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on Banking |
| By: | Avdjiev, Stefan; Gambacorta, Leonardo; Goldberg, Linda S.; Schiaffi, Stefano |
| Abstract: | The post-crisis period has seen a considerable shift in the composition and drivers of international bank lending and international bond issuance, the two main components of global liquidity. The sensitivity of both types of flow to US monetary policy rose substantially in the immediate aftermath of the Global Financial Crisis, peaked around the time of the 2013 Fed2 "taper tantrum", and then partially reverted towards pre-crisis levels. Conversely, the responsiveness of international bank lending to global risk conditions declined considerably post-crisis and became similar to that of international debt securities. The increased sensitivity of international bank flows to US monetary policy has been driven mainly by post-crisis changes in the behaviour of national lending banking systems, especially those that ex ante had less well capitalized banks. By contrast, the post-crisis fall in the sensitivity of international bank lending to global risk was mainly due to a compositional effect, driven by increases in the lending market shares of better-capitalized national banking systems. The post-2013 reversal in the sensitivities to US monetary policy partially reflects the expected divergence of the monetary policy of the US and other advanced economies, highlighting the sensitivity of capital flows to the degree of commonality of cycles and the stance of policy. Moreover, global liquidity fluctuations have largely been driven by policy initiatives in creditor countries. Policies and prudential instruments that reinforced lending banks' capitalization and stable funding levels reduced the volatility of international lending flows. |
| Keywords: | Capital Flows; Global liquidity; international bank lending; international bond flows |
| JEL: | F34 G10 G21 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12127&r=ban |
| By: | Aditya Maheshwari; Andrey Sarantsev |
| Abstract: | We consider a model when private banks with interbank cash flows as in (Carmona, Fouque, Sun, 2013) borrow from the outside economy at a certain interest rate, controlled by the central bank, and invest in risky assets. The cash flow between private banks is also facilitated by the central bank. Each private bank aims to maximize its expected terminal logarithmic utility. The central bank, in turn, aims to control the overall size of financial system, and the rate of circulation between banks. A default occurs when the net worth of a bank goes below a certain threshold. We consider systemic risk by studying probability of a certain number of defaults over fixed finite time horizon. |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1707.03542&r=ban |
| By: | Philipp Kirchner (University of Kassel); Benjamin Schwanebeck (University of Kassel) |
| Abstract: | Using a DSGE framework, we discuss the optimal design of monetary policy for an economy where both retail banks and shadow banks serve as fi?nancial intermediaries. We get the following results. During crises times, a standard Taylor rule fails to reach sufficient stimulus. Direct asset purchases prove to be the most effective unconventional tool. When maximizing welfare, central banks should shy away from interventions in the funding process between retail and shadow banks. Liquidity facilities are the welfare-maximizing unconventional policy tool. The effectiveness of unconventional measures increases in the size of the shadow banking sector. However, the optimal response to shocks is sensitive to the resource costs of the implementation which may differ across central banks. Hence, optimal unconventional monetary policy is country-speci?c. |
| Keywords: | ?nancial intermediation; shadow banking; ?financial frictions; unconventional policy; optimal policy |
| JEL: | E44 E52 E58 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201725&r=ban |
| By: | João M. Pinto (Católica Porto Business School, Catholic University of Portugal); Mafalda C. Correia (Faculty of Economics – University of Porto and Sonae Financial Services) |
| Abstract: | This is the first study comparing the financial characteristics and pricing processes of asset securitization (AS) and covered bonds (CB). Using a sample of 6,191 AS bonds and 11,471 CB issued by Western European banks between January 1, 2000 and October 31, 2012, we find that AS and CB are not priced in integrated bond markets. Our results show that credit spreads are higher for ABS than for public CB in both pre- and crisis periods. Considering bonds backed by mortgages, we only find evidence of CB credit spreads being lower than those of AS bonds during the pre-crisis period. Both AS and CB credit spreads are driven by collateral type, credit rating is the most important pricing factor for AS bonds, and we document that not only specific effects related to issuance, but also macro factors and exogenous events are relevant drivers for CB credit spreads. Furthermore, while the first CB purchase programme led to lower mortgage CB credit spreads, the second programme did not have the ECB’s desired effects. Finally, we find that the ECB’s second programme reduces ABS spreads significantly for tranches issued by non-German banks. |
| Keywords: | debt pricing; asset securitization; covered bonds; financial crisis; quantitative easing |
| JEL: | F34 G01 G12 G21 G24 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:cap:mpaper:012017&r=ban |
| By: | Mark D. Manuszak; Krzysztof Wozniak |
| Abstract: | We study the pricing of deposit accounts following a regulation that capped debit card interchange fees in the United States and provide the first empirical investigation of the link between interchange fees and granular deposit account prices. This link is broadly predicted by the theoretical literature on two-sided markets, but the nature and magnitude of price changes are key empirical issues. To examine the ways that banks adjusted their account prices in response to the regulatory cap on interchange fees, we exploit the cap's differential applicability across banks and account types, while accounting for equilibrium spillover effects on banks exempt from the cap. Our results show that banks subject to the cap raised checking account prices by decreasing the availability of free accounts, raising monthly fees, and increasing minimum balance requirements, with different adjustment across account types. We also find that banks exempt from the cap adjusted prices as a competitive response to price changes made by regulated banks. Not accounting for such competitive responses underestimates the policy's impact on the market, for both banks subject to the cap and those exempt from it. |
| Keywords: | Equilibrium effects ; Financial supervision and regulation ; Interchange fees ; Retail banking and debit cards ; Two-sided markets |
| JEL: | G21 G28 L51 |
| Date: | 2017–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2017-74&r=ban |
| By: | Ozili, Peterson K |
| Abstract: | This study investigates the non-discretionary determinants of bank loan loss provisions in Africa after controlling for macroeconomic fluctuation, financial development and investor protection. We find that non-performing loans, loan-to-asset ratio and loan growth are significant non-discretionary drivers of bank provisions in the African region. We observe that bank provision is a positive function of non-performing loans up to a threshold beyond which bank provisions will no longer increase as non-performing loans increases. Also, bank loan-to-asset ratio is a significant driver of bank provisions when African banks have higher loan-to-asset ratios. Also, larger banks in financially developed African countries have fewer loan loss provisions while increase in bank lending leads to fewer bank provisions in countries with strong investor protection. Finally, higher bank lending is associated with higher bank provisions during economic boom. The findings have implications. |
| Keywords: | Loan Loss Provisions, Africa, Income Smoothing, Procyclicality, Economic Cycle, Investor Protection, Banks, Macroeconomy, Credit Risk, Financial Development |
| JEL: | A1 A11 C5 C58 F3 F38 M1 M21 M41 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80147&r=ban |
| By: | Timmer, Yannick |
| Abstract: | This paper contrasts the investment behavior of different financial institutions in debt securities as a response to price changes. For identification, I use unique security-level data from the German Microdatabase Securities Holdings Statistics. Banks and investment funds respond in a pro-cyclical manner to price changes. In contrast, insurance companies and pension funds act counter-cyclically; they buy after price declines and sell after price increases. The heterogeneous responses can be explained by differences in their balance sheet structure. I exploit within-sector variation in the financial constraint to show that tighter constraints are associated with relatively more pro-cyclical investment behavior. |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:eps:ecmiwp:12747&r=ban |
| By: | Olena Kostylenko; Helena Sofia Rodrigues; Delfim F. M. Torres |
| Abstract: | The process of contagiousness spread modelling is well-known in epidemiology. However, the application of spread modelling to banking market is quite recent. In this work, we present a system of ordinary differential equations, simulating data from the largest European banks. Then, an optimal control problem is formulated in order to study the impact of a possible measure of the Central Bank in the economy. The proposed approach enables qualitative specifications of contagion in banking obtainment and an adequate analysis and prognosis within the financial sector development and macroeconomic as a whole. We show that our model describes well the reality of the largest European banks. Simulations were done using MATLAB and BOCOP optimal control solver, and the main results are taken for three distinct scenarios. |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1707.03500&r=ban |
| By: | Miguel Antón (IESE BUSINESS SCHOOL); Sergio Mayordomo (Banco de España); María Rodríguez-Moreno (Banco de España) |
| Abstract: | We show that sovereign CDS that have common dealers tend to be more correlated, especially when the dealers display similar quoting activity in those contracts over time. This commonality in dealers’ activity is a powerful driver of CDS comovements, over and above fundamental similarities between countries, including default, liquidity, and macro factors. We posit that the mechanism causing the excess correlation is the buying pressure faced by CDS dealers for credit enhancements and regulatory capital reliefs. An instrumental variable analysis confirms that our findings are indeed rooted in a causal relationship. |
| Keywords: | sovereign CDS, comovements, commonalities, dealers |
| JEL: | G12 G14 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1723&r=ban |
| By: | Dirk Schoenmaker |
| Abstract: | In the aftermath of the Great Financial Crisis, regulators have rushed to strengthen banking supervision and implement bank resolution regimes. While such resolution regimes are welcome as a means to reintroduce market discipline and reduce the reliance on taxpayer-funded bailouts, the effects on the wider banking system have not been properly considered. A macro approach to resolution is also needed, which should consider the contagion effects of bail-in and the continuing need for a fiscal backstop to the financial system. For bail-in to work, it is important that bail-inable bank bonds are largely held outside the banking sector, which is currently not the case. Stricter capital requirements could push them out of the banking system. The organisation of the fiscal backstop is crucial for the stability of the global banking system. Single-point-of-entry resolution of international banks is only possible for the very largest countries or for countries working together, including in terms of sharing the burden of a potential bank bailout. The euro area has adopted the burden-sharing approach in its banking union. This Policy Contribution recommends completing banking union. Other countries have taken a stand-alone approach, which leads to multiple-point-of-entry resolution of international banks headquartered in those countries and contributes to fragmentation of the global banking system. |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polcon:21231&r=ban |
| By: | M. Birn; M. Dietsch; D. Durant |
| Abstract: | We use confidential bank-level data from the BCBS’s quantitative impact studies between 2011 and 2014 to document how banks have been adjusting to Basel III solvency and liquidity requirements. We first develop a non-linear optimization model to assess how banks’ balance sheets should have adjusted between 2011 and 2014, absent any external factor other than the new regulations. We find that the increase in capital observed during this period was far larger than that predicted by our model, thus suggesting that banks may have faced pressures from financial markets. In contrast, the observed increase in HQLA was lower than that predicted by the model. We then use the model to assess the adjustments that were still needed, at the end of 2014, for banks to fully comply with Basel III. Based on data at the end of 2014 (and assuming, beyond 2014, a change in deposits similar to the one observed in 2011-2014), we find that the required adjustment in HQLA still necessary to meet all Basel requirements, w as half of the one achieved in 2011-2014, and that the required adjustment in capital would come exclusively from TLAC. Finally, any required increase in capital helps to fulfil liquidity regulation but the reverse is not true. |
| Keywords: | banking regulation, Basel III, financing of the real economy, credit supply, solvency ratios, leverage ratio, liquidity ratios. |
| JEL: | G21 G28 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:decfin:28&r=ban |
| By: | Attar, Andrea; Casamatta, Catherine; Chassagnon, Arnold; Décamps, Jean-Paul |
| Abstract: | We study a capital market in which multiple lenders sequentially attempt at financing a single borrower under moral hazard. We show that restricting lenders to post take-it-or-leave-it offers involves a severe loss of generality: none of the equilibrium outcomes arising in this scenario survives if lenders offer menus of contracts. This result challenges the approach followed in standard models of multiple lending. From a theoretical perspective, we offer new insights on equilibrium robustness in sequential common agency games. |
| Keywords: | Multiple Lending; Menus; Strategic Default; Common Agency; Bank Competition. |
| JEL: | D43 D82 G33 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:31786&r=ban |