nep-ban New Economics Papers
on Banking
Issue of 2018‒08‒20
27 papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Market Discipline and Liquidity Risk: Evidence from the Interbank Funds Market By Miguel Sarmiento
  2. When losses turn into loans: the cost of undercapitalized banks By Francisca Rebelo; Laura Blattner; Luísa Farinha
  3. Credit allocation along the business cycle: evidence from the latest boom bust credit cycle in Spain By Roberto Blanco; Noelia Jiménez
  4. CDS Central Counterparty Clearing Liquidation: Road to Recovery or Invitation to Predation? By Magdalena Tywoniuk
  5. The role of contagion in the transmission of financial stress By Herculano, Miguel C.
  6. Government Guarantees and the Valuation of American Banks By Andrew G. Atkeson; Adrien d'Avernas; Andrea L. Eisfeldt; Pierre-Olivier Weill
  7. Bank Bonus Pay as a Risk Sharing Contract By Efing, Matthias; Hau, Harald; Kampkötter, Patrick; Rochet, Jean-Charles
  8. Differences in Efficiency between Banks in Financial Conglomerates and other Banks in the Banking Sectors in Visegrad Countries By Iveta Palečková
  9. The determinants of interest rates in microfinance: age, scale and organisational charter By Nwachukwu, Jacinta; Aziz, Aqsa; Tony-Okeke, Uchenna; Asongu, Simplice
  10. Customer Complaining and Probability of Default in Consumer Credit By Stefano Cosma; Francesca Pancotto; Paola Vezzani
  11. Stressed Banks By Diane Pierret; Roberto Steri
  12. How Does Financial Market Evaluate Business Models? Evidence From European Banks By Stefano Cosma; Riccardo Ferretti; Elisabetta Gualandri; Andrea Landi; Valeria Venturelli
  13. Ignorance Is Bliss? Anonymous Lending with Roll over Risk By Tobias Dieler; Loriano Mancini
  14. The Impact of Ex Ante Regulations and Ex Post Interventions on Bank Lending and Solvency By Manuel Bachmann
  15. The Risk-Taking Channel of Liquidity Regulations and Monetary Policy By Stephan Imhof, Cyril Monnet and Shengxing Zhang
  16. Gauging procyclicality and financial vulnerability in Asia through the BIS banking and financial statistics By Stefan Avdjiev; Bat-el Berger; Hyun Song Shin
  17. Banks as Potentially Crooked Secret-Keepers By Timothy Jackson; Laurence J. Kotlikoff
  18. Bank runs without sequential service By Andolfatto, David; Nosal, Ed
  19. Banks' Liquidity Management and Financial Fragility By LG Deidda; E. Panetti
  20. Bad Sovereign or Bad Balance Sheets? Euro Interbank Market Fragmentation and Monetary Policy, 2011-2015 By Silvia Gabrieli; Claire Labonne
  21. An integrated financial amplifier: the role of defaulted loans and occasionally binding constraints in output fluctuations By José R. Maria; Paulo Júlio
  22. Trust in Lending By Richard T. Thakor; Robert C. Merton
  23. Unconventional Monetary Policy and Bank Risk-Taking in the Euro Area By Joerg Schmidt
  24. The Macroeconomic Effectiveness of Bank Bail-ins By Katz, Matthijs; van der Kwaak, Christiaan
  25. Why Fintechs Cooperate with Banks - Evidence from Germany By Bömer, Max; Maxin, Hannes
  26. Market-Book Ratios of European Banks: What Does Explain the Structural Fall? By Riccardo Ferretti; Giovanni Gallo; Andrea Landi; Valeria Venturelli
  27. Optimal forbearance of bank resolution By Linda Schilling

  1. By: Miguel Sarmiento (The Central Bank of Colombia)
    Abstract: This paper identifies bank-specific-characteristics and market conditions that contribute to determine prices and demand for liquidity in the interbank market as wells as banks’ access to this market. Results indicate that riskier banks pay higher prices and borrow less liquidity, concurrent with the existence of market discipline. More capitalized and liquid banks tend to pay less for their funds and to have greater access to the interbank market. We find that banks pay higher prices and hoard liquidity when liquidity positions across them are more imbalanced and during a monetary policy tightening. Besides, small banks are found to suffer more as their credit risk and liquidity risk increase. We show that lending relationships benefit banks in hedging liquidity risk. We also document that central bank liquidity increments are associated with a downward pressure on interbank funds’ prices and augmented market activity. Overall, our results have implications for financial stability and for the transmission of the monetary policy as well.
    Keywords: interbank markets; market discipline; liquidity risk; risk taking; monetary policy; financial stability.
    JEL: E43 E58 L14 G12 G21
    Date: 2016–10
  2. By: Francisca Rebelo; Laura Blattner; Luísa Farinha
    Abstract: We provide evidence that a weak banking sector has contributed to low productivity growth following the European sovereign debt crisis. An unexpected increase in capital requirements for a subset of Portuguese banks in 2011 provides a natural experiment to study the effects of reduced bank capital adequacy on productivity. Affected banks respond not only by cutting back on lending but also by reallocating credit to firms in financial distress with prior underreported loan loss provisioning. We develop a method to detect when banks delay loss reporting using detailed loan-level data. We then show that the credit reallocation leads to a reallocation of production factors across firms. A partial equilibrium exercise suggests that the resulting increase in factor misallocation accounts for 20% of the decline in productivity in Portugal in 2012.
    JEL: D24 E51 G21 G38 O47
    Date: 2018
  3. By: Roberto Blanco (Banco de España); Noelia Jiménez (Banco de España)
    Abstract: Using a dataset that merges information of loan applications from the Spanish CCR with firms’ financial accounts, we find that during the great recession access to credit of firms with weak balance sheets deteriorated relative to other firms. However, contrary to the financial accelerator theory, we find that during the recovery phase after the latest recession access to credit of weaker firms did not improve relative to other firms and it even further deteriorated somewhat. We also provide empirical evidence that lending policies of banks with firms they are exposed to before the lending decision is taken are comparatively less sensitive to public information than those applied to new firms. This result, together with the positive correlation we find between firms’ access to bank loans and the number of firms’ bank credit relationships, might be linked to the existence of private information developed by banks through their interaction with borrowers. We also find that this relationship lending contributed to smooth credit contraction during the crisis.
    Keywords: access to credit, borrower-lender relationships, loan applications
    JEL: E32 E51 G21
    Date: 2018–08
  4. By: Magdalena Tywoniuk (University of Geneva and Swiss Finance Institute)
    Abstract: Recent regulation mandating the clearing of credit default swaps (CDS) by a Central Clearing Counterparties (CCP), has rendered the latter a systemically important institution, whose failure poses a serious threat to global financial stability. This work investigates the potential failure of a CCP initiated by the default of a large dealer bank and the unwinding of its positions. The theoretical model examines variation margin exchange between dealer banks and the price impact of liquidation and predatory selling. It provides a measure of covariance between assets in banks’ portfolios; price impact affects assets to varying degrees, based on their relative distance to defaulted assets. Key results show that liquidation lowers CCP profits, and how predation decreases the profits of all members, pushing banks to default. Furthermore, a hybrid CCP (vs. current) structure provides a natural disciplinary mechanism for predation. Also, it more incentive compatible for the CCP, in expectation of a large loss. A multi-period, dynamic simulation, calibrated to market data, provides parameter sensitivities, as well as, regulatory implications for a Lender of Last Resort in various liquidity scenarios.
    Keywords: Systemic Risk, CCP Recovery, CDS, CDS Spread Fire Sales, Liquidation, Predation, Price Impact, Contagion, Financial Network, Over the Counter Markets.
    JEL: G00 G01 G02 G14 G10 G18 G20 G23 G33
    Date: 2017–09
  5. By: Herculano, Miguel C.
    Abstract: I examine the relevance of contagion in explaining financial distress in the US banking system by identifying the component of bank level probabilities that is due to contagion. Identification is achieved after controlling for macrofinancial and bank specific shocks that have similar consequences to contagion. I use a Bayesian spatial autoregressive model that allows for time-dependent network interactions, and find that bank default likelihoods depend, to a large extent, on peer effects that account on average for approximately 35 per cent of total distress. Furthermore, I find evidence of significant heterogeneity amongst banks and some institutions to be systemically more important that others, in terms of peer effects. JEL Classification: E44, G01, C11, G21
    Keywords: Bayesian methods, contagion, spatial econometrics, systemic risk
    Date: 2018–08
  6. By: Andrew G. Atkeson; Adrien d'Avernas; Andrea L. Eisfeldt; Pierre-Olivier Weill
    Abstract: Banks' ratio of the market value to book value of their equity was close to 1 until the 1990s, then more than doubled during the 1996-2007 period, and fell again to values close to 1 after the 2008 financial crisis. Sarin and Summers (2016) and Chousakos and Gorton (2017) argue that the drop in banks' market-to-book ratio since the crisis is due to a loss in bank franchise value or profitability. In this paper we argue that banks' market-to-book ratio is the sum of two components: franchise value and the value of government guarantees. We empirically decompose the ratio between these two components and find that a large portion of the variation in this ratio over time is due to changes in the value of government guarantees.
    JEL: G18 G2 G21 G28 G32 G33 G38
    Date: 2018–06
  7. By: Efing, Matthias; Hau, Harald; Kampkötter, Patrick; Rochet, Jean-Charles
    Abstract: We show that banker bonuses cannot be understood exclusively as incentive contracts, but also incorporate a significant risk sharing dimension between bank shareholders and bank employees. This contrasts with the conventional view whereby diversified shareholders fully insure risk averse employees. However, financial frictions imply that shareholder value is concave in a bank's cash reserves---making shareholders effectively risk averse. The optimal contract between shareholders and employees then involves some degree of risk sharing. Using extensive payroll data on 1.26 million bank employee years in the Austrian, German, and Swiss banking sectors, we show that the structure of bonus pay within and across banks is compatible with an economically significant risk sharing motive, but difficult to rationalize based on incentive theories of bonus pay only.
    Keywords: Bank compensation; risk sharing; bank risk; operating leverage
    JEL: D22 G20 G21
    Date: 2018–06–26
  8. By: Iveta Palečková (Department of Finance and Accounting, School of Business Administration, Silesian University)
    Abstract: The aim of this paper is to estimate the differences in efficiency between banks in four financial conglomerates and other banks in the banking sectors in Visegrad countries within the period 2005-2015. In line with the aim of the paper, the research question is stated as follows: Are banks that belong to financial conglomerates more efficient than other banks in the banking sectors in the Visegrad countries? We analysed banks from four financial conglomerates: Erste Group, Société Généralé Group, UniCredit Group and KBC Group. Moreover we estimated the efficiency of commercial banks in the Visegrad countries using the Dynamic Data Envelopment Analysis (DEA) approach. We did not find the statistical significant differences in efficiency between banks that belong to a financial conglomerate and other banks in the banking sectors in the Visegrad countries.
    Keywords: efficiency, Dynamic Data Envelopment Analysis, banking sector, financial conglomerate, propensity score matching, Visegrad countries
    JEL: G21
    Date: 2018–07–30
  9. By: Nwachukwu, Jacinta; Aziz, Aqsa; Tony-Okeke, Uchenna; Asongu, Simplice
    Abstract: This study compares the responsiveness of microcredit interest rates to age, scale of lending and organisational charter. It uses an unbalanced panel of 300 MFIs from 107 developing countries from 2005 to 2015. Three key trends emerge from the results of a 2SLS regression. First, the adoption of formal microbanking practices raises interest rates compared with other forms of microlending. Second, large scale lending lowers interest rates only for those MFIs that already hold legal banking status. Third, age of operation in excess of eight years exerts a negative impact on interest rates, regardless of scale and charter type of MFI. Collectively, our results indicate that policies which incentivise mature MFIs to share their knowledge will be more effective in helping the nascent institutions to overcome their cost disadvantages compared with reforms to transform them into licensed banks. For MFIs which already hold permits to operate as banks, initiatives to increase loan sizes are key strategic pricing decisions, irrespective of the institution’s age. This study is original in its differentiation of the impact on interest rates of regulations which promote formal banking principles, credit market extension vis-à-vis knowledge sharing between mature and nascent MFIs.
    Keywords: : Microfinance, microbanks, non-bank financial institutions, interest rates, age, economies of scale, developing countries
    JEL: E43 G21 G23 G28 N20
    Date: 2018–01
  10. By: Stefano Cosma; Francesca Pancotto; Paola Vezzani
    Abstract: In many countries, Banking Authorities have adopted an Alternative Dispute Resolution (ADR) procedure to manage complaints that customers and financial intermediaries cannot solve by themselves. As a consequence, banks have had to implement complaint management systems in order to deal with customers’ demands. The growth rate of customer complaints has been increasing during the last few years. This does not seem to be only related to the quality of financial services or to lack of compliance in banking products. Another reason lies in the characteristics of the procedures themselves, which are very simple and free of charge. The paper analyzes some determinants regarding the willingness to complain. In particular, it examines whether a high customers’ probability of default leads to an increase in non-valid complaints. The paper uses a sample of approximately 1,000 customers who received a loan and made a claim against the lender. The analysis shows that customers with higher Probability of Default are more likely to make claims against Financial Institutions. Moreover, it shows that opportunistic behaviors and non-valid complaints are more likely if the customer is supported by a lawyer or other professionals and if the reason for the claim may result in a refund or damage compensation.
    Keywords: Alternative Dispute Resolution (ADR); credit complaints; consumer credit; customer relationship
    JEL: G21 G23
    Date: 2018–03
  11. By: Diane Pierret (University of Lausanne and Swiss Finance Institute); Roberto Steri (University of Lausanne and Swiss Finance Institute)
    Abstract: We investigate the risk taking incentives of "stressed banks" — the banks that are subject to annual regulatory stress tests in the U.S. since 2011. We document that stress tests effectively encourage prudent investment from stressed banks through regulatory monitoring, but also provide them with steeper risk-taking incentives through tighter capital requirements. Our results highlight the importance of regulatory monitoring of banks' portfolios in parallel to setting more stringent capital requirements.
    Keywords: Capital Regulation, Dodd-Frank Act, Regulatory Monitoring, Stress Tests
    JEL: G01 G21 G28
    Date: 2017–11
  12. By: Stefano Cosma; Riccardo Ferretti; Elisabetta Gualandri; Andrea Landi; Valeria Venturelli
    Abstract: This paper investigates the way in which the financial market defines and evaluates different business models/business mix, using a sample of listed European banking groups, with a total asset value greater than 50 billion US$, for the period 2006-2015. The main results suggest that non-interest components foster market valuation and that financial market seems to associate a better risk-return trade-off to non-banking fees compared to the banking ones. This evidence enables us to identify 3 clusters of European banking groups based on the main components of income. These findings have strategic implications both for bank managers, regulators and supervisors due to the impact of the crisis on banking business, bank profitability and riskiness and the new challenges they entail.
    Keywords: banking strategies; business mix; market-to book value; panel data; cluster analysis
    JEL: G20 G21
    Date: 2017–05
  13. By: Tobias Dieler (University of Bristol); Loriano Mancini (University of Lugano and Swiss Finance Institute)
    Abstract: We provide a model of banks' short-term funding and study the conditions influencing roll over risk. Our model reproduces the major differences between U.S. and Euro short-term funding markets. Anonymous, short-term markets are resilient against larger liquidity shocks. Non- anonymous markets however improve welfare by allocating resources efficiently. An anonymous Central Counterparty (CCP) is therefore welfare improving in a liquidity crisis but detrimental to welfare in normal times. The insurance mechanism on the CCP, which transfers wealth from high to low quality borrowers, always increases the market's resilience against a liquidity shock.
    Keywords: lending, roll-over risk, asymmetric information, social welfare
    JEL: G01 G14 G21 G28
    Date: 2017–12
  14. By: Manuel Bachmann (Department of Economics, Vienna University of Economics and Business)
    Abstract: In this paper, I examine the impact of direct equity injections and troubled asset purchases on bank lending and solvency and analyze how ex ante tighter caps on leverage affect ex post decisions between both interventions. Extending the model of Bachmann (2018) by adding the government as a liquidity supplier, illiquid banks can either sell troubled assets at fire sale prices to collateralized financed liquid banks or to the government. If illiquid banks are forced to sell all troubled assets in order to meet premature withdrawals and the government is left with excess liquidity compared to direct equity injections, they can use these funds to bid up prices. Higher prices reduce future returns on buying illiquid assets and motivate liquid banks’ incentive to lend by crowding out their speculative motive for liquidity hoarding. As a result, troubled asset purchases weakly dominate direct equity injections in terms of lending and solvency, directly amplified by a drop in collateral liquidity. Additionally, regulating illiquid banks ex ante by tighter caps on leverage affects the government’s decisions about ex post interventions to effectively stabilize lending and solvency conditions, as the self-reinforcing downward spiral between fire sale prices and collateral liquidity is mitigated. Hence, I find that there exists an inherent nexus between ex ante regulations and ex post interventions.
    Keywords: Fire Sales, Collateralized Financing, Troubled Asset Purchases, Capital Injections, Leverage Requirements, Lending, Solvency
    JEL: G01 G12 G21 G28
    Date: 2018–08
  15. By: Stephan Imhof, Cyril Monnet and Shengxing Zhang
    Abstract: We study the implications of liquidity regulations and monetary policy on depositmaking and risk-taking. Banks give risky loans by creating deposits that firms use to pay suppliers. Firms and banks can take more or less risk. In equilibrium, higher liquidity requirements always lower risk at the cost of lower investment. Nevertheless, a positive liquidity requirement is always optimal. Monetary conditions affect the optimal size of liquidity requirements, and the optimal size is countercyclical. It is only optimal to impose a 100% liquidity requirement when the nominal interest rate is sufficiently low.
    Date: 2018–08
  16. By: Stefan Avdjiev; Bat-el Berger; Hyun Song Shin
    Abstract: We look back at past episodes of financial stress in Asia with a forward-looking perspective. We put ourselves in the shoes of a contemporary observer with the data at hand and ask what evidence was available on the systematic build-up of vulnerabilities. We reconstruct a graphical narrative of banking and financial developments at the time. Our exercise showcases the usefulness of the BIS international banking and financial statistics as a window on the financial system's procyclicality. We conclude with a real-time forward-looking survey of current financial vulnerabilities, focusing on the implications of the shift in the pattern of credit intermediation from banks to bond markets.
    Keywords: Asian Financial Crisis, international bank lending, procyclicality, financial stability
    JEL: F32 F34 G01
    Date: 2018–07
  17. By: Timothy Jackson; Laurence J. Kotlikoff
    Abstract: Bank failures are generally liquidity as well as solvency events. Whether it is households running on banks or banks running on banks, defunding episodes are full of drama. This theater has, arguably, lured economists into placing liquidity at the epicenter of financial collapse. But loss of liquidity describes how banks fail. Bad news about banks explains why they fail. This paper models banking crises as triggered by news that the degree (share) of banking malfeasance is likely to be particularly high. The malfeasance share follows a state-dependent Markov process. When this period’s share is high, agents rationally raise their probability that next period’s share will be high as well. Whether or not this proves true, agents invest less in banks, reducing intermediation and output. Deposit insurance prevents such defunding and stabilizes the economy. But it sustains bad banking, lowering welfare. Private monitoring helps, but is no panacea. It partially limits banking malfeasance. But it does so inefficiently as households needlessly replicate each others’ costly information acquisition. Moreover, if private audits become public, private monitoring breaks down due to free-riding. Government real-time disclosure of banking malfeasant mitigates, if not eliminates, this public goods problem leading to potentially large gains in both non-stolen output and welfare.
    JEL: D83 E23 E32 E44 E58 G01 G21 G28
    Date: 2018–06
  18. By: Andolfatto, David (Federal Reserve Bank of St. Louis); Nosal, Ed (Federal Reserve Bank of Atlanta)
    Abstract: Banking models in the tradition of Diamond and Dybvig (1983) rely on sequential service to explain belief driven runs. But the run-like phenomena witnessed during the financial crisis of 2007-08 occurred in the wholesale shadow banking sector where sequential service is largely absent. This suggests that something other than sequential service is needed to help explain runs. We show that in the absence of sequential service runs can easily occur whenever bank-funded investments are subject to increasing returns to scale consistent with available evidence. Our framework is used to understand and evaluate recent banking and money market regulations.
    JEL: G01 G21 G28
    Date: 2018–07
  19. By: LG Deidda; E. Panetti
    Abstract: We propose a novel theory of banks' liquidity management and financial fragility. Banks hold liquidity and an illiquid productive asset, thereby engaging in maturity transformation, and insure their depositors against idiosyncratic and aggregate shocks. However, strategic complementarities in the depositors' withdrawal decisions might trigger a self-fulfilling run, modelled as a "global game". In equilibrium, if the liquidation of the productive asset is sufficiently costly and the depositors are sufficiently risk averse, banks manage their liquidity needs during runs following an endogenous pecking order - they first deplete liquidity, and then liquidate the productive asset. Thus, under these conditions banks subject to runs are first illiquid but solvent, and then become insolvent. Ex ante, if the probability of the idiosyncratic shock is sufficiently large, banks hoard liquidity, and narrow banking is not viable.
    Keywords: banks;Liquidity;financial fragility;self-fulfilling runs;global games;narrow banking
    Date: 2018
  20. By: Silvia Gabrieli; Claire Labonne
    Abstract: We measure the relative role of sovereign-dependence risk and balance sheet (credit) risk in euro area interbank market fragmentation from 2011 to 2015. We combine bank-to-bank loan data with detailed supervisory information on banks’ cross-border and cross-sector exposures. We study the impact of the credit risk on banks’ balance sheets on their access to, and the price paid for, interbank liquidity, controlling for sovereign-dependence risk and lenders’ liquidity shocks. We find that (i) high non-performing loan ratios on the GIIPS portfolio hinder banks’ access to the interbank market throughout the sample period; (ii) large sovereign bond holdings are priced in interbank rates from mid-2011 until the announcement of the OMT; (iii) the OMT was successful in closing this channel of cross-border shock transmission; it reduced sovereigndependence and balance sheet fragmentation alike.
    Keywords: Interbank market, credit risk, fragmentation, sovereign risk, country risk, credit rationing, market discipline
    JEL: G01 E43 E58 G15 G21
    Date: 2018
  21. By: José R. Maria; Paulo Júlio
    Abstract: We present a DSGE model for a small euro area economy comprising a banking sector empowered with regulatory capital requirements, defaulted loans and occasionally binding endogenous credit restrictions. Under non-financial shocks no important amplifications arise due to balancing forces: while banks' equity acts as a shock absorber, the observance of regulatory capital requirements acts as a shock amplifier. Under moderately-sized "bad" financial-based shocks defaulted loans increase and banks' value drop. As a result, credit becomes supply constraint for some time, severely amplifying and protracting output downfalls. Endogenous inertia implies a slow recovery in banks' capital and thus an enduring fragility of the banking system. Defaulted loans and credit restrictions are strongly intertwined, since the former severely impact banks' value, hence leveraging the amplification size.
    JEL: E62 F41 H62
    Date: 2018
  22. By: Richard T. Thakor; Robert C. Merton
    Abstract: We develop a theory of trust in lending, distinguishing between trust and reputation, and use it to analyze the competitive interactions between banks and non-bank lenders (fintech firms). Trust enables lenders to have assured access to financing, whereas a loss of investor trust makes this access conditional on market conditions and lender reputation. Banks endogenously have stronger incentives to maintain trust. When borrower defaults erode trust in lenders, banks are able to survive the erosion of trust when fintech lenders do not. Trust is also asymmetric in nature—it is more difficult to gain it than to lose it.
    JEL: E44 E51 E52 G21 G23 G28 H12 H81
    Date: 2018–06
  23. By: Joerg Schmidt (Justus-Liebig-Universitat Giessen)
    Abstract: This paper studies risk-taking by European banks. We construct a measure of risk-taking which relates changes in three month ahead expected credit standards for several non-financial private sector categories to risk of the macroeconomic environment banks operate in to re flect whether credit standards react disproportionately to changes in the monetary policy stance. We use an estimated bond market based measure to assess the overall riskiness prevailing in the economy. With this approach we shed some light on whether banks act excessively risky and provide new evidence as well as an alternative assessment on the amplifying nature of the risk-taking channel of monetary policy. We include our measure in a VAR in which structural innovations are identified with sign restrictions. The key outcomes of this paper are the following: Restrictive (expansionary) monetary policy shocks increase (decrease) our measure of risk-taking. Increases (decreases) in our measure are caused by disproportionately strong (weak) reactions in credit standards compared to the overall macroeconomic risk, especially during the recent financial crisis. Disproportionately in the sense that our macroeconomic risk measure is less affected by restrictive (expansionary) monetary policy shocks than credit standards. We conclude that expansionary monetary policy shifts the portfolio of banks to overall riskier asset holdings. The credit granting reaction depends on the category: In general, credit to non-financial corporations are less sensitive to monetary policy shocks while mortgages seem to be affected.
    Keywords: monetary policy, euro area, bank risk-taking, credit standards, sign restrictions VAR
    JEL: E44 E52 G12
    Date: 2018
  24. By: Katz, Matthijs; van der Kwaak, Christiaan (Groningen University)
    Abstract: We examine the macroeconomic implications of bailing-in banks? creditors after a systemic financial crisis, whereby bank debt is partially written off. We do so within a RBC model that features an endogenous leverage constraint which limits the size of banks? balance sheets by the amount of bank net worth. Our simulations show that an unanticipated bail-in effectively ameliorates macroeconomic conditions as more net worth relaxes leverage constraints, which allows an expansion of investment. In contrast, an anticipated bail-in will be priced in ex-ante by bank creditors, thereby transferring the bail-in gains from banks to creditors. Therefore the intervention has zero impact on the macroeconomy relative to the no bail-in case. The effectiveness of the bail-in policy can be restored by implementing a temporary tax on debt outflows once creditors start to anticipate a bail-in.
    Date: 2018
  25. By: Bömer, Max; Maxin, Hannes
    Abstract: We developed a conceptual framework to explain why young financial technology companies (fintechs) seek to cooperate with incumbents from the finance sector. Examining 14 case studies on fintech-bank cooperation, we identified three main reasons: first, banks enable a fintech's market entry; second, banks increase a fintech's profits; and finally, banks enable new fintech products. We observed that each of these reasons is related to particular resources, which fintechs obtain through their cooperation partner. Additionally, we found that fintechs use different label approaches to sell their products when they cooperate with banks. Based on these results, we developed propositions that can be tested in future research.
    Keywords: Fintechs; Banks; Cooperation; Regulation, Reputation, Label
    JEL: G21 M13
    Date: 2018–08
  26. By: Riccardo Ferretti; Giovanni Gallo; Andrea Landi; Valeria Venturelli
    Abstract: In the years since the outbreak of the crisis, financial markets have persistently reduced the market value of European banks, as consequence of macroeconomic, regulatory and structural factors. Even if these factors affected the whole European banking industry, differences characterized market evaluation of banks along country, size and business mix profiles. Following the extant literature on bank market valuation, our paper tests for the difference between market to book ratios of the large European banks, using three blocks of indicators typically affecting the banks’ market value. To verify our research question, we first regress the market to book ratio over performance measures and risk indicators. Then, we verify whether bank business size and composition affect bank market valuation. Lastly we evaluate the relevance of country context variables, by considering both macroeconomic and banking structure indicators. Our panel consists of all large publicly traded bank holding companies at European level. Large publicly traded banks are all listed banks with consolidated assets exceeding 50 billion euro in 2015. The results highlight that the market considers the fundamental variables (current performance and volatility) as the main factors affecting the evaluation process. Furthermore a significant share of variability in banks’ market-book values is explained by country context variables.
    Keywords: market-to book value; country context; business mix; size; panel data; Shapley decomposition
    JEL: G20 G21
    Date: 2018–01
  27. By: Linda Schilling (Ecole Polytechnique (CREST))
    Abstract: This paper analyzes optimal strategic delay of bank resolution (forbearance) in a setting where partially insured depositors can run on the bank after observing bad news on the bank's assets. A resolution authority (RA) observes withdrawals of deposits at the bank level and needs to decide when to intervene to protect a deposit insurance fund. Intervention means the authority seizes the bank's assets and impose a mandatory stay for depositors, liquidates assets at market terms and evenly distributes proceeds among all remaining depositors. We show, there exists a hidden trade-off when resolving banks, late intervention increases costs to insurance but early intervention increases depositors' propensity to run, by this making the run and subsequent resolution more likely. This trade-off crucially depends on the amount of deposit insurance provided. Under low insurance depositors are too sensitive to bad news and inefficient runs exist, under high insurance, depositors start ignoring bad news on the bank fundamental, roll over to often and there is inefficient investment. As main result of the paper, under low deposit insurance, the optimal policy is to never intervene during a run, even if the run is ex post inefficient; a stricter intervention policy would alter depositors' behavior in a way that inefficient runs become even more likely. Under high insurance it is optimal to intervene as soon as possible. Further, for every intervention policy the optimal amount of insurance coverage is strictly between zero and one. There exist infinitely many pairs of intervention threshold and insurance coverage which achieve the first best outcome. Thus, there is room for a policy parameter reduction: RA can fix the intervention threshold and achieve first best solely by choosing the amount of insurance coverage. But not the other way around suggesting that insurance coverage is the stronger parameter: Under too high insurance coverage inefficient investment exists, under too low coverage inefficient runs exist, both for every intervention threshold.
    Date: 2018

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