nep-ban New Economics Papers
on Banking
Issue of 2019‒05‒13
27 papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. How Do Lead Banks Use Their Private Information about Loan Quality in the Syndicated Loan Market? By Balasubramanyan, Lakshmi; Berger, Allen N.; Koepke, Matthew
  2. The banks that said no: the Impact of credit supply on productivity and wages By Franklin, Jeremy; Rostom, May; Thwaites, Gregory
  3. Measuring Systemic Risk on Indonesia’s Banking System By Mansur, Alfan
  4. Does trust among banks matter for bilateral trade? Evidence from shocks in the interbank market By Silvia Del Prete; Stefano Federico
  5. Do Distressed Banks Really Gamble for Resurrection? By Ben-David, Itzhak; Palvia, Ajay A.; Stulz, Rene M.
  6. Economics of Voluntary Information Sharing By Liberti, Jose; Sturgess, Jason; Sutherland, Andrew
  7. What Causes Chinese Listed Firms To Switch Bank Loan Provider? Evidence From A Survival Analysis By Huang, Jiayi; Matthews, Kent; Zhou, Peng
  8. The Procyclicality of Banking : Evidence from the Euro Area By Huizinga, Harry; Laeven, Luc
  9. Macroprudential and Monetary Policy: Loan-Level Evidence from Reserve Requirements By Cecilia Dassatti Camors; José-Luis Peydró; Francesc R Tous
  10. Negative Monetary Policy Rates and Portfolio Rebalancing: Evidence from Credit Register Data By Margherita Bottero; Camelia Minoiu; José-Luis Peydró; Andrea Polo; Andrea F. Presbitero; Enrico Sette
  11. Monetary policy, credit institutions and the bank lending channel in the euro area By Altavilla, Carlo; C. Andreeva, Desislava; Boucinha, Miguel; Holton, Sarah
  12. Playing with Fire? Debt near Retirement in Canada By Nicolas Bédard; Pierre-Carl Michaud
  13. The Effect of Higher Capital Requirements on Bank Lending: The Capital Surplus Matters By Dominika Kolcunova; Simona Malovana
  14. Higher multilateral development bank lending, unchanged capital resources and triple-A rating. A possible trinity after all? By Riccardo Settimo
  15. Institutional presence in secondary bank bond markets: how does it affect liquidity and volatility? By Weistroffer, Christian; Opricǎ, Silviu
  16. Optimally solving banks' legacy problems By Segura Velez, Anatoli; Suarez, Javier
  17. Traditional and Shadow Banks By Chretien, Edouard; Lyonnet, Victor
  18. Least Impulse Response Estimator for Stress Test Exercises By Christian Gourieroux; Yang Lu
  19. Credit risk-taking and maturity mismatch: the role of the yield curve By Giuseppe Ferrero; Andrea Nobili; Gabriele Sene
  20. Bank Risk Dynamics and Distance to Default By Stefan Nagel; Amiyatosh Purnanandam
  21. Risky Bank Guarantees By Makinen, Taneli; Sarno, Lucio; Zinna, Gabriele
  22. Participants' Reputation in the Syndicated Lending Market By Daria Kalyaeva
  23. Arbitrage Crashes, Financial Accelerator, and Sudden Market Freezes By Ally Zhang
  24. A closed-form solution to the risk-taking motivation of subordinated debtholders By Heller, Yuval; Peleg Lazar, Sharon; Raviv, Alon
  25. Rise of Bank Competition: Evidence from Banking Deregulation in China By Haoyu Gao; Hong Ru; Robert Townsend; Xiaoguang Yang
  26. The impact of anti-money laundering oversight on banks' suspicious transaction reporting: Evidence from Italy By Mario Gara; Francesco Manaresi; Domenico J. Marchetti; Marco Marinucci
  27. Leverage and Deepening Business Cycle Skewness By Jensen, Henrik; Petrella, Ivan; Ravn, Soren; Santoro, Emiliano

  1. By: Balasubramanyan, Lakshmi (Federal Reserve Bank of Cleveland); Berger, Allen N. (University of South Carolina, Wharton Financial Institutions Center, and the European Banking Center); Koepke, Matthew (Federal Reserve Bank of Cleveland)
    Abstract: We formulate and test two opposing hypotheses about how lead banks in the syndicated loan market use private information about loan quality, the Signaling Hypothesis and Sophisticated Syndicate Hypothesis. We use Shared National Credit (SNC) internal loan ratings made comparable using concordance tables to measure private information. We find favorable private information is associated with higher lead bank loan retention and lower interest rate spreads for pure term loans, ceteris paribus, supporting the Signaling Hypothesis. Neither hypothesis dominates for pure revolvers. The data partially support two conjectures about the circumstances under which the two hypotheses are more likely to hold.
    Keywords: Lead bank; private information; loan sales; syndication;
    JEL: G21 G28
    Date: 2017–11–29
  2. By: Franklin, Jeremy; Rostom, May; Thwaites, Gregory
    Abstract: This paper estimates the effects of changes in bank credit supply on the real economy. We use UK firm-level data around the global financial crisis and information on pre-existing bank lending relationships to isolate exogenous credit supply shocks. We find some evidence that contractions in credit supply substantially reduce labour productivity, wages, and capital per worker within firms, and increase the chance firms will fail. Our results have implications for the welfare costs of financial crises, and for the costs of policy measures affecting credit supply at other times.
    Keywords: banks; credit supply; firm behaviour; productivity
    JEL: D24 G21
    Date: 2019–04–03
  3. By: Mansur, Alfan
    Abstract: Inter-connectedness is one important aspect of measuring the degree of systemic risk arising in the banking system. In this paper, this aspect together with the degree of commonality and volatility are measured using Principal Component Analysis (PCA), dynamic Granger causality tests and a Markov regime switching model. These measures can be used as leading indicators to detect pressures in the financial system, in particular, the banking system. There is evidence that the inter-connectedness level together with a degree of commonality and volatility among banks escalate substantially during the financial distress. It implies that less systemically important banks could become more important in the financial system during abnormal times. Therefore, the list of systemically important banks regulated in the Law on Prevention and Mitigation of Financial System Crisis (UU PPKSK) should be updated more frequently during the period of financial distress.
    Keywords: Inter-connectedness, systemic risk, Principal Component Analysis, Granger causality, regime switching.
    JEL: C32 C38 G21
    Date: 2018–01–19
  4. By: Silvia Del Prete (Bank of Italy); Stefano Federico (Bank of Italy)
    Abstract: Do financial crises have an impact on trade flows via a shock to corporate risk or to bank risk? Focusing on Italy’s exports during a period characterized by both the global financial crisis and by the sovereign debt crisis, we exploit the prediction of standard trade models according to which financial shocks should be magnified by the time needed to ship a good to the importer’s country and by sector-level financial vulnerability. We also use bank-pair data on Italian banks’ assets and liabilities vis-à-vis their foreign bank counterparts in a specific country to construct proxies for the availability of trade finance in a given market. We find evidence of a negative impact of financial shocks on exports, especially to more distant countries and in more financially vulnerable sectors. The main channels seem to be mainly related to an increase in corporate risk (reflecting shocks to bank finance and to buyer-supplier trade credit), while the ‘contagion effect’ of shocks stemming from bank risk seems to be much less significant.
    Keywords: bilateral trade, interbank markets, counterparty risk
    JEL: G21 F14 F30 G30 L20
    Date: 2019–04
  5. By: Ben-David, Itzhak (Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)); Palvia, Ajay A. (Government of the United States of America - Office of the Comptroller of the Currency (OCC)); Stulz, Rene M. (Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI))
    Abstract: We explore the actions of financially distressed banks in two distinct periods that include financial crises (1985-1994, 2005-2014) and differ in bank regulations, especially concerning capital requirements and enforcement. In contrast to the widespread belief that distressed banks gamble for resurrection, we document that distressed banks take actions to reduce leverage and risk, such as reducing asset and loan growth, issuing equity, decreasing dividends, and lowering deposit rates. Despite large differences in regulation between periods, the extent of deleveraging is similar, suggesting that economic forces beyond formal regulations incentivize bank managers to deleverage when their banks are in distress.
    JEL: G11 G21 G33
    Date: 2019–04
  6. By: Liberti, Jose; Sturgess, Jason; Sutherland, Andrew
    Abstract: We show that lenders join a U.S. commercial credit bureau when information asymmetries between incumbents and entrants create an adverse selection problem that hinders market entry. Lenders also delay joining when information asymmetries protect them from competition in existing markets, consistent with lenders trading off new market entry against heightened competition. We exploit shocks to information coverage to show that lenders enter new markets after joining the bureau in a pattern consistent with this trade-off. Our results illuminate why intermediaries voluntarily share information and show how financial technology that mitigates information asymmetries can shape the boundaries of lending.
    Keywords: information sharing, adverse selection, specialization, financial intermediation, collateral, credit bureaus, fintech
    JEL: D43 D82 G21 G23 G32
    Date: 2018
  7. By: Huang, Jiayi (Cardiff Business School); Matthews, Kent (Cardiff Business School); Zhou, Peng (Cardiff Business School)
    Abstract: This paper analyses the duration of firm-bank relationships and examines what drives firms in China to change from one bank loan provider to another. Matched data of firm-loan-duration to bank provides a unique panel data set of relationship between China's listed firms and their lending banks consisting of 2,102 firms listed on both the Shanghai Stock Exchange and Shenzhen Stock Exchange in the period of 1996-2016. The Cox proportional hazard model is used to allow for a semiparametric hazard function after parametrically controlling for firm specific financial factors, industry factors, ownership characteristics, internal management changes, and external macroeconomic changes. In addition, we explore the impact of the 2008 financial crisis, bank-financial and ownership characteristics. The main finding of this study is that in an environment of growing ommercialisation of relationships the firm-bank relationship between state-owned enterprises (SOEs) and state-owned banks (SOBs) in China remains super-stable. However, a change in the CEO of a firm even of a SOE increases the probability of the loan-provider being changed.
    Keywords: Firm-Bank Switch, China, Survival analysis, Hazard Function
    JEL: G21 D22
    Date: 2019–05
  8. By: Huizinga, Harry (Tilburg University, Center For Economic Research); Laeven, Luc (Tilburg University, Center For Economic Research)
    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: procyclicality; loan loss provisions
    JEL: G20
    Date: 2019
  9. By: Cecilia Dassatti Camors; José-Luis Peydró; Francesc R Tous
    Abstract: We analyze the impact of reserve requirements on the supply of credit to the real sector. For identification, we exploit a tightening of reserve requirements in Uruguay during a global capital inflows boom, where the change affected more foreign liabilities, in conjunction with its credit register that follows all bank loans granted to non-financial firms. Following a difference-in-differences approach, we compare lending to the same firm before and after the policy change among banks differently affected by the policy. The results show that the tightening of the reserve requirements for banks lead to a reduction of the supply of credit to firms. Importantly, the stronger quantitative results are for the tightening of reserve requirements to bank liabilities stemming from non-residents. Moreover, more affected banks increase their exposure into riskier firms, and larger banks mitigate the tightening effects. Finally, the firm-level analysis reveals that the cut in credit supply in the loan-level analysis is binding for firms. The results have implications for global monetary and financial stability policies.
    JEL: E51 E52 G21 G28
    Date: 2019–03
  10. By: Margherita Bottero; Camelia Minoiu; José-Luis Peydró; Andrea Polo; Andrea F. Presbitero; Enrico Sette
    Abstract: We study negative interest rate policy (NIRP) exploiting ECB’s NIRP introduction and administrative data from Italy, severely hit by the Eurozone crisis. NIRP has expansionary effects on credit supply—and hence the real economy—through a portfolio rebalancing channel. NIRP affects banks with higher ex-ante net short-term interbank positions or, more broadly, more liquid balance-sheets, not with higher retail deposits. NIRP-affected banks rebalance their portfolios from liquid assets to credit—especially to riskier and smaller firms—and cut loan rates, inducing sizable real effects. By shifting the entire yield curve downwards, NIRP differs from rate cuts just above the ZLB.
    Keywords: negative interest rates, portfolio rebalancing, bank lending channel of monetary policy, liquidity management, Eurozone crisis
    JEL: E52 E58 G01 G21 G28
    Date: 2019–02
  11. By: Altavilla, Carlo; C. Andreeva, Desislava; Boucinha, Miguel; Holton, Sarah
    Abstract: As the euro area has a predominantly bank-based financial system, changes in the composition and strength of banks’ balance sheets can have very sizeable implications for the transmission of monetary policy. This paper provides an overview of developments in banks’ balance sheets, profitability and risk-bearing capacity and analyses their relevance for monetary policy. We show that, while the transmission of standard policy interest rate cuts to firms and households was diminished during the crisis, in a context of financial market stress and weak bank balance sheets, unconventional monetary policy measures have helped to restore monetary policy transmission and pass-through to interest rates. We also document the extent to which these non-standard measures were successful in stimulating lending and which bank business models were more strongly affected. Finally, we show that the estimated impact of recent monetary policy measures on bank profitability does not appear to be particularly strong when all the effects on the macroeconomy and asset quality are taken into account. JEL Classification: G21, G20, E52, E43
    Keywords: banks, credit, interest rates, monetary policy
    Date: 2019–05
  12. By: Nicolas Bédard; Pierre-Carl Michaud
    Abstract: Because retired households cannot adjust quickly to shocks, for example by working more, they represent a vulnerable group when credit conditions deteriorate. We analyze the evolution of debt among households nearing retirement in Canada over the period 1999-2016. First, we find that debt as a ratio of income has risen considerably over that period and debt as a fraction of assets has also doubled even tough assets remain roughly five times as large as debt. Second, we report that mortgage debt has risen the most but that average mortgage payments have remained relatively constant over the period due to the downward trend in borrowing costs. Finally, we find that a small but significant fraction households are playing with fire, being vulnerable to a sudden rise on borrowing costs or a drop in house values which could jeopardize their standard of living in retirement.
    Keywords: Household debt, mortgages, credit, retirement.
    JEL: D14 D18 J14
    Date: 2018
  13. By: Dominika Kolcunova; Simona Malovana
    Abstract: This paper studies the impact of higher additional capital requirements on growth in loans to the private sector for banks in the Czech Republic. The empirical results indicate that higher additional capital requirements have a negative effect on loan growth for banks with relatively low capital surpluses. In addition, the results confirm that the relationship between the capital surplus and loan growth is also important at times of stable capital requirements, i.e. it does not serve only as an intermediate channel of higher additional capital requirements.
    Keywords: Bank lending, banks' capital surplus, regulatory capital requirements
    JEL: C22 E32 G21 G28
    Date: 2019–04
  14. By: Riccardo Settimo (Bank of Italy)
    Abstract: This paper contributes to the literature on Multilateral Development Banks’ (MDBs) balance sheet optimization in two ways. First, it looks at solutions to alleviate the ‘trilemma’ faced by MDBs – stemming from G20 shareholders’ calls for increasing development lending while, simultaneously, keeping capital resources and triple-A credit ratings unchanged. The employment of rating methodologies that take into account MDBs’ peculiarities more appropriately represents one viable solution, as it would allow them to significantly increase available lending capacity for given rating levels and equity resources. Second, the econometric evidence suggests the existence of a rather narrow difference in the cost of funding between triple-A and AA+ rated institutions. Combining the two results, the paper concludes that applying an alternative rating methodology and opting for an AA+ credit rating (instead of triple-A), the four MDBs considered (IBRD, ADB, IADB and AfDB) could more than triple their spare lending capacity, from USD 415 bn to 1.370 bn, with a relatively limited impact on funding costs, estimated at between 40 and 50 bps.
    Keywords: multilateral development banks, preferred creditor status, credit ratings, rating agencies, borrowing costs, risk premia
    JEL: F53 G15 G24 O19
    Date: 2019–04
  15. By: Weistroffer, Christian; Opricǎ, Silviu
    Abstract: Using newly available information on euro area sectoral holdings of securities, this paper investigates to what extent the presence of institutional investors affects volatility and liquidity in secondary bank bond markets. We find that non-bank financial intermediaries, in particular money market funds (MMFs), have a positive impact on secondary bank bond markets’ liquidity conditions, at the cost of significantly increasing volatility of daily returns. The effect translates to more than a 19% improvement in liquidity conditions and up to 57% increase in daily-return volatility, assuming MMFs hold about 10% of the notional amount in the secondary market of a representative euro area bank bond. The effect is relative to the impact the non-financial private sector has on markets. Investment funds, insurance corporations and pension funds are found to similarly affect market conditions, though to a lesser magnitude. We find a trade-off between volatility and liquidity, where the stronger presence of institutional investors at the same time improves liquidity and increases volatility. The results suggest that possible structural shifts in investor composition matter for market conditions and should be monitored by financial stability authorities. JEL Classification: G10, G15, G23
    Keywords: Bond Liquidity, Financial Markets, Generalized Method of Moments, Institutional Ownership, Securities Holdings
    Date: 2019–05
  16. By: Segura Velez, Anatoli; Suarez, Javier
    Abstract: We characterize policy interventions directed to minimize the cost to the deposit guarantee scheme and the taxpayers of banks with legacy problems. Non-performing loans (NPLs) with low and risky returns create a debt overhang that induces bank owners to forego profitable lending opportunities. NPL disposal requirements can restore the incentives to undertake new lending but, as they force bank owners to absorb losses, can also make them prefer the bank being resolved. For severe legacy problems, combining NPL disposal requirements with positive transfers is optimal and involves no conflict between minimizing the cost to the authority and maximizing overall surplus.
    Keywords: Debt overhang; deposit insurance; non performing loans; optimal intervention; state aid
    JEL: G01 G20 G28
    Date: 2019–05
  17. By: Chretien, Edouard (National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST)); Lyonnet, Victor (Ohio State University (OSU))
    Abstract: We propose a theory of the coexistence of traditional and shadow banks. In our model, shadow banks escape the costly regulation traditional banks must comply with, but forgo deposit insurance, which traditional banks can rely upon. In a crisis, shadow banks repay their creditors by selling assets at fire-sale prices to traditional banks, which fund these purchases with insured deposits. Our model is consistent with several facts from the 2007 financial crisis. The analysis implies an increase in traditional banks' debt capacity leads to an increase in the relative size of the shadow banking sector.
    JEL: E32 E44 E61 G01 G21 G23 G38
    Date: 2019–04
  18. By: Christian Gourieroux (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique); Yang Lu (CRENAU - Centre de recherche nantais Architectures Urbanités - AAU - Ambiances, Architectures, Urbanités - ECN - École Centrale de Nantes - ENSAG - École nationale supérieure d'architecture de Grenoble - ENSA Nantes - École nationale supérieure d'architecture de Nantes - CNRS - Centre National de la Recherche Scientifique - MCC - Ministère de la Culture et de la Communication)
    Abstract: We introduce new semi-parametric models for the analysis of rates and proportions, such as proportions of default, (expected) loss-given-default and credit conversion factor encountered in credit risk analysis. These models are especially convenient for the stress test exercises demanded in the current prudential regulation. We show that the Least Impulse Response Estimator, which minimizes the estimated effect of a stress, leads to consistent parameter estimates. The new models with their associated estimation method are compared with the other approaches currently proposed in the literature such as the beta and logistic regressions. The approach is illustrated by both simulation experiments and the case study of a retail P2P lending portfolio.
    Keywords: Basel Regulation,Stress Test,(Expected) Loss-Given-Default,Impulse Response,Credit Scoring,Pseudo-Maximum Likelihood,LIR Estimation,Beta Regression,Moebius Transformation
    Date: 2019–04–04
  19. By: Giuseppe Ferrero (Bank of Italy); Andrea Nobili (Bank of Italy); Gabriele Sene (Bank of Italy)
    Abstract: We study the credit-risk-taking behaviour of Italian banks in response to changes in the term structure of interest rates using a confidential dataset on new loans to non-financial firms. We find that ex-ante risk-taking is negatively related to the short end of the yield curve but positively to the long end. Banks’ balance sheet conditions, as captured not only by capitalization but also by the maturity mismatch between assets and liabilities, are key to relating these findings to the theoretical literature.
    Keywords: yield curve, risk-taking channel, reach-for-yield
    JEL: E30 E32 E51
    Date: 2019–04
  20. By: Stefan Nagel; Amiyatosh Purnanandam
    Abstract: We adapt structural models of default risk to take into account the special nature of bank assets. The usual assumption of log-normally distributed asset values is not appropriate for banks. Typical bank assets are risky debt claims, which implies that they embed a short put option on the borrowers’ assets, leading to a concave payoff. This has important consequences for banks’ risk dynamics and distance to default estimation. Due to the payoff non-linearity, bank asset volatility rises following negative shocks to borrower asset values. As a result, standard structural models in which the asset volatility is assumed to be constant can severely understate banks’ default risk in good times when asset values are high. Bank equity payoffs resemble a mezzanine claim rather than a call option. Bank equity return volatility is therefore much more sensitive to big negative shocks to asset values than in standard structural models.
    JEL: G01 G21 G38
    Date: 2019–05
  21. By: Makinen, Taneli; Sarno, Lucio; Zinna, Gabriele
    Abstract: Applying standard portfolio-sort techniques to bank asset returns for 15 countries from 2004 to 2018, we uncover a risk premium associated with implicit government guarantees. This risk premium is intimately tied to sovereign risk, suggesting that guaranteed banks, defined as those of particular importance to the national economy, inherit the risk of the guarantor. Indeed, this premium does not exist in safe-haven countries. We rationalize these findings with a model in which implicit government guarantees are risky in the sense that they provide protection that depends on the aggregate state of the economy.
    Keywords: banks; government guarantee; Risk premium; sovereign risk
    JEL: G23
    Date: 2019–05
  22. By: Daria Kalyaeva (Swiss Finance Institute; University of Lausanne)
    Abstract: How do lenders use their reputation when participating in syndicated loans? I address this question by focusing on syndicate composition with respect to participants’ reputation and its impact on loan spreads. I find that lender reputation enables it to compete in terms of choosing the types of loans to be involved in, so more reputable lenders participate in loans to safer, more transparent, and larger borrowers. In general, more reputable lenders participate in loans with more market finance features, rather than bank finance. However I find no evidence that lenders use their reputation and the corresponding market power for direct price competition. Any significant price effects of participants’ reputation seem to aid the certification process, rather than exploit their market power.
    Keywords: Syndicated lending, reputation, participants, contract terms, participation, certification
    JEL: G10 G11 G21 L11 L14 L84
    Date: 2018–11
  23. By: Ally Zhang (University of Zurich and Swiss Finance Institute)
    Abstract: We develop an infinite horizon model that links the intermediation in both the financial and real sectors. Intermediaries provide market liquidity and exploit the arbitrage profits in segmented financial markets. To do so, they use their productive capital as collateral. We show that the weakened intermediation and arbitrage losses are mutually reinforcing during an economic downturn. This forces intermediaries to de-lever and leads to liquidity spirals in both financial and real sectors. Also, the distress might further open up the possibility of sudden run-like market freezes, where intermediaries are denied access to renewed funding through arbitrage. We evaluate the effect of three intervention policies: direct purchase of distressed assets, interest rate cuts, and capital injection. We find that capital injection is most effective as it loosens the margin requirement. The interest cut is least effective because it exacerbates the capital misallocation.
    Keywords: limit of arbitrage, financial intermediary, haircut, segmented markets, financial crises, market liquidity, collateral constraints
    JEL: D52 D58 E44 G01 G12 G33
    Date: 2017–11
  24. By: Heller, Yuval; Peleg Lazar, Sharon; Raviv, Alon
    Abstract: Black and Cox (1976) claim that the value of junior debt is increasing in asset risk when the firm’s value is low. We show, using closed-form solution, that the junior debt’s value is hump-shaped. This has interesting implications for the market-discipline role of banks’ subdebt.
    Keywords: Risk taking, Banks, Asset risk, Leverage, Subordinated debt.
    JEL: G21 G28 G32 G38
    Date: 2019–04–30
  25. By: Haoyu Gao; Hong Ru; Robert Townsend; Xiaoguang Yang
    Abstract: Using proprietary individual level loan data, this paper explores the economic consequences of the 2009 bank entry deregulation in China. Such deregulation leads to higher screening standards, lower interest rates, and lower delinquency rates for corporate loans from entrant banks. Consequently, in deregulated cities, private firms with bank credit access increase asset investments, employment, net income, and ROA. In contrast, the performance of state-owned enterprises (SOEs) does not improve following deregulation. Deregulation also amplifies bank credit from productive private firms to inefficient SOEs due mainly to SOEs’ soft budget constraints. This adverse effect accounts for 0.31% annual GDP losses.
    JEL: G21 G28 L50 O40
    Date: 2019–05
  26. By: Mario Gara (Bank of Italy); Francesco Manaresi (Bank of Italy); Domenico J. Marchetti (Bank of Italy); Marco Marinucci (Bank of Italy)
    Abstract: We provide the first thorough investigation of the effect of anti-money laundering inspections on banks' reporting of suspicious transactions. We do so by using highly detailed data from Bank of Italy and UIF (Italian authority for anti-money laundering), which include information on i) on-site inspections by authorities and follow-up actions, and ii) quantity and quality of suspicious transactions reports being filed by banks before and after inspections. Through a difference-in-differences econometric analysis we find that inspections (notably when followed by some type of intervention by the authority) induce, ceteris paribus, an increase in suspicious transaction reports being filed by banks. Crucially, the effect is not limited to low-quality reports, as feared in the literature ('crying wolf' effect) but is spread to high-quality reports. Authorities' oversight is thus shown to increase the quantity of information shared by banks without deteriorating its quality.
    Keywords: Money laundering, Financial regulation, Economic crime, Banking
    JEL: G28 K23 L51 M21
    Date: 2019–04
  27. By: Jensen, Henrik (University of Copenhagen); Petrella, Ivan (University of Warwick); Ravn, Soren (University of Copenhagen); Santoro, Emiliano (University of Copenhagen)
    Abstract: We document that the U.S. and other G7 economies have been characterized by an increasingly negative business cycle asymmetry over the last three decades. This finding can be explained by the concurrent increase in the financial leverage of households and firms. To support this view, we devise and estimate a dynamic general equilibrium model with collateralized borrowing and occasionally binding credit constraints. Improved access to credit increases the likelihood that financial constraints become non-binding in the face of expansionary shocks, allowing agents to freely substitute intertemporally. Contractionary shocks, on the other hand, are further amplified by drops in collateral values, since constraints remain binding. As a result, booms become progressively smoother and more prolonged than busts. Finally, in line with recent empirical evidence, financially-driven expansions lead to deeper contractions, as compared with equally-sized non-financial expansions.
    Keywords: Credit constraints; business cycles; skewness; deleveraging; JEL Classification Numbers: E32 ; E44
    Date: 2019

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