|
on Banking |
| By: | Ross Levine; Chen Lin; Zigan Wang; Wensi Xie |
| Abstract: | We evaluate the impact of the credit conditions facing corporations on their emissions of toxic air pollutants. Exploiting cross-county, cross-time shale discoveries that generated liquidity windfalls at local bank branches, we construct measures of (1) the degree to which banks in non-shale counties, i.e., counties where shale was not discovered, receive liquidity shocks through their branches in shale counties and (2) the degree to which a corporation in a non-shale county has a relationship lender that receives liquidity shocks through its branches. From both the county- and firm-level analyses, we discover that positive shocks to credit conditions reduce corporate pollution. |
| JEL: | G21 O16 Q40 Q52 Q53 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24375&r=ban |
| By: | Victor Aguirregabiria (University of Toronto and CEPR); Robert Clark (Queen's University); Hui Wang (Peking University) |
| Abstract: | This paper studies the integration of deposit and loan markets, which may be constrained by the geographic dispersion of depositors, borrowers, and banks. This dispersion results in problems of asymmetric information, monitoring and transaction costs, which in turn may prevent deposits from flowing from areas of low demand for loans to areas of high demand. We provide systematic evidence on the extent to which deposits and loans are geographically imbalanced, and develop a methodology for investigating the contribution of (i) branch networks, (ii) local market power, and (iii) economies of scope to this imbalance using data at the bank-county-year level from the US banking industry for 1998-2010. Our results are based on the construction of an index which measures the geographic imbalance of deposits and loans, and the estimation of a structural model of bank oligopoly competition for deposits and loans in multiple geographic markets. The estimated model shows that a bank's total deposits have a significant effect on the bank's market shares in loan markets. We also find evidence of significant economies of scope between deposits and loans at the local level. Counterfactual experiments show that multi-state branch networks contribute significantly to the geographic flow of credit but benefit especially larger/richer counties. Local market power has a very substantial negative effect on the flow of credit to smaller/poorer counties. |
| Keywords: | Geographic flow of bank funds, Access to credit, Bank oligopoly competition, Branch networks, Economies of scope between deposits and loans |
| JEL: | L13 L51 G21 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1402&r=ban |
| By: | Malgorzata Olszak (Department of Banking and Money Markets, Faculty of Management, University of Warsaw, Poland); Patrycja Chodnicka-Jaworska (Department of Banking and Money Markets, Faculty of Management, University of Warsaw, Poland); Iwona Kowalska (Department of Mathematics and Statistical Methods, Faculty of Management, University of Warsaw, Poland); Filip Œwita³a (Chair of Market Economy, Faculty of Management, University of Warsaw, Poland) |
| Abstract: | This paper examines the impact of bank capital ratios on bank lending by comparing differences in loan growth to differences in capital ratios at sets of banks that are clustered based on loan-loss provisioning practices. Applying fixed-effects estimator to sample of all commercial banks operating in Poland and using a unique quarterly dataset covering the period of 1999:4-2012:4 we find that loans growth is particularly capital constrained in poorly-capitalized banks, during both non-recessionary and recessionary periods. Lending of banks with low procyclicality of loan-loss provisions (LLP) is not affected by capital ratio in recessionary periods. Low-procyclicality of LLPs does not make poorly- capitalized banks’ lending immune to recessionary capital crunch. In contrast to common view, profit stabilizing practices achieved through income-smoothing do not make banks’ lending resilient to capital constraints during recession, as we find that high income-smoothing banks seem to suffer from increased capital pressures in their lending. This effect is also present in well-capitalized banks. The implication of our research is that decision-makers implementing new accounting standards for loan-loss allowance (the Expected Credit Loss approach) may not be effective in reducing procyclicality of capital regulation, if they will attempt to reduce recessionary capital constraints solely through profit-stabilizing income-smoothing. |
| Keywords: | lending, capital ratio, procyclicality, earnings management, income-smoothing, capital management |
| JEL: | G21 G28 G32 M41 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:sgm:fmuwwp:22017&r=ban |
| By: | Panayotis D. Alexakis (National and Kapodistrian University of Athens); Ioannis G. Samantas (National and Kapodistrian University of Athens) |
| Abstract: | The paper examines the nexus of foreign ownership and market power in 26 European banking sectors, for the period 1997-2013. The sample comprises 11,761 bank-year estimates of marginal cost and market power, which are then matched with data on the foreign ownership status and presence across all host countries. The analysis reports strong evidence over the significant effect of well-capitalised foreign-owned banks on their monopolistic conduct. There is also a weaker indication that foreign presence leads to higher margins in large-sized foreign banks in fast-growing economies and markets of stricter regulation on capital, in which foreign penetration lies above 14% of the host banking industry. |
| Keywords: | Market power; European banks; foreign banking; semiparametric modeling |
| JEL: | C14 D40 G2 L40 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:242&r=ban |
| By: | Pietro Alessandrini (Di.S.E.S. - Universita' Politecnica delle Marche); Luca Papi (Di.S.E.S. - Universita' Politecnica delle Marche) |
| Abstract: | In questo lavoro abbiamo preso in esame l'impatto sul sistema bancario italiano della grande crisi finanziaria e della grande innovazione tecnologica, denominata fintech. Ci siamo chiesti se in questo nuovo contesto possono sopravvivere banche locali fortemente radicate nei territori in stretta relazione con le piccole imprese. L'elaborazione di indicatori di bilancio delle diverse tipologie di banche, distinte per dimensione, dimostra che l'impatto della crisi non ha avuto conseguenze peggiori per le banche piu' piccole rispetto alle maggiori. Piu' della crisi, che ha livellato gli indicatori di rischiosita' bancaria, hanno influito in modo discriminante sulle banche locali le politiche di stabilizzazione anti-crisi: la politica monetaria espansiva e la politica di regolamentazione estesa e invasiva. Tutta questa problematica va rivista considerando la grande trasformazione tecnologica i nuovi prodotti e processi dei fintech. , che sono sempre piu' destinati a incidere anche sulle strutture di intermediazione Con le incognite su nuove opportunita' e nuovi rischi che cio' comporta. Verranno messe in discussione sia il concetto di dimensione strutturale sia la concorrenza non solo tra banche, ma anche tra banche e non banche. The paper deals with the impact on the Italian banking system of two epochal factors: the great financial crisis and the big technological innovation with new financial products and processes, denominated fintech. Our main question concerns the bank-firm relations. In particular we are interested on if and how local banks could be still considered important for small and medium enterprises. Using balance sheet indicators, our conclusion is that the negative impact of the crisis has not been different between small and big banks. The riskiness indicators appear to be leveled at the end of the crisis. Rather than the crisis, the expansive monetary policy and the new regulatory system have produced an asymmetric impact that is penalizing local banks. Moreover, the digital transformation of fintech is expected to influence the financial intermediation structure, with new opportunities and new risks. Both issues on bank size and competition must be entirely revisited. |
| Keywords: | financial crisis, local banks, regulation, fintech |
| JEL: | G01 G18 G21 G23 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wmofir:148&r=ban |
| By: | Kristle Cortés; Yuliya Demyanyk; Lei Li; Elena Loutskina; Philip E. Strahan |
| Abstract: | Post-crisis stress tests have altered banks’ credit supply to small business. Banks affected by stress tests reduce credit supply and raise interest rates on small business loans. Banks price the implied increase in capital requirements from stress tests where they have local knowledge, and exit markets where they do not, as quantities fall most in markets where stress-tested banks do not own branches near borrowers, and prices rise mainly where they do. These reductions in supply are concentrated among risky borrowers. Stress tests do not, however, reduce aggregate credit. Small banks increase their share in geographies formerly reliant on stress-tested lenders. |
| JEL: | G2 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24365&r=ban |
| By: | Benetton, Matteo (London School of Economics); Bracke, Philippe (Bank of England); Garbarino, Nicola (Bank of England) |
| Abstract: | We present new evidence that lenders use down payment size to price unobservable borrower risk. We exploit the contractual features of a UK scheme that helps home buyers top up their down payments with equity loans. We find that a 20 percentage point smaller down payment is associated with a 22 basis point higher interest rate at origination, and a higher ex-post default rate. Lenders see down payment as a signal for unobservable risk, but the relative importance of this signal is limited, as it accounts for only 10% of the difference in mortgage rates between loans with 75% and 95% loan to value ratio. |
| Keywords: | Mortgage design; asymmetric information; leverage; housing policy |
| JEL: | G21 R20 R30 |
| Date: | 2018–02–23 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0713&r=ban |
| By: | Serafín Frache (Banco Central del Uruguay y Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Javier García-Cicco (Banco Central de Chile y Universidad Católica Argentina); Jorge Ponce (Banco Central del Uruguay y Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República) |
| Abstract: | We develop a DSGE model for a small, open economy with a banking sector and endogenous default. The model is used to perform a realistic assessment of two macroprudential tools: countercyclical capital buffers (CCB) and dynamic provisions (DP). The model is estimated with data for Uruguay, where dynamic provisioning is in place since early 2000s. In general, while both tools force banks to build buffers, we find that DP seems to outperform the CCB in terms of smoothing the cycle. We also find that the source of the shock affecting the financial system matters to discuss the relative performance of both tools. In particular, given a positive external shock the ratio of credit to GDP decreases, which discourages its use as an indicator variable to activate countercyclical regulation. |
| Keywords: | banking regulation, minimum capital requirement, countercyclical capital buffer, reserve requirement, (countercyclical or dynamic) loan loss provision, endogenous default, Basel III, DSGE, Uruguay |
| JEL: | G21 G28 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:ude:wpaper:0917&r=ban |
| By: | Eugenio M Cerutti; Haonan Zhou |
| Abstract: | This paper analyses the nature of the increasing regionalization process in global banking. Despite the large decline in aggregate cross-border banking lending volumes, some parts of the global banking network are currently more interlinked regionally than before the Global Financial Crisis. After developing a simple theoretical model capturing banks' internationalization decisions, our estimation shows that this regionalization trend is present even after controlling for traditional gravitational variables (e.g. distance, language, legal system, etc.), especially among lenders in EMs and non-core banking systems, such as Australia, Canada, Hong Kong, and Singapore. Moreover, this regionalization trend was present before the GFC, but it has increased since then, and it seems to be associated with regulatory variables and the opportunities created by the retrenchment of several European lenders. |
| Date: | 2018–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:18/46&r=ban |
| By: | Alfaro, Laura; García-Santana, Manuel; Moral-Benito, Enrique |
| Abstract: | We consider the real effects of bank lending shocks and how they permeate the economy through buyer-supplier linkages. We combine administrative data on all firms in Spain with a matched bank-firm-loan dataset on the universe of corporate loans for 2003-2013 to identify bank-specific shocks for each year using methods from the matched employer-employee literature. Combining firm-specific measures of upstream and downstream exposure, we construct firm-specific exogenous credit supply shocks and estimate their direct and indirect effects on real activity. Credit supply shocks have sizable direct and downstream propagation effects on investment and output throughout the period but no significant impact on employment during the expansion period. Downstream propagation effects are comparable or even larger in magnitude than direct effects. The results corroborate the importance of network effects in quantifying the real effects of credit shocks and show that real effects vary during booms and contractions. |
| Keywords: | Bank-Lending Channel; employment; input-output linkages.; investment; matched employer-employee; output |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12794&r=ban |
| By: | Beck, Thorsten; Silva-Buston, Consuelo; Wagner, Wolf |
| Abstract: | We document large variation in the propensity and the intensity in which countries cooperate in the supervision of banks. We show that these variations can be linked to differences in cooperation gains. Using hand-collected data on supranational agreements for 4,278 country pairs during the period 1995-2013, we find that proxies for bilateral cooperation gains a) increase the likelihood of cooperation, b) accelerate the adoption of cooperation, c) make intense forms of cooperation more likely. An analysis of regional cooperation shows that their make-up, as well as their evolution, is broadly consistent with predicted cooperation gains. Our findings suggests that a uniform approach to supranational supervision is not necessarily desirable as countries differ considerably in the extent to which theybenefit from cooperation. |
| Keywords: | Supranational supervisory cooperation; cross-border banking; externalities |
| JEL: | G1 G2 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12764&r=ban |
| By: | Kunovac, Davor; Mandler, Martin; Scharnagl, Michael |
| Abstract: | We study the cross-country dimension of financial cycles for six euro area countries using three different methodologies: principal component analysis, synchronicity and similarity measures and wavelet analysis. We find that equity prices and interest rates display synchronization across countries similar to or exceeding that of real GDP. In contrast, our estimates show much lower cross-country synchronization of credit variables and house prices - bank lending to nonfinancial firms being an exception with relatively large cross-country co-movements. These results are robust across the different estimation methodologies. Concerning time-variation we find evidence for a decline in the extent of co-movements in house prices over time while comovements in the term spread have increased with the introduction of the European monetary union. |
| Keywords: | financial cycles,band-pass filter,principal components,wavelet analysis |
| JEL: | C32 C38 E44 E51 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:042018&r=ban |
| By: | Neumann, Tobias (Bank of England) |
| Abstract: | Default correlation is a key driver of credit risk. In the Basel regulatory framework it is measured by the asset value correlation parameter. Though past studies suggest that the parameter is over-calibrated for mortgages — generally the largest asset class on banks’ balance sheets — they do not take into account bias arising from small samples or non-Gaussian risk factors. Adjusting for these biases using a non-Gaussian, non-linear state space model I find that the Basel calibration is appropriate for UK and US mortgages. This model also forecasts mortgage default rates accurately and parsimoniously. The model generates value-at-risk estimates for future mortgage default rates, which can be used to inform stress-testing and macroprudential policy. |
| Keywords: | Mortgages; bank regulation; credit risk; default correlation; state space model; Basel Committee; stress testing; macroprudential policy |
| JEL: | G11 G17 G21 G28 |
| Date: | 2018–02–09 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0708&r=ban |
| By: | Nicole Jonker |
| Abstract: | Decentralised issued crypto "currencies", like bitcoin, have the potential to drastically change the existing retail payment system and even the monetary system. Insights into the factors that influence their adoption are therefore crucial. Using a large representative sample of retailers that sell their products online, we find that acceptance of crypto payments is currently modest (2%), but there is substantial interest among retailers to adopt crypto payments in the near future. Consumer demand, net transactional benefits and perceived adoption effort influence adoption intention and actual acceptance by retailers. Regarding non-financial factors, our findings suggest that service providers who act as intermediaries between retailers, their customers, and providers of payment instruments play a crucial role as facilitators of competition and innovation in the online retail payments market by lowering such barriers. The most serious barrier for crypto acceptance seems to be a lack of consumer demand. Information from consumers indicate that those who possess cryptos, don't use it for online payments. It seems therefore unlikely that the adoption of cryptos by retailers will increase substantially, making it highly unlikely that cryptos like bitcoin will drastically change the existing retail payment system. |
| Keywords: | bitcoin; cryptocurrency; technology adoption; two-sided markets; retailers; network externalities; cost; facilitating conditions |
| JEL: | D22 E42 G20 O33 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:585&r=ban |
| By: | Vaclav Broz; Lukas Pfeifer; Dominika Kolcunova |
| Abstract: | We analyze the cyclicality of risk weights of banks in the Czech Republic from 2008 to 2016. We differentiate between risk weights under the internal ratings-based and those under the standardized approach, consider both the business cycle and the financial cycle, and employ wavelet coherence as a means of dynamic correlation analysis. Our results indicate that the risk weights of exposures under the internal ratings-based approach, including risk weights related to exposures secured by real estate collateral, are procyclical with respect to the financial cycle. We also show that the effect of changing asset quality on risk weights is present for the internal ratings-based approach, in line with our expectations based on regulatory standards. Our results can be employed for the purposes of decision-making on the activation of supervisory and macroprudential instruments, including the countercyclical capital buffer. |
| Keywords: | Financial cycle, financial stability, internal ratings-based approach, risk weight |
| JEL: | C14 E32 G21 G28 K23 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2017/15&r=ban |
| By: | Emter, Lorenz; Schmitz, Martin; Tirpák, Marcel |
| Abstract: | This paper examines the drivers of the retrenchment in cross-border banking in the European Union (EU) since the global financial crisis, which stands out in international comparison as banks located in the euro area and in the rest of the EU reduced their cross-border claims by around 25%. Particularly striking is the sharp and sustained reduction in intra-EU claims, especially in the form of deleveraging from cross-border interbank loans. Examining a wide range of possible determinants, we identify high non-performing loans as an important impediment to cross-border lending after the crisis, highlighting the spillovers from national banking sector conditions across the EU. We also find evidence that prudential policies can entail spillovers via cross-border banking in the EU, albeit with heterogeneity across instruments in terms of direction, magnitude and significance. Our results do not point to a major role of newly introduced bank levies in explaining cross-border banking developments. JEL Classification: F21, F30, F42, G15, G28 |
| Keywords: | bank levy, cross-border banking, deleveraging, financial integration, international capital flows, prudential policies, regulation |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20182130&r=ban |
| By: | V. Legroux; I. Rahmouni-Rousseau; U. Szczerbowicz; N. Valla |
| Abstract: | The liquidity of financial system plays a central role in systemic crises. In this paper, we show that the ECB haircut policies provided an important liquidity support to distressed financial institutions during the euro area sovereign debt turmoil. Using novel, micro data on the pool of collateral eligible to ECB open market operations, we construct a “public” liquidity mismatch indicator (LMI) for the French aggregate banking sector based on the ECB haircuts. We then compare it to the “private” LMI based on the haircuts in private repo markets in a spirit of Bai et al. (2018). The difference between the two indicators represents a new measure of the ECB liquidity support. Our results suggest that the ECB haircut policies have indeed helped French banks to reduce the liquidity mismatch. |
| Keywords: | Bank liquidity, liquidity mismatch, monetary policy, central bank, haircuts, collateral framework. |
| JEL: | E58 G21 G28 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:667&r=ban |
| By: | Arito Ono, Kosuke Aoki; hinichi Nishioka; Kohei Shintani; Yosuke Yasui |
| Abstract: | Based on a mean-variance model of bank portfolio selection subject to the value-at-risk constraint, we make predictions on transmission channels through which lower long-term interest rates increase bank loan supply: the portfolio balance channel, the bank balance sheet channel, and the risk-taking channel. Using a firm-bank loan-level panel dataset for Japan, we find evidence of the presence of these channels. First, an unanticipated reduction in long-term rates increased bank loan supply. Second, banks that enjoyed larger capital gains on their bond holdings increased loan supply. Further, this effect was stronger for loans to smaller, more leveraged, and less creditworthy firms. |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:tcr:wpaper:e119&r=ban |
| By: | Pierluigi Bologna |
| Abstract: | The aim of this paper is twofold: first, to study the determinants of banks’ net interest margin with a particular focus on the role of maturity transformation, using a new measure of maturity mismatch; second, to analyse the implications for banks from the relaxation of a binding prudential limit on maturity mismatch, in place in Italy until mid-2000s. The results show that maturity transformation is a relevant driver of the net interest margin, as higher maturity transformation is typically associated with higher net interest margin. However, ‘excessive’ maturity transformation— even without leading to systemic vulnerabilities— increases banks’ interest rate risk exposure and lowers their net interest margin. |
| Date: | 2018–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:18/45&r=ban |
| By: | Zineddine Alla; Raphael A Espinoza; Qiaoluan H. Li; Miguel A. Segoviano Basurto |
| Abstract: | We present a novel approach that incorporates individual entity stress testing and losses from systemic risk effects (SE losses) into macroprudential stress testing. SE losses are measured using a reduced-form model to value financial entity assets, conditional on macroeconomic stress and the distress of other entities in the system. This valuation is made possible by a multivariate density which characterizes the asset values of the financial entities making up the system. In this paper this density is estimated using CIMDO, a statistical approach, which infers densities that are consistent with entities’ probabilities of default, which in this case are estimated using market-based data. Hence, SE losses capture the effects of interconnectedness structures that are consistent with markets’ perceptions of risk. We then show how SE losses can be decomposed into the likelihood of distress and the magnitude of losses, thereby quantifying the contribution of specific entities to systemic contagion. To illustrate the approach, we quantify SE losses due to Lehman Brothers’ default. |
| Date: | 2018–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:18/49&r=ban |
| By: | Berninger, M.; Kiesel, F.; Schiereck, D. |
| Abstract: | Financial services providers belong to the most intensively regulated institutions at all, and to be compliant with regulation is a challenging and expensive task for each bank. Recent research indicates that a high geographic proximity to a regulatory supervisor might increase the monitoring intensity and therefore harm the shareholder wealth of monitored institutions. The announced relocation of the European Banking Authority (EBA) from London to Paris offers a natural experiment to test the effect of geographically close regulation on the market value of financial institutions. Our results show that the EBA relocation indeed induced negative abnormal stock returns for French banks. Additionally, we document that this is a bank specific effect. The parallel relocation decision of the European Medicines Agency (EMA) to Amsterdam does not result in abnormal returns of Dutch pharmaceutical corporations. Obviously, a relationship between distance and intensified monitoring exists for banks but not for pharmaceuticals. |
| Date: | 2018–03–22 |
| URL: | http://d.repec.org/n?u=RePEc:dar:wpaper:95382&r=ban |
| By: | Viet-Dung Tran; M. Kabir Hassan; Reza Houston |
| Abstract: | Using a large panel of US BHC over the 2001:Q1-2015:Q4, we investigate the risk-taking behaviors of banks within a comparison perspective – between public and private banks - where there exists substantial differences of asymmetry information and agency problems. We document evidence of greater stability of public banks versus their private peers. However, public banks become riskier than private banks during the last crisis. These findings suggest a mixed evidence of risk-taking mitigating role of listing status. Regulatory pressure is effective in limiting risk taking by undercapitalized public banks before, but not during the crisis, casting doubt the effectiveness of regulators during the turmoil times. Public banks with high franchise value expose to risk less than others during the crisis. Debtholders discipline is ineffective in curbing the risk-taking behavior of banks. Our study is of interest for regulators, policymakers who are in search of improving bank risk-taking behavior. |
| Keywords: | bank listing status; risk taking; crisis; market discipline; regulatory pressure |
| JEL: | G21 G28 G34 G38 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:nfi:nfiwps:2018-wp-03&r=ban |
| By: | Chakraborty, Chiranjit (Bank of England); Gimpelewicz, Mariana (Bank of England); Uluc, Arzu (Bank of England) |
| Abstract: | Following the global financial crisis, macroprudential regulators in a number of countries took actions to mitigate risks arising from stressed mortgage markets to financial and economic stability. Having disaggregated information on the stock of mortgages allows policymakers to analyse particular cohorts of the market that may be more vulnerable to stress, and model how these cohorts may evolve in the future and might affect the outlook for financial and economic stability. To this end, we produce the first ever estimate of the current stock of all regulated UK mortgages at the level of individual loans using data from the flow of new mortgages. We use loan-level information of 14 million UK mortgages at the point each loan was originated or re-mortgaged. Using a series of algorithms from Computer Science, we identify individual loans in the flow of lending that are likely to be still in the stock at different points in time. Then we estimate how key characteristics of mortgages (including borrower incomes, house prices and outstanding loan amounts) are likely to have evolved over time since origination. We validate our overall model by comparing key variables to information available from other sources that provide partial characteristics of the stock, including household surveys and regulatory returns. Our stock estimate suggests that there may have been more vulnerable borrowers in recent years than household surveys suggest. Finally, we illustrate the type of cohort analysis that can be done using the loan-level estimate. |
| Keywords: | Mortgage market; housing market; matching; loan-level data; stock model |
| JEL: | D04 E24 G21 R20 R21 R23 R31 |
| Date: | 2017–12–21 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0703&r=ban |
| By: | Oriol Carreras; E Philip Davis; Ian Hurst; Iana Liadze; Rebecca Piggott; James Warren |
| Abstract: | In this paper we incorporate a macroprudential policy model within a semi-structural global macroeconomic model, NiGEM. The existing NiGEM model is expanded for the UK, Germany and Italy to include two macroprudential tools: loan-to-value ratios on mortgage lending and variable bank capital adequacy targets. The former has an effect on the economy via its impact on the housing market while the latter acts on the lending spreads of corporate and households. A systemic risk index that tracks the likelihood of the occurrence of a banking crisis is modelled to establish thresholds at which macroprudential policies should be activated by the authorities. We then show counterfactual scenarios, including a historic dynamic simulation of the subprime crisis and the endogenous response of policy thereto, based on the macroprudential block as well as performing a cost-benefit analysis of macroprudential policies. Conclusions are drawn relating to use of this tool for prediction and policy analysis, as well as some of the limitations and potential further research. |
| Keywords: | macroprudential policy, house prices, credit, systemic risk, macroeconomic modelling |
| JEL: | E58 G28 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:490&r=ban |
| By: | Gersbach, Hans; Haller, Hans; Papageorgiou, Stylianos |
| Abstract: | We study competition between governments with regard to capital requirements, bank levies and resolution regimes in a general equilibrium setting. In a two-country model, households can invest both domestically and abroad, with banks acting as intermediaries between households and risky technologies. When competing governments set banking regulation, the mechanism at work is driven by the trade-off between accentuating benefits over costs stemming from banking activities, on the one hand, and enhancing banks' competitiveness, on the other hand. Whether or not regulatory competition yields the efficient allocation of resources and risks crucially depends on whether governments compete with one, two or three policy tools. |
| Keywords: | bank levy; bank resolution; Capital requirements; General Equilibrium; Regulatory competition |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12791&r=ban |
| By: | Dasha Safonova (University of Notre Dame) |
| Abstract: | Shocks to the structure of the interbank lending network can have important macroeconomic repercussions. This paper examines the impact of the dynamic structure of the interbank lending network on interest rates and investment in the nonfinancial sector. By incorporating a network of bank relationships into a general equilibrium model with monetary policy, I show that the aggregate interest rate increases in response to a shock that destroys a large fraction of bank relationships and decreases in response to a shock that destroys a small fraction of relationships. Moreover, the shape of the interbank network matters for these dynamics: the interest rate is least responsive to the network disruptions if the interbank network is scale-free. Additionally, the amplification and propagation of the network shocks depend on the corridor of the policy rates set by the central bank. In particular, as the difference between the discount rate and the excess reserve rate decreases, the effect of a network disruption on interest rates becomes less significant but more persistent, which in turn leads to a smaller but more prolonged effect on the real sector. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:1568&r=ban |
| By: | Xisong Jin |
| Abstract: | In order to effciently capture the contribution to the aggregated systemic risk of each financial institution arising from various important balance-sheet items, this study proposes a comprehensive approach of “Mark-to-Systemic-Risk" to integrate book value data of Luxembourg financial institutions into systemic risk measures. It first characterizes systemic risks and risk spillovers in equity returns for 33 Luxembourg banks, 30 European banking groups, and 232 investment funds.1 The forward-looking systemic risk measures delta CoES, Shapley – delta CoES, SRISK and conditional concentration risk are estimated by using a large-scale dynamic grouped t-copula, and their common components are determined by the generalized dynamic factor model. Several important facts are documented during 2009-2016: (1) Measured by delta CoES of equity returns, Luxembourg banks were more sensitive to the adverse events from investment funds compared to European banking groups, and investment funds were more sensitive to the adverse events from banking groups than from Luxembourg banks. (2) Ranked by Shapley - delta CoES values, money market funds had the highest marginal contribution to the total risk of Luxembourg banks while equity funds exhibited the least share of the risk, and the systemic risk contribution of bond funds, mixed funds and hedge funds became more important toward the end of 2016. (3) The macroeconomic determinants of the aggregate systemic risk of banking groups, Luxembourg banks and investment funds, and the marginal contributions from 15 countries to the aggregate systemic risk of Luxemburg banks and their parent banking groups are all different. |
| Keywords: | _nancial stability; systemic risk; macro-prudential policy; dynamic copulas; value at risk; shapley values; risk spillovers |
| JEL: | C1 E5 F3 G1 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:bcl:bclwop:bclwp118&r=ban |
| By: | Tetsuji Okazaki (Faculty of Economics, University of Tokyo) |
| Abstract: | This paper selectively surveys the literature on the financial history of prewar Japan, focusing on the role of banks in industrial and corporate financing and the characteristics of the industrial organization in the banking sector, and adds some supplementary analyses. The banking sector in prewar Japan is characterized by the multilayered structure and the close relationship between banks and non-financial firms, called “organ bank†relationship. Whereas the organ bank relationship enabled related firms with lower profitability and smaller internal fund to borrow money more easily, it tended to hurt the profitability of banks and stability of the banking system. In the 1920s, when the banking system became unstable, a large wave of bank exits through mergers and closures occurred. Over this exit wave, the organ bank relationship waned through selection of unsound banks and change in the governance structure of banks. Meanwhile, this bank exit wave changed the fund allocation in local financial markets, which in turn affected the local industries. |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:tky:jseres:2015cj281&r=ban |
| By: | Ahnert, Toni; Forbes, Kristin; Friedrich, Christian; Reinhardt, Dennis |
| Abstract: | Can macroprudential foreign exchange (FX) regulations on banks reduce the financial and macroeconomic vulnerabilities created by borrowing in foreign currency? To evaluate the effectiveness and unintended consequences of macroprudential FX regulation, we develop a parsimonious model of bank and market lending in domestic and foreign currency and derive four predictions. We confirm these predictions using a rich dataset of macroprudential FX regulations. These empirical tests show that FX regulations: (1) are effective in terms of reducing borrowing in foreign currency by banks; (2) have the unintended consequence of simultaneously causing firms to increase FX debt issuance; (3) reduce the sensitivity of banks to exchange rate movements, but (4) are less effective at reducing the sensitivity of corporates and the broader financial market to exchange rate movements. As a result, FX regulations on banks appear to be successful in mitigating the vulnerability of banks to exchange rate movements and the global financial cycle, but partially shift the snowbank of FX vulnerability to other sectors. |
| Keywords: | Banking flows; FX regulations; International debt issuance; macroprudential policies |
| JEL: | F32 F34 G15 G21 G28 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12766&r=ban |
| By: | Tomasz R. Bielecki; Igor Cialenco; Shibi Feng |
| Abstract: | We introduce a dynamic model of the default waterfall of derivatives CCPs and propose a risk sensitive method for sizing the initial margin (IM), and the default fund (DF) and its allocation among clearing members. Using a Markovian structure model of joint credit migrations, our evaluation of DF takes into account the joint credit quality of clearing members as they evolve over time. Another important aspect of the proposed methodology is the use of the time consistent dynamic risk measures for computation of IM and DF. We carry out a comprehensive numerical study, where, in particular, we analyze the advantages of the proposed methodology and its comparison with the currently prevailing methods used in industry. |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1803.02012&r=ban |