are neither in arrears nor completely defaulted on their loans). We evaluate the impact of such a conditional insurance provision on the repayment performances of microfinance clients in a Randomized Controlled Trial. The impact evaluation employs weekly data on the financial activities of roughly 22000 clients in 700 client centers from the management information system (MIS) of the microfinance institution. To evaluate the impact of the IEF on clients, we complement the weekly MIS data with weekly data on a subsample of 500 to 700 clients collected through phone surveys.
    JEL: D12 G21 O12
    Date: 2015
  25. By: Byström, Hans (Department of Economics, Lund University)
    Abstract: We extend the Tasche (2007) model on the asset correlation bias caused by a currency mismatch between assets and liabilities to the more realistic situation where some assets, and some, but not necessarily all, liabilities, are denominated in a foreign currency. To test the significance of the remaining bias we rely on a unique data base constructed by The Inter-American Development Bank (IADB) containing time-series of the asset- and liability currency composition of firms in a group of Latin American countries. Net currency mismatches are calculated and are found to vary from country to country. The correlation bias itself also varies significantly from country to country and has often been economically significant during the last 20 year-period. We find that the bias regularly is of the same magnitude as the correlation itself even in countries where the average firm has a fairly low degree of currency mismatch. Looking at market-wide corporate credit portfolios in four Latin American countries, we show that the credit risk, and associated Basel II capital charges, could increase by as much as a fifth, on average across our sample, if the actual currency mismatch in firms’ balance sheets is acknowledged. In some cases the currency mismatch-induced capital charge could increase much more, sometimes to levels several times (hundreds of percent) the original capital requirement.
    Keywords: asset correlation; bias; exchange rate; currency composition; currency mismatch
    JEL: F31 G10 G15 G21 G33
    Date: 2016–01–11
  26. By: Sara Cecchetti (Bank of Italy); Marco Rocco (Bank of Italy and European Central Bank); Laura Sigalotti (Bank of Italy)
    Abstract: The paper develops a theoretical framework to analyze the connection between the structure of banking networks and their resilience to systemic shocks. We base our analysis on the model of interbank contagion proposed by Cifuentes, Ferrucci and Shin (2005), which accounts for the impact of illiquid assets' fire sales. We develop this model along three main lines: (i) analytically proving, in a general setting, the existence of an equilibrium and the convergence of the algorithm that can be used to compute it; (ii) extending the scope of the simulations (e.g., including an assessment of the resilience of different stylized network topologies and a sensitivity analysis); (iii) generalizing the model to deal with the case where more than one illiquid asset is available on the market.
    Keywords: financial networks, contagion, liquidity, fire sales, systemic risk
    JEL: D85 C62 G21 G28
    Date: 2016–01
  27. By: Tanndal, Julia (Department of Economics); Waldenström, Daniel (Department of Economics)
    Abstract: This study estimates the impact of financial deregulation on top income shares. Using the novel econometric method of constructing synthetic control groups, we show that the "Big Bang"-deregulations in the United Kingdom in 1986 and Japan 1997–1999 increased the share of pre-tax incomes going to top earners by over 20 percent in the U.K. and over 10 percent in Japan. The effect is strongest in the top five percentiles in the U.K. whereas it is mainly driven by the lower part of the top decile in Japan. The findings are robust to placebo tests, alternative ways to construct synthetic controls and scrutiny of post-treatment trends. Higher earnings among financial sector employees appear to be an important mechanism behind this result.
    Keywords: Income inequality; Synthetic control method; Institutions
    JEL: D31 G28 H24 J30 N20
    Date: 2016–01–28
  28. By: Koen van der Veer; Eric Klaaijsen; Ria Roerink
    Abstract: Since the credit crisis, the funding of economic activities has been shifting 9 from banks towards less regulated entities outside the banking system or, in other words, to the shadow banking system. This shift relates to the stricter regulation of banks, which has resulted inter alia in the creation of alternative credit platforms such as crowd finance and credit unions. The low interest-rate environment has also played a significant role in this process. This has spurred a search for yield, with one of the results of this being a rapid growth in funds investing in debt securities.
    Date: 2015–12
  29. By: Cycon, Lisa; Koetter, Michael
    Abstract: Based on detailed loan portfolio data of a top-20 universal bank in Germany, we investigate the effect of unconventional monetary policy on corporate loan pricing. We can decompose corporate lending rates, thereby shedding light on intra-bank transmission of monetary policy. We identify policy effects on contracted customer rates, refinancing rates charged internally, markups earned by the bank, and loan volumes by exploiting the co-existence of eurozone-wide security purchase programs by the European Central Bank (ECB) and local fiscal policies that are determined autonomously at the district level where bank customers reside between August 2011 until December 2013. The purchase programs of the ECB reduced refinancing costs significantly. Local fiscal stimuli increased loan prices and margins earned. The differential effect of unconventional expansionary monetary policy given local tax environments is significantly negative. Lending volumes do not respond significantly though.
    JEL: E43 G18 G21
    Date: 2015
  30. By: Zaklan, Aleksandar; Ellerman, Denny; Valero, Vanessa
    Abstract: The existence of some 2 billion unused EU Allowances (EUAs) at the end of Phase II of the EU s Emissions Trading System (EU ETS) has sparked considerable debate about structural shortcomings of the EU ETS. However, there has been a surprising lack of interest in considering the accumulation of EUAs in light of the theory of intertemporal permit trading, i.e. allowance banking. In this paper we adapt basic banking theory to the case of a linearly declining cap, as is common in greenhouse gas control systems. We show that it is perfectly rational for agents to decrease emissions beyond the constraint imposed by the cap initially, accumulating an allowance bank and then drawing it down in the interest of minimizing abatement cost over time. Having laid out the theory, we carry out a set of simulations for a reasonable range of key parameters, geared to the EU ETS, to illustrate the effects of intertemporal optimization of abatement decisions on optimal time paths of emissions and allowance prices. We conclude that bank accumulation as the result of intertemporal abatement cost optimization should be considered at least a partial explanation when evaluating the current discrepancy between the cap and observed emissions.
    JEL: Q54 D92 F18
    Date: 2015

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