|
on Banking |
| By: | Matthieu Gomez; Augustin Landier; David Sraer; David Thesmar |
| Abstract: | We show that the cash-flow exposure of banks to interest rate risk, or income gap, affects the transmission of monetary policy shocks to bank lending and real activity. We first use a large panel of U.S. banks to show that the sensitivity of bank profits to interest rates increases significantly with measured income gap, even when banks use interest rate derivatives. We then document that, in the cross-section of banks, income gap predicts the sensitivity of bank lending to interest rates. The effect of income gap is larger or similar in magnitudes to that of previously identified factors, such as leverage, bank size or even asset liquidity. To alleviate the concern that this result is driven by the endogenous matching of banks and firms, we use loan-level data and compare the supply of credit to the same firm by banks with different income gap. This analysis allows us to trace the impact of banks’ income gap on firm borrowing capacity, investment and employment, which we find to be significant. JEL Classification: E52, G21, E44 |
| Keywords: | interest rate risk, monetary policy, bank lending |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:201613&r=ban |
| By: | Gehrig, Thomas; Iannino, Maria Chiara |
| Abstract: | This paper analyses the evolution of the safety and soundness of the European banking sector during the various stages of the Basel process of capital regulation. In the first part we document the evolution of various measures of systemic risk as the Basel process unfolds. Most strikingly, we find that the exposure to systemic risk as measured by SRISK has been steeply rising for the highest quintile, moderately rising for the second quintile and remaining roughly stationary for the remaining three quintiles of listed European banks. This observation suggests that the Basel process has succeeded in containing systemic risk for the majority of European banks but not for the largest institutions. In the second part we analyse the drivers of systemic risk. We find compelling evidence that the increase in exposure to systemic risk (SRISK) is intimately tied to the implementation of internal models for determining credit risk as well as market risk. Based on this evidence, the sub-prime crisis found especially the largest and more systemic banks ill-prepared and lacking resiliency. This condition has even aggravated during the European sovereign crisis. Banking Union has not (yet) brought about a significant increase in the safety and soundness of the European banking system. Finally, low interest rates affect considerably to the contribution to systemic risk across the whole spectrum of banks. |
| Keywords: | capital shortfall; internal risk models; quantile regressions; resilience; systemic risk |
| JEL: | B26 E58 G21 G28 H12 N24 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11920&r=ban |
| By: | Tatiana Gaelle Yongoua Tchikanda |
| Abstract: | The global financial crisis raised concerns about the European financial system structure. The systemic nature of financial institutions, especially banking institutions, was highlighted, questioning the bottom-up approach used so far to ensure the financial stability as a whole. In this study, we legitimize the calibration of micro-prudential instruments for macro-prudential purposes in order to measure and manage systemic risk. The debate on the best way to eliminate the negative externalities of systemic risk is politically controversial and economically complicated. Using bank balance sheet and daily stock market data from listed banks classified as Monetary Financial Institutions (MFIs) across EU-17 over the period 1999-2013, we investigate whether more individual bank soundness is conducive for financial stability. Through a 2SLS model to correct the observed endogeneity between the individual risk, measured by Z-score (Roy, 1952) and the systemic risk, measured by SRISK (Acharya, Engle and Richardson, 2012), our strong empirical results suggest that riskier banks contribute more to systemic risk. Thus, individual bank soundness increases the banking system resilience to potential shocks. On the one hand, this finding seems to challenge the traditional bottom-up approach. Indeed, our outcome emphasizes the fallacy of composition prior the crisis. Nevertheless, it shows that even if the sum of the risks borne by financial institutions does not reflect the global risks borne by the entire system, it is an important addition. On the other hand, this result justifies the calibration of micro-prudential tools for macro-prudential purposes; taking into account individual factors that are sources of systemic fragilities and a part of individual risk-taking. This study has important policy implications for designing and implementing new regulations to improve the financial system stability, in particular for MFIs because systemic risk remains misunderstood and its measuring tools are still ongoing (Hansen, 2012). |
| Keywords: | Financial stability, Bank risk-taking, systemic risk, financial structure. |
| JEL: | G21 G28 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2017-16&r=ban |
| By: | Robert Kelly, Fergal McCann, Conor O'Toole |
| Abstract: | We provide a micro-empirical link between the large literature on credit and house prices and the burgeoning literature on macroprudential policy. Using loan-level data on Irish mortgages originated between 2003 and 2010, we construct a measure of credit availability which varies at the borrower level as a function of income, wealth, age, interest rates and prevailing market conditions around Loan to Value ratios (LTV), Loan to Income ratios (LTI) and monthly Debt Service Ratios (DSR). We deploy a property-level house price model which shows that a ten per cent increase in credit available leads to an 1.5 per cent increase in the value of property purchased. Coefficients from this model are then used to fit values under scenarios of macroprudential restrictions on LTV, LTI and DSR on credit availability and house prices in Ireland for 2003 and 2006. Our results suggest that macroprudential limits would have had substantial impacts on house prices, and that both the level at which they are set and the timing of their introduction is a crucial determinant of their impact on housing values. JEL Classification: E58, G28, G21, R31 |
| Keywords: | Mortgages, credit availability, macroprudential policy, house prices |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:201736&r=ban |
| By: | Makiko Inoue (Bank of Japan); Yasunori Yoshizaki (Bank of Japan); Kana Sasamoto (Bank of Japan); Kyosuke Shiotani (Bank of Japan) |
| Abstract: | With the lessons learned from the international financial crisis of 2008, the Bank for International Settlements (BIS) and central banks worldwide have been working on enhancements to the BIS international banking statistics (IBS) which comprehensively quantify cross-border capital and credit flows through the banking sector. The purpose of the enhancements is to help capture the build-up of risks in the financial system such as credit exposures to the shadow banks. The Bank of Japan (BOJ), in line with its cooperation to enhance the IBS, has made some improvements to the results of the statistics in Japan. These enhanced statistics are independently published by the BOJ and include further breakdown of the counterparty sector and calculation of aggregated figures for Japanese banks. By virtue of these enhancements, analyses of these newly available data clarify that, for example, external claims have been increasing mainly due to investments in U.S. securities and in funds registered in offshore centers by such entities as Japanese banks and institutional investors subjected to persistently low interest rates in Japan. |
| Keywords: | BIS international banking statistics (IBS); Consolidated Banking Statistics (CBS); Locational Banking Statistics (LBS); enhancements; in Japan |
| Date: | 2017–03–29 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojrev:rev17e01&r=ban |
| By: | Gambacorta, Leonardo; Ricotti, Giacomo; Sundaresan, Suresh M; Wang, Zhenyu |
| Abstract: | This paper examines the effects of taxation on the liability structure of banks. We derive testable predictions from a dynamic model of optimal bank liability structure that incorporates bank runs, regulatory closure and endogenous default. Using the supervisory data provided by the Bank of Italy, we empirically test these predictions by exploiting exogenous variations of the Italian tax rates on productive activities (IRAP) across regions and over time (especially since the global financial crisis). We show that banks endogenously respond to a reduction in tax rates by reducing nondeposit liabilities more than deposits in addition to lowering leverage. The response on the asset side depends on the financial strength of the bank: well-capitalized banks respond to a reduction in tax rates by increasing their assets, but poorly-capitalized banks respond by cleaning up their balance sheet. |
| Keywords: | bank liability structure; corporate tax; leverage |
| JEL: | G21 G32 G38 H25 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11893&r=ban |
| By: | Dirk Schoenmaker |
| Abstract: | The stability of a banking system ultimately depends on the strength and credibility of the fiscal backstop. While large countries can still afford to resolve large global banks on their own, small and medium-sized countries face a policy choice. This paper investigates the impact of resolution on banking structure. The financial trilemma model indicates that smaller countries can either conduct joint supervision and resolution of their global banks (based on single point of entry resolution) or reduce the size of their global banks and move to separate resolution of these banks’ national subsidiaries (based on multiple point of entry resolution). Euro-area countries are heading for joint resolution based on burden sharing, while the UK and Switzerland have implemented policies to downsize their banks. JEL Classification: F30, G21, G28 |
| Keywords: | Global Financial Architecture, International Banks, Burden Sharing, Resolution Planning, Single Point of Entry, Multiple Point of Entry |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:201734&r=ban |
| By: | Markus Behn; Marco Gross; Tuomas Peltonen |
| Abstract: | We develop an integrated Early Warning Global Vector Autoregressive (EW-GVAR) model to quantify the costs and benefits of capital-based macroprudential policy measures. Our findings illustrate that capital-based measures are transmitted both via their impact on the banking system’s resilience and via indirect macro-financial feedback effects. The feedback effects relate to dampened credit and asset price growth and, depending on how banks move to higher capital ratios, can account for up to a half of the overall effectiveness of capitalbased measures. Moreover, we document significant cross-country spillover effects, especially for measures implemented in larger countries. Overall, our model helps to understand how and through which channels changes in capitalization affect bank lending and the wider economy and can inform policy makers on the optimal calibration and timing of capital-based macroprudential instruments. JEL Classification: G01, G21, G28 |
| Keywords: | macroprudential policy, cost-benefit analysis, early-warning system, GVAR |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:201617&r=ban |
| By: | Alexandra ZINS (LaRGE Research Center, Université de Strasbourg); Laurent WEILL (LaRGE Research Center, Université de Strasbourg) |
| Abstract: | There has been a large expansion of foreign banks in Africa over the two decades with Pan-African banks playing a key role in this phenomenon. This paper questions if this development is beneficial for bank efficiency in African countries by investigating if Pan-African banks are more efficient than other types of foreign banks and domestic banks. We analyze the relation between ownership type and bank efficiency on a large sample of African banks covering 39 African countries over the period 2002-2015. We find that Pan-African banks are the most efficient banks in African banking industries. We explain this finding by the fact that these banks combine the best of both worlds: they have the global advantages of foreign banks and the home field advantages of domestic banks. They are then able to be more efficient than foreign banks from developed countries but also than domestic banks. This suggests that favoring entry of Pan-African banks would be beneficial to bank efficiency in Africa. |
| Keywords: | Africa, bank, efficiency, ownership. |
| JEL: | G21 G32 N27 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:lar:wpaper:2017-05&r=ban |
| By: | Matthieu Garcin (Natixis Asset Management, Labex ReFi - Université Paris1 - Panthéon-Sorbonne); Dominique Guegan (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, Labex ReFi - Université Paris1 - Panthéon-Sorbonne); Bertrand Hassani (Grupo Santander, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, Labex ReFi - Université Paris1 - Panthéon-Sorbonne) |
| Abstract: | The definition of multivariate Value at Risk is a challenging problem, whose most common solutions are given by the lower- and upper-orthant VaRs, which are based on copulas: the lower-orthant VaR is indeed the quantile of the multivariate distribution function, whereas the upper-orthant VaR is the quantile of the multivariate survival function. In this paper we introduce a new approach introducing a total-order multivariate Value at Risk, referred to as the Kendall Value at Risk, which links the copula approach to an alternative definition of multivariate quantiles, known as the quantile surface, which is not used in finance, to our knowledge. We more precisely transform the notion of orthant VaR thanks to the Kendall function so as to get a multivariate VaR with some advantageous properties compared to the standard orthant VaR: it is based on a total order and, for a non-atomic and Rd-supported density function, there is no distinction anymore between the d-dimensional VaRs based on the distribution function or on the survival function. We quantify the differences between this new kendall VaR and orthant VaRs. In particular, we show that the Kendall VaR is less (respectively more) conservative than the lower-orthant (resp. upper-orthant) VaR. The definition and the properties of the Kendall VaR are illustrated using Gumbel and Clayton copulas with lognormal marginal distributions and several levels of risk. |
| Keywords: | Kendall function,risk measure,Value at Risk,multivariate quantile,copula,total order |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-01467857&r=ban |
| By: | Schivardi, Fabiano; Sette, Enrico; Tabellini, Guido |
| Abstract: | Do banks with low capital extend excessive credit to weak firms, and does this matter for aggregate efficiency? Using a unique data set that covers almost all bank-firm relationships in Italy in the period 2004-2013, we find that, during the Eurozone financial crisis: (i) Under-capitalized banks were less likely to cut credit to non-viable firms. (ii)\ Credit misallocation increased the failure rate of healthy firms and reduced the failure rate of non viable firms. (iii) Nevertheless, the adverse effects of credit misallocation on the growth rate of healthier firms were negligible, and so were the effects on TFP dispersion. This goes against previous influential findings that, we argue, face serious identification problems. Thus, while banks with low capital can be an important source of aggregate inefficiency in the long run, their contribution to the severity of the great recession via capital misallocation was modest. |
| Keywords: | Bank capitalization; capital misallocation; zombie lending |
| JEL: | D23 E24 G21 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11901&r=ban |
| By: | Tatsuki Okamoto (Graduate School of Economics, Kobe University); Yoichi Matsubayashi (Graduate School of Economics, Kobe University) |
| Abstract: | This paper examines whether Japanese monetary policy had been working through the credit channel and its sub-channels between March 2000 and March 2016 using time-varying parameter VAR. The identification of credit transmission channels is a very difficult problem due to the impossibility to observe the conditions of credit supply and demand. However, using the credible data collected from the ‘Senior Loan Officer Opinion Survey on Bank Lending Practices at Large Japanese Banks’ (SLOS), we identified the credit channel and its sub-channels. To the best of the authors’ knowledge, there are no previous studies that have employed SLOS data for the evaluation of transmission channels. The estimation findings show a high possibility that large and middle-sized firms had little effect on monetary policy through the credit channel, but did have an effect through portfolio rebalancing. Small firms are thought to have an effect through the credit channel and its sub-channels, but it is not a big effect. The detailed reason as to why the effect of monetary easing differed by the firm size should be considered by looking at more specific portfolio rebalancing effects and loans to overseas. |
| Keywords: | Time-Varying Parameter vector autoregressive (TVP-VAR) model, Credit Channel, Credit supply, Lending standards, Monetary policy. |
| JEL: | E41 E44 E51 E52 G21 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:koe:wpaper:1709&r=ban |
| By: | Irina Balteanu (Bank of Spain); Aitor Erce (ESM) |
| Abstract: | We analyze the mechanisms through which bank and sovereign distress feed into each other, using a large sample of emerging market economies over three decades. After defining “twin crises” as events where bank crises and sovereign defaults combine, and further distinguishing between those bank crises that end up in sovereign defaults and vice-versa, we study what differentiates “single” and “twin” events. Using an event analysis methodology, we document systematic differences between “single” and “twin” crises across various dimensions. We show that many of the regularities often associated with either “bank” or “debt” crises are present in twin events only. We further show that “twin” crises themselves are heterogeneous events: the proper time sequence of crises that compose “twin” episodes is important for understanding these events. Guided by these facts, we use discrete-variable econometric techniques to assess the main channels of distress transmission between crises. We find that balance sheet interconnections, credit dynamics, financial openness and economic growth are important drivers of twin crises. Our results inform the flourishing theoretical literature on the mechanisms surrounding feedback loops of sovereign and bank stress. |
| Keywords: | Banking Crises, Sovereign Defaults, Feedback Loops, Balance Sheets |
| JEL: | E44 F34 G01 H63 |
| Date: | 2017–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:stm:wpaper:22&r=ban |
| By: | Markus Behn; Carsten Detken; Tuomas Peltonen; Willem Schudel |
| Abstract: | We estimate a multivariate early-warning model to assess the usefulness of private credit and other macro-financial variables in predicting banking sector vulnerabilities. Using data for 23 European countries, we find that global variables and in particular global credit growth are strong predictors of domestic vulnerabilities. Moreover, domestic credit variables also have high predictive power, but should be complemented by other macro-financial indicators like house price growth and banking sector capitalization that play a salient role in predicting vulnerabilities. Our findings can inform decisions on the activation of macroprudential policy measures and suggest that policy makers should take a broad approach in the analytical models that support risk identification and calibration of tools. JEL Classification: G01, G21, G28 |
| Keywords: | early-warning model, banking crises, signalling approach, systemic risk |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:201629&r=ban |
| By: | Ester Faia; Gianmarco Ottaviano |
| Abstract: | Direct involvement of global banks in local retail activities can reduce risk-taking by promoting local competition. We develop this argument through a model in which multinational banks operate simultaneously in different countries with direct involvement in imperfectly competitive local deposit and loan markets. The model generates predictions that are consistent with the foregoing argument as long as the expansionary impact of competition on multinational banks' aggregate profits through larger scale is strong enough to offset its parallel contractionary impact through lower loan-deposit return margin (a result valid with both perfectly and imperfectly correlated loans' risk). When this is the case, banking globalization also moderates the credit crunch following a deterioration in the investment climate. Compared with multinational banking, the beneficial effect of cross-border lending on risk-taking is weaker. |
| Keywords: | global bank, oligopoly, oligopsony, endogenous risk taking,expectation of rents extraction, appetitefor leverage |
| JEL: | G21 G32 L13 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1471&r=ban |
| By: | Matteo Crosignani; Miguel Faria-e-Castro; Luís Fonseca |
| Abstract: | We study the design of lender of last resort interventions and show that the provision of long-term liquidity incentivizes purchases of high-yield short-term securities by banks. Using a unique security-level data set, we find that the European Central Bank’s three-year Long-Term Refinancing Operation incentivized Portuguese banks to purchase short-term domestic government bonds that could be pledged to obtain central bank liquidity. This “collateral trade” effect is large, as banks purchased short-term bonds equivalent to 8.4% of amount outstanding. The resumption of public debt issuance is consistent with a strategic reaction of the debt agency to the observed yield curve steepening. JEL Classification: E58, G21, G28, H63 |
| Keywords: | Lender of Last Resort, Unconventional Monetary Policy, Sovereign Debt |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:201631&r=ban |
| By: | OGANE Yuta |
| Abstract: | This paper examines the effects of main bank switching on the probability of small business bankruptcy by employing a propensity score matching estimation approach. We use a unique firm-level data set of more than 1,000 small and medium-sized enterprises (SMEs) incorporated in Japan; the firms are young and unlisted SMEs just after incorporation. We find that main bank switching increases the probability of firm bankruptcy. In addition, the result suggests that switching increases the probability of bankruptcy when firms switch to financial institutions with which they have not previously transacted. This result may be because such switching worsens the financial conditions of client firms. We also find that the result holds only when the ex-post main banks are not descendants of their ex-ante main banks. |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:17019&r=ban |
| By: | André Silva |
| Abstract: | This paper examines whether banks’ liquidity and maturity mismatch decisions are affected by the choices of competitors and the impact of these coordinated funding liquidity policies on financial stability. Using a novel identification strategy where interactions are structured through decision networks, I show that banks do consider their peers’ liquidity choices when determining their own. This effect is asymmetric and not present in bank capital choices. Importantly, I find that these strategic funding liquidity decisions increase both individual banks’ default risk and overall systemic risk. From a macroprudential perspective, the results highlight the importance of explicitly regulating systemic liquidity risk. JEL Classification: G20, G21, G28 |
| Keywords: | funding liquidity risk, financial stability, macroprudential policy |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:201619&r=ban |
| By: | Ignacio Tirado (Professor, Universidad Autónoma de Madrid, Spain (E-mail: ignacio.tirado@uam.es)) |
| Abstract: | This paper presents an overview of the Japanese system to deal with the distress of banks, providing a classification of the regulation and remedies based on the level of systemic risk of the troubled entity. The paper differentiates between the types of actions available and analyses in detail the instruments and their application. While the regulation is disperse and its apprehension is complicated for a foreign reader, Japan counts on a modern, thorough and adequate group of institutions and instruments to tackle bank distress. Its most notable feature is the proportionality of measures and the flexibility enjoyed by a resolution authority that may accommodate its intervention to the characteristics of the case and the degree of contagion risk. Although mainly inspired by the American model, the system is compared with the new European framework and FSB recommendations are considered. Although a few elements could be reconsidered, its high institutional level and flexibility make the Japanese system one capable of dealing with financial crises at both national and international levels. |
| Keywords: | Bank Resolution, Financial Crisis, Preventive Corrective Action, General Bankruptcy Proceedings, Systemic Risk |
| JEL: | G21 G33 K23 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:17-e-02&r=ban |
| By: | Daniel Garcia-Macia; Alonso Villacorta |
| Abstract: | We analyze the optimality of macroprudential policies in an environment where the role of the banking sector is to efficiently allocate liquid assets across firms. Informational frictions in the banking sector can lead to an interbank market freeze. Firms react to the breakdown of the banking system by inefficiently accumulating liquid assets by themselves. This reduces the demand for bank loans and bank profits, which further disrupts the financial sector and increases the probability of a freeze, inducing firms to hoard even more liquid assets. Liquidity panics provide a new rationale for stricter liquidity requirements, as this policy alleviates the informational frictions in the banking sector and paradoxically can end up increasing aggregate investment. On the contrary, policies encouraging bank lending can have the opposite effect. JEL Classification: G01, G21, G28 |
| Keywords: | macroprudential policy, interbank market, liquidity panics |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:201624&r=ban |
| By: | Matthias Efing |
| Abstract: | This paper provides evidence for regulatory arbitrage within the class of asset-backed securities (ABS) based on individual asset holding data of German banks. I find that banks operating with tight regulatory constraints exploit the low risk-sensitivity of rating-contingent capital requirements for ABS. Unlike unconstrained banks they systematically pick the securities with the highest yield and the lowest collateral performance among ABS with the same regulatory risk weight. This reaching for yield allows constrained banks to increase the return on the capital required for an ABS investment by a factor of four. JEL Classification: G01, G21, G24, G28 |
| Keywords: | regulatory arbitrage, asset-backed securities, reaching for yield, credit ratings |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:201622&r=ban |
| By: | Paolo Coccorese (University of Salerno); Giovanni Ferri (LUMSA University); Fabiola Spiniello (University of Salerno) |
| Abstract: | In this paper we study the intense wave of mergers among Italian mutual cooperative banks (Banche di Credito Cooperativo, BCCs) and try to assess whether those mergers were efficiency-enhancing. For the purpose, we employ a two-step procedure: we first estimate bank-level cost efficiency scores for a large sample of Italian banks in the period 1993-2013 by means of a stochastic frontier approach, then we try to explain the estimated BCCs’ cost efficiency with a set of merger status dummy variables (never merged, before the first merger, merged once, merged twice, etc.) as well as with a vector of control variables. We find that mergers increase mutual banks’ cost efficiency only after a BCC has merged at least three successive times with other BCCs, hence after reaching a remarkably large size. However, we conjecture that this growth in size could harm especially marginal borrowers (i.e. those who are likely to be served by smaller banks but neglected by bigger ones), with a strong and adverse impact on development and inequality and in contrast with BCCs’ ethics and mission. |
| Keywords: | Banking; Cooperative banks; Mergers; Efficiency |
| JEL: | D40 G21 G34 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:lsa:wpaper:wpc18&r=ban |
| By: | Iñaki Aldasoro; Iván Alves |
| 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. JEL Classification: G21, D85, C67 |
| Keywords: | interbank networks, systemic importance, multiplex networks |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:201620&r=ban |
| By: | Yannick Timmer |
| Abstract: | This paper examines the investment behavior of different financial institutions in debt securities with a particular focus on their response to price changes. For identification, we use security-level data from the German Microdatabase Securities Holdings Statistics. Our results suggest that banks and investment funds may destabilize the market by responding in a pro-cyclical manner to price changes. In contrast, insurance companies and pension funds buy securities when their prices fall and vice versa. While investment funds and banks sell securities that are trading at a discount and whose prices are falling, they buy securities that are trading at premium and whose prices are rising. The opposite is the case for insurance companies and pension funds. This counter-cyclical investment behavior of insurance companies and pension funds may stabilize markets whenever prices have been pushed away from fundamentals. Since our results suggest that institutions with impermanent balance sheet characteristics may exacerbate price dynamics, it is of crucial importance for financial stability to monitor the investor base as well as the balance sheets of both levered and non-levered investors. JEL Classification: F32, G11, G15, G20 |
| Keywords: | Cyclicality, Portfolio Allocation, Financial Stability, Debt Capital Flows |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:201618&r=ban |
| By: | Paolo Coccorese (University of Salerno); Giovanni Ferri (LUMSA University) |
| Abstract: | Does ‘inner’ competition – rivalry among network members – worsen performance in a network of cooperative banks? Inner competition might, in fact, endanger network-dependent scale economies. We test our hypothesis on Banche di Credito Cooperativo (BCCs), Italy’s network of mutual cooperative banks. We find a worsening of performance both at incumbent and (even more) at aggressor BCCs when they compete among themselves. Instead, the worsening is mild when BCCs compete with non-BCC comparable banks. We conclude that inner competition among cooperative banks is a negative sum game and, thus, limiting it would be desirable to preserve the stability of cooperative banking networks. |
| Keywords: | Cooperative Banks, Rivalry Among Network Members, Strategic Interactions, Negative Sum Game, Banking Network |
| JEL: | D47 G21 G34 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:lsa:wpaper:wpc19&r=ban |
| By: | Eduardo Dávila |
| Abstract: | This paper studies the optimal determination of bankruptcy exemptions for risk averse borrowers who use unsecured contracts but have the possibility of defaulting. I show that, in a large class of economies, knowledge of four variables is sufficient to determine whether a bankruptcy exemption level is optimal, or should be increased or decreased. These variables are: the sensitivity to the exemption level of the interest rate schedule offered by lenders to borrowers, the borrowers’ leverage, the borrowers’ bankruptcy probability, and the change in bankrupt borrowers’ consumption. An application of the framework to US data suggests that the optimal bankruptcy exemption is higher than the current average bankruptcy exemption, but of the same order of magnitude. JEL Classification: D52, E21, D14 |
| Keywords: | bankruptcy, default, sufficient statistics, unsecured credit, general equilibrium with incomplete markets |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:201626&r=ban |
| By: | Florian Glaser; Sven Panz |
| Abstract: | Procyclicality of collateral haircuts and margins has become a widely proclaimed behavior and is currently discussed not only by academic literature but also by regulatory authorities in Europe. Procyclicality of haircuts is assumed to be a trigger of liquidity spirals due to its tightening effect of collateral portfolio values in times of market distress. However, empirical evidence on this topic is quite sparse and the discussions are primarily driven by insights derived from theoretical models. Nonetheless, oversight bodies are discussing macroprudential haircut add-ons in order to curb with the potential effects of procyclicality in distressed periods. Based on a unique data set provided by a large European Central Counterparty we construct a measure of systemic illiquidity of bond collaterals and analyze the relationship between haircuts, the development of periods with explosive behavior and systemic illiquidity. We estimate the noise of bond yields to measure systemic illiquidity with and without considering haircuts. We then apply an explosive roots bubble detection technique to identify irrational periods of each of these two time series and to a combination of both. Finally, we propose a quantitative trigger and design for macroprudential haircut add-ons. Our results confirm that (1) bond collateral markets face irrational, i.e. bubble-like illiquidity during periods of systemic distress. The results indicate that (2) haircuts are not amplifying or increasing with systemic illiquidity. (3) The proposed haircut add-on mechanism exhibits desirable features to mitigate systemic illiquidity during lasting periods of distress. JEL Classification: E44, G18, G01 |
| Keywords: | Procyclicality, Collateral Haircuts, Systemic Risk, Macroprudential Add-On |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:201627&r=ban |
| By: | A.O. Karas; Andrei Vernikov |
| Abstract: | For every Russian bank we collect records of its registration, license withdrawal, liquidation, location changes, mergers and acquisitions, entrance to and exit from the Deposit Insurance System as well as state and foreign ownership. We describe our sources and the resulting database. |
| Keywords: | Russia, banks, data, state ownership, foreign ownership |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:1604&r=ban |
| By: | Nils Boesel; C.J.M. Kool; S. Lugo |
| Abstract: | The decline in the issuance of Asset-Backed Securities (ABS) since the financial crisis and the comparative advantage of Covered Bonds (CBs) as a funding alternative to ABS raise the question whether banks still issue ABS as a mean to receive funding. Employing double-hurdle regression models on a dataset of 134 European banks observed during the period from 2007 to 2013, this study reveals that banks with a Covered Bond Program (CBP) securitize ceteris paribus less of their assets. The estimated difference in ABS issuance is mainly driven by banks more likely to issue ABS as a funding tool, rather than trying to manage their credit risk exposure or to meet regulatory capital requirements. Consistently, a worse liquidity/funding position results in higher levels of securitization only for banks without a CBP. |
| Keywords: | Securitization, asset-backed securities, covered bonds, bank funding, capital relief |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:1603&r=ban |