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on Banking |
| By: | Gaudêncio, João; Mazany, Agnieszka; Schwarz, Claudia |
| Abstract: | This paper analyses the impact of lending standards for residential real estate (RRE) loans on default rates, using a novel loan-level dataset from the European DataWarehouse (EDW) that covers eight euro area countries. To the best of the authors’ knowledge, this paper is the first to use, for this purpose, a consistent set of loan-level data on loans originated in multiple euro area countries. Previous literature has used either national loan-level data, which does not allow for cross-country comparisons, or aggregate cross-country data. The dataset is first explored through an extensive descriptive analysis and this is followed by static probit regressions. The findings confirm the key influence of lending standards – in particular, loan-to-value and loan-to-income ratios at origination, original loan maturity and borrower employment status – on loan default rates. The impact of other variables, such as interest rate fixation and payment type, varies depending on the country of loan origination. These results are particularly relevant for microprudential supervisors in their ongoing assessment of banks’ credit policies. The highlighted country specificities should be taken into account in macroprudential policymaking. JEL Classification: C25, G21 |
| Keywords: | default probability, lending standards, loan-level data, loan defaults, residential real estate |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2019220&r=all |
| By: | Yener Altunbaş (Bangor University); John Thornton (Office of Technical Assistance, US Department of the Treasury; Bangor University); Tianshu Zhao (Birmingham Business School, University of Birmingham) |
| Abstract: | We examine the impact of banks’ internal capital markets (ICMs) before the 2008-09 financial crisis on bank risk-taking during the crisis in a panel of 8,068 banks across 16 countries. The size of ICMs was an important driver of risk during the crisis when banks with larger ICMs exhibited lower risk levels. Larger ICMs reduced risk further for well capitalized banks. Banks more likely to be in trouble in a crisis are likely to have smaller ICMs, be larger in size, less well capitalized, less efficient, less profitable, and more dependent on market funding. |
| Keywords: | Banks, governance, risk, CEO power, boards of directors, institutional investors |
| JEL: | G15 G21 G32 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:bng:wpaper:19004&r=all |
| By: | Huizinga, Harry; Laeven, Luc |
| Abstract: | Loan loss provisions in the euro area are negatively related to GDP growth, i.e., they are procyclical. Loan loss provisions tend to be more procyclical at larger and better capitalized banks. The procyclicality of loan loss provisions can explain about two-thirds of the variation of bank capitalization over the business cycle. We estimate that provisioning procyclicality in the euro area is about twice as large as in other advanced economies. This difference reflects a larger procyclicality of provisioning in euro area countries already prior to euro adoption, and the divergent growth experiences of euro area countries following the global financial crisis. |
| Keywords: | financial institutions; financial regulation; procyclicality |
| JEL: | G20 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13605&r=all |
| By: | Alcaraz, Carlo; Claessens, Stijn; Cuadra, Gabriel; Marqués-Ibáñez, David; Sapriza, Horacio |
| Abstract: | We assess how a major, unconventional central bank intervention, Draghi’s “whatever it takes” speech, affected lending conditions. Similar to other large interventions, it responded to adverse financial and macroeconomic developments that also influenced the supply and demand for credit. We avoid such endogeneity concerns by focusing on a third country and comparing lending conditions by euro area and other banks to the same borrower. We show that the intervention reversed prior risk-taking – in volume, price, and loan credit ratings – by subsidiaries of euro area banks relative to local and other foreign banks. Our results document a new effect of large central banks’ interventions and are robust along many dimensions. JEL Classification: E51, G21, F34 |
| Keywords: | credit conditions, spillovers, unconventional monetary policy |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192249&r=all |
| By: | Lis Sintha (Universitas Kristen Indonesia, Jl. Mayjen Soetoyo no.2, Cawang, Jakarta (13630), Indonesia Author-2-Name: Author-2-Workplace-Name: Author-3-Name: Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:) |
| Abstract: | Objective – The purpose of this study is to examine the influence of capital on bankruptcy banks. The hypothesis of this research is that capital has an effect on the bankruptcy of a bank. Methodology/Technique – This research examines financial reports between 2005-2014. An econometric model with a logistical regression analysis technique is used. In this study, capital is measured by CAR, taking into account credit risk; CAR by taking into account market risk; Ratio of Obligation to Provide Minimum Capital for Credit Risk and Operational Risk; Ratio of Minimum Capital Adequacy Ratio for Credit Risk, Operational Risk and Market Risk; Capital Adequacy Requirements (CAR). Findings – The results show that the capital adequacy ratio for market ratio and capital adequacy ratio for credit ratio and operational ratio support the research hypothesis and can form a logit model. The test results of CAR by taking into account credit risk, Minimum Capital Requirement Ratio for Credit Risk, Operational Risk and Market Risk and Minimum Capital Provision Obligations do not support the research hypothesis. Novelty – This paper contribute to bank bankruptcy prediction models based on time dimension and bank groups using financial ratios which are expected can influence bank in bankrupt condition. Type of Paper: Empirical. |
| Keywords: | Banking crisis, Cost of bankruptcy, Adequacy Ratio, Financial ratios, Prediction models |
| JEL: | G32 G33 G39 |
| Date: | 2019–03–19 |
| URL: | http://d.repec.org/n?u=RePEc:gtr:gatrjs:jfbr152&r=all |
| By: | Sergio Mayordomo (Banco de España); Omar Rachedi (Banco de España) |
| Abstract: | We study the effect of rising Chinese import competition in the early 2000s on banks’ credit supply policies. Using bank-firm-level data on the universe of Spanish corporate loans, we exploit heterogeneity across banks in the exposure of their loan portfolios towards firms competing with Chinese imports. Exposed banks rebalanced their loan portfolios by cutting the supply of credit to firms affected by Chinese competition, while raising their lending towards non-exposed sectors. This portfolio reallocation depressed further the economic activity of firms competing with Chinese imports |
| Keywords: | trade shock, credit register, banks’ portfolio reallocation, bank loans, real effects |
| JEL: | G21 G32 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1908&r=all |
| By: | Hans Gersbach (ETH Zurich, Switzerland); Stylianos Papageorgiou (University of Cyprus, Cyprus) |
| Abstract: | We study the political economy of bank capital regulation from a positive and normative perspective. In a general equilibrium setting, capital requirements and lobbying contributions are determined as the outcome of bargaining between banks and politicians. We show that bankers and politicians agree on lobbying contributions and capital regulation that renders banks fragile, reducing efficiency and fairness. Consideration of all general equilibrium effects, or a bail-in provision and high capital regulation standards from international agreements eliminate lobbying incentives, yielding an efficient and fair allocation. |
| Keywords: | Banking regulation, lobbying, regulatory capture, capital requirements, bank resolution, risk-taking. |
| JEL: | D53 D72 G21 G28 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:eth:wpswif:19-308&r=all |
| By: | Anatoli Segura (Bank of Italy); Sergio Vicente (Queen Mary University of London) |
| Abstract: | This paper characterizes the optimal banking union with endogenous participation in a two-country economy in which domestic bank failures may be contemporaneous to sovereign crises, giving rise to risk-sharing motives to mutualize bail-out funding. Raising public funds to conduct bail-outs entails a deadweight loss. Bank bail-ins create disruption costs. The optimal resolution trades-off these costs. Truthfully eliciting information from domestic authorities imposes a domestic co-payment to fund bail-outs. When country asymmetry is large, ensuring the ex-ante participation of the fiscally stronger country requires a reduced contribution by this country, which increases the likelihood of bailing out its failing bank. |
| Keywords: | banking union, bail-in, bail-out, public backstop, mechanism design |
| JEL: | G01 G21 G28 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1212_19&r=all |
| By: | Hans Gersbach (ETH Zurich, Switzerland); Volker Hahn (University of Konstanz, Germany); Yulin Liu (ETH Zurich, Switzerland) |
| Abstract: | We integrate banks and the coexistence of bank and bond financing into an otherwise standard New Keynesian framework. There are two policy-makers: a central banker, who can decide on short-term nominal interest rates, and a macroprudential policy-maker, who can vary aggregate capital requirements. The two policy instruments can be used to stabilize shocks, to moderate bank credit cycles, and to induce a more efficient allocation of resources across sectors. Moreover, we investigate the optimal combination of simple policy rules for interest rates and capital requirements. The optimal policy rules imply that the central bank should focus exclusively on price stability and the macroprudential policy-maker should react exclusively to changes in loan rate premia. |
| Keywords: | central banks, banking regulation, capital requirements, optimal monetary policy |
| JEL: | E52 E58 G28 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:eth:wpswif:18-294&r=all |
| By: | Yiwei Dou; Geng Li; Joshua Ronen |
| Abstract: | We study the unintended consequences of consumer financial regulations, focusing on the CARD Act, which restricts consumer credit card issuers’ ability to raise interest rates. We estimate the competitive responsiveness-the degree to which a credit card issuer changes offered interest rates in response to changes in interest rates offered by its competitors-as a measure of competition in the credit card market. Using small business card offers, which are not subject to the Act, as a control group, we find a significant decline in the competitive responsiveness after the Act. The decline in responsiveness is more pronounced for competitors’ reductions, as opposed to increases, in interest rates, and is more pronounced in areas with more subprime borrowers. The reduced competition underscores the potential unintended consequence of regulating the consumer credit market and contributes toward a more comprehensive and balanced evaluation of the costs and benefits of consumer financial regulations. |
| Keywords: | CARD Act ; Competitive responsiveness ; Credit card market ; Regulations |
| JEL: | L51 G21 E51 |
| Date: | 2019–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2019-18&r=all |
| By: | Liu, Zheng (Federal Reserve Bank of San Francisco); Wang, Pengfei (Hong Kong University of Science and Technology); Zha, Tao (Federal Reserve Bank of Atlanta) |
| Abstract: | Aggregate housing demand shocks are an important source of house price fluctuations in the standard macroeconomic models, and through the collateral channel, they drive macroeconomic fluctuations. These reduced-form shocks, however, fail to generate a highly volatile price-to-rent ratio that comoves with the house price observed in the data (the “price-rent puzzle”). We build a tractable heterogeneous-agent model that provides a microeconomic foundation for housing demand shocks. The model predicts that a credit supply shock can generate large comovements between the house price and the price-to-rent ratio. We provide empirical evidence from cross-country and cross-MSA data to support this theoretical prediction. |
| Keywords: | price-rent puzzle; heterogeneity; marginal agent; cutoff point; liquidity premium; price-to-rent ratio; collateral constraint |
| JEL: | E21 E44 G21 |
| Date: | 2019–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2019-04&r=all |
| By: | Min Hua (Swansea University); Wei Song (Swansea University); Oleksandr Talavera (University of Birmingham) |
| Abstract: | We extend the existing literature on the role of CEO personal characteristics in bank risktaking by showing that the economic conditions at the time when bank CEOs enter the labor market have a significant impact on risk-taking. Specifically, using a unique hand-collected dataset of bank CEOs’ career profiles and demographic characteristics, we find that banks managed by CEOs who started their careers during recessions (i.e., recession CEOs) take less risk than their non-recession counterparts. We also show that recession CEOs are more likely to implement conservative bank policies, have a traditional bank business model, and are negatively related to bank opaqueness. Furthermore, banks with recession CEOs produce superior performance during the recent financial crisis, while they do not outperform those with non-recession CEOs in general or over the pre-crisis period. The negative effect of recession CEOs on bank risk-taking persists after we attempt to address endogeneity concerns and is robust to the introduction of additional robustness checks. Overall, these findings highlight the empirical relevance of the association between the initial labor market conditions when a bank CEO starts her career and bank risk-taking. |
| Keywords: | banks, CEOs, labor market condition, risk-taking |
| JEL: | G01 G21 G32 G34 J24 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bir:birmec:19-04&r=all |
| By: | Yener Altunbaş (Bangor University); John Thornton (Office of Technical Assistance, US Department of the Treasury; Bangor University); Yurtsev Uymaz (Norwich Business School, University of East Anglia) |
| Abstract: | We test for a link between money laundering and bank risk in US banks. We find that money laundering increases bank risk according to several measures of risk, with the effect on risk only partly mitigated by large and independent executive boards and accentuated by powerful CEOs. |
| Keywords: | Banks, governance, risk, CEO power, boards of directors, institutional investors |
| JEL: | G20 G21 G34 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:bng:wpaper:19005&r=all |
| By: | Liu, Zheng (Federal Reserve Bank of San Francisco); Wang, Pengfei (Hong Kong University of Science and Technology); Zha, Tao (Federal Reserve Bank of Atlanta) |
| Abstract: | Aggregate housing demand shocks are an important source of house price fluctuations in the standard macroeconomic models, and through the collateral channel, they drive macroeconomic fluctuations. These reduced-form shocks, however, fail to generate a highly volatile price-to-rent ratio that comoves with the house price observed in the data (the “price-rent puzzle”). We build a tractable heterogeneous-agent model that provides a microeconomic foundation for housing demand shocks. The model predicts that a credit supply shock can generate large comovements between the house price and the price-to-rent ratio. We provide empirical evidence from cross-country and cross-MSA data to support this theoretical prediction. |
| JEL: | E21 E27 E32 |
| Date: | 2019–03–07 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2019-09&r=all |
| By: | Tayyar Buyukbasaran; Gokce Karasoy Can; Hande Kucuk |
| Abstract: | This paper aims to identify credit supply shocks and analyse their macroeconomic effects in Turkey. For this purpose, we use a Bayesian Structural Vector Autoregression (SVAR) with sign and zero restrictions. We focus on the impact of credit supply shocks on real GDP growth and highlight how the size of this impact changes when we explicitly account for the effects of capital inflows on credit conditions. Hence, our results confirm the importance of external finance for credit supply in Turkey. Our main findings are robust to some alternative data choices, prior selections as well as some alternative identifying restrictions. |
| Keywords: | Credit supply shocks, SVAR, Bayesian VAR, Sign and zero restrictions |
| JEL: | C11 C32 E52 F41 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1906&r=all |
| By: | Auclert, Adrien; Dobbie, Will; Goldsmith-Pinkham, Paul |
| Abstract: | This paper argues that the debt forgiveness provided by the U.S. consumer bankruptcy system helped stabilize employment levels during the Great Recession. We document that over this period, states with more generous bankruptcy exemptions had significantly smaller declines in non-tradable employment and larger increases in unsecured debt write-downs compared to states with less generous exemptions. We interpret these reduced form estimates as the relative effect of debt relief across states, and develop a general equilibrium model to recover the aggregate employment effect. The model yields three key results. First, substantial nominal rigidities are required to rationalize our reduced form estimates. Second, with monetary policy at the zero lower bound, traded good demand spillovers across states boosted employment everywhere. Finally, the ex-post debt forgiveness provided by the consumer bankruptcy system during the Great Recession increased aggregate employment by almost two percent. |
| Keywords: | Consumer bankruptcy; micro to macro; regional multipliers |
| JEL: | D14 E32 K35 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13598&r=all |