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on Banking |
| By: | de Roure, Calebe; Pelizzon, Loriana; Thakor, Anjan V. |
| Abstract: | We develop a simple theoretical model to motivate testable hypotheses about how peer-to-peer (P2P) platforms compete with banks for loans. The model predicts that (i) P2P lending grows when some banks are faced with exogenously higher regulatory costs; (ii) P2P loans are riskier than bank loans; and (iii) the risk-adjusted interest rates on P2P loans are lower than those on bank loans. We confront these predictions with data on P2P lending and the consumer bank credit market in Germany and find empirical support. Overall, our analysis indicates the P2P lenders are bottom fishing when regulatory shocks create a competitive disadvantage for some banks. |
| Keywords: | P2P lending,bank lending,competition |
| JEL: | G21 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:206&r=ban |
| By: | Colonnello, Stefano; Koetter, Michael; Wagner, Konstantin |
| Abstract: | We study if the regulation of bank executive compensation has unintended consequences. Based on novel data on CEO and non-CEO executives in EU banking, we show that capping the variable-to-fixed compensation ratio did not induce executives to abandon the industry. Banks indemnified executives sufficiently for the shock to retain them by raising fixed and lowering variable compensation while complying with the cap. At the same time, banks' risk-adjusted performance deteriorated due to increased idiosyncratic risk. Collateral damage for the financial system as a whole appears modest though, as average co-movement of banks with the market declined under the cap. |
| Keywords: | banks,bonus cap,executive compensation,executive turnover |
| JEL: | G21 G32 G34 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:72018&r=ban |
| By: | Fabio Di Vittorio; Delong Li; Hanlei Yun |
| Abstract: | The paper focuses on the impact of diversification on bank performance and how consolidation through mergers and acquisitions (M&A) affects the banking sector’s stability in the Eastern Caribbean Currency Union (ECCU). The paper finds that a lower level of loan portfolio diversification explains higher non-performing loans and earnings volatility of indigenous banks, as compared to foreign competitors in the ECCU. We then simulate bank mergers both within and across ECCU countries by combining individual banks’ balance sheets. The simulation shows that a typical indigenous bank could better diversify against its idiosyncratic risk by merging with other banks across the border. In addition, we point out that M&A, leading to a more asymmetric banking sector, may increase systemic risk. |
| Date: | 2018–04–24 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:18/92&r=ban |
| By: | Mark Paddrik (Office of Financial ResearchAuthor-Name: Haelim Park; Office of Financial Research); Jessie Jiaxu Wang (Arizona State University) |
| Abstract: | The reserve requirements established by the National Banking Acts (NBAs) dictated the amounts and locations of interbank deposits, thereby reshaping the structure of U.S. bank networks. Using unique data on bank balance sheets, along with detailed interbank deposits in 1862 and 1867 in Pennsylvania, we study how the NBAs changed the bank network structure. Further, we quantify the effect on financial stability in a model of interbank networks with liquidity withdrawal. We find that the NBAs led to a concentration of interbank deposits at both the city and the bank level, creating systemically important banks in major financial centers. Our quantitative results show that the newly emerged system was "robust-yet-fragile" -- while the concentration of linkages made the system more resilient in general, it increased the likelihood of contagion when financial center banks faced large shocks. |
| Keywords: | Bank networks, financial interconnectedness, systemic risk, contagion, liquidity withdrawal, the National Banking Acts |
| Date: | 2016–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:ofr:wpaper:16-13&r=ban |
| By: | Okahara, Naoto |
| Abstract: | This study proposes a model that analyzes the interaction between a bank and its creditors. The bank uses short-term wholesale funding and the creditors decide whether to roll over their loan by using information about the bank. The model shows that, when the creditors become more reluctant to roll over their loans since the bank heavily depends on such a debt, the bank does not issue the short-term debt excessively and its privately optimal amount of the debt in this situation corresponds to the socially desirable one. This implies that a regulation requiring banks to disclose information about their capital structures can by itself contribute to stabilizing the financial system. However, the model also shows that in order to ensure the result we need an additional regulation that bridges the information gap between banks and creditors |
| Keywords: | Short-term debt, Rollover risk, Macroprudential, Fire sales |
| JEL: | D80 E50 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:86409&r=ban |
| By: | Simplice Asongu (Yaoundé/Cameroun); Nicholas Odhiambo (Pretoria, South Africa) |
| Abstract: | The Quiet Life Hypothesis (QLH) is the pursuit of less efficiency by firms. In this study, we assess if powerful banks in the African banking industry are increasing financial access. The QLH is therefore consistent with the pursuit of financial intermediation inefficiency by large banks. To investigate the hypothesis, we first estimate the Lerner index. Then, using Two Stage Least Squares, we assess the effect of the Lerner index on financial access proxied by loan price and loan quantity. The empirical evidence is based on a panel of 162 banks from 42 African countries for the period 2001-2011. The findings support the QLH, although quiet life is driven by the below-median Lerner index sub-sample. Policy implications are discussed. |
| Keywords: | Financial access; Bank performance; Africa |
| JEL: | D40 G20 G29 L10 O55 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:18/015&r=ban |
| By: | Cindy M. Vojtech (Federal Reserve Board); Benjamin S. Kay (Office of Financial Research); John C. Driscoll (Federal Reserve Board) |
| Abstract: | Bank loan underwriting standards are key determinants of credit availability. To better understand what happens when bank loan officers change standards, we match responses from the Federal Reserve’s Senior Loan Officer Opinion Survey (SLOOS) with mortgage application information from the Home Mortgage Disclosure Act (HMDA)over the period from 1990 to 2013. HMDA data contain both accepted and denied applications, allowing us to observe changes in denial rates when loan officers report changing standards. Reports of tightened standards are associated with an increase of about 1 percentage point in denial rates (conditioning on changes in macroeconomic conditions and borrower credit quality), implying a reduction in aggregate mortgage credit of about $690 million per quarter. Reports of easing standards, though less frequent over that period, are associated with a 1 percentage point decline in denial rates. Denial rate changes are larger for banks that hold most of their mortgages on portfolio (rather than securitizing them). Tighter standards are associated with about 16 percent fewer high interest rate loans (a proxy for riskier loans). Applications rise at banks that report strengthening demand for mortgage loans. Metropolitan statistical areas (MSAs) that have more exposure to SLOOS banks that have tightened standards have much lower delinquency rates two years following the tightening — suggesting that standards are an important determinant of the credit quality of bank loan portfolios. House prices also fall in MSAs that have exposure to SLOOS banks that report tightening. |
| Keywords: | underwriting standards, home mortgage disclosure act (hmda), senior loan officer opinion survey (sloos) |
| Date: | 2016–05–11 |
| URL: | http://d.repec.org/n?u=RePEc:ofr:wpaper:16-05&r=ban |
| By: | Tursoy, Turgut |
| Abstract: | This paper covers the latest amendments proposed by the Basel Committee for managing the banking risks through the process of risk management. All the necessary steps in the process are explained in this paper to explain why banks need to have the BIS application to cover any losses from their activities. In summary, as a result of the latest crises, the Basel Committee has developed a new model for covering the shortage of liquidity at the bank level in order to improve their situation to well-performing levels. The main findings in this paper are that as a monetary authority, the support and development of the Basel applications in the banking industry is the most effective option and is a critical necessity for internationally serving banks around the world to continue their activities in a healthy manner. |
| Keywords: | Risk Management, Basel, BIS |
| JEL: | G21 |
| Date: | 2018–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:86427&r=ban |
| By: | Jill Cetina (Office of Financial Research); Bert Loudis (Office of Financial Research); Charles Taylor (Office of Financial Research) |
| Abstract: | The Basel III banking accord introduced the concept of capital buffers -- extra capital cushions on top of regulatory capital minimums -- to absorb unexpected shocks. These buffer requirements are now phasing in for U.S. banks. Federal Reserve officials are considering including these buffers in bank stress tests. With such a change, some banks will need to hold more capital to pass stress tests. However, another potential change would permit banks to use static balance sheets (that is, balance sheets unchanged from the prior period) in stress tests, which could make the tests less effective. |
| Keywords: | Basel III, stress tests, regulatory capital minimums, CCAR, static balance sheets |
| Date: | 2017–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:ofr:briefs:17-02&r=ban |
| By: | Kenechukwu Anadu (Federal Reserve Bank of Boston); Viktoria Baklanova (Office of Financial Research) |
| Abstract: | The most recent changes to money market fund regulations have had a strong impact on the money fund industry. In the months leading up to the compliance date of the core provisions of the amended regulations, assets in prime money market funds declined significantly, while those in government funds increased contemporaneously. This reallocation from prime to government funds has contributed to the latter's increased demand for debt issued by the U.S. government and government-sponsored enterprises. The Federal Home Loan Bank (FHLBank) System played a key role in meeting this heightened demand for U.S. government-related assets with increased issuance of short-term debt. The FHLBank System uses the funding obtained from money market funds to provide general liquidity to its members, including the largest U.S. banks. Large U.S. banks' increased borrowings from the FHLBank System are motivated, in large part, by other post-crisis regulations, specifically the liquidity coverage ratio (LCR). The intersection of money market mutual fund reforms and the LCR have contributed to the FHLBanks' increased reliance on short-term funding to finance relatively longer-term assets, primarily collateralized loans to its largest members. This funding model could be vulnerable to "runs" and impact financial markets and financial institutions in ways that are difficult to predict. While a funding run seems unlikely, it is often the violation of commonly held conventions that tend to pose financial stability risks. Indeed, runs on leveraged financial intermediaries engaged in maturity transformation have produced systemic risks issues in the past and are worthy of investigation and continuous monitoring. |
| Keywords: | Federal Home Loan Banks, liquidity coverage ratio, money market mutual funds, short-term funding markets, systemic risk |
| Date: | 2017–10–31 |
| URL: | http://d.repec.org/n?u=RePEc:ofr:wpaper:17-05&r=ban |
| By: | Simona Malovana (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic; Czech National Bank, Na Prikope 28, 115 03 Prague 1, Czech Republic); Dominika Kolcunova (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic; Czech National Bank, Na Prikope 28, 115 03 Prague 1, Czech Republic); Vaclav Broz (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic; Czech National Bank, Na Prikope 28, 115 03 Prague 1, Czech Republic) |
| Abstract: | This paper studies the extent to which monetary policy may affect banks' perception of credit risk and the way banks measure risk under the internal ratings-based approach. Specifically, we analyze the effect of different monetary policy indicators on banks' risk weights for credit risk. We present robust evidence of the existence of the risk-taking channel in the Czech Republic. Further, we show that the recent prolonged period of accommodative monetary policy has been instrumental in establishing this relationship. Finally, we obtain comparable results by extending the analysis to cover all the Visegrad Four countries. The presented findings have important implications for the prudential authority, which should be aware of the possible side-effects of monetary policy on how banks measure risk. |
| Keywords: | Banks, financial stability, internal ratings-based approach, risk-taking channel |
| JEL: | E52 E58 G21 G28 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2018_03&r=ban |
| By: | Meraj Allahrakha (Office of Financial ResearchAuthor-Name: Jill Cetina; Office of Financial Research); Benjamin Munyan (Office of Financial Research) |
| Abstract: | While simpler than risk-based capital requirements, the leverage ratio may encourage bank risktaking. This paper examines the activity of broker-dealers affiliated with bank holding companies (BHCs) and broker-dealers not affiliated with BHCs in the repurchase agreement (repo) market to test whether this may be occurring. Using data on the triparty repo market, the paper arrives at three findings. First, following the 2012 introduction of the supplementary leverage ratio (SLR), broker-dealer affiliates of BHCs decreased their repo borrowing but increased their use of repo backed by more price-volatile collateral. Second, the paper finds that regardless of whether a U.S. BHC-affiliated broker-dealer parent is above or below the SLR requirement, the announcement of the SLR rule has disincentivized those dealers affiliated with BHCs from borrowing in triparty repo. Finally, the paper finds an increase in the number of active nonbankaffiliated dealers in certain asset classes of triparty repo since the 2012 introduction of the supplementary leverage ratio. This suggests risks may be shifting outside the banking sector. |
| Keywords: | Banking, leverage ratio, heightened prudential regulation, repurchase agreement, global systemically important banks |
| Date: | 2016–11–10 |
| URL: | http://d.repec.org/n?u=RePEc:ofr:wpaper:16-11&r=ban |
| By: | Sebnem Kalemli-Ozcan; Luc Laeven; David Moreno |
| Abstract: | We quantify the role of financial factors that have contributed to sluggish investment in Europe in the aftermath of the 2008–2009 crisis. Using a big data approach, we match the firms to their banks based on banking relationships in 8 European countries over time, obtaining over 2 million observations. We document four stylized facts. First, the decline in investment in the aftermath of the crisis can be linked to higher leverage, increased debt service, and having a relationship with a weak bank—once we condition on aggregate demand shocks. Second, the relation between leverage and investment depends on the maturity structure of debt: firms with a higher share of long-term debt have higher investment rates relative to firms with a lower share of long-term debt since the rollover risk for the former is lower and the latter is higher. Third, the negative effect of leverage is more pronounced when firms are linked to weak banks, i.e., banks with high exposure to sovereign risk. Firms with higher shares of short-term debt decrease investment more relative to firms with lower shares of short-term debt even both set of firms linked to weak banks. This result suggests that loan evergreening by weak banks played a limited role in increasing investment. Fourth, the direct negative effect of weak banks on the average firm’s investment disappears once demand shocks are controlled for, although the differential effects with respect to leverage and the maturity of debt remain. |
| JEL: | E22 E32 E44 F34 F36 G32 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24555&r=ban |
| By: | Richard Neuberg (Columbia University); Paul Glasserman (Columbia University); Benjamin Kay (Office of Financial Research); Sriram Rajan (Office of Financial Research) |
| Abstract: | New contract terms for credit default swaps (CDS) on banks were introduced in 2014 to cover losses from government intervention and related bail-in events. For many large European banks, CDS spreads are available under both the old and new contract terms; the difference (or basis) between the two spreads measures the market price of protection against losses from certain government actions to resolve distressed banks. We investigate cross-sectional and time series properties of this basis, relative to each bank's CDS spread. We interpret a general decline in the relative basis as a market price-based signal that governments are less likely to bailout banks in distress, but that banks do not yet have sufficient bail-in debt to protect senior bond holders in case of a credit event. |
| Keywords: | Credit default swaps, banks, government intervention, European Bank Resolution and Recovery Directive |
| Date: | 2016–10–11 |
| URL: | http://d.repec.org/n?u=RePEc:ofr:wpaper:16-10&r=ban |
| By: | Rihem Braham (LAREMFIQ - Laboratory Research for Economy, Management and Quantitative Finance - Institut des Hautes Etudes Commerciales (Université de Sousse), SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon); Lotfi Belkacem (LAREMFIQ - Laboratory Research for Economy, Management and Quantitative Finance - Institut des Hautes Etudes Commerciales (Université de Sousse)); Christian De Peretti (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon, LEO - Laboratoire d'économie d'Orleans - UO - Université d'Orléans - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | In the view of the growing interest in the role of political patronage in banking, several issues are highlighted with regards to performance and behavior of politically connected banks that may differ from their non-connected peers. In this article, the effect of political patronage on bank risk taking is examined by considering the ratio of loan loss reserves as measure of credit risk for a sample of 32 banks in some Middle Eastern and North African MENA countries. In general, we find that the presence of political patronage impact significantly bank risk, both directly and indirectly, consistent with our hypothesis that politically backed banks tend to exploit the moral hazard which, will cause them behave less prudently. |
| Keywords: | political patronage,banks,risk taking,moral hazard,MENA |
| Date: | 2018–04–10 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01762523&r=ban |
| By: | Mark D. Flood (Office of Financial Research); Dror Y. Kenett (Johns Hopkins University); Robin L. Lumsdaine (American University; Office of Financial Research; National Bureau of Economic Research); Jonathan K. Simon (University of Iowa) |
| Abstract: | Large bank holding companies (BHCs) are structured into intricate ownership hierarchies involving hundreds or even thousands of legal entities. Each subsidiary in these hierarchies has its own legal form, assets, liabilities, managerial goals, and supervisory authorities. In the event of BHC default or insolvency, regulators may need to resolve the BHC and its constituent entities. Each entity individually will require some mix of cash infusion, outside purchase, consolidation with other subsidiaries, legal guarantees, and outright dissolution. The subsidiaries are not resolved in isolation, of course, but in the context of resolving the consolidated BHC at the top of the hierarchy. The number, diversity, and distribution of subsidiaries within the hierarchy can therefore significantly ease or complicate the resolution process. We use graph theory to develop a set of related metrics intended to assess the complexity BHC ownership. These proposed metrics focus on the graph quotient relative to certain well identified partitions on the set of subsidiaries, such as charter type and regulatory jurisdiction. The intended measures are mathematically grounded, intuitively sensible, and easy to implement. We illustrate the process with a case study of one large U.S. BHC. |
| Keywords: | Bank holding company, orderly resolution, complexity, graph quotient |
| Date: | 2017–09–29 |
| URL: | http://d.repec.org/n?u=RePEc:ofr:wpaper:17-03&r=ban |
| By: | Paul Glasserman (Office of Financial Research); Qi Wu (Chinese University of Hong Kong) |
| Abstract: | Margin requirements for derivative contracts serve as a buffer against the transmission of losses through the financial system by protecting one party to a contract against default by the other party. However, if margin levels are proportional to volatility, then a spike in volatility leads to potentially destabilizing margin calls in times of market stress. Risk-sensitive margin requirements are thus procyclical in the sense that they amplify shocks. We use a GARCH model of volatility and a combination of theoretical and empirical results to analyze how much higher margin levels need to be to avoid procyclicality while reducing counterparty credit risk. Our analysis compares the tail decay of conditional and unconditional loss distributions to compare stable and risk-sensitive margin requirements. Greater persistence and burstiness in volatility leads to a slower decay in the tail of the unconditional distribution and a higher buffer needed to avoid procyclicality. The tail decay drives other measures of procyclicality as well. Our analysis points to important features of price time series that should inform "anti-procyclicality" measures but are missing from current rules. |
| Keywords: | Margin Requirements, Derivatives Contracts, Margin Calls, Cycles, Volatility, GARCH, Financial Shocks, Transmission of Losses |
| Date: | 2017–02–21 |
| URL: | http://d.repec.org/n?u=RePEc:ofr:wpaper:17-01&r=ban |
| By: | Durán-Vanegas, Juan David |
| Abstract: | This paper analyses the determinants of banking mortgage loan interest rate margins in the Colombian mortgage credit market focusing on the effects of market concentration and using a panel-econometric approach for the period Jan-2003 to Dic-2014. Results imply that interest rate margins are mainly explained by the volatility of long-run interest market rates and negatively associated to the level of market concentration. These findings are consistent with a modified version of the efficient-structure hypothesis which suggests that differences in efficiency create unequal market shares and allow firms to set lower prices. Further evidence is presented by the existence of a long-term relationship between mortgage interest rates and market concentration during the sample period. |
| Keywords: | Interest rate marings; Market structure; Housing finance |
| JEL: | C23 G21 |
| Date: | 2016–06–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:86376&r=ban |
| By: | Karolina Vozkova (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic) |
| Abstract: | This paper contributes to the current literature dealing with the drivers of bank business model changes by analyzing the relationship between fee and commission income share and banks’ performance in terms of profitability, risk and risk-adjusted profitability in the European Union. We apply System Generalized Method of Moments on a unique data set of 329 EU banks in 2005-2014 period. We did not find any diversification benefits by increasing the fee income share based on which we conclude that increase in fee income share observed during last years in EU banks was driven mainly by external factors like increased competition rather than by internal reasons. As expected higher reliance on equity financing and better quality of provided loans enhance banks’ performance. Finally, bank business strategy and macroeconomic factors are crucial in the determination of banks’ performance. |
| Keywords: | bank, fee and commission income, profitability, risk |
| JEL: | C23 G21 L25 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2018_04&r=ban |
| By: | Ricardo Schechtman; Tony Takeda |
| Abstract: | In order to provide higher incentives for loan loss provisions (LLP) of Brazilian banks when bad times were looming ahead, the discretionary excess in loan loss reserves was recognized temporarily as regulatory capital, in a sort of countercyclical policy. This study explores this regulatory change to investigate the capital management incentives of LLP of Brazilian banks. Results show that banks with less regulatory capital increased relatively more discretionary LLP during the regulatory change but not outside it, suggesting that capital management through discretionary LLP was relevant only during that period. On the other hand, banks with less earnings made less discretionary LLP throughout the sample period, suggesting earnings smoothing was relevant during the whole period. Results are robust to different realized and forward loan loss controls, different measures of capital before endogenous items, time-varying capital targets, and to the recognition of possible heterogeneous effects of the global financial crisis across Brazilian banks |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:477&r=ban |
| By: | Yahia Salhi (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon); Pierre-Emmanuel Thérond (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon, Galea & Associés) |
| Abstract: | The recent financial crisis has led the IASB to settle new reporting standards for financial instruments. The extended ability to measure some debt instruments at amortized cost is associated with a new impairment losses mechanism: Expected Credit Losses. The standards set out some disposals based on so-called three-stage provision measures. To implement this insurers are invited to use forward-looking measures of creditworthiness in order to anticipate and provision future deterioration. To do so, the norms explicitly invoke the use of available market information. In this paper, after a brief description of the principles elaborated by IASB for IFRS~9, we investigate a simple yet interesting procedure using credit default swaps (CDS for short) market prices in order to monitor significant changes in credit quality of financial instruments and subsequent credit losses impairment. This methodology is implemented in detail to a real world dataset. Numerical tests are drawn to assess the effectiveness of the procedure especially compared to changes of notation from credit rating agencies. |
| Keywords: | Credit Risk,Default,Detection,Financial Reporting,Impairment,Accounting,IFRS,Insurance,CDS,Expected Credit Losses |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-00927391&r=ban |
| By: | Crespo-Cuaresma, Jesus; Schweinitz, Gregor von; Wendt, Katharina |
| Abstract: | Reserve requirements, as a tool of macroprudential policy, have been increasingly employed since the outbreak of the great financial crisis. We conduct an analysis of the effect of reserve requirements in tranquil and crisis times on credit and GDP growth making use of Bayesian model averaging methods. In terms of credit growth, we can show that initial negative effects of higher reserve requirements (which are often reported in the literature) tend to be short-lived and turn positive in the longer run. In terms of GDP per capita growth, we find on average a negative but not robust effect of regulation in tranquil times, which is only partly offset by a positive but also not robust effect in crisis times. |
| Keywords: | reserve requirements,macroprudential policy,credit growth,economic growth,Bayesian model averaging |
| JEL: | C11 E44 F43 G28 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:82018&r=ban |
| By: | Alberto Montagnoli (Department of Economics, University of Sheffield); Konstantinos Mouratidis (Department of Economics, University of Sheffield); Kemar Whyte (Department of Economics, University of Sheffield) |
| Abstract: | This paper empirically analyses how the capital buyer held by banks behave over the business cycle after financial factors have been accounted for. Using a large panel of banks for the period 2000-2014, we document evidence that capital buyers behave more pro-cyclical than previously found in the literature. Furthermore, we also show that this relationship is more pronounced for large commercial banks where access to capital equity markets and external support (bail-out) is likely to constitute a strong incentive to increase credit exposure and lower capital reserves accordingly. Overall, these results have important implications for the development of macroprudential policy tools for the global financial system. |
| Keywords: | Pro-cyclicality; Capital Buyers; Business Cycle; Financial Cycle; Macropru-dential Policy |
| JEL: | E32 G21 G28 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:shf:wpaper:2018003&r=ban |