nep-ban New Economics Papers
on Banking
Issue of 2016‒11‒06
nine papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Fighting Crises By Gary Gorton; Guillermo Ordoñez
  2. A Macroeconomic Model with Financially Constrained Producers and Intermediaries By Tim Landvoigt; Stijn Van Nieuwerburgh; Vadim Elenev
  3. Systemic risk, macroprudential policy, bank capital requirements, real estate. By Stijn Ferrari; Mara Pirovano; Pablo Rovira Kaltwasser
  4. The Eurozone deposit rates' puzzle: choosing the right benchmark By Julien Pinter; Charles Boissel
  5. International Banking and Cross-Border Effects of Regulation: Lessons from Chile By Luis Cabezas; Alejandro Jara
  6. Bank profitability and risk taking in a prolonged environment of low interest rates: a study of interest rate risk in the banking book of Dutch banks By Raymond Chaudron
  7. Monetary Policy, Credit Markets and Banking Regulation By Daniel Sanches; Todd Keister
  8. Does foreign bank penetration affect the risk of domestic banks? Evidence from emerging economies By Jeon, Bang; Wu, Ji; Chen, Minghua; Wang, Rui
  9. Managing Risk Taking with Interest Rate Policy and Macroprudential Regulations By Cociuba, Simona; Shukayev, Malik; Ueberfeldt, Alexander

  1. By: Gary Gorton; Guillermo Ordoñez
    Abstract: In fighting a financial crisis, opacity (keeping the names of banks borrowing at emergency lending facilities secret) and stigma (the cost of having a bank’s name revealed) are desirable to restore confidence. Lending facilities raise the perceived average quality of all banks’ assets. Opacity reduces the costs of these facilities, creating an information externality that prevents runs even on banks not participating in lending facilities. Stigma is costly but keeps banks from revealing their participation, making opacity sustainable. The key tool for implementing optimal opacity while fine tuning stigma is the haircut for bonds offered as collateral in lending facilities.
    JEL: E32 E58 G01
    Date: 2016–10
  2. By: Tim Landvoigt (University of Texas at Austin); Stijn Van Nieuwerburgh (NYU Stern School of Business); Vadim Elenev (NYU Stern)
    Abstract: We solve a general equilibrium model with three types of agents and a government. Borrower-entrepreneurs produce output financed with long-term debt issued by financial intermediaries, subject to a leverage constraint. Intermediaries fund these loans combining deposits and their own equity, and are subject to a regulatory capital constraint. Savers provide funding to banks and to the government. Both entrepreneurs and banks make optimal default decisions. The government issues debt to finance budget deficits and to pay for bank rescue operations. We solve for macroeconomic quantities, the price of capital, the yield on safe bonds, and the credit spread. We study how financial and non-financial recessions differ, show that high credit spread forecasts future declines in economic activity, and study macro-prudential policies. Policies that limit corporate leverage and financial leverage reduce welfare. Their benefits for financial and macro-economic stability are outweighed by the costs from a smaller-sized economy. The two types of macroprudential policies have different implications for the wealth distribution.
    Date: 2016
  3. By: Stijn Ferrari (National Bank of Belgium); Mara Pirovano (National Bank of Belgium); Pablo Rovira Kaltwasser (National Bank of Belgium)
    Abstract: In December 2013 the National Bank of Belgium introduced a sectoral capital requirement aimed at strengthening the resilience of Belgian banks against adverse developments in the real estate market. This paper assesses the impact of this macroprudential measure on mortgage lending spreads. Our results indicate that affected banks reacted heterogeneously to the introduction of the measure. Specifically, mortgage-specialised and capital-constrained banks increase mortgage lending spreads by a greater amount. As expected, the impact of the measure on mortgage loan pricing has been rather modest in economic terms.
    Keywords: Regions, productivity, labour costs, linked panel data
    JEL: E44 E58 G21 G28
    Date: 2016–10
  4. By: Julien Pinter (Centre d'Economie de la Sorbonne, Amsterdam University, University of Saint-Louis); Charles Boissel (Paris HEC)
    Abstract: The paper proposes an alternative benchmark to the EURIBOR to analyze the post-crisis puzzling behavior of deposit rates in the Eurozone. Using bank-level CDS data for 6 major euro-countries, we build a simple country-level index for banks' cost of unsecured funding. The use of this index instead of the traditionally used EURIBOR restores the cointegration relationship between deposit rates and their reckoned opportunity cost. It also suggests that deposits have actually not been significantly over-remunerated in most euro area countries since the financial crisis, in contrast with what is often argued. Our index appears as a good alternative to the EURIBOR, which we show has become irrelevant for many countries
    Keywords: deposit rates; euribor; cointegration; panel estimates; banks
    JEL: E43 E50 G10 G21
    Date: 2016–08
  5. By: Luis Cabezas; Alejandro Jara
    Abstract: In this paper we address whether foreign regulations affect the domestic activity of a select group of internationally active banks in Chile, for the 2002q2-2013q4 sample period. We find that the spillover effects generated by changes in the prudential policy abroad have a positive, but relatively weak impact on domestic lending. When comparing the two dimensions of prudential regulations, i.e. inward transmission through international exposure of domestic banks and through affiliates of foreign-owned banks, the spillovers transmitted through the first approach are stronger and economically more significant than through the foreign subsidiary relationship. This result is robust to different specifications, and might suggest that foreign subsidiaries in Chile behave just like domestic banks, as they have to comply with the local regulation in the same way as local banks. Above all, capital requirements appear to be the most significant prudential policy affecting domestic lending.
    Date: 2016–08
  6. By: Raymond Chaudron
    Abstract: This paper investigates the size and development of Dutch banks' interest rate risk positions in the banking book during the period from 2008 to 2015. Interest rate risk positions are rather modest and the income from maturity transformation it generates is only a small proportion of the net interest margin and the return on assets. Interest rate risk positions do, however, vary significantly between banks and over time. In fact, banks adjust their interest rate risk in order to benefit from persistent excess long-term yields. Interest rate risk is negatively related to on-balance sheet leverage and has a U-shaped relation with solvability for banks that do not use derivatives. Banks that receive government assistance during the financial crisis have higher interest rate risk than banks that do not receive assistance.
    Keywords: interest rate risk; banks; banking book; hedging; profitability
    JEL: D81 E43 G21
    Date: 2016–10
  7. By: Daniel Sanches (Federal Reserve Bank of Philadelphia); Todd Keister (Rutgers University)
    Abstract: We study a model in which both money and private credit instruments can potentially be used as media of exchange to overcome trading frictions in decentralized markets. Entrepreneurs in our model have access to productive projects, but face credit constraints due to limited pledgeability of their returns. If credit claims cannot circulate, the optimal monetary policy is the Friedman rule, which leads to efficient patterns of exchange, but the equilibrium level of investment is inefficiently low. When credit claims do circulate, monetary policy affects the liquidity premium on private credit and thereby influences the cost of borrowing and the level of investment. The Friedman rule is no longer optimal; we show that the optimal policy instead strikes a balance between easing borrowing constraints for entrepreneurs and promoting efficient exchange. We relate our result to the traditional bank lending channel of monetary policy and derive implications for optimal banking regulation.
    Date: 2016
  8. By: Jeon, Bang (Drexel University); Wu, Ji (Southwestern University of Finance and Economics); Chen, Minghua (Southwestern University of Finance and Economics); Wang, Rui (Southwestern University of Finance and Economics)
    Abstract: We investigate whether foreign bank penetration affects the risk-taking of domestic banks in emerging economies. By using bank-level data from 35 markets during the period of 2000-2014, we find significant evidence that the riskiness of domestic banks increases with the presence of foreign banks, and this finding is shown to be consistent in a series of robustness examinations. We also explore various conditions for the heterogeneity of the nexus between foreign bank penetration and domestic banks’ risk-taking, including: (1) what types of domestic banks are affected more by the presence of foreign banks, and (2) what patterns of foreign penetration exert more pronounced impact.
    Keywords: Foreign bank penetration; bank risk-taking; emerging economies
    JEL: E44 F36 G15 G21
    Date: 2016–09–01
  9. By: Cociuba, Simona (University of Western Ontario); Shukayev, Malik (University of Alberta, Department of Economics); Ueberfeldt, Alexander (Bank of Canada)
    Abstract: We develop a model in which a financial intermediarys investment in risky assets risk taking is excessive due to limited liability and deposit insurance, and characterize the policy tools that implement efficient risk taking. In the calibrated model, coordinating interest rate policy with state-contingent macroprudential regulations either capital or leverage regulation, and a tax on pro ts achieves efficiency. Interest rate policy mitigates excessive risk taking, by altering the return and the supply of collateralizable safe assets. In contrast to commonly-used capital regulation, leverage regulation has stronger effects on risk taking and calls for higher interest rates.
    Keywords: Financial intermediation; risk taking; interest rate policy; macroprudential regulations; capital requirements; leverage ratio
    JEL: E44 E52 G11 G18
    Date: 2016–11–01

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