|
on Banking |
| By: | Elias Minaya; Miguel Cabello |
| Abstract: | Over the past decade, credit has grown significantly in Peru, a small and partially dollarised economy, and the mounting credit risk attached to foreign currency credit created severe challenges for financial regulators. This paper assesses the effectiveness of two macroprudential measures implemented by regulators: dynamic provisioning, to reduce the procyclicality of credit and conditional reserve requirements, to diminish the degree of dollarisation of the economy. Using credit register data that covers the period of 2004-2014, we find evidence that dynamic provisioning has decelerated the rapid growth of commercial bank lending. Moreover, mortgage dollarisation declined significantly after the implementation of the conditional reserve requirement scheme. |
| Keywords: | reserve requirement, dynamic provisioning, credit supply, macroprudential policy, dollarisation |
| JEL: | E51 E52 E58 G21 G28 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:675&r=ban |
| By: | Prescott, Edward Simpson (Federal Reserve Bank of Cleveland); Balla, Eliana (Federal Reserve Bank of Richmond); Mazur, Laurel (University of Maryland); Walter, John R. (Federal Reserve Bank of Richmond) |
| Abstract: | Failure rates of small commercial banks during the banking crisis of the late 1980s were about 7.6%, which is significantly higher than the 5.7% failure rate during the recent crisis. The higher rate is surprising because small banks had significantly increased their commercial real estate (CRE) lending by the second crisis, which is riskier than other types of lending, and economic shocks were more severe in the recent crisis. We compare failure rates in the two periods using a statistical model that allows us to decompose the effect of changes in bank characteristics and economic shocks on failure rates. We find that the severe economic shocks of the recent crisis had a larger impact on high bank failure rates than bank characteristics. Increases in risk from CRE lending were offset by higher capital levels and other changes in bank characteristics. The failure rate would have been much lower in the later crisis if banks were subject to the less severe economic shocks of the earlier crisis. To the extent that higher capital levels were due to Basel I and the prompt corrective action (PCA) provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991, we find that these reforms were beneficial. We also compare Federal Deposit Insurance Corporation (FDIC) losses on failed banks between the two periods. Here, despite the PCA reforms, losses on failed banks were higher in the recent crisis than in the earlier one. These differences are not accounted for by changes in CRE concentrations or the relative size of economic shocks. On this dimension, the reforms of the early 1990s did not seem to help. Finally, we find that a discretionary accounting variable, interest accrued but not yet received, is predictive of both failure and higher FDIC losses in both crises. |
| Keywords: | Bank failures; Regulations; |
| JEL: | G21 G28 |
| Date: | 2017–11–13 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:1719&r=ban |
| By: | Fabiano Schivardi; Enrico Sette; Guido Tabellini |
| Abstract: | Do banks with low capital extend excessive credit to weak firms, and does this matter for aggregate efficiency? Using a unique dataset that covers almost all bank-firm relationships in Italy in the period 2004-2013, we find that during the Eurozone financial crisis (i) undercapitalized banks were less likely to cut credit to non-viable firms; (ii) credit misallocation increased the failure rate of healthy firms and reduced the failure rate of non-viable firms and (iii) nevertheless, the adverse effects of credit misallocation on the growth rate of healthier firms were negligible, as were the effects on TFP dispersion. This goes against previous influential findings, which, we argue, face serious identification problems. Thus, while banks with low capital can be an important source of aggregate inefficiency in the long run, their contribution to the severity of the great recession via capital misallocation was modest. |
| Keywords: | bank capitalization, zombie lending, capital misallocation |
| JEL: | D23 E24 G21 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:669&r=ban |
| By: | Hombert, Johan; Fraisse, Henri; Lé, Mathias |
| Abstract: | We study the effect of a merger between two large banks on credit market competition. We identify the competitive effect of the merger using matched loan-level and firm-level data and exploiting variation in the merging banks' market overlap across local lending markets. On the credit market side, we find a reduction in lending, in particular through termination of relationships. In the average market, bank credit decreases by 2.7%. On the real side, firm exit increases by 4%, whereas firms that do not exit and firms that start up experience no adverse real effect on investment and employment. |
| Keywords: | Bank megamerger; Banking competition; Credit Supply; Merger |
| JEL: | G21 L13 |
| Date: | 2017–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:heccah:1146&r=ban |
| By: | Jessica Foo; Lek-Heng Lim; Ken Sze-Wai Wong |
| Abstract: | Peer-to-peer (P2P) lending is a fast growing financial technology (FinTech) trend that is displacing traditional retail banking. Studies on P2P lending have focused on predicting individual interest rates or default probabilities. However, the relationship between aggregated P2P interest rates and the general economy will be of interest to investors and borrowers as the P2P credit market matures. We show that the variation in P2P interest rates across grade types are determined by three macroeconomic latent factors formed by Canonical Correlation Analysis (CCA) - macro default, investor uncertainty, and the fundamental value of the market. However, the variation in P2P interest rates across term types cannot be explained by the general economy. |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1710.11283&r=ban |
| By: | Yu Awaya; Hiroki Fukai; Makoto Watanabe |
| Abstract: | This paper presents a simple equilibrium model in which collateralized credit emerges endogenously. Just like in repos, individuals cannot commit to the use of collateral as a guarantee of repayment, and both lenders and borrowers have incentives to renege. Our theory provides a micro-foundation to justify the borrowing constraints that are widely used in the existing macroeconomic models. We provide an explanation to the question of why assets are often used as collateral, rather than simply as a means of payment, why there is a tradeoff in assets between return and liquidity, and what kinds of assets are useful as collateral. |
| Keywords: | collateral, search, medium of exchange, voluntary separable repeated game |
| JEL: | E30 E50 C73 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6731&r=ban |
| By: | Tarishi Matsuoka; Makoto Watanabe |
| Abstract: | This paper studies banks’ liquidity provision in the Lagos and Wright model of monetary exchanges. With aggregate uncertainty we show that banks sometimes exhaust their cash reserves and fail to satisfy their depositors’ need of consumption smoothing. The banking panics can be eliminated by the zero-interest policy for the perfect risk sharing, but the first best can be achieved only at the Friedman rule. In our monetary equilibrium, the probability of banking panics is endogenous and increases with inflation, as is consistent with empirical evidence. The model derives a rich array of non-trivial effects of inflation on the equilibrium deposit and the bank’s portfolio. |
| Keywords: | money search, monetary equilibrium, banking panic, liquidity |
| JEL: | E40 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6722&r=ban |
| By: | Beccalli, Elena; Frantz, Pascal |
| Abstract: | This study investigates the likelihood of takeovers or recapitalizations for EU listed banks before and during the financial, using both static and sequential multinomial logistic models. Takeovers and recapitalizations are potential alternatives used to shore up financial institutions. We find that takeovers occur when the bank has low net interest margins. Instead, private recapitalizations occur for banks with lower equity, higher net interest margins, and positive growth at the bank level. Public recapitalizations occur for larger, less liquid banks with positive prospects that operate in bigger banking systems. Both types of recapitalizations occur in countries with lower growth. The determinants for takeovers and recapitalization differ between the pre-crisis and crisis periods. Overall, a need for corporate control exists when traditional banking suffers lower performance, whereas the search for stability explains recapitalizations. |
| Keywords: | banking; recapitalizations; takeovers; EU |
| JEL: | G21 G34 |
| Date: | 2016–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:67305&r=ban |
| By: | Jean-Marc Bottazzi; Mario R. Pascoa; Guillermo Ramirez |
| Abstract: | Variations in repo haircuts play a crucial role in leveraging (or deleveraging) in security markets, as observed in the two major economic events that happened so far in this century, the US housing bubble that burst into the great recession and the European sovereign debts episode. Repo trades are secured but recourse loans. Default triggers insolvency. Collateral may be temporarily exempt from automatic stay but creditors' final reimbursement depends on the bankruptcy outcome. We show examples of bankruptcy equilibria. We infer how haircuts are related to asset or counterparty risks whenever a bankruptcy equilibrium exists. JEL codes: |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:unl:unlfep:wp615&r=ban |
| By: | Faia, Ester; Ottaviano, Gianmarco I. P. |
| Abstract: | Direct involvement of global banks in local retail activities can reduce risk-taking by promoting local competition. We develop this argument through a model in which multinational banks operate simultaneously in different countries with direct involvement in imperfectly competitive local deposit and loan markets. The model generates predictions that are consistent with the foregoing argument as long as the expansionary impact of competition on multinational banks’ aggregate profits through larger scale is strong enough to offset its parallel contractionary impact through lower loan-deposit return margin (a result valid with both perfectly and imperfectly correlated loans’ risk). When this is the case, banking globalization also moderates the credit crunch following a deterioration in the investment climate. Compared with multinational banking, the beneficial effect of cross-border lending on risk-taking is weaker. |
| Keywords: | global bank; oligopoly; oligopsony; endogenous risk taking; expectation of rents; extraction; appetite for leverage |
| JEL: | G32 F3 G3 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:83601&r=ban |
| By: | João Barata R B Barroso; Rodrigo Barbone Gonzalez; Bernardus F Nazar Van Doornik |
| Abstract: | This paper estimates the impact of reserve requirements (RR) on credit supply in Brazil, exploring a large loan-level dataset. We use a difference-in-difference strategy, first in a long panel, then in a cross-section. In the first case, we estimate the average effect on credit supply of several changes in RR from 2008 to 2015 using a macroprudential policy index. In the second, we use the bank-specific regulatory change to estimate credit supply responses from (1) a countercyclical easing policy implemented to alleviate a credit crunch in the aftermath of the 2008 global crisis; and (2) from its related tightening. We find evidence of a lending channel where more liquid banks mitigate RR policy. Exploring the two phases of countercyclical policy, we find that the easing impacted the lending channel on average two times more than the tightening. Foreign and small banks mitigate these effects. Finally, banks are prone to lend less to riskier firms. |
| Keywords: | reserve requirement, credit supply, capital ratio, liquidity ratio, macroprudential policy |
| JEL: | E51 E52 E58 G21 G28 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:674&r=ban |
| By: | Crosignani, Matteo (Federal Reserve Board); Faria-e-Castro, Miguel (Federal Reserve Bank of St. Louis); Fonseca, Luis (London Business School) |
| Abstract: | We study the design of lender of last resort interventions and show that the provision of long-term liquidity incentivizes purchases of high-yield short-term securities by banks. Using a unique security-level data set, we find that the European Central Bank's three-year Long-Term Refinancing Operation caused Portuguese banks to purchase short-term domestic government bonds that could be pledged to obtain central bank liquidity. This "collateral trade" effect is large, as banks purchased short-term bonds equivalent to 10.6% of amounts outstanding. The steepening of peripheral sovereign yield curves after the policy announcement is consistent with the equilibrium effects of the collateral trade. |
| Keywords: | Lender of Last Resort; Unconventional Monetary Policy; Collateral; Sovereign Debt; Eurozone Crisis |
| JEL: | E58 G21 G28 H63 |
| Date: | 2017–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2017-039&r=ban |
| By: | Giannetti, Mariassunta; Saidi, Farzad |
| Abstract: | We conjecture that lenders' decisions to provide liquidity are affected by the extent to which they internalize negative spillovers. We show that lenders with a large share of loans outstanding in an industry provide liquidity to industries in distress when spillovers are expected to be strong, because fire sales are likely to ensue. Lenders with a large share of outstanding loans also provide liquidity to customers and suppliers of industries in distress, especially when the disruption of supply chains is expected to be costly. Our results suggest a novel channel explaining why credit concentration may favor financial stability. |
| Keywords: | bank concentration; externalities; fire sales; Supply Chains; syndicated loans |
| JEL: | E23 E32 E44 G20 G21 L14 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12423&r=ban |
| By: | Adrian, Tobias |
| Abstract: | The evolution of risk management has resulted from the interplay of financial crises, risk management practices, and regulatory actions. In the 1970s, research lay the intellectual foundations for the risk management practices that were systematically implemented in the 1980s as bond trading revolutionized Wall Street. Quants developed dynamic hedging, Value-at-Risk, and credit risk models based on the insights of financial economics. In parallel, the Basel I framework created a level playing field among banks across countries. Following the 1987 stock market crash, the near failure of Salomon Brothers, and the failure of Drexel Burnham Lambert, in 1996 the Basel Committee on Banking Supervision published the Market Risk Amendment to the Basel I Capital Accord; the amendment went into effect in 1998. It led to a migration of bank risk management practices toward market risk regulations. The framework was further developed in the Basel II Accord, which, however, from the very beginning, was labeled as being procyclical due to the reliance of capital requirements on contemporaneous volatility estimates. Indeed, the failure to measure and manage risk adequately can be viewed as a key contributor to the 2008 global financial crisis. Subsequent innovations in risk management practices have been dominated by regulatory innovations, including capital and liquidity stress testing, macroprudential surcharges, resolution regimes, and countercyclical capital requirements. |
| Keywords: | Banking; Financial crises; regulation; Risk management |
| JEL: | G00 G01 G21 G24 G28 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12422&r=ban |
| By: | Anson, Mike; Bhola, David; Kang, Miao; Thomas, Ryland |
| Abstract: | We use daily transactional ledger data from the Bank of England's Archive to test whether and to what extent the Bank of England during the mid-nineteenth century adhered to Walter Bagehot's rule that a central bank in a financial crisis should lend cash freely at a high interest rate in exchange for "good" securities. The archival data we use provides granular, loan-level insight on the price and quantity of credit, and information on its distribution to particular counterparties. We find that the Bank's behaviour during this period broadly conforms to Bagehot's rule, though with variation across the crises of 1847, 1857 and 1866. Using a new, higher frequency series on the Bank's balance sheet, we find that the Bank did lend freely, with the number of discounts and advances increasing during crises. These loans were typically granted at a rate above pre-crisis levels and, in 1857 and 1866, typically at a spread above Bank Rate, though we also find some instances in the daily discount ledgers where individual loans were made below Bank rate in 1847. Another set of customer ledgers shows that the securities the Bank purchased were debts owed by a geographically and industrially diverse set of debtors. And using new data on the Bank's income and dividends, we find the Bank and its shareholders profited from lender of last resort operations. We conclude our paper by relating our findings to contemporary debates including those regarding the provision of emergency liquidity to shadow banks. |
| Keywords: | Bank of England,lender of last resort,financial crises,financial history,central banking |
| JEL: | E58 G01 G18 G20 H12 N2 N4 N8 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eabhps:1703&r=ban |
| By: | Ogura, Yoshiaki |
| Abstract: | We examine the significance of the distortionary effect of the collateral requirement to investments in assets pledgeable for collateral by small and medium-sized enterprises (SMEs). The theory predicts that the binding collateral constraint causes over-investment if the price of pledgeable assets is expected to go up steeply while it causes under-investment otherwise. Our structural estimation of the Euler equation under a collateral constraint using the dataset on Japanese SMEs in the 1980s and 1990s shows that the collateral constraint is binding when the price of a pledgeable asset is declining, whereas it is not when the price is increasing. This finding indicates that the binding collateral constraint causes mainly the problem of under-investment for many SMEs in a recession and casts doubt on the welfare effect of the loan-to-value (LTV) ratio cap as a macroprudence policy. |
| Keywords: | collateral constraint, investment, small and medium-sized enterprises, real estate price, loan-to-value ratio |
| JEL: | E22 G31 R30 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:hit:remfce:73&r=ban |
| By: | Ralph Chami; Thomas F. Cosimano; Emanuel Kopp; Celine Rochon |
| Abstract: | This paper compares the current regulatory capital requirements under the Dodd-Frank Act (DFA) and the 10-percent leverage ratio, as proposed by the U.S. Treasury and the U.S. House of Representatives' Financial CHOICE Act (FCA). We find that the majority of U.S. banks would not qualify for an "off-ramp"option—where regulatory relief is offered to FCA qualifying banks (QBOs)—unless considerable amounts of capital are added, and that large banks are much closer to the proposed leverage threshold and, therefore, are more likely to stand to gain from regulatory relief. The paper identifies an important moral hazard problem that arises due to the QBO optionality, where banks are likely to increase the riskiness of their asset portfolio and qualify for the FCA “off-ramp” relief with unintended effects on financial stability. |
| Date: | 2017–08–04 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:17/181&r=ban |
| By: | João Barata R. B. Barroso; Rodrigo Barbone Gonzalez; Bernardus F. Nazar Van Doornik |
| Abstract: | This paper estimates the impact of reserve requirements (RR) on credit supply in Brazil, exploring a large dataset with several policy shocks. We use a difference-in-difference strategy; first in a long panel, then in a cross-section exploring the effects of changes in RR on credit. In the first case, we average several RR changes from 2008 to 2015 using a macroprudential policy index. In the second, we use the bank-specific regulatory change to estimate credit supply responses from (1) a countercyclical easing policy implemented to alleviate a credit crunch in the aftermath of the 2008 global crisis; and (2) from its related tightening. We find evidence of a lending channel where more liquid banks mitigate RR policy. Exploring the two phases of countercyclical policy, we find that the easing impacted the lending channel on average two times more than the tightening. Foreign and small banks mitigate theses effects |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:467&r=ban |
| By: | Horacio A Aguirre; Gastón Repetto |
| Abstract: | We aim to assess the impact of capital- and currency-based macroprudential policy measures on credit growth at the bank-firm level, using credit registry data from Argentina. We examine the impact of the introduction and tightening of a capital buffer and a limit on the foreign currency position of financial institutions on credit growth of firms, estimating fixed effects and difference-in-difference models for the period 2009-2014; we control for macroeconomic, financial institutions and firms' variables, both observable and unobservable. We find that: the capital buffer and the limits on foreign currency positions generally contribute to moderating the credit cycle, both when introduced and when tightened; the currency-based measure appears to have a quantitatively more important impact; both measures operate on the extensive and the intensive margins, and have an impact on credit supply. Macroprudential policies also have an effect on ex post credit quality: growth of non-performing loans is reduced after their implementation. In general, credit granted by banks with more capital and assets evidences a higher impact of the introduction of the capital buffer, while this measure also acts more strongly during economic activity expansions. |
| Keywords: | macroprudential policy, credit registry data, panel data models |
| JEL: | E58 G28 C33 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:672&r=ban |
| By: | Bremus, Franziska; Neugebauer, Katja |
| Abstract: | This paper investigates how the withdrawal of banks from their cross-border business impacted the borrowing costs of European firms since the crisis. We combine aggregate information on total and cross-border credit with firm-level survey data for the period 2010 - 2014. We find that the decline in cross-border lending led to a deterioration in the borrowing conditions of small firms. In countries with more pronounced reductions in cross-border credit inflows, the likelihood of a rise in firms’ external financing costs increased. This result is mainly driven by the interbank channel, which plays a crucial role in transmitting shocks to the real sector across borders. |
| Keywords: | international banking; firm finance; credit constraints |
| JEL: | F34 F36 G15 G21 |
| Date: | 2018–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:84298&r=ban |
| By: | Jaremski, Matthew (Colgate University); Wheelock, David C. (Federal Reserve Bank of St. Louis) |
| Abstract: | Bank lending booms and asset price booms are often intertwined. Although a fundamental shock might trigger an asset boom, aggressive lending can push asset prices higher, leading to more lending, and so on. Such a dynamic seems to have characterized the agricultural land boom surrounding World War I. This paper examines i) how banks responded to the asset price boom and how they were affected by the bust; ii) how various banking regulations and policies influenced those effects; and iii) how bank lending contributed to rising farm land values in the boom, and how bank closures contributed to falling prices in the bust. We find that rising crop prices encouraged bank entry and balance sheet expansion in agriculture counties. State deposit insurance systems amplified the impact of rising crop prices on the size and risk of bank portfolios, while higher minimum capital requirements dampened the effects. Further, increases in county farm land values and mortgage debt were correlated with the number of local banks ex ante and increases in bank loans during the boom. When farm land prices collapsed, banks that had responded most aggressively to the asset boom had a higher probability of closing, while counties with more bank closures experienced larger declines in land prices than can be explained by falling crop prices alone. |
| Keywords: | Asset booms and busts; banks; bank lending; bank entry; bank closure; deposit insurance; regulation |
| JEL: | E58 N21 N22 |
| Date: | 2017–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2017-036&r=ban |
| By: | Leitner, Yaron (Federal Reserve Bank of Philadelphia); Williams, Basil (New York University) |
| Abstract: | Conventional wisdom holds that the models used to stress test banks should be kept secret to prevent gaming. We show instead that secrecy can be suboptimal, because although it deters gaming, it may also deter socially desirable investment. When the regulator can choose the minimum standard for passing the test, we show that secrecy is suboptimal if the regulator is sufficiently uncertain regarding bank characteristics. When failing the bank is socially costly, then under some conditions, secrecy is suboptimal when the bank's private cost of failure is either sufficiently high or sufficiently low. |
| Keywords: | stress tests; information disclosure; delegation; bank incentives; Fed models |
| JEL: | D82 G01 |
| Date: | 2017–11–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:17-41&r=ban |
| By: | Gandy, Axel; Veraart, Luitgard A. M. |
| Abstract: | We develop a Bayesian methodology for systemic risk assessment in financial networks such as the interbank market. Nodes represent participants in the network and weighted directed edges represent liabilities. Often, for every participant, only the total liabilities and total assets within this network are observable. However, systemic risk assessment needs the individual liabilities. We propose a model for the individual liabilities, which, following a Bayesian approach, we then condition on the observed total liabilities and assets and, potentially, on certain observed individual liabilities. We construct a Gibbs sampler to generate samples from this conditional distribution. These samples can be used in stress testing, giving probabilities for the outcomes of interest. As one application we derive default probabilities of individual banks and discuss their sensitivity with respect to prior information included to model the network. An R-package implementing the methodology is provided. |
| Keywords: | Financial network; unknown interbank liabilities; systemic risk; Bayes; MCMC; Gibbs sampler; power law |
| JEL: | F3 G3 |
| Date: | 2016–10–06 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:66312&r=ban |
| By: | Sonali Das |
| Abstract: | This paper analyzes how the leverage of financial institutions affects their demand for assets and the resulting value of transactions between financial institutions. The results show a positive relationship between buyer capital and the likelihood of buying assets, and between buyer capital and the value of the deal. That is, those institutions that are the least constrained in their ability to raise funding are those that demand assets and pay more for them. This result does not hold, however, for deposit-taking institutions that had access to several government programs designed to improve their liquidity position during the crisis of 2008. |
| Keywords: | Financial crises;Asset sales; financial intermediaries; balance sheets; leverage, Asset sales, financial intermediaries, balance sheets, leverage, Government Policy and Regulation |
| Date: | 2017–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:17/200&r=ban |
| By: | Francesco Marchionne (Indiana University); Beniamino Pisicoli (University of Bari, Dipartimento di Scienze Economiche e Metodi Matematici); Michele Fratianni (Indiana University, Universita' Politecnica delle Marche) |
| Abstract: | To reconcile the mixed results emerging from the empirical literature, we first develop a theoretical model whose main implication is a concave impact of regulation on the probability of a crisis, and then we test this relationship by applying a Probit model of a non-linear specification to annual data from 1999 to 2011 drawn from 132 countries. Our key inference is that the probability of a financial crisis fits an inverted U-shaped curve: it rises as regulation stringency moves from low to medium levels and falls from medium to high levels. Countries located at the intermediate level of regulatory stringency face more financial instability than countries that are either loosely or severely regulated. We identify the latter two groups as falling in "liberalization traps". Institutional quality interacts significantly with the regulatory environment, implying trade-offs between regulatory stringency and institutional quality. |
| Keywords: | crisis, banks, institutions, liberalization, regulation |
| JEL: | G01 G21 G28 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wmofir:143&r=ban |
| By: | Stijn Claessens; M. Ayhan Kose |
| Abstract: | This paper surveys the theoretical and empirical literature on the macroeconomic implications of financial imperfections. It focuses on two major channels through which financial imperfections can affect macroeconomic outcomes. The first channel, which operates through the demand side of finance and is captured by financial accelerator-type mechanisms, describes how changes in borrowers’ balance sheets can affect their access to finance and thereby amplify and propagate economic and financial shocks. The second channel, which is associated with the supply side of finance, emphasises the implications of changes in financial intermediaries’ balance sheets for the supply of credit, liquidity and asset prices, and, consequently, for macroeconomic outcomes. These channels have been shown to be important in explaining the linkages between the real economy and the financial sector. That said, many questions remain. |
| Keywords: | Asset prices, balance sheets, credit, financial accelerator, financial intermediation, financial linkages, international linkages, leverage, liquidity, macro-financial linkages, output, real-financial linkages. |
| JEL: | D53 E21 E32 E44 E51 F36 F44 G01 G10 G12 G14 G15 G21 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2017-75&r=ban |
| By: | Avdjiev, Stefan; Bogdanova, Bilyana; Bolton, Patrick; Jiang, Wei; Kartasheva, Anastasia |
| Abstract: | The promise of contingent convertible capital securities (CoCos) as a 'bail-in' solution has been the subject of considerable theoretical analysis and debate, but little is known about their effects in practice. In this paper, we undertake the first comprehensive empirical analysis of bank CoCo issues, a market segment that comprises over 730 instruments totaling $521 billion. Four main findings emerge: 1) The propensity to issue a CoCo is higher for larger and better-capitalized banks; 2) CoCo issues result in a statistically significant decline in issuers' CDS spread, indicating that they generate risk-reduction benefits and lower costs of debt. This is especially true for CoCos that: i) convert into equity, ii) have mechanical triggers, iii) are classified as Additional Tier 1 instruments; 3) CoCos with only discretionary triggers do not have a significant impact on CDS spreads; 4) CoCo issues have no statistically significant impact on stock prices, except for principal write-down CoCos with a high trigger level, which have a positive effect. |
| Keywords: | Contingent convertible capital securities; Bail-in |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12418&r=ban |
| By: | Scott, Susan V.; Van Reenen, John; Zachariadis, Markos |
| Abstract: | We examine the impact on bank performance of the adoption of SWIFT, a network-based technological infrastructure for worldwide interbank telecommunication. We construct a new longitudinal dataset of 6,848 banks in 29 countries in Europe and the Americas with the full history of adoption since SWIFT’s initial operations in 1977. Our results suggest that the adoption of SWIFT (i) has large effects on profitability in the long-term; (ii) is greater for small than for large banks; and (iii) exhibits significant network effects on performance. We use an in-depth field study to better understand the mechanisms underlying the effects on profitability. |
| Keywords: | Technology adoption; bank performance; financial services; network innovation; SWIFT |
| JEL: | F3 G3 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:83641&r=ban |