nep-ban New Economics Papers
on Banking
Issue of 2018‒12‒24
25 papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. A Review of Shadow Banking By Adrian, Tobias; Ashcraft, Adam; Breuer, Peter; Cetorelli, Nicola
  2. Gambling traps By Ari, Anil
  3. International bank flows and bank business models since the crisis By Herzberg, Valerie; McQuade, Peter
  4. The Gilded Bubble Buffer By Xavier Freixas; David Perez-Reyna
  5. The death of a regulator: Strict supervision, bank lending and business activity By Leuz, Christian; Granja, João
  6. Contingent contracts in banking: Insurance or risk magnification? By Gersbach, Hans
  7. The Good, the Bad, and the Ugly: Impact of Negative Interest Rates and QE on the Profitability and Risk-Taking of 1600 German Banks By Florian Urbschat
  8. Risk sensitivity and risk shifting in banking regulation By Hinterschweiger, Marc; Neumann, Tobias; Saporta, Victoria
  9. Macroprudential Measures and Irish Mortgage Lending: Insights from H1 2018 By Kinghan, Christina
  10. What are the consequences of global banking for the international transmission of shocks?: a quantitative analysis By Fillat, Jose; Garetto, Stefania; Smith, Arthur V.
  11. Re-use of collateral: leverage, volatility, and welfare By Brumm, Johannes; Grill, Michael; Kubler, Felix; Schmedders, Karl
  12. Microfinance in Cambodia: Development, Challenges, and Prospects By Thath, Rido
  13. Macroprudential capital regulation in general equilibrium By Nelson, Benjamin; Pinter, Gabor
  14. Trade and Credit Reallocation: How Banks Help Shape Comparative Advantage By Keuschnigg, Christian; Kogler, Michael
  15. Securitization and crash risk : Evidence from large European banks By Battaglia, Francesca; Buchanan, Bonnie G.; Fiordelisi, Franco; Ricci, Ornella
  16. Banks, Sovereign Risk and Unconventional Monetary Policies By Stéphane Auray; Aurélien Eyquem; Xiaofei Ma
  17. Measuring and mitigating cyclical systemic risk in Ireland: The application of the countercyclical capital buffer By O'Brien, Eoin; O'Brien, Martin; Velasco, Sofia
  18. Dynamic Consequences of Monetary Policy for Financial Stability By William Chen; Gregory Phelan
  19. Bank Recapitalizations, Credit Supply, and the Transmission of Monetary Policy By Mark Mink; Sebastiaan Pool
  20. Cures and Exits: the drivers of NPL resolution in Ireland from 2012 to 2017 By McCann, Fergal; McGeever, Niall
  21. Measuring Profit Efficiency of Colombian Banks: A Composite Nonstandard Profit Function Approach By Diego Restrepo-Tobón; Jim Sánchez-González
  22. Liquidity Regulation and Financial Intermediaries By Marco Macchiavelli; Luke Pettit
  23. Can Mobile-Linked Bank Accounts Bolster Savings? Evidence from a Randomized Controlled Trial in Sri Lanka By Suresh De Mel; Craig McIntosh; Ketki Sheth; Christopher Woodruff
  24. The big bang and the City of London By Schenk, Catherine R.
  25. External Balance Sheet Risks in Ireland By Galstyan, Vahagn; Herzberg, Valerie

  1. By: Adrian, Tobias; Ashcraft, Adam; Breuer, Peter; Cetorelli, Nicola
    Abstract: Traditional financial intermediaries are centralized entities brokering the flow of funds between households and borrowers. Households could certainly bypass intermediaries and directly invest in equity or debt of borrowers. However, direct finance requires dealing with well-known informational and liquidity frictions. In particular, it is usually costly to screen, select, monitor, and diversify across investment projects. Moreover, direct investments may be constrained by the need by households for liquidity: that is, the need to access funds before the investments comes to fruition, resulting in wasteful liquidation costs. Financial intermediaries exist to minimize on all of these costs. In the traditional model, intermediaries are centralized agents performing under one roof multiple roles of screening, selection, monitoring, and diversification of risk, while simultaneously providing liquidity services to the providers of funds. The simultaneous provision of these services to multiple agents through maturity, liquidity, and credit transformation provides for a better allocation of risk between households and firms. While financial intermediation facilitates more efficient risk sharing between borrowers and the suppliers of funds, it does create new risks, the most relevant one being the well-known exposure to "runs" and premature liquidation of projects when the suppliers of funds pull out en masse. Hence, financial intermediation activity is intrinsically fragile, and most importantly it carries a significant social externality, represented by the risk of systemic disruptions in the case of contagion of run events. The official sector has attempted to minimize this systemic risk through the use of its own balance sheet, by providing credit guarantees on the liabilities of these intermediaries as well as by providing contingent liquidity to these institutions from the lender of last resort. However, the risk-insensitive provision of credit guarantees and liquidity backstops creates well-known incentives for excessive risk-taking, leverage, and maturity transformation, motivating the need for enhanced supervision and prudential regulation. This traditional form of financial intermediation, with credit being intermediated through banks and insurance companies, but with the public sector standing close by to prevent destabilizing runs, dominated other forms of financial intermediation from the Great Depression well into the 1990s. Over time, financial innovation has transformed intermediation from a process involving a single financial institution to a process now broken down among several institutions, each with their own role in manufacturing the intermediation of credit. With specialization has come significant reductions in the cost of intermediation, but the motive to reduce costs has also pushed financial activity into the shadows in order to reduce or eliminate the cost associated with prudential supervision and regulation, investor disclosure, and taxes. Over the course of three decades, the shadow banking system quickly grew to become equal in size to that of the traditional system, improving on the terms of liquidity traditionally offered to households and borrowers. However, it was only a matter of time before intermediation designed to evade public sector oversight would end badly, as occurred during the post-2007-08 credit cycle. Consequently, while financial innovation is naturally associated with the more efficient provision of financial services, it is this dark side of non-traditional intermediation that has come to define shadow banking.
    Date: 2018–12
  2. By: Ari, Anil
    Abstract: I propose a dynamic general equilibrium model in which strategic interactions between banks and depositors may lead to endogenous bank fragility and slow recovery from crises. When banks’ investment decisions are not contractible, depositors form expectations about bank risk-taking and demand a return on deposits according to their risk. This creates strategic complementarities and possibly multiple equilibria: in response to an increase in funding costs, banks may optimally choose to pursue risky portfolios that undermine their solvency prospects. In a bad equilibrium, high funding costs hinder the accumulation of bank net worth and lead to a “gambling trap” with a persistent drop in investment and output. I bring the model to bear on the European sovereign debt crisis, in the course of which under-capitalized banks in default-risky countries experienced an increase in funding costs and raised their holdings of domestic government debt. The model is quantied using Portuguese data and accounts for macroeconomic dynamics in Portugal in 2010-2016. Policy interventions face a trade-off between alleviating banks’ funding conditions and strengthening risk-taking incentives. Liquidity provision to banks may perpetuate gambling traps when not targeted. Targeted interventions have the capacity to eliminate adverse equilibria. JEL Classification: E44, F30, F34, G01, G21, G28, H63
    Keywords: banking crises, financial constraints, risk-taking, sovereign debt crises
    Date: 2018–12
  3. By: Herzberg, Valerie (Central Bank of Ireland); McQuade, Peter (Central Bank of Ireland)
    Abstract: Developments in cross-border banking and bank business models have implications for international risk sharing. During the European sovereign debt crisis, cross-border banks only provided limited risk sharing and even amplified shocks in some euro area Member States. Policymakers responded by introducing an array of prudential instruments to improve bank resilience. This successfully strengthened the euro area banking system, fostering certain bank business models while disincentivising others. Euro area banks are now: (i) more domestically oriented with less cross-border activity; (ii) smaller; (iii) less trading, more lending oriented; (iv) more deposit funded. Conservative business models have advantages from a financial stability perspective, but they may also mitigate the advantages of cross-border activities for banks and the economy. Reforms may be necessary if banks are to play a greater role as a shock absorber in the European banking union.
    Date: 2018–08
  4. By: Xavier Freixas; David Perez-Reyna
    Abstract: We provide a microfounded framework for the welfare analysis of macroprudential policy by means of an overlapping generation model where productivity and credit supply are subject to random shocks in order to analyze rational bubbles that can be fueled by banking credit. We find that credit financed bubbles may be welfare improving because of their role as a buffer in channeling excessive credit supply and inefficient investment at the firms' level, but can cause systemic risk. Therefore macroprudential policy plays a key role in improving efficiency while preserving financial stability. Our approach allows us to compare the efficiency of alternative macroprudential policies. Contrarily to conventional wisdom, we show that macroprudential policy may be efficient even in the absence of systemic risk, that it has to be contingent on productivity shocks, to take into account real interest rates.
    Keywords: Bank, bubble, macroprudential regulation
    JEL: E44 E60 G18 G21 G28
    Date: 2018–10
  5. By: Leuz, Christian; Granja, João
    Abstract: An important question in banking is how strict supervision affects bank lending and in turn local business activity. Forcing banks to recognize losses could choke off lending and amplify local economic woes, especially after financial crises. But stricter supervision could also lead to changes in how banks assess loans and manage their loan portfolios. Estimating such effects is challenging. We exploit the extinction of the thrift regulator (OTS) - a large change in prudential supervision, affecting ten percent of all U.S. depository institutions. Using this event, we analyze economic links between strict supervision, bank lending and business activity. We first show that the OTS replacement indeed resulted in stricter supervision of former OTS banks. We then analyze the lending effects of this regulatory change and show that former OTS banks increase small business lending by approximately 10 percent. This increase stems primarily from wellcapitalized banks and those more affected by the new regime. These findings suggest that stricter supervision operates not only through capital but can also overcome frictions in bank management, leading to more lending and a reallocation of loans. Consistent with the latter, we find increases in business entry and exit in counties with greater expose to OTS banks.
    Keywords: Bank regulation,Enforcement,Loan Losses,Aggregate outcomes,Prudential oversight,Business lending,Entry and exit
    JEL: E44 E51 G21 G28 G31 G38 K22 K23 L51 M41 M48
    Date: 2018
  6. By: Gersbach, Hans
    Abstract: We examine whether the economy can be insured against banking crises with deposit and loan contracts contingent on macroeconomic shocks. We study banking competition and show that the private sector insures the banking system through such contracts, and banking crises are avoided, provided that failed banks are not bailed out. When risks are large, banks may shift part of them to depositors. In contrast, when banks are bailed out by the next generation, depositors receive non-contingent contracts with high interest rates, while entrepreneurs obtain loan contracts that demand high repayment in good times and low repayment in bad times. As a result, the present generation overinvests, and banks generate large macroeconomic risks for future generations, even if the underlying productivity risk is small or zero. We conclude that a joint policy package of orderly default procedures and contingent contracts is a promising way to reduce the threat of a fragile banking system.
    Keywords: financial intermediation,macroeconomic risks,state-contingent contracts,banking regulation
    JEL: D41 E4 G2
    Date: 2018
  7. By: Florian Urbschat
    Abstract: The recent negative interest rate policy (NIRP) and quantitative easing (QE) programme by the ECB have raised concerns about the pass-through of monetary policy. On the one hand, negative rates could lead to declining bank profitability making an expansionary monetary policy contractionary. Also, if interest rates are too low for too long banks could be induced to take too much risky credit. On the other hand, several economists argue that there is nothing special about negative interest rates per se. This paper uses a large micro level data set of the German bank universe to examine how banks behave in this uncharted territory. The evidence found suggests that bank’s business model, i.e. the share of overnight deposits, plays a crucial role. While some banks may benefit in the short run via for instance reduced refinancing costs or lower loan loss provisions, many banks with high deposit ratios face lower net interest income and lower credit growth rates. If continued for too long QE and NIRP erode bank profits for most banks eventually.
    Keywords: negative interest rate policy, banks’ profitability, net interest rate margin, risk-taking channel
    JEL: C53 E43 E52 G11 G21
    Date: 2018
  8. By: Hinterschweiger, Marc (Bank of England); Neumann, Tobias (Bank of England); Saporta, Victoria (Bank of England)
    Abstract: The financial crisis exposed enormous failures of risk management by financial institutions and of the authorities’ regulation and supervision of these institutions. Reforms introduced as part of Basel III have tackled some of the most important fault‐lines. As the focus now shifts toward the implementation and evaluation of these reforms, it will be essential to assess where the balance has been struck between the robustness and the risk sensitivity of the capital framework. This paper contributes to this assessment by stepping back from the details of the recent reforms and instead taking a bird’s eye view on the fundamental tradeoffs that may exist between robustness, complexity, and risk sensitivity. We review the history of risk sensitivity in capital standards and assess whether a higher degree of risk sensitivity necessarily leads to a better measurement of risk. We also provide evidence that the more risk‐sensitive Basel II framework may have reduced banks’ incentives to engage in higher‐risk mortgage lending in the UK. Our analysis suggests the need for a robust regulatory framework with several complementary standards interacting and reinforcing each other, even if, prima facie, subjecting banks to a number of regulatory constraints adds to complexity.
    Keywords: Basel 2; capital regulation; risk sensitivity; risk shifting
    JEL: G01 G18 G21 G28
    Date: 2018–07–04
  9. By: Kinghan, Christina (Central Bank of Ireland)
    Abstract: This note provides an overview of residential mortgage lending in Ireland in H1 2018. In total, 17,415 loans are covered with a value of e3.75 billion. The majority (97 per cent) of lending in-scope of the mortgage measures was for primary dwelling (PDH) loans. For firsttime buyers (FTBs), the average loan-to-value (LTV) and loan-to-income (LTI) were 79.6 per cent and 3.1 times gross income, respectively. Regarding the LTV limit, 16 per cent of the total value of second and subsequent buyers (SSB) lending in H1 2018 exceeded the 80 per cent LTV limit. Regarding the LTI limit, 23 per cent of the aggregate value of FTB lending exceeded the LTI limit, with 9 per cent of the value of SSB lending originated with an LTI above 3.5. On average, borrowers with an LTI allowance had larger loan sizes and loan terms, were more likely to be based in Dublin and be a single applicant compared to those borrowers without an LTI allowance. SSBs with an LTV allowance had larger loan sizes and incomes and were younger than those without an LTV allowance. These trends were similar to those observed in H1 2017.
    Date: 2018–10
  10. By: Fillat, Jose (Federal Reserve Bank of Boston); Garetto, Stefania (Boston University); Smith, Arthur V. (Boston University)
    Abstract: The global financial crisis of 2008 was followed by a wave of regulatory reforms that affected large banks, especially those with a global presence. These reforms were reactive to the crisis. In this paper we propose a structural model of global banking that can be used proactively to perform counterfactual analysis on the effects of alternative regulatory policies. The structure of the model mimics the US regulatory framework and highlights the organizational choices that banks face when entering a foreign market: branching versus subsidiarization. When calibrated to match moments from a sample of European banks, the model is able to replicate the response of the US banking sector to the European sovereign debt crisis. Our counterfactual analysis suggests that pervasive subsidiarization, higher capital requirements, or ad hoc policy interventions would have mitigated the effects of the crisis on US lending.
    Keywords: global banks; banking regulation; shock transmission
    JEL: F12 F23 F36 G21
    Date: 2018–10–01
  11. By: Brumm, Johannes; Grill, Michael; Kubler, Felix; Schmedders, Karl
    Abstract: We assess the quantitative implications of collateral re-use on leverage, volatility, and welfare within an infinite-horizon asset-pricing model with heterogeneous agents. In our model, the ability of agents to reuse frees up collateral that can be used to back more transactions. Re-use thus contributes to the buildup of leverage and significantly increases volatility in financial markets. When introducing limits on re-use, we find that volatility is strictly decreasing as these limits become tighter, yet the impact on welfare is non-monotone. In the model, allowing for some re-use can improve welfare as it enables agents to share risk more effectively. Allowing re-use beyond intermediate levels, however, can lead to excessive leverage and lower welfare. So the analysis in this paper provides a rationale for limiting, yet not banning, re-use in financial markets. JEL Classification: D53, G01, G12, G18
    Keywords: heterogeneous agents, leverage, re-use of collateral, volatility, welfare
    Date: 2018–12
  12. By: Thath, Rido
    Abstract: Microfinance is considered one of the effective tools in reducing poverty. In the last two decades, Cambodian microfinance industry has made rapid growth in asset, loan and deposit. Microfinance institutions have extended their services to all corner of the country and some have transformed from a donor-assisted NGO program to a full-fledged commercial bank. During the process of the growth of the industry, many borrowers have benefited and been able to move out of poverty while other become over-indebted and lose their asset due to factors such as low financial literacy and the ease to access multiple sources of loan. At the national level, financing microfinance may crowd out the fund for financing small and medium enterprises, and other types of business. Various government response such as the initiative to improve financial literacy and the imposition of interest cap may help reduce the problem of over-indebtedness at the individual borrower level. However, for long run development, they also should consider addressing the trade-off between allocating scarce fund between micro businesses, and small and medium enterprises.
    Keywords: microfinance, Cambodia
    JEL: G21
    Date: 2018–03
  13. By: Nelson, Benjamin (Rokos Capital); Pinter, Gabor (Bank of England)
    Abstract: We examine macroprudential bank capital policy in a macroeconomic model with a financial accelerator originating in the banking sector. Under Ramsey-optimal policy, the bank capital buffer tracks closely a model-based measure of the credit gap, defined as the gap between equilibrium credit in the economy featuring financial frictions and that in a hypothetical frictionless economy. Simple rules that vary the capital buffer in response to the credit gap perform worse than Ramsey policy, but only modestly so. When monetary policy controls inflation less aggressively, optimal macroprudential responses are smaller. Optimal macroprudential policy operates at a lower frequency than monetary policy.
    Keywords: Macroprudential policy; bank capital; monetary policy
    JEL: E50 G20
    Date: 2018–12–07
  14. By: Keuschnigg, Christian; Kogler, Michael
    Abstract: Trade and innovation cause structural change. Productive factors must flow from declining to growing industries. Banks play a major role in cutting credit to non-viable firms in downsizing sectors and in providing new credit to finance investment in expanding, innovative sectors. Structural parameters of a country's banking system thus influence comparative advantage and trade, and can magnify the gains from trade liberalization. The analysis shows how insolvency laws, minimum capital standards, and cost of bank equity determine credit reallocation, sectoral expansion and trade patterns.
    Keywords: Banking; capital reallocation; comparative advantage; Trade
    JEL: F10 G21 G28
    Date: 2018–12
  15. By: Battaglia, Francesca; Buchanan, Bonnie G.; Fiordelisi, Franco; Ricci, Ornella
    Abstract: The 2008 global financial crisis highlights the importance of securitization and crash risk. Yet there is a dearth of papers exploring the link between securitization and crash risk. We analyze 7,096 securitization deals made by large European listed banks between 2000 and 2017. Our paper provides evidence that bank risk declines in the year of the securitization and increases in the following year. We also show that this effect is driven by low-risk securitization deals. We use a dynamic panel data approach to establish a causal relationship and control the robustness of our results by using different tail risk measures (such as crash risk, value at risk, and expected shortfall). We also show that the risk reduction effect is weaker in crisis periods relative to normal times. Our findings have policy implications as regulators attempt to revive European securitization markets.
    JEL: F30 G01 G14 G21 G32
    Date: 2018–12–11
  16. By: Stéphane Auray (CREST-Ensai and ULCO); Aurélien Eyquem (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France ; Institut Universitaire de France); Xiaofei Ma (CREST-Ensai and Université d'Evry;)
    Abstract: We develop a two-country model with an explicitly microfounded interbank market and sovereign default risk. Calibrated to the core and the periphery of the Euro Area, the model gives rise to a debt-banks-credit loop that substantially amplifies the effects of financial shocks, especially for the periphery. We use the model to investigate the effects of a stylized public asset purchase program at the steady state and during a crisis. We find that it is more effective in stimulating the economy during a crisis, in particular for the periphery.
    Keywords: Recession, Interbank Market, Sovereign Default Risk, Asset Purchases
    JEL: E32 E44 E58 F34
    Date: 2018
  17. By: O'Brien, Eoin (Central Bank of Ireland); O'Brien, Martin (Central Bank of Ireland); Velasco, Sofia (Central Bank of Ireland)
    Abstract: Following a number of years where the activation of the countercyclical capital buffer was limited, it is now becoming an increasingly relevant and actively used macroprudential policy tool across Europe. Against this background, this Note describes the high-level approach taken by the Central Bank of Ireland in setting the countercyclical capital buffer rate applicable to Irish exposures. In addition, the Note discusses issues around the identification of cyclical systemic risk in Ireland, and in particular the role of the credit-to-GDP gap as an appropriate reference indicator for countercyclical capital buffer rate decisions. The Note introduces work within the Central Bank of Ireland to develop a potential alternative reference indicator for informing countercyclical capital buffer decisions. In particular, an alternative measure of the national credit gap which looks to account for structural shifts in the economy and informs the estimation of the cycle through additional variables. This semi-structural measure of cyclical systemic risk addresses some of the main drawbacks of purely statistical methods such as excessively persistent trends, a feature that is particularly desirable in post-crisis circumstances.
    Date: 2018–07
  18. By: William Chen (Williams College); Gregory Phelan (Williams College)
    Abstract: We theoretically investigate the state-dependent effects of monetary policy on macroeconomic instability. In the model, banks borrow using deposits and allocate resources to productive projects. Because banks do not actively issue equity, aggregate outcomes depend on the level of equity in the financial sector. Carefully targeted monetary policy can improve stability by increasing the rate of bank equity growth, and improve allocations by encouraging leverage when intermediation is needed. A fed put is generally stabilizing, but the marginal impact of a rate cut depends on the state of the economy. The effectiveness of monetary policy depends on the extent to which rate cuts pass through to bank returns. When banks are relatively well-capitalized, rate cuts primarily decrease banks' returns. In terms of welfare, the costs of "leaning against the wind" generally outweigh the benefits, but a fed put can improve outcomes if the costs of deviating from the inflation target are sufficiently small.
    Keywords: Monetary policy, Leaning against the wind, Financial stability, Macroeconomic instability, Banks, Liquidity
    JEL: E44 E52 E58 G01 G12 G20 G21
    Date: 2018–10
  19. By: Mark Mink; Sebastiaan Pool
    Abstract: We integrate a banking sector in a standard New-Keynesian DSGE model, and examine how government policies to recapitalize banks after a crisis affect the supply of credit and the transmission of monetary policy. We examine two types of recapitalizations: immediate and delayed ones. In the steady state, both policies cause the banking sector to charge inefficiently low lending rates, which leads to an inefficiently large capital stock. Raising bank equity requirements reduces this dynamic inefficiency and increases lifetime utility. After the banking sector suffered large losses, a delay in recapitalizations creates banking sector debt-overhang. This debt-overhang leads to inefficiently high lending rates, which reduces the supply of credit and weakens the transmission of monetary policy to inflation (the transmission to output is largely unchanged). Raising bank equity requirements under these circumstances can cause lifetime utility to decline. Hence, the timing of bank recapitalizations after a crisis has several macro-economic implications.
    Keywords: bank recapitalizations; credit supply; monetary policy transmission; bank equity requirements; NK-DSGE models
    JEL: E30 E44 E52 E61
    Date: 2018–12
  20. By: McCann, Fergal (Central Bank of Ireland); McGeever, Niall (Central Bank of Ireland)
    Abstract: Non-performing loan (NPL) balances in the Irish retail banking system declined from e85bn in 2013 to around e25bn in 2017. In this Note, we document how this decline came about using regulatory return data and loan-level data for all property-related lending segments. Firstly, we highlight that NPL resolution is a gradual process: the majority of NPL balances in one year remain as NPLs a year later. Secondly, we show that loan “cure” (the return of previously-defaulted balances to Performing Loan status) is the key driver of NPL reduction in the residential mortgage segment. This is particularly true for principal dwelling home mortgages, where loan restructuring has played a pivotal role. In contrast, loan exit —through liquidations, write-offs, and sales—accounts for a large majority of the NPL reduction in the commercial real estate segment, where concerns about borrowers’ access to housing are less central to the policy discussion. Buy-to-Let (BTL) mortgages, on the other hand, share some of the characteristics of each of the aforementioned asset classes: Exit plays a relatively more important role for BTLs than for PDH mortgages, while Cure plays a greater for BTLs than it does for CRE loans.
    Date: 2018–09
  21. By: Diego Restrepo-Tobón; Jim Sánchez-González
    JEL: D24 G21 G34 L13
    Date: 2018–08–27
  22. By: Marco Macchiavelli; Luke Pettit
    Abstract: We document several effects of the Liquidity Coverage Ratio (LCR) rule on dealers' financing and intermediation of securities. For identification, we exploit the fact that the US implementation is more stringent than that in foreign jurisdictions. In line with LCR incentives, US dealers reduce their reliance on repos as a way to finance inventories of high-quality assets and increase the maturity of lower-quality repos relative to foreign dealers; additionally, US dealers cut back on trades that downgrade their own collateral. Dealers are nevertheless still providing significant maturity transformation. We also show that significant de-risking occurs immediately after the 2007-09 crisis, before post-crisis regulations.
    Keywords: Basel III ; Broker-dealers ; Liquidity coverage ratio ; Repurchase agreements
    JEL: G28 E58 G24
    Date: 2018–12–06
  23. By: Suresh De Mel; Craig McIntosh; Ketki Sheth; Christopher Woodruff
    Abstract: In developing economies, mobile-linked services have the potential to significantly reduce transaction costs and provide a truly new conduit that could be used to facilitate the flow of savings into banks. We test this premise by introducing a product that permits Sri Lankan households to deposit mobile airtime balances into a formal bank using a new mobile money interface. Using high frequency panel survey data and randomizing access and prices at the individual level, we find that there are moderate percentage increases in savings deposits with the partner institution and formal banks more generally, but no change in overall savings deposits. When the transaction costs are completely removed, only 26 percent of those offered the service use it, and 7 percent use it frequently. Overall, our results imply that transaction costs may not be a significant barrier to increasing deposits, limiting the potential gains of mobile-linked savings products for financial inclusion.
    JEL: G21 O12 O16
    Date: 2018–12
  24. By: Schenk, Catherine R.
    Abstract: Brexit poses an existential challenge the City of London as a European and global financial centre. The withdrawal of 'passporting' threatens the ability of financial institutions in London to sell services to customers in the EU, and this has prompted many predictions of London's financial demise. Banks are considering relocating staff and activities to other European centres such as Frankfurt, Dublin or Paris. Reflecting on London's history offers some insights into how The City might respond to this new challenge.
    JEL: G15 G18 N24 N44
    Date: 2018
  25. By: Galstyan, Vahagn (Central Bank of Ireland); Herzberg, Valerie (Central Bank of Ireland)
    Abstract: Large external imbalances have been a persistent feature of most advanced economies, including Ireland. This is despite significant deleveraging of the Irish banking sector since the financial crisis. Given the presence of internationally oriented activities with little Irelandrelated business, early-warning indicator metrics related to the international investment position require adjustments in order to serve as useful monitoring tools.We propose to focus on a metric related to the net external debt liabilities of a narrow set of domestic Irish banks: a closer monitoring of the external balance-sheet risk is warranted when the net external debt liabilities of domestic banks exceed 17 per cent of modified gross national income.
    Date: 2018–10

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