nep-ban New Economics Papers
on Banking
Issue of 2017‒05‒28
nineteen papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. How is the likelihood of fire sales in a crisis affected by the interaction of various bank regulations? By Divya Kirti; Vijay Narasiman
  2. Sharing the Pain? Credit Supply and Real Effects of Bank Bail-ins By Beck, Thorsten; Da-Rocha-Lopes, Samuel; Silva, Andre
  3. The journey from micro supervisory data to aggregate macroprudential statistics By Barbic, Gaia; Borgioli, Stefano; Klacso, Jan
  4. Does Prolonged Monetary Policy Easing Increase Financial Vulnerability? By Stephen Cecchetti; Tommaso Mancini Griffoli; Machiko Narita
  5. Real effects of bank capital regulations: Global evidence By Deli, Yota; Hasan, Iftekhar
  6. Regional Competition in US Banking – Trends and Determinants By Alexander Erler; Horst Gischer; Bernhard Herz
  7. Government guarantees and the two-way feedback between banking and sovereign debt crises By Leonello, Agnese
  8. Do we want these two to tango? On zombie firms and stressed banks in Europe By Storz, Manuela; Koetter, Michael; Setzer, Ralph; Westphal, Andreas
  9. Low Income Countries, Credit Rationing and Debt Relief: Bye bye international financial market? By Marc Raffinot; Baptiste Venet
  10. Bank switching and deposit rates: Evidence for crisis and non-crisis years By Dirk Gerritsen; Jacob Bikker; Mike Brandsen
  11. Take it to the Limit : The Debt Ceiling and Treasury Yields By David B. Cashin; Erin E. Syron Ferris; Elizabeth C. Klee; Cailey Stevens
  12. Evolution of the Electronic Payment Industry: Problems of a Qualitative Transition By Dostov, Viktor; Shoust, Paul
  13. The Nexus of Monetary Policy and Shadow Banking in China By Kaiji Chen; Jue Ren; Tao Zha
  14. Financial Conglomerate Affiliated Hedge Funds: Risk Taking Behavior and Liquidity Provision By Franzoni, Francesco; Giannetti, Mariassunta
  15. Analysis of the Advancing Development of the Financial Sector in the Global Economy By Danilov, Yury
  16. Does Primary Sovereignty Risk Matter for Bank Fragility? Evidence from Albanian Banking System By Shijaku, Gerti
  17. Supply- and demand-side factors in global banking By Mary Amiti; Patrick McGuire; David E Weinstein
  18. Should Unconventional Monetary Policies Become Conventional? By Dominic Quint; Pau Rabanal
  19. Bank Fees, Aftermarkets, and Consumer Behavior By Adams, Robert M.

  1. By: Divya Kirti; Vijay Narasiman
    Abstract: We present a model that describes how different types of bank regulation can interact to affect the likelihood of fire sales in a crisis. In our model, risk shifting motives drive how banks recapitalize following a negative shock, leading banks to concentrate their portfolios. Regulation affects the likelihood of fire sales by giving banks the incentive to sell certain assets and retain others. Ex-post incentives from high risk weights and the interaction of capital and liquidity requirements can make fire sales more likely. Time-varying risk weights may be an effective tool to prevent fire sales.
    Keywords: Macroprudential Policy;Capital requirements;Bank regulation, liquidity requirements, Government Policy and Regulation
    Date: 2017–03–24
  2. By: Beck, Thorsten; Da-Rocha-Lopes, Samuel; Silva, Andre
    Abstract: We analyze the credit supply and real sector effects of bank bail-ins by exploiting the unexpected failure of a major bank in Portugal and its subsequent resolution. Using a unique dataset of matched firm-bank data on credit exposures and interest rates from the Portuguese credit register, we show that while banks more exposed to the bail-in significantly reduced credit supply after the shock, affected firms were able to compensate this credit contraction with other sources of funding, including new lending relationships. Although there was no loss of external funding, we observe a moderate tightening of credit conditions as well as lower investment and employment at firms more exposed to the intervention, particularly SMEs. We explain the latter real effects by higher precautionary cash holdings due to increased uncertainty.
    Keywords: Bail-ins; bank failures; credit supply; employment; investment
    JEL: E22 E24 E58 G01 G21 G28 G32
    Date: 2017–05
  3. By: Barbic, Gaia; Borgioli, Stefano; Klacso, Jan
    Abstract: The Consolidated Banking Data CBD) are a key component of the ECB/ESCB statistical toolbox for financial stability analysis. This dataset, which contains all the relevant dimensions of systemic risk stemming from and affecting national banking systems, is compiled from firm-level supervisory returns. With the entry into force of the new set of European Banking Authority (EBA) Implementing Technical Standards on Supervisory Reporting in 2014, the whole CBD statistical framework had to be reshaped. In August 2015 the first data for the revised CBD were released. This paper deals with the main issues in the challenging endeavour of transposing firmlevel supervisory returns, often based on different accounting systems, into comprehensive aggregate statistics, while ensuring as far as possible continuity in the time series for indicators and aggregates calculated from different successive data models. At the same time, the new CBD has substantially enlarged the quantity and increased the quality of data, available to the users. This paper provides a description of the database, together with some examples drawn from it. JEL Classification: C82, G21
    Keywords: banking indicators, consolidated banking data, macroprudential analysis
    Date: 2017–05
  4. By: Stephen Cecchetti; Tommaso Mancini Griffoli; Machiko Narita
    Abstract: Using firm-level data for approximately 1,000 bank and nonbank financial institutions in 22 countries over the past 15 years we study the impact of prolonged monetary policy easing on risk-taking behavior. We find that the leverage ratio, as well as other measures of firm-level vulnerability, increases for banks and nonbanks as domestic monetary policy easing persists. Cross-border effects are also notable. We find effects of roughly similar magnitude on foreign financial sector firms when the U.S. eases policy. Results appear robust to a variety of specifications, and to be non-linear, with risk-taking behavior rising most quickly at the onset of monetary policy easing.
    Keywords: Spillovers;Banks;Financial stability;nonbank financial institutions, prolonged monetary policy easing, financial vulnerability, risk-taking behavior, Financial Markets and the Macroeconomy, Monetary Policy (Targets, Instruments, and Effects)
    Date: 2017–03–24
  5. By: Deli, Yota; Hasan, Iftekhar
    Abstract: We examine the effect of the full set of bank capital regulations (capital stringency) on loan growth, using bank-level data for a maximum of 125 countries over the period 1998-2011. Contrary to standard theoretical considerations, we find that overall capital stringency only has a weak negative effect on loan growth. In fact, this effect is completely offset if banks hold moderately high levels of capital. Interestingly, the components of capital stringency that have the strongest negative effect on loan growth are those related to the prevention of banks to use as capital borrowed funds and assets other than cash or government securities. In contrast, compliance with Basel guidelines in using Basel- and credit-risk weights has a much less potent effect on loan growth.
    Keywords: capital regulation, loan growth, bank capital
    JEL: E60 G0 G2 O40
    Date: 2017
  6. By: Alexander Erler (Department of Business, Economics and Law, University of Bayreuth); Horst Gischer (Faculty of Economics and Management, Otto-von-Guericke-University Magdeburg); Bernhard Herz (Department of Business, Economics and Law, University of Bayreuth)
    Abstract: Competition in the US banking industry as measured by the Lerner Index has on average increased substantially during the last decade. At the same time, regional differences in competition on the state level have decreased considerably. Based on a dynamic panel framework we find that these developments are mainly driven by industry specific factors such as the costs to income ratio. The empirical evidence indicates that inefficiency and the Lerner index are significant negatively correlated. Macroeconomic conditions appear to have supported these trends in competition, however, to a somewhat lesser extent.
    Keywords: competition, US banking, efficiency, regional markets
    JEL: D40 G21 L19
    Date: 2017–05
  7. By: Leonello, Agnese
    Abstract: This paper studies the effects of government guarantees on the interconnection between banking and sovereign debt crises in a framework where both the banks and the government are fragile and the credibility and feasibility of the guarantees are determined endogenously. The analysis delivers some new results on the role of guarantees in the bank-sovereign nexus. First, guarantees emerge as a key channel linking banks’and sovereign stability, even in the absence of banks’holdings of sovereign bonds. Second, depending on the specific characteristics of the economy and the nature of banking crises, an increase in the size of guarantees may be beneficial for the bank-sovereign nexus, in that it enhances …financial stability without undermining sovereign solvency. JEL Classification: G01, G18, H63
    Keywords: bank runs, government bond yield, sovereign default, strategic complementarity
    Date: 2017–05
  8. By: Storz, Manuela; Koetter, Michael; Setzer, Ralph; Westphal, Andreas
    Abstract: We show that the speed and type of corporate deleveraging depends on the interaction between corporate and financial sector health. Based on granular bank-firm data pertaining to small and medium-sized enterprises (SME) from five stressed and two non-stressed euro area economies, we show that 'zombie' firms generally continued to lever up during the 2010-2014 period. Whereas relationships with stressed banks reduce SME leverage on average, we also show that zombie firms that are tied to weak banks in euro area periphery countries increase their indebtedness even further. Sustainable economic recovery therefore requires both: deleveraging of banks and firms.
    Keywords: zombie lending,debt overhang,bank stress
    JEL: E44 G21 G32
    Date: 2017
  9. By: Marc Raffinot (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine); Baptiste Venet (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine)
    Abstract: LICs have no access to international financial markets. Since the nineties, LICs have been granted debt relief by bilateral creditors andby international financing institutions, namely from 1996 on underHighly Indebted Poor Countries (HIPC) Initiative and from 2005 onunder Multilateral Debt Relief Initiative (MDRI). Did those debt relief initiatives send a negative message to the lenders, deterring themto lend to the LICs? For assessing this we use the concessionality rate of new financing flows as a measurement of the “distance to the market” and assess the impact of debt relief on the concessionality rate implementing a Granger causality tests using panel data, a methodology perfected by Hurlin (2004, 2005) and Hurlin and Venet (2004).We show that countries with high concessionality resources are morelikely to get debt relief, but that debt relief does not "cause" higher concessionality.
    Keywords: Access to the market,Low Income countries,Causality in panels,Debt relief
    Date: 2017–03–24
  10. By: Dirk Gerritsen; Jacob Bikker; Mike Brandsen
    Abstract: Using a sample of annual deposit data in the Netherlands for the 2004 - 2014 period, we study the fraction of deposits transferred per year by 718 individuals. Controlling for demographic factors, we find that deposit rate differences across banks significantly explain the extent to which depositors reallocate their savings. This effect is predominantly present in non-crisis years, while depositors seemingly exhibited flight-to-safety behavior during the financial crisis. As this behavior holds for fully insured household deposits as well, we conclude that the effect of deposit insurance was muted during the past financial crisis.
    Keywords: time deposits; savings accounts; interest rate setting; bank risk; liquidity; account characteristics
    JEL: G21
    Date: 2017–03
  11. By: David B. Cashin; Erin E. Syron Ferris; Elizabeth C. Klee; Cailey Stevens
    Abstract: We use the 2011 and 2013 U.S. debt limit impasses to examine the extent to which investors react to a heightened possibility of financial contagion. To do so, we first model the response of yields on government debt to a potential debt limit "breach." We then demonstrate empirically that yields on all Treasuries rose by 4 to 8 basis points during both impasses, while excess yields on bills at risk of delayed principal payments were significantly larger in 2013. Perhaps counterintuitively, our model suggests market participants placed a lower probability on financial contagion resulting from a breach in 2013.
    Keywords: Debt limit ; Financial contagion ; Political uncertainty ; Treasury yields
    JEL: G12 G18 H63
    Date: 2017–05
  12. By: Dostov, Viktor (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Shoust, Paul (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: The purpose of this work was to conduct a preliminary analysis of the payment services market in the form in which it exists now. To achieve this goal, two groups of tasks were put in effect. First, the regulation of "traditional" business models is considered: their essence and regulation in Russia. Also the authors analyzed the reasons that led to the configuration of the market that developed in Russia by the middle of the 2010s. Secondly, attention was paid to some new technologies and business models, which now, to some extent, go beyond the regulatory perimeter: the services of information intermediation, crowdfunding, P2P lending.
    Date: 2017–05
  13. By: Kaiji Chen; Jue Ren; Tao Zha
    Abstract: We estimate the quantity-based monetary policy system in China. We argue that China's rising shadow banking was inextricably linked to banks' balance-sheet risk and hampered the effectiveness of monetary policy on the banking system during the 2009-2015 period of monetary policy contractions. By constructing two micro datasets at the individual bank level, we substantiate this argument with three empirical findings: (1) in response to monetary policy tightening, nonstate banks actively engaged in intermediating shadow banking products; (2) these banks, in sharp contrast to state banks, brought shadow banking products onto the balance sheet via risky investments; (3) bank loans and risky investment assets in the banking system respond in opposite directions to monetary policy tightening, which makes monetary policy less effective. We build a theoretical framework to derive the above testable hypotheses and explore implications of the interaction between monetary and regulatory policies.
    JEL: E02 E5 G11 G12 G28
    Date: 2017–05
  14. By: Franzoni, Francesco; Giannetti, Mariassunta
    Abstract: This paper explores how affiliation to financial conglomerates relates to hedge funds’ funding and risk taking. We find that financial-conglomerate-affiliated hedge funds (FCAHFs) have more stable funding than other hedge funds. This may explain our finding that FCAHFs are able to take more risk and to purchase less liquid and more volatile stocks than other hedge funds during financial turmoil. In good times, instead, FCAHFs expand their assets less than other funds and are less exposed to systematic risk. Thus, FCAHFs perform a stabilizing function for the financial system, even though they do not generate higher returns for their investors.
    Keywords: Financial Conglomerates; Hedge Funds; Liquidity Provision; Volker Rule
    JEL: G2
    Date: 2017–05
  15. By: Danilov, Yury (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: In the paper, the issue of advancing development of the financial sector is being investigated. Based on the calculations performed, the paper demonstrates that this process has been suspended on a global scale after the 2008 crisis, but it shows the different behavior of the financial sector segments in different countries with developed and developing financial markets. It is shown that the limits of the outstripping growth of the financial sector are likely to have been the causes of the 2008 crisis. Working hypotheses have been formulated regarding the relationship of this process with other trends in the development of the world economy. The main threats to the Russian economy in connection with the advancing development of the financial sector are formulated.
    Date: 2017–05
  16. By: Shijaku, Gerti
    Abstract: The paper studies the pass-through effect of primary sovereignty risk on bank stability. For this reason, we followed a new approach using on-site bank balance sheet information to construct our proxy that represent each bank stability condition and use a variety of internal and external factors to estimate a balance panel dynamic two-step General Method of Moments (GMM) approach for the period 2008 Q3 – 2015 Q03. We found no supportive evidence that pass-through effect of primary sovereignty risk does affected bank stability. Rather improving macroeconomic and financial market condition are found to be important components through which banks are more immune. The rest of results imply that other bank-specific indicators, namely the extent of intermediation, off-balance sheet active, excessive capital, credit risk and profitability do not have a significant affect.
    Keywords: Bank Fragility, Primary Sovereignty Risk, Panel Data, Dynamic GMM
    JEL: C26 C33 C8 E43 G21 H63
    Date: 2016–05–28
  17. By: Mary Amiti; Patrick McGuire; David E Weinstein
    Abstract: What is the role for supply and demand forces in determining movements in international banking flows? Answering this question is crucial for understanding the international transmission of financial shocks and formulating policy. This paper addresses the question by using the method developed in Amiti and Weinstein (forthcoming) to exactly decompose the growth in international bank credit into common shocks, idiosyncratic supply shocks and idiosyncratic demand shocks for the period 2000-2016. A striking feature of the global banking flows data can be characterized by what we term the "Anna Karenina Principle": all healthy credit relationships are alike, each unhealthy credit relationship is unhealthy in its own way. During non-crisis years, bank flows are well-explained by a common global factor and a local demand factor. But during times of crisis flows are affected by idiosyncratic supply shocks to a borrower country's creditor banks. This has important implications for why standard models break down during crises.
    Keywords: international banking, global financial crisis, supply vs demand shocks, BIS consolidated banking statistics
    JEL: F34 G01 G21
    Date: 2017–05
  18. By: Dominic Quint; Pau Rabanal
    Abstract: The large recession that followed the Global Financial Crisis of 2008-09 triggered unprecedented monetary policy easing around the world. Most central banks in advanced economies deployed new instruments to affect credit conditions and to provide liquidity at a large scale after shortterm policy rates reached their effective lower bound. In this paper, we study if this new set of tools, commonly labeled as unconventional monetary policies (UMP), should still be used when economic conditions and interest rates normalize. In particular, we study the optimality of asset purchase programs by using an estimated non-linear DSGE model with a banking sector and long-term private and public debt for the United States. We find that the benefits of using such UMP in normal times are substantial, equivalent to 1.45 percent of consumption. However, the benefits from using UMP are shock-dependent and mostly arise when the economy is hit by financial shocks. When more traditional business cycle shocks (such as supply and demand shocks) hit the economy, the benefits of using UMP are negligible or zero.
    Keywords: United States;Banking;Western Hemisphere;Unconventional Monetary Policy, Optimal Rules, Time-Series Models, Monetary Policy (Targets, Instruments, and Effects)
    Date: 2017–03–31
  19. By: Adams, Robert M.
    Abstract: Fees for banking services have been a policy concern for over 20 years and the subject of several government agencies studies, which focused on the magnitude, incidence, or disclosure of such fees. Using a sample of single market banks, I study the relationship between market-level consumer characteristics and bank fee revenue, fees, and bank return on assets (ROA) to infer consumer and firm behavior. Of particular interest, I use county-level IRS tax records as a measure of the consumer income distribution, but my analysis also includes measures of age and education distributions. I find very little evidence that banks are systematically charging higher aftermarket fees in counties with greater proportions of younger, less educated, or poorer households. Standard measures of competition such as the Herfindahl-Hirschmann Index of deposit concentration are correlated with fees for base checking accounts, but not correlated with aftermarket product fees. Finally, st ate-wide restrictions on payday lending are correlated with higher bank fees, but not with increased bank revenue or ROA.
    Keywords: Aftermarkets; Banking; Competition; Overdraft fees
    JEL: G2 L1 L4
    Date: 2017–05

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