nep-ban New Economics Papers
on Banking
Issue of 2017‒04‒23
23 papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Illiquid Collateral and Bank Lending during the European Sovereign Debt Crisis By Jean Barthélémy; Vincent Bignon; Benoît Nguyen
  2. Bank Ownership; Trends and Implications By Robert Cull; Maria Soledad Martinez Peria; Jeanne Verrier
  3. Can Italy Grow Out of Its NPL Overhang? A Panel Threshold Analysis By Kamiar Mohaddes; Mehdi Raissi; Anke Weber
  4. Risk Measure Estimates in Quiet and Turbulent Times:An Empirical Study By Rosnan Chotard; Michel Dacorogna; Marie Kratz
  5. Bank capital and profitability:Evidence from a global sample By Coccorese, Paolo; Girardone, Claudia
  6. Fintech, Regulatory Arbitrage, and the Rise of Shadow Banks By Buchak, Greg; Matvos, Gregor; Piskorski, Tomasz; Seru, Amit
  7. Cost Efficiency of the Hong Kong Banking Sector: A Two-Stage DEA Window Analysis By Robert Alexander; Hien Thu Phan; Sajid Anwar
  8. How Do Financial Institutions and Other Management Supporters Contribute to the Improvement of Business Conditions of Small and Medium Enterprises? Based on the Survey on the Aftermath of the SME Financing Facilitation Act (Japanese) By YAMORI Nobuyoshi
  9. The Corporate Complexity of Global Systemically Important Banks By Carmassi, Jacopo; Herring, Richard
  10. Credit-Supply Shocks and Firm Productivity in Italy By Sebastian Dörr; Mehdi Raissi; Anke Weber
  11. Macroeconomic effects of secondary market trading By Neuhann, Daniel
  12. Monetary Policy and Global Banking By Falk Bräuning; Victoria Ivashina
  13. SenSR: A sentiment-based systemic risk indicator By Svetlana Borovkova; Evgeny Garmaev; Philip Lammers; Jordi Rustige
  14. Productivity change of Ethiopian banks: A malmquist productivity index approach By Lema, Tadesse Zenebe
  15. How the corporate governance mechanisms affect bank risk taking By Mamatzakis, Emmanuel; Zhang, Xiaoxiang; Wang, Chaoke
  16. Technology-driven information sharing and conditional financial development in Africa By Simplice Asongu; John C. Anyanwu; Vanessa S. Tchamyou
  17. Entrepreneurial Motivation and Business Performance: Evidence from a French Microfinance Institution By Renaud Bourlès; Anastasia Cozarenco
  18. Access to financial intermediaries and external capital acquisition By Backman , Mikaela; Wallin, Tina
  19. A systemic shock model for too big to fail financial institutions By Sabrina Mulinacci
  20. Multinomial var backtests: A simple implicit approach to backtesting expected shortfall By Marie Kratz; Yen Lok; Alexander Mcneil
  21. The application of macroprudential policy tools to affect concentration in the Polish banking sector By Mateusz Mokrogulski
  22. New Perspectives on Consumer Behavior in Credit and Payments Markets By Berlin, Mitchell
  23. Less Really Can Be More: Why Simplicity and Comparability Should be Regulatory Objectives By Herring, Richard J.

  1. By: Jean Barthélémy; Vincent Bignon; Benoît Nguyen
    Abstract: This paper assesses the effect on banks’ lending activity of accepting illiquid collateral at the central bank refinancing facility in times of wholesale funding stress. We exploit original data on the loans granted by the 177 largest euro area banks between 2011m1 and 2014m12 and on the composition of their pool of collateral pledged with the Eurosystem. During this period, two-thirds of the banks in our sample experienced a sizable loss of wholesale funding. Panel regression estimates show that the banks that pledged more illiquid collateral with the Eurosystem reduced their lending to non-financial firms and households less: a one standard deviation increase in the volume of illiquid collateral pledged corresponded to a 0.6% increase in loans to the economy. This result holds for banks that were and were not run. Our finding thus suggests that the broad range of collateral eligible in the euro area may have helped to mitigate the credit crunch during the euro debt crisis.
    Keywords: collateral, loans, central bank, euro crisis.
    JEL: E52 E58 G01 G21
    Date: 2017
  2. By: Robert Cull; Maria Soledad Martinez Peria; Jeanne Verrier
    Abstract: This paper presents recent trends in bank ownership across countries and summarizes the evidence regarding the implications of bank ownership structure for bank performance and competition, financial stability, and access to finance. The evidence reviewed suggests that foreign-owned banks are more efficient than domestic banks in developing countries, promote competition in host banking sectors, and help stabilize credit when host countries face idiosyncratic shocks. But there are tradeoffs, since foreign-owned banks can transmit external shocks and might not always expand access to credit. The record on the impact of government bank ownership suggests few benefits, especially for developing countries.
    Keywords: Foreign banks;Privatization;bank governance, financial globalization, state-owned banks, Financial Aspects of Economic Integration, Globalization: Finance, Government Policy and Regulation
    Date: 2017–03–22
  3. By: Kamiar Mohaddes; Mehdi Raissi; Anke Weber
    Abstract: This paper examines whether a tipping point exists for real GDP growth in Italy above which the ratio of non-performing loans (NPLs) to total loans falls significantly. Estimating a heterogeneous dynamic panel-threshold model with data on 17 Italian regions over the period 1997–2014, we provide evidence for the presence of growth-threshold effects on the NPL ratio in Italy. More specifically, we find that real GDP growth above 1.2 percent, if sustained for a number of years, is associated with a significant decline in the NPLs ratio. Achieving such growth rates requires decisively tackling long-standing structural rigidities and improving the quality of fiscal policy. Given the modest potential growth outlook, however, under which banks are likely to struggle to grow out of their NPL overhang, further policy measures are needed to put the NPL ratio on a firm downward path over the medium term.
    Keywords: Italy;Europe;nonperforming loans, real output growth, panel tests of threshold effects, Models with Panel Data, Financial Markets and the Macroeconomy
    Date: 2017–03–24
  4. By: Rosnan Chotard (CREAR - Center of Research in Econo-finance and Actuarial sciences on Risk / Centre de Recherche Econo-financière et Actuarielle sur le Risque - Essec Business School); Michel Dacorogna (SCOR SE - SCOR SE, DEAR Consulting); Marie Kratz (ESSEC Business School - Essec Business School, MAP5 - MAP5 - Mathématiques Appliquées à Paris 5 - CNRS - Centre National de la Recherche Scientifique - Institut National des Sciences Mathématiques et de leurs Interactions - UPD5 - Université Paris Descartes - Paris 5)
    Abstract: In this study we empirically explore the capacity of historical VaR to correctly predict the future risk of a financial institution. We observe that rolling samples are better able to capture the dynamics of future risks. We thus introduce another risk measure, the Sample Quantile Process, which is a generalization of the VaR calculated on a rolling sample, and study its behavior as a predictor by varying its parameters. Moreover, we study the behavior of the future risk as a function of past volatility. We show that if the past volatility is low, the historical computation of the risk measure underestimates the future risk, while in period of high volatility, the risk measure overestimates the risk, confirming that the current way financial institutions measure their risk is highly procyclical.
    Keywords: backtest,risk measure,sample quantile process,stochastic model,VaR,volatility
    Date: 2016–11–24
  5. By: Coccorese, Paolo; Girardone, Claudia
    Abstract: This study employs bank-level data for a global sample to examine the relationship between capital and profitability over 2000-2013. Our evidence suggests that bank capital is positively related to bank profitability, although the estimated impact is relatively marginal. However, more capitalised banks that are more profitable appear to have a higher traditional risk, a greater proportion of non-traditional activities in their balance sheets and they tend to be more effective at controlling their costs. The relationship depends on environmental conditions as well and bank size. It is typically stronger in crisis periods, in lower and middle income countries and for larger banks (but not for Global Systemically Important Banks, or GSIBs). Finally, for banks operating in less restricted, more unstable and corrupt environments, the same increase in capital is associated with more profitable institutions than banks operating in countries with lower corruption levels. Our findings are robust to different specifications and robustness tests, and carry important implications for policy reforms aimed at ensuring stability to the banking sector globally.
    Keywords: Capital; Profitability; Risks; Crisis; Banking.
    Date: 2017–01
  6. By: Buchak, Greg (University of Chicago); Matvos, Gregor (University of Chicago); Piskorski, Tomasz (Columbia University); Seru, Amit (Stanford University)
    Abstract: We study the rise of fintech and non-fintech shadow banks in the residential lending market. The market share of shadow banks in the mortgage market has nearly tripled from 2007-2015. Shadow banks gained a larger market share among less creditworthy borrowers, with a tilt towards refinancing mortgages. Shadow banks were significantly more likely to enter markets where traditional banks faced more regulatory constraints. This suggests that traditional banks retreated from markets with a larger regulatory burden, and that shadow banks filled this gap. Fintech firms accounted for almost a third of shadow bank loan originations by 2015. To isolate the role of technology in the decline of traditional banking, we focus on technology differences between shadow banks, holding the regulatory differences between different lenders fixed. Analyzing fintech firms? entry and pricing decisions, we find some evidence that fintech lenders possess technological advantages in determining corresponding interest rates. More importantly, the online origination technology appears to allow fintech lenders to originate loans with greater convenience for their borrowers. Among the borrowers most likely to value convenience, fintech lenders command an interest rate premium for their services. We use a simple model to decompose the relative contribution of technology and regulation to the rise of shadow banks. This simple quantitative assessment indicates that increasing regulatory burden faced by traditional banks and financial technology can account, respectively, for about 55% and 35% of the recent shadow bank growth.
    JEL: G02
    Date: 2017–03
  7. By: Robert Alexander; Hien Thu Phan; Sajid Anwar
    Abstract: The paper addresses two questions: (i) how efficient is Hong Kong’s banking sector? and (ii) what are the determinants of banking sector efficiency in Hong Kong? The cost efficiency of the Hong Kong Banking sector over the period 2004 to 2014 is estimated by both traditional DEA and DEA window analysis. The determinants of the efficiency scores are then investigated using a truncated regression model. Data Envelopment Analysis. The efficiency estimates indicate an overall decrease in cost efficiency in the middle of the period, coincident with the Global Financial Crisis and, then, some recovery in efficiency. A second stage regression analysis finds that bank size and GDP growth are positively associated with efficiency, whereas revenue diversification and inflation are associated with lower efficiency. Stock exchange listing status appears to be associated with lower efficiency but no clear relationship between measures of market structure and efficiency is found.
    Keywords: Hong Kong, Finance, Optimization models
    Date: 2016–07–04
  8. By: YAMORI Nobuyoshi
    Abstract: The important role of private financial institutions in supporting poor performing small and medium enterprises (SMEs) to undergo drastic reform is widely recognized, and since the enforcement of the SME Financing Facilitation Act in 2009, changes in loan conditions have been used frequently as a method of financial support. However, some critically argue that since financial institutions are responding frankly to requests for changes in the repayment conditions but not seriously working on supporting SMEs in their business revitalization, the changes in the loan conditions have not become a trigger for fundamental reform of the companies' business, and are used only to postpone the problem. Also, others argue that there is a moral hazard on the SME side because SMEs can avoid short-term financing difficulties and are not serious about working on reform. However, external observers have had limited access to information on the support posture of financial institutions and the reform efforts of SMEs after changes in the loan terms. Therefore, in this paper, using the Survey on the Aftermath of the SME Financing Facilitation Act (conducted by RIETI in October 2014), we analyze how the formulation of management improvement plans and the management support attitudes of financial institutions and other management supporters affect the recovery of SMEs' business conditions and examine what forms of management support will lead to the improvement of these conditions.
    Date: 2017–03
  9. By: Carmassi, Jacopo (LUISS Guido Carli University); Herring, Richard (University of PA)
    Abstract: The financial crisis of 2007-2009 revealed that the corporate complexity of most of the Global Systemically Important Banks (G-SIBs) presented a formidable obstacle to any plausible orderly resolution of these institutions. This paper documents the extent of this complexity making use of an historical time series, developed by the authors, that shows the evolution of the number of majority-owned subsidiaries of G-SIBs over time. After a very significant increase in complexity before the crisis and until 2011, this trend may be reversing, possibly in response to regulatory and market pressures on banks since then. Nonetheless the reduction in complexity has been uneven across institutions and may not persist. The econo-metric analysis of this new set of panel data produces two key results with relevant policy implications: first, the relationship found in previous studies between the number of subsidiaries and bank size loses significance when time effects are introduced; second, large mergers and acquisitions are a key driver of complexity and their effect remains significant even when time effects are considered.
    Date: 2016–05
  10. By: Sebastian Dörr; Mehdi Raissi; Anke Weber
    Abstract: The Italian economy has been struggling with low productivity growth and bank balance sheet strains. This paper examines the implications for firm productivity of adverse shocks to bank lending in Italy, using a novel identification scheme and loan-level data on syndicated lending. We exploit the heterogeneous loan exposure of Italian banks to foreign borrowers in distress, and find that a negative shock to bank credit supply reduces firms' loan growth, investment, capital-to-labor ratio, and productivity. The transmission from changes in credit supply to firm productivity relates to labor market rigidities, which delay or distort the adjustment of firms' desired labor and capital allocations, and thereby reduce firms' productivity. Effects are stronger for firms with higher capital intensity and external financial dependence.
    Keywords: Financial crises;Europe;Italy;Productivity;credit-supply shocks, labor market rigidities, Financial Markets and the Macroeconomy
    Date: 2017–03–24
  11. By: Neuhann, Daniel
    Abstract: This paper develops a theory of the credit cycle to account for recent evidence that capital is increasingly allocated to inefficiently risky projects over the course of the boom. The model features lenders who sell risk exposure to non-lender investors in order to relax borrowing constraints, but are tempted to produce and sell off bad assets when asset prices are sufficiently high. Asset prices gradually increase during the boom because non-lender wealth grows as their risk-taking pays off, triggering a fall in asset quality and precipitating an eventual crisis. I study the initial conditions that give rise to the credit cycle and consider policy implications. JEL Classification: G01, E32, E44
    Keywords: credit booms, credit cycles, financial crisis, financial fragility, risk-taking channel of monetary policy, saving gluts, secondary markets, securitization
    Date: 2017–03
  12. By: Falk Bräuning; Victoria Ivashina
    Abstract: Global banks use their global balance sheets to respond to local monetary policy. However, sources and uses of funds are often denominated in different currencies. This leads to a foreign exchange (FX) exposure that banks need to hedge. If cross-currency flows are large, the hedging cost increases, diminishing the return on lending in foreign currency. We show that, in response to domestic monetary policy easing, global banks increase their foreign reserves in currency areas with the highest interest rate, while decreasing lending in these markets. We also find an increase in FX hedging activity and its rising cost, as manifested in violations of covered interest rate parity.
    JEL: E44 E52 F31 G21
    Date: 2017–04
  13. By: Svetlana Borovkova; Evgeny Garmaev; Philip Lammers; Jordi Rustige
    Abstract: The media influence our perception of reality and, since we act on those perceptions, reality is in turn affected by the media. News is a rich source of information, but, in addition, the sentiment (i.e., the tone of financial news) tells us how others perceive the financial system and how that perception changes. In this paper we propose a new indicator of the systemic risk in the global financial system. We call it SenSR : Sentiment-based Systemic Risk indicator. This measure is constructed by dynamically aggregating the sentiment in news about systemically important financial institutions (SIFIs). We test the SenSR for its ability to indicate or even forecast systemic stress in the financial system. We compare its performance to other well-known systemic risk indicators, as well as with macroeconomic fundamentals. We find that SenSR anticipates other systemic risk measures such as SRISK or VIX in signaling stressed times. In particular, it leads other systemic risk measures and macroeconomic indicators by as long as 12 weeks.
    Keywords: systemic risk; sentiment analysis; Granger causality
    JEL: G01 G18 C58 G17
    Date: 2017–04
  14. By: Lema, Tadesse Zenebe
    Abstract: This study evaluates the productivity change of the Ethiopian banking industry. For this purpose secondary data on input variables (interest expense, non-interest expense and deposit) and output variables (interest income, non-interest income and loan) are collected from the audited balance sheets and income statements of the banks under study. A Malmquist productivity index approach is employed to evaluate the productivity change of the Banks. The results of the study confirmed that; Abay bank, Construction and Business Bank and Commercial Bank of Ethiopia exhibited a productivity regress. For Abay Bank productivity regress is due to the technical change component while for Construction and Business bank and Commercial Bank of Ethiopia productivity regress is due to the efficiency change component. Thus, Abay bank should invest more on technological development and innovation while Construction and Business bank and Commercial Bank of Ethiopia should improve their resource use efficiency. The efficiency change component is split into pure technical efficiency component and scale efficiency component and the results revealed that Construction and Business bank and United bank exhibited productivity regress in the pure technical efficiency component while Construction and Business bank, Commercial bank of Ethiopia, Nib international bank and Wegagen bank exhibited productivity regress in the scale efficiency change component. Thus, Construction and Business bank and United bank should improve their managerial capacity and Construction and Business bank, Commercial Bank of Ethiopia, Nib international bank and Wegagen bank should adjust their scale of operation.
    Keywords: Productivity Change, Commercial Banks, Malmquist Productivity Index, Technical Efficiency Change, Technological Change
    JEL: D24
    Date: 2016–12
  15. By: Mamatzakis, Emmanuel; Zhang, Xiaoxiang; Wang, Chaoke
    Abstract: The effectiveness of the management team, ownership structure and other corporate governance systems in determining appropriate risk taking is a critical issue in a modern commercial bank. Appropriate risk management techniques and structures within financial institutions play an important role to ensure the stability of economy. After analyzing 43 Asian banks over the period from 2006 to 2014, I find that banks with strong corporate governance are associated with higher risk taking. More specifically, banks with intermediate size of board, separation of CEO and chairman of board, and audited by Big Four audit firm, are likely higher risk taking. Overall, my findings provide some new perspectives into the governance mechanisms that affect risk taking on commercial banks.
    Keywords: Banks, Risk taking, Corporate governance
    JEL: G21 G32 G39
    Date: 2017–04–04
  16. By: Simplice Asongu (Yaoundé/Cameroun); John C. Anyanwu (African Development Bank, Côte d\\\'Ivoire); Vanessa S. Tchamyou (Yaoundé, Cameroon)
    Abstract: Information technology is increasingly facilitating mechanisms by which information asymmetry between lenders and borrowers in the financial sector can be reduced in order to enhance financial access for human and economic development in developing countries. We examine conditional financial development from ICT-driven information sharing in 53 African countries for the period 2004-2011, using contemporary and non-contemporary quantile regressions. ICT is measured with mobile phone penetration and internet penetration whereas information sharing offices are public credit registries and private credit bureaus. The following findings are established. First, there are positive effects with positive thresholds from ICT-driven information sharing on financial depth (money supply and liquid liabilities) and financial activity (at banking and financial system levels). Second, for financial intermediation efficiency, the positive effects from mobile-driven information sharing are apparent exclusively in certain levels of financial efficiency. Third, with regard to financial size, mobile-driven information sharing is positive with a negative threshold, whereas, internet-driven information sharing is positive exclusively among countries in the bottom half of financial size. Positive thresholds are defined as decreasing negative or increasing positive estimated effects from information sharing offices and vice-versa for negative thresholds. Policy implications are discussed.
    Keywords: Information Sharing; Financial Development; Quantile regression
    JEL: G20 G29 O16 O55 C52
    Date: 2017–01
  17. By: Renaud Bourlès (Aix-Marseille Univ. (Aix-Marseille School of Economics), CNRS, EHESS and Centrale Marseille); Anastasia Cozarenco (Montpellier Business School, Montpellier Research in Management, and Centre for European Research in Microfinance (CERMi))
    Abstract: This article examines the link between entrepreneurial motivation and business performance in the French microfinance context. Using hand-collected data on business microcredits from a Microfinance Institution (MFI), we provide an indirect measure of entrepreneurial success through loan repayment performance. Controlling for the endogeneity of entrepreneurial motivation in a bivariate probit model, we find that "necessity entrepreneurs" are more likely to have difficulty repaying their microcredits than "opportunity entrepreneurs". However, type of motivation does not appear to make a difference to business survival. We build a stylized model to develop formal arguments supporting this outcome. We test for the robustness of our results using parametric duration models, and show that necessity entrepreneurs experience difficulties in loan repayment earlier than their opportunity counterparts, corroborating our initial findings.
    Keywords: opportunity and necessity entrepreneurs, business microcredit, loan repayment, business survival
    JEL: C30 C41 G21 L26 M13
    Date: 2017–01
  18. By: Backman , Mikaela (Centre for Entrepreneurship and Spatial Economics (CEnSE), Jönköping International Business School, Sweden); Wallin, Tina (Centre for Entrepreneurship and Spatial Economics (CEnSE), Jönköping International Business School, Sweden)
    Abstract: We examine whether low access to financial intermediaries works as an obstacle acquiring financial capital for Swedish firms by using information from the Community Innovation Survey indicating whether firms perceive the acquisition of external capital to be difficult. This perception is explained by the distance to the firms’ nearest financial intermediaries and their total local supply. The results indicate that the distance to banks is related to a larger problem of obtaining external financial capital in rural areas.
    Keywords: financial capital; bank offices; geographical distance; Community Innovation Survey
    JEL: D53 G21 G23 L25 O31
    Date: 2017–04–06
  19. By: Sabrina Mulinacci
    Abstract: In this paper we study the distributional properties of a vector of lifetimes in which each lifetime is modeled as the first arrival time between an idiosyncratic shock and a common systemic shock. Despite unlike the classical multidimensional Marshall-Olkin model here only a unique common shock affecting all the lifetimes is assumed, some dependence is allowed between each idiosyncratic shock arrival time and the systemic shock arrival time. The dependence structure of the resulting distribution is studied through the analysis of its singularity and its associated copula function. Finally, the model is applied to the analysis of the systemic riskiness of those European banks classified as systemically important (SIFI).
    Date: 2017–04
  20. By: Marie Kratz (MAP5 - MAP5 - Mathématiques Appliquées à Paris 5 - CNRS - Centre National de la Recherche Scientifique - Institut National des Sciences Mathématiques et de leurs Interactions - UPD5 - Université Paris Descartes - Paris 5); Yen Lok (Heriot Watt University); Alexander Mcneil (University of York [York])
    Abstract: Under the Fundamental Review of the Trading Book (FRTB) capital charges for the trading book are based on the coherent expected shortfall (ES) risk measure, which show greater sensitivity to tail risk. In this paper it is argued that backtesting of expected shortfall-or the trading book model from which it is calculated-can be based on a simultaneous multinomial test of value-at-risk (VaR) exceptions at different levels, an idea supported by an approximation of ES in terms of multiple quantiles of a distribution proposed in Emmer et al. (2015). By comparing Pearson, Nass and likelihood-ratio tests (LRTs) for different numbers of VaR levels N it is shown in a series of simulation experiments that multinomial tests with N ≥ 4 are much more powerful at detecting misspecifications of trading book loss models than standard bi-nomial exception tests corresponding to the case N = 1. Each test has its merits: Pearson offers simplicity; Nass is robust in its size properties to the choice of N ; the LRT is very powerful though slightly over-sized in small samples and more computationally burdensome. A traffic-light system for trading book models based on the multinomial test is proposed and the recommended procedure is applied to a real-data example spanning the 2008 financial crisis.
    Keywords: multinomial distribution,Nass test,Pearson test,risk management,risk measure,statistical test,tail of distribution,backtesting,banking regulation,coherence,elicitability,expected short-fall,heavy tail,likelihood ratio test,value-at-risk
    Date: 2016–11
  21. By: Mateusz Mokrogulski (Warsaw School of Economics)
    Abstract: Banking sectors in particular EU Member States are characterized by different profitability and concentration. In the literature there are divergent views on the appropriate concentration level from the perspective of supervisory authorities, consumers or banks themselves. However, the research carried out for Poland shows that there is positive correlation between concentration and profitability. Moreover, since 2009 a wave of mergers and acquisitions has occurred in the Polish banking sector, which is detrimental to consumers. This conclusion has been drawn from the Lerner index values that have been computed owing to the econometric model with transcendental logarithmic function for the total cost. Thus, if concentration is too high, the supervisory authorities could consider preventing further mergers or acquisitions using new macroprudential policy tools, instead of old administrative ones. Especially important here is the capital buffer that is set on other systemically important institutions. It can be accompanied by the systemic risk buffer. Nevertheless, the results of the comparative analysis show that diverse solutions are currently applied across EU Member States.
    Keywords: concentration, Lerner index, macroprudential policy, capital buffer, bank
    JEL: D04 G21 G28
  22. By: Berlin, Mitchell (Federal Reserve Bank of Philadelphia)
    Abstract: On October 1–2, 2015, the Payment Cards Center and the Research Department of the Federal Reserve Bank of Philadelphia hosted their eighth biennial conference focused on new research in consumer credit and payments. The seven papers presented during New Perspectives on Consumer Behavior in Credit and Payments Markets used new data and techniques to explore a number of longstanding questions pertaining to the design, and sometimes renegotiation, of financial contracts; the linkages between consumer credit and the real economy; the effects of government policy during the Great Recession; and the effect of timely disclosures about the cost of student loans on borrowing decisions.
    Keywords: asymmetric information; auto loans; business cycles; credit cards; educational finance; financial contracts; financial markets and the macro economy; government policy; government regulation; monetary policy and the supply of credit; mortgages; personal loans; student loans; unemployment duration; job search
    JEL: D12 D82 E32 E44 E5 G18 I22 J64
    Date: 2015–10–01
  23. By: Herring, Richard J. (University of PA)
    Abstract: Regulatory complexity undermined efforts to strengthen financial stability before the crisis. Nonetheless, post-crisis reforms have greatly exacerbated regulatory complexity. Using the example of capital regulation, this paper shows how complexity has grown geometrically from the introduction of the Basel Accord on Capital Adequacy in 1988 to the introduction of Basel III and the total loss-absorbing capacity (TLAC) proposal in 2015. Analysis of the current welter of required capital ratios leads to a proposal to eliminate 75 % of them without jeopardizing the safety and soundness of the system. Quite possibly, regulators might argue that one or more of these deleted ratios does make an important incremental contribution to the safety and soundness of the system. But these important debates are not taking place in public, in part because we lack systematic measures of the costs of regulatory compliance and effective sunset laws that would require that regulations meet a rigorous cost-benefit test periodically. The concluding section poses the more speculative question of why, despite the evident advantages of a simpler, more transparent regulatory system, the authorities layer on ever more complexity.
    JEL: G28
    Date: 2016–04

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