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on Banking |
| By: | Mauricio Calani |
| Abstract: | We argue that financial institutions responded by raising their acceptable borrowing standards on borrowers, enhancing the quality of their portfolio, but also contracting their supply of mortgage credit. We reach this conclusion by developing a stylized imperfect information model which we use to guide our empirical analysis. We conclude that the loan-to-value (LTV) ratio was 2.8% lower for the mean borrower, and 9.8% lower for the median borrower, because of the regulation. Our paper contributes to the literature on the evaluation of macro-prudential policies, which has mainly exploited cross-country evidence. In turn, our analysis narrows down to one particular policy in the mortgage market, and dissects its effects by exploiting unique administrative tax data on the census of all real estate transactions in Chilean territory, in the period 2012-2016. |
| Keywords: | loan loss provisions, LTV, screening, coarsened exact matching, macroprudential policy |
| JEL: | G21 R31 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:780&r=all |
| By: | Acharya, Viral V.; Imbierowicz, Björn; Steffen, Sascha; Teichmann, Daniel |
| Abstract: | We investigate the transmission of central bank liquidity to bank deposits and loan spreads in Europe over the January 2006 to June 2010 period. We find evidence consistent with an impaired transmission channel due to bank risk. Central bank liquidity does not translate into lower loan spreads for high-risk banks, even as it lowers deposit rates for both high-risk and low-risk banks. This adversely affects the balance sheets of high-risk bank borrowers, leading to lower payouts, lower capital expenditures, and lower employment. Overall, our results suggest that banks' capital constraints at the time of an easing of monetary policy pose a challenge to the effectiveness of the bank lending channel and the effectiveness of the central bank as a lender of last resort. |
| Keywords: | Central bank liquidity,Monetary policy transmission,Corporate deposits,Financial crisis,Lender of last resort,Banking crisis,Loans,Real effects |
| JEL: | E43 E58 G01 G21 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:620&r=all |
| By: | Gyöngyösi, Győző; Ongena, Steven; Schindele, Ibolya |
| Abstract: | We study the impact of monetary conditions on the supply of mortgage credit by banks to households. Using comprehensive credit register data from Hungary, we first establish a "bank-lending-to-households" channel by showing that monetary conditions affect the supply of mortgage credit in volume. We then study the impact of monetary conditions on the composition of mortgage credit along its currency denomination and borrower risk. We find that expansionary domestic monetary conditions increase the supply of mortgage credit to all households in the domestic currency and to risky households in the foreign currency. Because most households are unhedged, bank lending in multiple currencies may involve additional risk taking. Changes in foreign monetary conditions affect lending in the foreign currency more than in the domestic currency, and also differ in their compositional impact along firm risk. |
| Keywords: | bank balance-sheet channel,household lending,monetary policy,foreign currency lending |
| JEL: | E51 F3 G21 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkwp:2124&r=all |
| By: | Chao Gu (University of Missouri); Cyril Monnet (University of Berne); Ed Nosal (FRB Atlanta); Randall Wright (University of Wisconsin) |
| Abstract: | Are financial intermediaries inherently unstable? If so, why? What does this suggest about government intervention? To address these issues we analyze whether model economies with financial intermediation are particularly prone to multiple, cyclic, or stochastic equilibria. Four formalizations are considered: a dynamic version of Diamond-Dybvig incorporating reputational considerations; a model with delegated monitoring as in Diamond; one with bank liabilities serving as payment instruments similar to currency in Lagos-Wright; and one with Rubinstein-Wolinsky intermediaries in a decentralized asset market as in Duffie et al. In each case we find, for different reasons, that financial intermediation engenders instability in a precise sense. |
| Keywords: | Banking, Financial Intermediation, Instability, Volatility |
| JEL: | D02 E02 E44 G21 |
| Date: | 2019–04–08 |
| URL: | http://d.repec.org/n?u=RePEc:umc:wpaper:1901&r=all |
| By: | Lilit Popoyan; Mauro Napoletano; Andrea Roventini |
| Abstract: | We develop a macroeconomic agent-based model to study how financial instability can emerge from the co-evolution of interbank and credit markets and the policy responses to mitigate its impact on the real economy. The model is populated by heterogenous firms, consumers, and banks that locally interact in different markets. In particular, banks provide credit to firms according to a Basel II or III macro-prudential frameworks and manage their liquidity in the interbank market. The Central Bank performs monetary policy according to different types of Taylor rules. We find that the model endogenously generates market freezes in the interbank market which interact with the financial accelerator possibly leading to firm bankruptcies, bank- ing crises and the emergence of deep downturns. This requires the timely intervention of the Central Bank as a liquidity lender of last resort. Moreover, we find that the joint adoption of a three mandate Taylor rule tackling credit growth and the Basel III macro-prudential frame- work is the best policy mix to stabilize financial and real economic dynamics. However, as the Liquidity Coverage Ratio spurs financial instability by increasing the pro-cyclicality of banksù liquid reserves, a new counter-cyclical liquidity buffer should be added to Basel III to improve its performance further. Finally, we find that the Central Bank can also dampen financial in- stability by employing a new unconventional monetary-policy tool involving active management of the interest-rate corridor in the interbank market. |
| Keywords: | financial instability; interbank market freezes; monetary policy; macro-prudential policy; Basel III regulation; Tinbergen principle; agent-based models. |
| Date: | 2019–04–24 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2019/11&r=all |