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on Banking |
| By: | Harald Hau (University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)); Gabriela Hrasko (University of Geneva; Swiss Finance Institute) |
| Abstract: | Following the 2008-9 financial crisis, large banks increasingly issued contingent convertible bonds (CoCo bonds) to increase their capital buffers – a policy supported by national bank regulators. This paper examines whether the issuance of CoCo bonds provides the same reduction in bank default risk as the corresponding issuance of common equity by analyzing the premium reduction in (single name) credit default swaps (CDS) around the corresponding issuance announcement events. We find that the default risk reduction associated with issuance crucially depends on the CoCo bond’s design features: Only CoCo bond designs with permanent write-down features provide a default risk reduction similar to equity. CoCo bonds with equity conversion features come with a lower subsequent volatility of the bank asset value, but are inferior to equity in terms of their default risk reduction. |
| Keywords: | CoCo bond, issuance announcement, asset volatility, bank stability |
| JEL: | G21 G13 G28 G32 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1867&r=all |
| By: | Timothy E Dore; Traci L. Mach |
| Abstract: | In 2005, Prosper launched the first peer-to-peer lending website in the US, allowing for consumers to apply for and receive loans entirely online. To understand the effect of this new credit source, we match application-level data from Prosper to credit bureau data. Post application, borrowers' credit scores increase and their credit card utilization rates fall relative to non-borrowers in the short run. In the longer run, total debt levels for borrowers are higher that of non-borrowers. Differences in mortgage debt are particularly large and increasing over time. Despite increased debt levels relative to non-borrowers, delinquency rates for borrowers are significantly lower. |
| Keywords: | Marketplace lending ; Online lending ; Peer-to-peer lending ; Prosper marketplace ; Disintermediation |
| JEL: | G23 G29 G20 |
| Date: | 2019–04–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2019-22&r=all |
| By: | JJ. Cao-Alvira; LG Deidda |
| Abstract: | We analyze the process by which banks enter the microcredit market while still engaging in traditional credit practices. For this we study a competitive credit market with adverse selection, where lenders are endowed with a screening technology capable of extracting an informative signal about a borrower's quality if enough time is devoted to process the loan application. The time necessary for signal extraction depends on the borrower's informational transparency. In the presence of opaque and transparent borrowers, depending on economy parameters, either a separating equilibrium with standard credit or microcredit prevails or a pooling equilibrium with either loan contract prevails. |
| Keywords: | Opaqueness;Microcredit;Bank Downscaling;asymmetric information;screening |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:cns:cnscwp:201905&r=all |
| By: | Matthias Efing (HEC Paris - Finance Department; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)); Harald Hau (University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)); Patrick Kampkötter (University of Tuebingen - Department of Managerial Accounting); Jean-Charles Rochet (GFRI, University of Geneva; Swiss Finance Institute; University of Zurich - Swiss Banking Institute (ISB)) |
| Abstract: | We argue that risk sharing motivates the bank-wide structure of bonus pay. In the presence of fi nancial frictions that make external fi nancing costly, the optimal contract between shareholders and employees involves some degree of risk sharing whereby bonus pay partially absorbs earnings shocks. Using payroll data for 1:26 million employee-years in all functional divisions of Austrian, German, and Swiss banks, we uncover several empirical patterns in bonus pay that are difficult to rationalize with incentive theories of bonus pay-but support an important risk sharing motive. In particular, bonuses respond to performance shocks that are outside the control of employees because they originate in other bank divisions or even outside the bank. |
| Keywords: | banker compensation, risk sharing, bonus pay, operating leverage |
| JEL: | G20 G21 D22 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1872&r=all |
| By: | Schmidt, Kirsten |
| Abstract: | We analyze the pledging behavior of Euro area banks during the introduction of the liquidity coverage ratio (LCR). The LCR considers only a subset of central bank eligible assets and thereby offers banks an arbitrage opportunity to improve their regulatory ratio by altering their collateral pledging with the European Central Bank. We use the existence of national liquidity requirements to proxy for banks’ incentives to exploit this differential treatment of central bank eligible assets. Using security-level information on collateral pledged with the central bank, we find that banks without a preceding national liquidity requirement pledge more and less liquid collateral than banks with a preceding national liquidity requirement after the LCR introduction. We attribute the difference across banks to a preparation effect of the liquidity regulation on the national level. JEL Classification: G21, G28, E42, E52, E58 |
| Keywords: | central bank refinancing operations, liquidity regulation, monetary policy |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192256&r=all |
| By: | Marc Frattaroli (Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute); Christoph Herpfer (Emory University) |
| Abstract: | We investigate how bankers use private information to help borrowers combine resources in strategic alliances. Firms that have borrowed from the same banker are significantly more likely to enter an alliance. Even indirect connections through a banker network can facilitate alliances. Consistent with bankers overcoming informational frictions, their ability to facilitate alliances decreases with network distance, and is stronger for opaque borrowers. Alliances are associated with positive announcement returns and brokering banks are more likely to receive future underwriting mandates. We exploit quasi-exogenous variation in firms’ banker networks from interstate bank branching deregulation to show that this relationship is causal. |
| Keywords: | Banking, Strategic Alliances, Information transmission |
| JEL: | G20 G21 G30 D74 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1853&r=all |
| By: | Abdelbary, Amr |
| Abstract: | The supervisory committees governed the banking supervision on all over the world which becomes a core activity Since the financial crisis of 2008. Capital adequacy ratio (CAR) is one of the measures which ensure the financial soundness of banks in absorbing a reasonable amount of loss. The objective of this paper is to develop a framework for measuring the capital adequacy by assessing the bank’s risks according to the basics of Basel’s norms in respect of the component of tire 1&2 of capital adequacy. The model used the relationships between equity, deposits, loans and assets to determine the risk ratio, which is calculated in regard of retention ratio. As liquidity risk is usually regulated from a micro prudential perspective, a better knowledge of these interactions among banks may have very important consequences on the design of macro prudential policy. |
| Keywords: | Capital adequacy ratio (CAR), Liquidity, Credit Risk, Loan to Deposits (LTD), Equity to Assets (ETA), Retained Earnings (RE). |
| JEL: | G21 |
| Date: | 2019–03–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:93072&r=all |
| By: | Tamon Asonuma; Marcos d Chamon; Aitor Erce; Akira Sasahara |
| Abstract: | Sovereign debt restructurings are associated with declines in GDP, investment, bank credit, and capital flows. The transmission channels and associated output and banking sector costs depend on whether the restructuring takes place preemptively, without missing payments to creditors, or whether it takes place after a default has occurred. Post-default restructurings are associated with larger declines in bank credit, an increase in lending interest rates, and a higher likelihood of triggering a banking crisis than pre-emptive restructurings. Our local projection estimates show large declines in GDP, investment, and credit amplified by severe sudden stops and transmitted through a “capital inflow-credit channel”. |
| Date: | 2019–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/69&r=all |
| By: | Haughwout, Andrew F. (Federal Reserve Bank of New York); Lee, Donghoon (Federal Reserve Bank of New York); Scally, Joelle (Federal Reserve Bank of New York); Thomas, Lauren (Federal Reserve Bank of New York); Van der Klaauw, Wilbert (Federal Reserve Bank of New York) |
| Abstract: | Since the onset of the 2008 financial crisis, consumer financial and borrowing behavior, once considered a relatively quiet little corner of finance, has been of enormously increased interest to policymakers and researchers alike. Prior to the Great Recession, there was a historic run-up in household debt, driven primarily by housing debt, which coincided with a speculative bubble and sharp rises in home prices. Then, as prices began to fall, millions of households began defaulting on their mortgages, unable to keep up with home payments, and greatly contributing to the onset of the deepest recession since the 1930s. Following the steep increase in debt balances during the boom, households began rapidly paying off their loans during and immediately after the Great Recession. Since 2013, debt has begun to increase and eventually rise above its previous levels, albeit at a much slower rate than before, at least partially owing to stricter lending standards. We examine the trends in household debt before, during, and since the 2000s financial crisis and Great Recession. As we will show, this period is unique in American history in several ways. Our analysis will show the sources of the historic run-up in debt during the bubble period of the early 2000s, the change in borrowing behavior that took place as the financial crisis and Great Recession took hold, and the nature of the recovery that began in 2013. We find that while total household debt has recovered to its previous level in nominal terms, its composition and characteristics have changed dramatically along many dimensions. |
| Keywords: | household finance; consumer; debt |
| JEL: | D12 G01 G21 |
| Date: | 2019–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:882&r=all |
| By: | Wall, Larry D. (Federal Reserve Bank of Atlanta) |
| Abstract: | Although a number of steps have been taken to reduce the risk of financial stability, some significant weaknesses remain. This paper examines whether stricter regulation of incentive compensation is the missing piece needed to reduce risk to acceptable levels. Unfortunately, this review of the literatures on the relationship of risk to bank chief operating officer and bank employee compensation suggest both have some potential but that significant concerns remain in both cases. At this point, we cannot confidently say that compensation regulation is the missing piece. |
| Keywords: | incentive compensation; bank regulation |
| JEL: | G01 G21 G28 |
| Date: | 2019–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2019-06&r=all |
| By: | Parvaneh Shahnoori (Department of Economics, Eastern Mediterranean University, Mersin 10, Turkey and Payame Noor University, Bandar Abbas, Iran); Glenn P. Jenkins (Department of Economics, Queen's University, Kingston, Canada and Eastern Mediterranean University, North Cyprus) |
| Abstract: | This study investigates the important attributes of online banking system for Small and Medium Enterprises (SMEs) and their willingness to pay for each attribute. Zero travel and waiting time, high security, and 24/7 accessibility are the key attributes for this service. The results show that SMEs engaged in international trade value online banking services significantly more than the others. Domestically focused firms value high quality service at about $163 a month while import-focused businesses value such a service at approximately US$646 per month. Export-intensive SMEs value high quality online services 14% further, for an average of $736 per month. Revised paper published as; Valuation of the Quality Attributes of Online Banking Services by Small and Medium Enterprises Engaged in International Trade in the South African Journal of Economics Vol 87; 1 (2019) |
| Keywords: | Online banking; SME; valuation; service attributes; willingness to pay; international trade; mixed logit model. |
| JEL: | C13 C25 C93 G21 F10 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:qed:dpaper:4514&r=all |
| By: | Zohair Alam; Adrian Alter; Jesse Eiseman; R. G Gelos; Heedon Kang; Machiko Narita; Erlend Nier; Naixi Wang |
| Abstract: | This paper introduces a new comprehensive database of macroprudential policies, which combines information from various sources and covers 134 countries from January 1990 to December 2016. Using these data, we first confirm that loan-targeted instruments have a significant impact on household credit, and a milder, dampening effect on consumption. Next, we exploit novel numerical information on loan-to-value (LTV) limits using a propensity-score-based method to address endogeneity concerns. The results point to economically significant and nonlinear effects, with a declining impact for larger tightening measures. Moreover, the initial LTV level appears to matter; when LTV limits are already tight, the effects of additional tightening on credit is dampened while those on consumption are strengthened. |
| Keywords: | Mortgages;Exchange rate policy;Reserve requirements;Household credit;Credit booms;Macroprudential policy;loan-to-value ratios;propensity score;LTV;policy action;reverse causality;endogeneity;appendix IV |
| Date: | 2019–03–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/66&r=all |