|
on Banking |
| By: | Adrian van Rixtel (Banco de España); Luna Romo González (Banco de España); Jing Yang (Bank of Canada) |
| Abstract: | This paper is one of the first to investigate the determinants of bond issuance by European banks. We use a unique database of around 50,000 bonds issued by 63 banks from 14 European countries to test explicitly a broad set of hypotheses on the drivers of bond issuance. The sample covers the two major financial crises that caused severe dislocations in bank funding structures, i.e. the global financial crisis of 2008-2009 and the euro area financial crisis of 2010-2012. Our findings suggest that “market timing” (low interest rates) drove issuance before but not during the crisis, when access to funding became more important than its cost. Moreover, during the crisis years, country-risk characteristics became drivers of bond issuance, while for banks from the euro area periphery central bank liquidity substituted for unsecured long-term debt. We also show that heightened financial market tensions were detrimental to bond issuance, and more strongly so during crisis episodes. We find evidence of “leverage targeting” by means of the issuance of long-term debt during the crisis years. The positive and significant coefficient for the capital ratio supports the “risk absorption” hypothesis, suggesting that larger capital buffers enhanced the risk-bearing capacity of banks and allowed them to issue more debt. Moreover, banks with deposit supply constraints and relatively large loan portfolios issued more bonds, both before and after the crisis years. We find, too, that higher rated banks were more likely to issue bonds, also during the crisis period. Stronger banks issued unsecured debt in particular, while weaker banks resorted more to issuance of covered bonds. Overall, our results suggest that stronger banks – including those from peripheral countries – maintained better access to longer-term funding markets, even during crisis periods. |
| Keywords: | bank funding, bond issuance, banking crisis, Europe |
| JEL: | G21 G32 E44 E58 F3 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1621&r=ban |
| By: | SK, Shanthi; Nangia, Vinay Kumar; Sircar, Sanjoy; Reddy, Kotapati Srinivasa |
| Abstract: | Purpose: The purpose of this special issue is to gain a deeper understanding of banking regulatory practices in emerging markets in the light of the financial crisis of 2007-08. The crisis necessitated countries to adopt macro-prudential policies in the current environment of globalized capital flows. The interconnectedness of financial institutions occurs not only across the world but also across a plethora of financial markets. Design/Methodology/Approach: The papers in this volume have a focused approach that addresses issues relating to the banking sector. The papers explore diverse issues such as the link between increased competition and the performance efficiency, application of macro prudential norms in credit growth and its relation thereof with the ownership pattern of banks, co-ordination between regulations and compensation in the event of bank failure and risk based regulation. All the papers are country specific and they take in India, Hong Kong and Nigeria.They will contribute to a better understanding of the various issues and will be of great use to academics for further research and for practitioners in new policy initiatives in the area of banking reform and regulation. |
| Keywords: | Emerging markets; Banking regulations; Financial markets laws; Global financial crisis; Policy development |
| JEL: | E5 E58 E6 G1 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:74289&r=ban |
| By: | Schmitt, Matthias; Schmaltz, Christian |
| Abstract: | We study how a Net Stable Funding Ratio as defined by the Basel Committee in 2014 (NSFR (2014)) would affect the profitability of German banks and their capacity to lend. With a NSFR-model that is partially calibrated against reported NSFRs, we find that 9% of German banks do not comply with the NSFR (2014). This is a significant reduction compared to the 39% that we find for its prior definition, the NSFR (2010), for the same sample. Structurally, banks that do not comply with the NSFR (2014) hold less liquid assets, rely less on retail funding, but more on short-term market funding and are more highly leveraged. A microeconomic model applied to each of the 163 non-compliant banks suggests that they would engage in 70 different strategies to become compliant. All strategies are growth strategies and none of them cuts lending. On average, banks would see their Return on Assets dropping once by moderate 10 bps. Our conclusion is that an introduction of the NSFR (2014) as minimum standard is unlikely to exhibit adverse consequences for credit supply and bank profitability. |
| Keywords: | NSFR,Credit supply,Profitability |
| JEL: | G21 G28 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:372016&r=ban |
| By: | Sumit Agarwal; Gene Amromin; Itzhak Ben-David; Douglas D. Evanoff |
| Abstract: | We present evidence of a particular type of loan steering in which lenders lead borrowers to take out high margin mortgage products. We identify this activity by comparing borrowers who were rejected by lenders but were subsequently approved by their affiliates (steered borrowers) to other initially rejected borrowers who obtained loans elsewhere. Although steered borrowers default less, they pay significantly higher interest rates and are more likely to borrow through contracts with unconventional features, such as negative amortization or prepayment penalties. Female borrowers, single borrowers with no co-signers, and borrowers in low-income locations are more likely to be steered. |
| JEL: | D12 D18 G18 G21 K2 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22696&r=ban |
| By: | Leonardo Gambacorta; Sudipto Karmakar |
| Abstract: | The global financial crisis has highlighted the limitations of risk-sensitive bank capital ratios. To tackle this problem, the Basel III regulatory framework has introduced a minimum leverage ratio, defined as a banks Tier 1 capital over an exposure measure, which is independent of risk assessment. Using a medium sized DSGE model that features a banking sector, financial frictions and various economic agents with differing degrees of creditworthiness, we seek to answer three questions: 1) How does the leverage ratio behave over the cycle compared with the risk-weighted asset ratio? 2) What are the costs and the benefits of introducing a leverage ratio, in terms of the levels and volatilities of some key macro variables of interest? 3) What can we learn about the interaction of the two regulatory ratios in the long run? The main answers are the following: 1) The leverage ratio acts as a backstop to the risk-sensitive capital requirement: it is a tight constraint during a boom and a soft constraint in a bust; 2) the net benefits of introducing the leverage ratio could be substantial; 3) the steady state value of the regulatory minima for the two ratios strongly depends on the riskiness and the composition of bank lending portfolios. |
| Keywords: | bank capital buffers, regulation, risk-weighted assets, leverage |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:586&r=ban |
| By: | Isabelle Distinguin (LAPE - Laboratoire d'Analyse et de Prospective Economique - UNILIM - Université de Limoges - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société); Aref Mahdavi-Ardekani (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: | This paper investigates the impact of interbank network topology on bank liquidity ratios. Whereas more emphasis has been put on liquidity requirements by regulators since the global financial crisis of2007-2008, how differently shaped interbank networks impact individual bank liquidity behavior remains an open issue. We look at how bank interconnectedness within interbank loan and deposit networks affects their decision to hold more or less liquidity during normal times and distress times and depending on the overall size of the banking sector. Our results show that taking into account the way that banks are linked to each other within a network adds value to traditional liquidity models. Our findings have critical implications with regards to the implementation of Basel III liquidity requirements and bank supervision more generally. JEL Classification: G32, G21, G28 and G01 |
| Keywords: | Interbank network topology,Basel III,Liquidity risk,Financial Crisis |
| Date: | 2016–06–23 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01336784&r=ban |
| By: | Munyanyi, Musharavati Ephraim |
| Abstract: | This paper seeks examine the validity of the bank lending channel in Zimbabwe. It estimates the relative impact of this channel on key economic variables such as, economic growth and inflation by covering the period from 1970 to 2014. For this purpose, Vector Autoregression (VAR) approach is employed. Impulse Response Functions are also generated to confirm the response of a shock in bank lending upon itself and other variables (economic growth and inflation). The result findings indicate that bank lending channel does not have a significant role in monetary transmission mechanism of Zimbabwe. The results imply that the bank lending channel should be improved through for example, tightening creditworthiness standards, revamping accounting standards and bank credit assessment capabilities, as well as setting up an effective judicial system to improve banks’ ability to enforce on collateral. |
| Keywords: | Economic Growth, Bank lending channel, VAR |
| JEL: | E52 |
| Date: | 2016–10–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:74301&r=ban |
| By: | Yassine Bakkar (LAPE - Laboratoire d'Analyse et de Prospective Economique - UNILIM - Université de Limoges - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société); Clovis Rugemintwari (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 how bank charter value affects risk for a sample of OECD banks by using standalone and systemic risk measures before (2000-2006), during (2007-2009) and after (2010-2013) the global financial crisis. Prior to the crisis bank charter value is positively associated withrisk-taking and systemic risk for very large ―too-big-too-fail‖ banks and large U.S. and European banks but such a relationship is inverted during and after the crisis. A deeper investigation shows that such a behavior before the crisis is mostly relevant for very large banks and large banks with high growth strategies. Banks' Business models also influence this relationship. In presence of strong diversification strategies, higher charter value increases standalone risk for very large banks. Conversely, for banks following a focus strategy, higher charter value amplifies systemic risk for very large banks and both standalone and systemic risk for large U.S. and European banks. Abstract We investigate how bank charter value affects risk for a sample of OECD banks by using standalone and systemic risk measures before (2000-2006), during (2007-2009) and after (2010-2013) the global financial crisis. Prior to the crisis bank charter value is positively associated withrisk-taking and systemic risk for very large ―too-big-too-fail‖ banks and large U.S. and European banks but such a relationship is inverted during and after the crisis. A deeper investigation shows that such a behavior before the crisis is mostly relevant for very large banks and large banks with high growth strategies. Banks' Business models also influence this relationship. In presence of strong diversification strategies, higher charter value increases standalone risk for very large banks. Conversely, for banks following a focus strategy, higher charter value amplifies systemic risk for very large banks and both standalone and systemic risk for large U.S. and European banks. |
| Keywords: | Systemic risk,Standalone risk,Charter value,Bank strategies,Too-big-too-fail,Global financial crisis,Bank regulation |
| Date: | 2016–06–27 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01337601&r=ban |
| By: | Simona Malovana (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic; Czech National Bank, Na Prikope 28, 115 03 Prague 1, Czech Republic); Jan Frait (University of Finance and Administration, Prague, Czech Republic; Czech National Bank, Na Prikope 28, 115 03 Prague 1, Czech Republic) |
| Abstract: | This paper sheds some light on situations in which monetary and macroprudential policies may interact (and potentially get into conflict) and contributes to the discussion about the coordination of those policies. Using data for the Czech Republic and five euro area countries we show that monetary tightening has a negative impact on the credit-to-GDP ratio and the non-risk-weighted bank capital ratio (i.e. a positive impact on bank leverage), while these effects have strengthened considerably since mid-2011. This supports the view that accommodative monetary policy contributes to a build-up of financial vulnerabilities, i.e. it boosts the credit cycle. On the other hand, the effect of the higher bank capital ratio is associated with some degree of uncertainty. For these and other reasons, coordination of the two policies is necessary to avoid an undesirable policy mix preventing effective achievement of the main objectives in the two policy areas. |
| Keywords: | Bayesian estimation, financial stability, macroprudential policy, monetary policy, time-varying panel VAR model |
| JEL: | E52 E58 E61 G12 G18 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2016_19&r=ban |
| By: | Derry Quintana Aguilar (Central Reserve Bank of Peru) |
| Abstract: | International evidence has shown how the lack of proper corporate governance in banks increases risk management, thereby reducing their financial strength. This paper addresses how corporate governance in Peruvian banks is related to their financial strength. The measure of corporate governance includes variables such as Board`s compensations, shares concentration, transparency and market discipline. In turn, a measure of financial strength is built, including indicators of capital adequacy, asset quality, management, earnings, and liquidity. Most importantly, our results indicate that banks with higher corporate governance indices exhibit higher financial strength. |
| Keywords: | Corporate Governance, Bank Performance, Government Policy. |
| JEL: | G21 G28 G32 G34 |
| Date: | 2016–05 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp12-2016&r=ban |
| By: | Altavilla, Carlo; Pagano, Marco; Simonelli, Saverio |
| Abstract: | Using novel monthly data for 226 euro-area banks from 2007 to 2015, we investigate the determinants of changes in banks' sovereign exposures and their effects during and after the crisis. First, public, bailed out and poorly capitalized banks responded to sovereign stress by purchasing domestic public debt more than other banks, with public banks' purchases growing especially in coincidence with the largest ECB liquidity injections. Second, bank exposures significantly amplified the transmission of risk from the sovereign and its impact on lending. This amplification of the impact on lending does not appear to arise from spurious correlation or reverse causality. |
| Keywords: | sovereign exposures,sovereign risk,bank lending,credit risk,euro,crisis |
| JEL: | E44 F3 G01 G21 H63 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:539&r=ban |
| By: | Cavid Nabiyev (Central Bank of Azerbaijan Republic); Kanan Musayev (Central Bank of Azerbaijan Republic); Leyla Yusifzada (Central Bank of Azerbaijan Republic) |
| Abstract: | The study provides empirical analysis of the cross-country relationship between a direct measure of competitive conduct of banking system and financial system in CIS countries during the period from 2001 to 2013. We determine the level of banking competition by using Panzar and Rosse H-statistic. Estimation results from Logit probability analysis reveal that the level of competition does not significantly affect the probability of banking crisis in such countries. However, a number of macroeconomic and institutional factors have a significant influence in financial stability. According to empirical results, higher inflation increases the probability of a banking crisis. On the other hand, credit growth decreases the probability of banking crisis in the investigated countries. These results are robust to the methodology when the interaction of concentration and h-statistic is used. The institutional factors have significant influence on preventing banking crises. Specifically, improvement in government effectiveness decreases the probability of banking crisis. |
| Keywords: | banking competition, concentration, competition-stability, competition-fragility, h-statistics, financial stability |
| JEL: | G21 D41 |
| Date: | 2016–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:aze:wpaper:1604&r=ban |
| By: | Aldasoro, Iñaki; Alves, Iván |
| Abstract: | Research on interbank networks and systemic importance is starting to recognise that the web of exposures linking banks balance sheets is more complex than the single-layer-of-exposure approach. We use data on exposures between large European banks broken down by both maturity and instrument type to characterise the main features of the multiplex structure of the network of large European banks. This multiplex network presents positive correlated multiplexity and a high similarity between layers, stemming both from standard similarity analyses as well as a core-periphery analyses of the different layers. We propose measures of systemic importance that fit the case in which banks are connected through an arbitrary number of layers (be it by instrument, maturity or a combination of both). Such measures allow for a decomposition of the global systemic importance index for any bank into the contributions of each of the sub-networks, providing a useful tool for banking regulators and supervisors in identifying tailored policy instruments. We use the dataset of exposures between large European banks to illustrate that both the methodology and the specific level of network aggregation matter in the determination of interconnectedness and thus in the policy making process. |
| Keywords: | interbank networks,systemic importance,multiplex networks |
| JEL: | G21 D85 C67 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:102r&r=ban |
| By: | Faia, Ester |
| Abstract: | Data show that sovereign risk reduces liquidity, increases funding cost and risk of banks highly exposed to it. I build a model that rationalizes this fact. Banks act as delegated monitors and invest in risky projects and in risky sovereign bonds. As investors hear rumors of increased sovereign risk, they run the bank (via global games). Banks could rollover liquidity in repo market using government bonds as collateral, but as sovereign risk raises collateral values shrink. Overall banks' liquidity falls (its cost increases) and so does banks' credit. In this context noisy news (announcements with signal extraction) of consolidation policies are recessionary in the short run, as they contribute to investors and banks pessimism, and mildly expansionary in the medium run. The banks liquidity channel plays a major role in the fiscal transmission. |
| Keywords: | liquidity risk,sovereign risk,banks' funding costs |
| JEL: | E5 G3 E6 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:542&r=ban |
| By: | Coibion, Olivier (University of Texas at Austin); Gorodnichenko, Yuriy (UC Berkeley); Kudlyak, Marianna (Federal Reserve Bank of San Francisco); Mondragon, John (Federal Reserve Bank of San Francisco) |
| Abstract: | Using household-level debt data over 2000-2012 and local variation in inequality, we show that low-income households in high-inequality regions (zip-codes, counties, states) accumulated less debt (relative to their income) than low-income households in lower-inequality regions, contrary to the prevailing view. Furthermore, the price of credit is higher and access to credit is harder for low-income households in high-inequality versus low-inequality regions. Lower quantities combined with higher prices suggest that the debt accumulation pattern by household income across areas with different inequality is a result of credit supply rather than credit demand. We propose a lending model to illustrate the mechanism. |
| JEL: | D14 E21 E51 G21 |
| Date: | 2016–10–11 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2016-20&r=ban |
| By: | Charles W. Calomiris; Matthew S. Jaremski |
| Abstract: | Deposit insurance reduces liquidity risk but it also can increase insolvency risk by encouraging reckless behavior. A handful of U.S. states installed deposit insurance laws before the creation of the FDIC in 1933, and those laws only applied to some depository institutions within those states. These experiments present a unique testing ground for investigating the effect of deposit insurance. We show that deposit insurance increased risk by removing market discipline that had been constraining erstwhile uninsured banks. Taking advantages of the rising world agricultural prices during World War I, insured banks increased their insolvency risk, and competed aggressively for the deposits of uninsured banks operating nearby. When prices fell after the War, the insured systems collapsed and suffered especially high losses. |
| JEL: | G21 G28 N22 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22692&r=ban |
| By: | Pia Hüttl; Dirk Schoenmaker |
| Abstract: | During the global financial crisis and subsequent euro-debt crisis, the fiscal resources of some countries appeared to be insufficient to support their banking systems. These countries needed outside support to stabilise their banking systems and thereby their wider economies. This Policy Contribution assesses the potential fiscal costs of recapitalising large banks. Based on past financial crises, we estimate that the cost to recapitalise an individual bank amounts to 4.5 percent of its total assets. During a severe crisis, a country might have to recapitalise up to three of its large systemic banks. We assume that bail-in of private investors is not fully possible during a systemic crisis. Our empirical findings suggest that large countries, such as the United States, China and Japan, can still provide credible fiscal backstops to their large systemic banks. In the euro area, the potential fiscal costs are unevenly distributed and range from 4 to 12 percent of GDP. Differences in the strengths of the fiscal backstops in euro-area countries contribute to divergences in financing conditions across the banking union. To counter this fragmentation, we propose that the European Stability Mechanism (ESM) could be used as a fiscal backstop to recapitalise systemically important banks directly within the banking union, in the case of a severe systemic crisis. But this would be only a last resort, after other tools such as bail-in have been used to the maximum extent possible. The governance of the ESM should be reconsidered, to ensure swift and clear application in times of crisis. |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polcon:16765&r=ban |
| By: | Hyejin Cho (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | In examining the global imbalance by the excess liquidity level, the argument is whether commercial banks want to hold excess reserves for the precautionary aim or expect to get better return through risky decision. By pictorial representations, risk preference in the Machina's triangle (1982, 1987) encapsulates motivation to hold excess liquidity. This paper introduces an endogenous liquidity model for the financial sector where the imbalance argument comes from credit rationing extended from outside liquidity (Holmstrom and Tirole, 2011). We also conduct a stylistic analysis of excess liquidity in Jordan and Lebanon from 1993 to 2015. As such, the proposed model exemplifies the combination of credit, liquidity and regulation. |
| Keywords: | credit rationing, excess liquidity, inside liquidity, risk preference, machina triangle JEL: D81,E58,L51 |
| Date: | 2016–07–15 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:hal-01375423&r=ban |