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on Banking |
| By: | Thierry Tressel; Yuanyan Sophia Zhang |
| Abstract: | The crisis has highlighted the importance of setting up macro-prudential oversight frameworks, having effective macro-prudential instruments in place to be called upon to mitigate growing financial imbalances as needed. We develop a new approach using the euro area Bank Lending Survey to assess the effectiveness of macro-prudential policies in containing credit growth and house price appreciation in mortgage markets. We find instruments targeting the cost of bank capital most effective in slowing down mortgage credit growth, and that the impact is transmitted mainly through price margins, the same banking channel as monetary policy. Limits on loan-to-value ratios are also effective, especially when monetary policy is excessively loose. |
| Keywords: | Financial crises;Macroprudential Policy;Euro Area;LTV ratios, capital requirement, mortage, bank lending, lending, monetary policy, instruments, mortgage, credit growth, General, |
| Date: | 2016–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:16/4&r=ban |
| By: | Natalya Martynova; Lev Ratnovski; Razvan Vlahu |
| Abstract: | Traditional theory suggests that more profitable banks should have lower risk-taking incentives. Then why did many profitable banks choose to invest in untested financial instruments before the crisis, realizing significant losses? We attempt to reconcile theory and evidence. In our setup, banks are endowed with a fixed core business. They take risk by levering up to engage in risky ‘side activities’(such as market-based investments) alongside the core business. A more profitable core business allows a bank to borrow more and take side risks on a larger scale, offsetting lower incentives to take risk of given size. Consequently, more profitable banks may have higher risk-taking incentives. The framework is consistent with cross-sectional patterns of bank risk-taking in the run up to the recent financial crisis. |
| Keywords: | Bank capital;Profit margins;Profits;Financial risk;Debt;Banks;Risk-Taking, Repo Markets, Crises, bank, risk, bank risk, capital, Government Policy and Regulation, Crises., |
| Date: | 2015–11–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/249&r=ban |
| By: | Dominique Guegan (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Bertrand K. Hassani (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Kehan Li (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | The financial industry has extensively used quantile-based risk measures relying on the Value-at-Risk (VaR). They need to be estimated from relevant historical data set. Consequently, they contain uncertainty. We propose an alternative quantile-based risk measure (the Spectral Stress VaR) to capture the uncertainty in the historical VaR approach. This one provides flexibility to the risk manager to implement prudential regulatory framework. It can be a VaR based stressed risk measure. In the end we propose a stress testing application for it. |
| Keywords: | Prudential financial regulation,Stress risk measure,Tail risk measure,Historical method,Uncertainty,Value-at-Risk,Stress testing |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-01277880&r=ban |
| By: | Fernholz, Ricardo T. (Claremont McKenna College); Koch, Christoffer (Federal Reserve Bank of Dallas) |
| Abstract: | The U.S. banking sector has become substantially more concentrated since the 1990s, raising questions about both the causes and implications of this consolidation. We address these questions using nonparametric empirical methods that characterize dynamic power law distributions in terms of two shaping factors — the reversion rates (a measure of crosssectional mean reversion) and idiosyncratic volatilities of assets for different size-ranked banks. Using quarterly data for subsidiary commercial banks and thrifts and their parent bank-holding companies, we show that the greater concentration of U.S. bank-holding company assets is a result of lower mean reversion, a result consistent with policy changes such as interstate branching deregulation and the repeal of Glass-Steagall. In contrast, the greater concentration of both U.S. commercial bank and thrift assets is a result of higher idiosyncratic volatility, yet, idiosyncratic volatility of parent bank-holding company assets fell. This contrast suggests that diversification through non-banking activities has reduced the idiosyncratic asset volatilities of the largest bank-holding companies and affected systemic risk. |
| Keywords: | Bank size distributions; bank structure; dynamic power laws; financial stability; non-bank activities; nonparametric methods; systemic risk |
| JEL: | C14 C81 E58 G21 |
| Date: | 2016–02–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:1604&r=ban |
| By: | Dyna Heng |
| Abstract: | This paper examines the impact of the new financial services law in Bolivia—including credit quotas and interest rate caps—on financial stability and inclusion. So far, credit to “targeted†sectors is growing as intended by the law but the increase in the average loan size of microfinance institutions and the declining number of borrowers point to potentially adverse effects of the interest rate caps on financial inclusion. Looking ahead, while the new law contains many good provisions, international experience suggests that promoting financial access through credit quota and interet rate caps is very challenging. Indeed, trying to meet the 2018 credit target for the productive sectors and social housing could imply the build up of significant financial stability risks. These will need careful monitoring and possible modifications to the credit quotas and interest rate caps. |
| Keywords: | Bolivia;Financial stability;Western Hemisphere;Financial Development, Financial Inclusion, credit, interest, interest rate, borrowers, financial services, Government Policy and Regulation, Enterprise Policy, |
| Date: | 2015–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/267&r=ban |
| By: | Charles Abuka; Ronnie K Alinda; Camelia Minoiu; José-Luis Peydró; Andrea Presbitero |
| Abstract: | The transmission of monetary policy to credit aggregates and the real economy can be impaired by weaknesses in the contracting environment, shallow financial markets, and a concentrated banking system. We empirically assess the bank lending channel in Uganda during 2010–2014 using a supervisory dataset of loan applications and granted loans. Our analysis focuses on a short period during which the policy rate rose by 1,000 basis points and then came down by 1,200 basis points. We find that an increase in interest rates reduces the supply of bank credit both on the extensive and intensive margins, and there is significant pass-through to retail lending rates. We document a strong bank balance sheet channel, as the lending behavior of banks with high capital and liquidity is different from that of banks with low capital and liquidity. Finally, we show the impact of monetary policy on real activity across districts depends on banking sector conditions. Overall, our results indicate significant real effects of the bank lending channel in developing countries. |
| Keywords: | Demand for money;Central banks and their policies;Monetary policy transmission, Bank lending channel, Bank balance sheet channel, Developing countries, bank, banks, credit, lending, interest, Financial Markets and the Macroeconomy, Monetary Policy (Targets, Instruments, and Effects), All Countries, |
| Date: | 2015–12–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/270&r=ban |
| By: | Tammuz Alraheb (LAPE - Laboratoire d'Analyse et de Prospective Economique - UNILIM - Université de Limoges - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société); Amine Tarazi (LAPE - Laboratoire d'Analyse et de Prospective Economique - UNILIM - Université de Limoges - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société) |
| Abstract: | We investigate the impact of global and local crises on bank stability and examine the effect of owning bank subsidiaries in other countries. We consider banks from MENA countries which experienced both types of crises during our sample period. Our findings highlight a negative impact of the global financial crisis of 2007-2008 on bank stability but, on the whole, no negative impact of the 'Arab Spring'. A deeper investigation shows that owning subsidiaries outside the home country is a source of increased fragility during normal times, yet a source of higher stability during the 'Arab Spring' but not during the global financial crisis. Moreover, owning foreign subsidiaries in one or two world regions is insufficient to neutralize the 'Arab Spring' crisis, while being present in three or more regions is more stabilizing during the 'Arab Spring' but also more destabilizing during the global financial crisis. Our findings contribute to the literature examining bank stability and have several policy implications. (T. Al Raheb). c Email: amine.tarazi@unilim.fr (A. Tarazi) 2 Local Versus International Crises, Foreign Subsidiaries and Bank Stability: Evidence from the MENA Region. Abstract We investigate the impact of global and local crises on bank stability and examine the effect of owning bank subsidiaries in other countries. We consider banks from MENA countries which experienced both types of crises during our sample period. Our findings highlight a negative impact of the global financial crisis of 2007-2008 on bank stability but, on the whole, no negative impact of the 'Arab Spring'. A deeper investigation shows that owning subsidiaries outside the home country is a source of increased fragility during normal times, yet a source of higher stability during the 'Arab Spring' but not during the global financial crisis. Moreover, owning foreign subsidiaries in one or two world regions is insufficient to neutralize the 'Arab Spring' crisis, while being present in three or more regions is more stabilizing during the 'Arab Spring' but also more destabilizing during the global financial crisis. Our findings contribute to the literature examining bank stability and have several policy implications. |
| Keywords: | MENA region,Bank stability,Subsidiaries,Financial crises |
| Date: | 2016–02–24 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01270806&r=ban |
| By: | Marcela Eslava; Xavier Freixas |
| Abstract: | This paper is devoted to understanding the role of public development banks in alleviating financial market imperfections. We explore two issues: 1) which types of firms should be optimally targeted by public financial support; and 2) what type of mechanism should be implemented in order to efficiently support the targeted firms’ access to credit. We model firms that face moral hazard and banks that have a costly screening technology, which results in a limited access to credit for some firms. We show that a public development bank may alleviate the inefficiencies by lending to commercial banks at subsidized rates, targeting the firms that generate high added value. This may be implemented through subsidized ear-marked lending to the banks or through credit guarantees which we show to be equivalent in "normal times". Still, when banks are facing a liquidity shortage, lending is preferred, while when banks are undercapitalized, a credit guarantees program is best suited. This will imply that 1) there is no "one size fits all" intervention program and 2) that any intervention program should be fine-tuned to accommodate the characteristics of competition, collateral, liquidity and banks capitalization of each industry. |
| Keywords: | Public development banks; governmental loans and guarantees; costly screening; credit rationing. |
| JEL: | H81 G20 G21 G23 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1510&r=ban |