|
on Banking |
| By: | Robert Deyoung (Kansas University, School of Business); Isabelle Distinguin (LAPE - Laboratoire d'Analyse et de Prospective Economique - UNILIM - Université de Limoges - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société); Amine Tarazi (LAPE - Laboratoire d'Analyse et de Prospective Economique - UNILIM - Université de Limoges - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société) |
| Abstract: | The Basel III Accord imposes minimum liquidity standards on bank balance sheets that are already constrained by minimum capital standards. It is not clear whether or how banks' behaviors will change in this new joint-constraint regime. To gain some insight, we study the balance sheet liquidity behavior of U.S. banking companies in response to negative equity capital shocks prior to the implementation of Basel III. Our 1998-2012 data indicate that banks treated regulatory capital and balance sheet liquidity (e.g., net stable funding ratios, core deposits-to-loans, liquid assets-to-assets) as substitutes rather than complements. This main finding is limited to so-called 'community banks' with assets less than $1 billion; equity capital and liquidity were neither substitutes nor complements at larger banks. In the course of rebuilding their capital ratios, shocked community banks substituted away from loans and loan commitments and reduced their dividend payouts, actions that resulted in greater balance sheet liquidity. Thus, in the state of nature that has traditionally most concerned bank regulators (i.e., stress to bank equity capital), community banks increase their liquidity buffers. Given that these lenders do not pose systemic risk, and that they have historically exceeded the Basel III liquidity minimums by wide margins, our findings suggest that imposing minimum liquidity thresholds on small banks will likely yield little prudential benefit. |
| Keywords: | Bank capital,bank liquidity,Basel III,lending,net stable funding ratio |
| Date: | 2017–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01559053&r=ban |
| By: | Sarkar, Sanjukta; Sensarma, Rudra |
| Abstract: | Under the traditional franchise value paradigm, competition in banking markets is considered to be risk enhancing because of its tendency to raise interest rates on deposits. Taking a contrarian view, Boyd and De Nicolo (2005) have argued that competition in the loan market can lead to lower interest rates and hence, reduce bank risk taking. Following these theoretical results, the empirical evidence on the relationship between risk and competition in banking has also been mixed. This paper analyzes the competition-stability relationship for the Indian banking sector for the period 1999-2000 to 2012-2013. Banking competition is measured using structural measures of concentration viz. 5-bank concentration ratios and the Herfindahl-Hirschman Index as well as a non-structural measure of competition- the Panzar-Rosse H-Statistic. Our results show that while concentration leads to lower levels of default, market and asset risks, it exacerbates the levels of capital and liquidity risks. These results have interesting implications for banking sector policy in emerging economies. |
| Keywords: | Banks, Competition, Risk |
| JEL: | G21 G28 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81065&r=ban |
| By: | Adrian, Tobias; Boyarchenko, Nina |
| Abstract: | Bank liquidity shortages associated with the growth of wholesale-funded credit intermediation has motivated the implementation of liquidity regulations. We analyze a dynamic stochastic general equilibrium model in which liquidity and capital regulations interact with the supply of risk-free assets. In the model, the endogenously time varying tightness of liquidity and capital constraints generates intermediaries' leverage cycle, influencing the pricing of risk and the level of risk in the economy. Our analysis focuses on liquidity policies' implications for households' welfare. Within the context of our model, liquidity requirements are preferable to capital requirements, as tightening liquidity requirements lowers the likelihood of systemic distress without impairing consumption growth. In addition, we find that intermediate ranges of risk-free asset supply achieve higher welfare. |
| Keywords: | DSGE; Financial Intermediation; liquidity regulation; systemic risk |
| JEL: | E02 E32 G00 G28 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12247&r=ban |
| By: | Stefania Albanesi; Giacomo De Giorgi; Jaromir Nosal |
| Abstract: | A broadly accepted view contends that the 2007-09 financial crisis in the U.S. was caused by an expansion in the supply of credit to subprime borrowers during the 2001- 2006 credit boom, leading to the spike in defaults and foreclosures that sparked the crisis. We use a large administrative panel of credit file data to examine the evolution of household debt and defaults between 1999 and 2013. Our findings suggest an alternative narrative that challenges the large role of subprime credit in the crisis. We show that credit growth between 2001 and 2007 was concentrated in the prime segment, and debt to high risk borrowers was virtually constant for all debt categories during this period. The rise in mortgage defaults during the crisis was concentrated in the middle of the credit score distribution, and mostly attributable to real estate investors. We argue that previous analyses confounded life cycle debt demand of borrowers who were young at the start of the boom with an expansion in credit supply over that period. |
| JEL: | D14 E01 E21 E40 G01 G1 G18 G20 G21 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23740&r=ban |
| By: | Vincenzo Quadrini (USC); Laura Moretti (Central Bank of Ireland); Alessandro Barattieri (Collegio Carlo Alberto and ESG UQAM) |
| Abstract: | In the period that preceded the 2008 crisis, US financial intermediaries have become more leveraged (measured as the ratio of assets over equity) and interconnected (measured as the share of liabilities held by other financial intermediaries). This upward trend in leverage and interconnectivity sharply reversed after the crisis. To understand this dynamic pattern we develop a model where banks make risky investments in the non-financial sector and sell part of their investments to other financial institutions (diversification). The model predicts a positive correlation between leverage and interconnectivity which we explore empirically using balance sheet data for over 14,000 financial intermediaries in 32 OECD countries. We enrich the theoretical model by allowing for Bayesian learning about the likelihood of a bank crisis (aggregate risk) and show that the model can capture the dynamics of leverage and interconnectivity observed in the data. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:504&r=ban |
| By: | Yassine Bakkar (LAPE - Laboratoire d'Analyse et de Prospective Economique - UNILIM - Université de Limoges - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société); Olivier De Jonghe (European Banking Center, Tilburg University and National Bank of Belgium. - Tilburg University and National Bank of Belgium); Amine Tarazi (LAPE - Laboratoire d'Analyse et de Prospective Economique - UNILIM - Université de Limoges - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société) |
| Abstract: | Frictions prevent banks to immediately adjust their capital ratio towards their desired and/or imposed level. This paper analyzes (i) whether or not these frictions are larger for regulatory capital ratios vis-à-vis a plain leverage ratio; (ii) which adjustment channels banks use to adjust their capital ratio; and (iii) how the speed of adjustment and adjustment channels differ between large, systemic and complex banks versus small banks. Our results, obtained using a sample of listed banks across OECD countries for the 2001-2012 period, bear critical policy implications for the implementation of new (systemic risk-based) capital requirements and their impact on banks' balance sheets. |
| Keywords: | capital structure,speed of adjustment,systemic risk,systemic size,bank regulation |
| Date: | 2017–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01546995&r=ban |
| By: | José-Luis Peydró; Gabriel Jiménez; Rafael Repullo; Jesús Saurina |
| Abstract: | We analyze new lending to firms by a state-owned bank in crisis times, the potential adverse selection faced by the bank, and the causal real effects associated to its lending. For identification, we exploit: (i) a new credit facility set up in Spain by its state-owned bank during the credit crunch of 2010-2012; (ii) the bank’s continuous scoring system, together with firms' individual credit scores and the threshold for granting vs. rejecting loan applications; (iii) the rich credit register matched with firm- and bank-level data. We show that, compared to privately-owned banks, the state-owned bank faces a worse pool of applicants, is tighter (softer) in lending to firms with observable (unobservable) riskier characteristics, and has substantial higher loan defaults. Using a regression discontinuity approach around the threshold, we show that the supply of credit causes large positive real effects on firm survival, employment, investment, total assets, sales, and productivity, as well as crowding-in of new credit by private banks. |
| Keywords: | Adverse selection, real effects of credit supply, crowding-in, state-owned banks, credit crunch, credit scoring, loan defaults, countercyclical policies. |
| JEL: | E44 G01 G21 G28 H81 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1577&r=ban |
| By: | Pau Rabanal (IMF); Dominic Quint (Deutsche Bundesbank) |
| 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 short-term 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. We study the optimality of UMP 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 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. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:526&r=ban |
| By: | Faia, Ester; Paiella, Monica |
| Abstract: | Despite the lack of delegated monitor and of collateral guarantees P2P lending platforms exhibit relatively low loan and delinquency rates. The adverse selection is indeed mitigated by a new screening technology (information processing through machine learning) that provides costless public signals. Using data from Prosper and Lending Club we show that loans' spreads, proxing asymmetric information, decline with credit scores or hard information indicators and with indications from "group ties" (soft information from social networks). Also an increase in the risk of bank run in the traditional banking sector increases participation in the P2P markets and reduces their rates (substitution effect). We rationalize this evidence with a dynamic general equilibrium model where lenders and borrowers choose between traditional bank services (subject to the risk of bank runs and early liquidation) and P2P markets (which clear at a pooling price due to asymmetric information, but where public signals facilitate screening). |
| Keywords: | liquidity shocks; peer-to-peer lending; pooling equilibria; signals; value of information |
| JEL: | G11 G23 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12235&r=ban |
| By: | Galindo, Arturo; Panizza, Ugo |
| Abstract: | This paper shows that international government borrowing from multilateral development banks is countercyclical while international government borrowing form private sector lenders is procyclical. The countercyclicality of official lending is mostly driven by the behavior of the World Bank (borrowing from regional development banks tends to be acyclical). The paper also shows that official sector lending to Latin America and East Asia is more countercyclical than official lending to other regions. Private sector lending is instead procyclical in all developing regions. While the cyclicality of official lending does not depend on domestic or international conditions, private lending becomes particularly procyclical in periods of limited global capital flows. By focusing on both borrowers and lenders' heterogeneity the paper shows that the cyclical properties of international government debt are mostly driven by credit supply shocks. Demand factors appear to be less important drivers of procyclical international government borrowing. The paper's focus on supply and demand factors is different from the traditional push and pull classification, as push and pull factors could affect both the demand and the supply of international government debt. |
| Keywords: | Fiscal Policy; International Financial Institutions; International Government Debt; Capital Flows |
| JEL: | E62 F32 F34 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12243&r=ban |
| By: | Jean-Pierre Danthine (CEPR - Center for Economic Policy Research - CEPR, UNIL - Université de Lausanne, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics) |
| Abstract: | High leverage distorts the purpose of limited liability. Limited liability is a design feature intended to promote risk taking. It is not appropriate in situations where decision-makers are prone to socially excessive risk taking. While much progress has been made to correct risk taking incentives in banking under Basel 3, not enough has been done to address the toxic cocktail resulting from combining high leverage with limited liability. Deferred compensation schemes should be generalized and bonus payments in the form of high trigger Cocos should be promoted. |
| Keywords: | risk taking,financial crisis |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-01571627&r=ban |
| By: | Stefania Albanesi |
| Abstract: | A broadly accepted view contends that the 2007-09 fi nancial crisis in the U.S. wascaused by an expansion in the supply of credit to subprime borrowers during the 2001-2006 credit boom, leading to the spike in defaults and foreclosures that sparked thecrisis. We use a large administrative panel of credit fi le data to examine the evolutionof household debt and defaults between 1999 and 2013. Our fi ndings suggest an alternative narrative that challenges the large role of subprime credit in the crisis. We showthat credit growth between 2001 and 2007 was concentrated in the prime segment,and debt to high risk borrowers was virtually constant for all debt categories duringthis period. The rise in mortgage defaults during the crisis was concentrated in themiddle of the credit score distribution, and mostly attributable to real estate investors.We argue that previous analyses confounded life cycle debt demand of borrowers whowere young at the start of the boom with an expansion in credit supply over that period. Moreover, a positive correlation between the concentration of subprime borrowersand the severity of the 2007-09 recession found in previous research may be driven byhigh prevalence of young, low education, minority individuals in zip codes with largesubprime population. |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:pit:wpaper:6174&r=ban |
| By: | Sangeeta Pratap (Hunter College and CUNY Graduate Center); Carlos Urrutia (ITAM); Felipe Meza (Instituto Tecnológico Autónomo de Méx) |
| Abstract: | We study the effect of credit conditions on the allocation of inputs, and their implications for aggregate TFP growth. For this, we build a new dataset for Mexican manufacturing merging real and financial data at the 4-digit industrial sector level. Using a simple misallocation framework, we find that changes in allocative efficiency account for 75 percent of aggregate TFP variability. We then construct a model of firm behavior with working capital constraints and borrowing limits which generate sub-optimal use of inputs, and calibrate it to our data. We find that the model accounts for 56 percent of the observed variability in efficiency. An important conclusion is that sectoral heterogeneity in credit conditions is key in accounting for efficiency gains. Despite overall credit stagnation, better credit and lower interest rates to distorted sectors contributed substantially to the recovery from the 2009 recession, suggesting a plausible mechanism for credit-less recoveries. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:538&r=ban |
| By: | Martín Gonzalez-Eiras (Department of Economics, University of Copenhagen); Jesper Rüdiger (Department of Economics, University of Copenhagen) |
| Abstract: | We use bid data from Argentinian Treasury bill auctions from 1996 to 2000 to study how banks' balance sheet and past performance a ect bidding behavior. Exploiting variation in regulations for market making activity we show that when banks fear losing their market maker status, they bid more aggressively. They also bid more aggressively for existing securities that are reissued when the regulation tightens the requirements for secondary market participation. Consistent with regulations which imply that auctioned securities are not a prime source of liquidity, we find that banks which face liquidity needs bid less aggressively for them. A novel implication of our results is that in institutional settings that feature turnover of market makers, bidding behavior should be modeled in a dynamic setting. We introduce a dynamic model and show that static estimates over-predict true valuations when market makers may lose their status. |
| Keywords: | Treasury Auctions; Multi-unit Auctions; Structural Estimation; Bidding Behavior; Balance-sheet; Data; Market Making |
| JEL: | D44 G12 G21 L10 L13 |
| Date: | 2017–08–21 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuiedp:1713&r=ban |
| By: | Marco Migueis |
| Abstract: | The Advanced Measurement Approach (AMA) to operational risk capital is vulnerable to gaming, complex, and lacks comparability. The Standardized Measurement Approach (SMA) to operational risk capital lacks risk sensitivity and is unlikely to be appropriately conservative for US banks. An alternative framework is proposed that addresses the weaknesses of these approaches by relying on an incentive-compatible mechanism to elicit forward-looking projections of loss exposure. |
| Keywords: | Banking Regulation ; Incentive Compatibility ; Operational Risk ; Regulatory Capital |
| JEL: | G21 G28 G32 |
| Date: | 2017–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2017-87&r=ban |
| By: | Wujiang Lou |
| Abstract: | Haircutting non-cash collateral has become a key element of the post-crisis reform of the shadow banking system and OTC derivatives markets. This article develops a parametric haircut model by expanding haircut definitions beyond the traditional value-at-risk measure and employing a double-exponential jump-diffusion model for collateral market risk. Haircuts are solved to target credit risk measurements, including probability of default, expected loss or unexpected loss criteria. Comparing to data-driven approach typically run on proxy data series, the model enables sensitivity analysis and stress test, captures market liquidity risk, allows idiosyncratic risk adjustments, and incorporates relevant market information. Computational results for main equities, securitization, and corporate bonds show potential for uses in collateral agreements, e.g. CSAs, and for regulatory capital calculations. |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1708.07585&r=ban |
| By: | Adrian, Tobias; Fleming, Michael J; Shachar, Or; Vogt, Erik |
| Abstract: | This paper examines market liquidity in the post-crisis era in light of concerns that regulatory changes might have reduced dealers' ability and willingness to make markets. We begin with a discussion of the broader trading environment, including an overview of regulations and their potential effects on dealer balance sheets and market making, but also considering additional drivers of market liquidity. We document a stagnation of dealer balance sheets after the financial crisis of 2007-09, which occurred concurrently with dealer balance sheet deleveraging. However, using high-frequency trade and quote data for U.S. Treasuries and corporate bonds, we find only limited evidence of a deterioration in market liquidity. |
| Keywords: | corporate bonds; liquidity; market making; regulation; Treasury securities |
| JEL: | G12 G21 G28 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12248&r=ban |
| By: | Brave, Scott A. (Federal Reserve Bank of Chicago); Lopez, Jose A. (Federal Reserve Bank of San Francisco) |
| Abstract: | The introduction of macroprudential responsibilities at central banks and financial regulatory agencies has created a need for new measures of financial stability. While many have been proposed, they usually require further transformation for use by policymakers. We propose a transformation based on transition probabilities between states of high and low financial stability. Forecasts of these state probabilities can then be used within a decision-theoretic framework to address the implementation of a countercyclical capital buffer, a common macroprudential policy. Our policy simulations suggest that given the low probability of a period of financial instability at year-end 2015, U.S. policymakers need not have engaged this capital buffer. |
| Date: | 2017–08–14 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2017-17&r=ban |
| By: | Andolfatto, David (Federal Reserve Bank of St. Louis); Berentsen, Aleksander (University of Basel); Martin, Fernando M. (Federal Reserve Bank of St. Louis) |
| Abstract: | The fact that money, banking, and financial markets interact in important ways seems self-evident. The theoretical nature of this interaction, however, has not been fully explored. To this end, we integrate the Diamond (1997) model of banking and financial markets with the Lagos and Wright (2005) dynamic model of monetary exchange--a union that bears a framework in which fractional reserve banks emerge in equilibrium, where bank assets are funded with liabilities made demandable for government money, where the terms of bank deposit contracts are constrained by the liquidity insurance available in financial markets, where banks are subject to runs, and where a central bank has a meaningful role to play, both in terms of inflation policy and as a lender of last resort. The model provides a rationale for nominal deposit contracts combined with a central bank lender-of-last-resort facility to promote efficient liquidity insurance and a panic-free banking system. |
| Date: | 2017–08–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2017-023&r=ban |
| By: | Denny Irawan (Researcher, Institute for Economic and Social Research, Faculty of Economics, University of Indonesia, Jakarta); Febrio Kacaribu (Researcher, Institute for Economic and Social Research, Faculty of Economics, University of Indonesia, Jakarta) |
| Abstract: | The financial crisis of 2007/8 has revealed the importance of risk, besides credit, in the dynamics of financial cycle and business cycle in the economy. This study examines relationship among those three cycles in the economy (Tri-Cycles), namely (i) business cycle risk, (ii) credit cycle and (iii) risk cycle, and their impacts toward individual bank performance. We examine the responses of individual bank credit cycle and risk cycle toward a shock in business cycle risk and its consequence to the bank performance. We use Indonesian data for period of 2002q1 to 2014q4. We use unbalanced panel data of individual banks’ balance sheet with Panel Vector Autoregressive approach based on GMM style estimation by implementing PVAR package developed by [1]. The result shows dynamic relationship between business cycle risk and financial risk cycles. The study also observes prominent role of risk cycles in driving bank performance. We also show the existence of financial accelerator phenomenon in Indonesian banking system, in which financial cycles precede the business cycle risk. |
| Keywords: | Business Cycle Risk — Credit Cycle — Bank Lending — Financial Risk |
| JEL: | E32 G21 G31 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:lpe:wpaper:201707&r=ban |
| By: | Wahyoe Soedarmono (Universitas Siswa Bangsa Internasional, Faculty of Business / Sampoerna School of Business); Djauhari Sitorus (The World Bank); Amine Tarazi (LAPE - Laboratoire d'Analyse et de Prospective Economique - UNILIM - Université de Limoges - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société) |
| Abstract: | This paper investigates the interplay of abnormal loan growth, credit reporting system and systemic risk in banking. Based on a sample of publicly traded banks in Asia from 1998 to 2012, higher abnormal loan growth leads to higher systemic risk one year ahead. A closer investigation further suggests that better credit information coverage and private credit bureaus can stem the buildup of bank systemic risk one year ahead due to higher abnormal loan growth. Eventually, this paper offers some supports to strengthen macro-prudential regulation to limit abnormal loan growth. This paper also advocates the importance of strengthening credit information coverage and the role of private credit bureaus in Asian countries to mitigate the negative impact of abnormal loan growth on bank systemic stability. |
| Keywords: | credit reporting system,Abnormal loan growth,systemic risk,Asian banks |
| Date: | 2017–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01558249&r=ban |
| By: | Kumar, Nitin; Sensarma, Rudra |
| Abstract: | We examine the efficiency-outreach debate in the context of Indian Micro Finance Institutions (MFIs). We employ the stochastic distance function approach for 75 MFIs during 2004-2011. We find that there are significant inefficiency effects but efficiency is improving over time. Among the determinants of inefficiency, average loan balance per borrower and number of women borrowers appear to improve efficiency. This suggests that the efficiency-outreach debate is more nuanced than is presented in the literature and depends on the way outreach is defined. Profitability, size and leverage seem to increase efficiency whereas age of the MFI is associated with higher inefficiency. |
| Keywords: | Micro Finance Institutions; Efficiency; Stochastic Distance Function |
| JEL: | C33 C51 G21 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81064&r=ban |
| By: | John S. Howe; Thibaut G. Morillon |
| Abstract: | We investigate the consequences of mergers and acquisitions (M&As) for information asymmetry in the banking sector. We test competing hypotheses about the effect of M&As on the information environment. M&As either increase information asymmetry (the opacity hypothesis) or diminishes it (the transparency hypothesis). We find evidence that information asymmetry increases following M&A announcements and decreases following deal completions. These findings are more pronounced for acquisitions involving a private target, and all-cash deals, as well as for mergers as opposed to acquisition of assets. Additionally, we find that the enactment of Dodd-Frank reduced the levels of information asymmetry. The results are important to regulators, policy makers, and investors. |
| Keywords: | mergers and acquisitions, opacity hypothesis, transparency hypothesis, information asymmetry |
| JEL: | G34 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:nfi:nfiwps:2017-wp-01&r=ban |
| By: | J.A. Bikker; Tobias M. Vervliet |
| Abstract: | The aim of this paper is to investigate the impact of the unusually low interest rate environment on the soundness of the US banking sector in terms of profitability and risk-taking. Using both dynamic and static modeling approaches and various estimation techniques, we find that the low interest rate environment indeed impairs bank performance and compresses net interest margins. Nonetheless, banks have been able to maintain their overall level of profits, due to lower provisioning, which in turn may endanger financial stability. Banks did not compensate for their lower interest income by expanding operations to include trading activities with a higher risk exposure. |
| Keywords: | profitability, risk-taking, low interest rate environment, (dynamic) panel data models |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:1710&r=ban |
| By: | Teruyoshi Kobayashi; Taro Takaguchi |
| Abstract: | Relationship lending is conventionally interpreted as a strong partnership between a lender and a borrower. Nevertheless, we still lack consensus regarding how to quantify a lending relationship while simple statistics such as the frequency and volume of loans have been frequently used. Here, we propose the concept of a significant tie to statistically evaluate the strength of a relationship. Application of the proposed method to the Italian interbank networks reveals that the percentage of relationship lending among all bilateral trades is consistently around 20%-30% and that their trading properties are distinct from those of transactional trades. |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1708.08594&r=ban |
| By: | Henrik Jensen (Department of Economics, University of Copenhagen); Ivan Petrella (Warwick Business School, University of Warwick); Søren Hove Ravn (Department of Economics, University of Copenhagen); Emiliano Santoro (Department of Economics, University of Copenhagen) |
| Abstract: | We document that the U.S. economy has been characterized by an increasingly negative business cycle asymmetry over the last three decades. This fi?nding can be explained by the concurrent increase in the fi?nancial leverage of households and fi?rms. To support this view, we devise and estimate a dynamic general equilibrium model with collateralized borrowing and occasionally binding credit constraints. Higher leverage increases the likelihood that constraints become slack in the face of expansionary shocks, while contractionary shocks are further ampli?ed due to binding constraints. As a result, booms become progressively smoother and more prolonged than busts. We are therefore able to reconcile a more negatively skewed business cycle with the Great Moderation in cyclical volatility. Finally, in line with recent empirical evidence, fi?nancially-driven expansions lead to deeper contractions, as compared with equally-sized non-?financial expansions. |
| Keywords: | Credit constraints, business cycles, skewness, deleveraging |
| JEL: | E32 E44 |
| Date: | 2017–08–24 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuiedp:1717&r=ban |
| By: | Stavros Stavroyiannis |
| Abstract: | Digital currencies and cryptocurrencies have hesitantly started to penetrate the investors, and the next step will be the regulatory risk management framework. We examine the Value-at-Risk and Expected Shortfall properties for the major digital currencies, Bitcoin, Ethereum, Litecoin, and Ripple. The methodology used is GARCH modelling followed by Filtered Historical Simulation. We find that digital currencies are subject to a higher risk, therefore, to higher sufficient buffer and risk capital to cover potential losses. |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1708.09343&r=ban |
| By: | Drozd, Lukasz A. (Federal Reserve Bank of Philadelphia); Serrano-Padial, Ricardo (Drexel University) |
| Abstract: | Empirical evidence suggests that widespread financial distress, by disrupting enforcement of credit contracts, can be self-propagatory and adversely affect the supply of credit. We propose a unifying theory that models the interplay between enforcement, borrower default decisions, and the provision of credit. The central tenets of our framework are the presence of capacity constrained enforcement and borrower heterogeneity. We show that, despite heterogeneity, borrowers tend to coordinate their default choices, leading to fragility and to credit rationing. Our model provides a rationale for the comovement of enforcement, default rates and credit seen in the data. |
| Keywords: | contract enforcement; enforcement capacity; default spillovers; credit crunch; credit cycles; global games; heterogeneity |
| JEL: | D82 D84 D86 G21 O16 O17 O43 |
| Date: | 2017–08–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:17-27&r=ban |
| By: | D.F.|info:eu-repo/dai/nl/310595703 Gerritsen; J.A.|info:eu-repo/dai/nl/06912261X Bikker; M. 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. |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:1708&r=ban |