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on Banking |
| By: | Christopher Curfman; John Kandrac |
| Abstract: | We investigate how liquidity regulations affect banks by examining a dormant monetary policy tool that functions as a liquidity regulation. Our identification strategy uses a regression kink design that relies on the variation in a marginal high-quality liquid asset (HQLA) requirement around an exogenous threshold. We show that mandated increases in HQLA cause banks to reduce credit supply. Liquidity requirements also depress banks' profitability, though some of the regulatory costs are passed on to liability holders. We document a prudential benefit of liquidity requirements by showing that banks subject to a higher requirement before the financial crisis had lower odds of failure. |
| Keywords: | Monetary Policy ; Bank Failure ; Bank Lending ; Liquidity Regulation ; Required Reserves |
| JEL: | G21 E58 E51 G28 E52 |
| Date: | 2019–05–28 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2019-41&r=all |
| By: | Miguel Biron; Felipe Córdova; Antonio Lemus |
| Abstract: | During the Global Financial Crisis, banks suffered losses on a scale not witnessed since the Great Depression, partly due to two major structural developments in the banking industry; deregulation combined with financial innovation. In the aftermath of the financial crisis, the regulatory response concentrated on the Basel III recommendations, raising core capital requirements for banking institutions, which affected their business models and funding patterns. Consequently, these changes have had significant implications for how banks grant loans, how they react to monetary policy shocks, and how they respond to external shocks. We find evidence of significant interactions between the bank lending channel and both monetary and global shocks in Chile. These links have changed significantly after the Global Financial Crisis. In particular, they have been shaped by the counter-cyclical behavior of a state-owned bank. |
| Keywords: | bank lending channel, global factors, Banco Estado |
| JEL: | E40 E44 E51 E52 E58 G21 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:800&r=all |
| By: | Carlos Cantú; Roberto Lobato; Calixto López; Fabrizio Lopez-Gallo |
| Abstract: | We use loan-level data from the Mexican credit registry to study how bank-specific characteristics in influence credit supply. We explore how these characteristics affect the transmission of monetary policy and their role in building banks' resilience to external shocks. Then, we compare the response of the credit supply of foreign subsidiaries to that of domestic banks. Finally, we study the impact of other micro characteristics on the credit supply and their influence on the transmission of shocks. Our results highlight the importance of banks' strong balance sheets and stable sources of funding for the provision of credit in Mexico. In general, these characteristics shelter banks from shocks. |
| Keywords: | credit registry, credit supply, bank-speci c characteristics, bank lending channel |
| JEL: | E44 E51 E52 E58 G21 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:802&r=all |
| By: | Carlos Cantú; Leonardo Gambacorta |
| Abstract: | This paper focuses on the recent changes in banking systems and how bank-specific characteristics have affected credit supply in five Latin American countries (Brazil, Chile, Colombia, Mexico and Peru). We use detailed credit registry data and apply a common empirical strategy. Since data confidentiality prevents the pooling of the data, we use meta-analysis techniques to summarise the results. We find that large and well-capitalised banks with low risk indicators, stable sources of funding, and a commercial business model generally supply more credit. Such banks are also more sheltered from monetary and global shocks, with the role of specific characteristics varying by the type of shock. |
| Keywords: | bank business models, bank lending, credit registry data, meta-analysis |
| JEL: | E51 E58 G21 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:798&r=all |
| By: | Chen, Xin; Qin, Yaohua; Xiao, He; Zhang, Yifei |
| Abstract: | This paper uses a quasi-natural experiment to study how houseowners’ borrowing costs were affected by the housing value fluctuation in China using a novel micro-level data from an online peer-to-peer (P2P) lending platform. The impacts on other equilibrium loan variables such as borrowing duration and numbers of lenders are also examined. By taking the housing purchase restriction policy shock as an exogenous event, we employ a difference-in-differences (DD) identification strategy. It is found that the equilibrium interest rate decreased, the growth rate of the deal completion time reduced and the number of investors went up for borrowers with house properties from the cities implementing the restriction policy. It echoes from a further triple differences (DDD) when considering city-specific effect based on samples with houseowners and non-houseowners. In addition, we estimate the heterogeneous effect for both household and city-level characteristics. Our dynamic analysis indicates that effects on houseowners’ P2P borrowing activities persist for 9 months. The channel of the effect was from the collateral effect rather than the pure wealth effect. |
| Keywords: | P2P, housing price, home-purchase restriction, collateral effect |
| JEL: | D14 G21 G28 R28 |
| Date: | 2019–07–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95375&r=all |
| By: | Simplice A. Asongu, Phd; Nicholas M. Odhiambo (Department of Economics, University of South Africa) |
| Abstract: | The Quiet Life Hypothesis (QLH) is the pursuit of less efficiency by firms. In this study, we assess if powerful banks in the African banking industry are increasing financial access. The QLH is therefore consistent with the pursuit of financial intermediation inefficiency by large banks. To investigate the hypothesis, we first estimate the Lerner index. Then, using Two Stage Least Squares, we assess the effect of the Lerner index on financial access proxied by loan price and loan quantity. The empirical evidence is based on a panel of 162 banks from 42 countries for the period 2001-2011. The findings support the QLH, although quiet life is driven by the below-median Lerner index sub- sample. Policy implications are discussed. |
| Keywords: | Financial Access; Bank performance; Africa. |
| JEL: | R10 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:dbn:wps208:3003&r=all |
| By: | Rodrigo Barbone Gonzalez |
| Abstract: | This paper investigates the bank lending-channel of monetary policy (MP) surprises. To identify the effects of MP surprises on credit supply, I take the changes in interest rate derivatives immediately after each MP announcement and bring this high-frequency identification strategy to comprehensive and matched bank-firm data from Brazil. The results are robust and stronger than those obtained with Taylor residuals or the reference rate. Consistently with theory, heterogeneities across financial intermediaries, e.g. bank capital, are relevant. Firms connected to stronger banks mitigate about one third of the effects of contractionary MP on credit and about two thirds on employment. |
| Keywords: | employment, monetary policy, surprises, loan-level, lending channel |
| JEL: | E52 E51 G21 G28 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:799&r=all |
| By: | Amara, Tijani; Mabrouki, Mohamed |
| Abstract: | The evolution of the banking regulatory environment in recent years raises many questions about the effectiveness of prudential measures and the relevance of the legal system in this new landscape. The Cooke ratio, replaced in 2003 by the Mc Donough ratio, has since become an international benchmark for banks. Banks that are less risky and comply with prudential standards are solvent. Thus, with their compliance with prudential standards, Tunisian commercial banks are relatively safe from risks. From a sample of 10 commercial banks between 2007 and 2015, we studied the impact of compliance with prudential standards on the solvency of the banking institution. To do this, we based on the studies of Kefi and Maraghni (2011). Indeed, we have made estimates on panel data, these results show that the ratio of liquidity, interest rate risk ratio and Return on assets have positive and significant effects on the risk coverage ratio. |
| Keywords: | Commercial Banking, Banking Risk, Risk Coverage Ratio, Prudential Regulation, Solvency, Panel Data |
| JEL: | C01 G00 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95454&r=all |
| By: | Előd Takáts; Judit Temesvary |
| Abstract: | We combine a rarely accessed BIS database on bilateral cross-border lending flows with cross-country data on macroprudential regulations. We study the interaction between the monetary policy of major international currency issuers (USD, EUR and JPY) and macroprudential policies enacted in source (home) lending banking systems. We find significant interactions. Tighter macroprudential policy in a home country mitigates the impact on lending of monetary policy of a currency issuer. For instance, macroprudential tightening in the UK mitigates the negative impact of US monetary tightening on USD-denominated cross-border bank lending outflows from UK banks. Vice-versa, easier macroprudential policy amplifies impacts. The results are economically significant. |
| Keywords: | Cross-Border Claims ; Diff-In-Diff Analysis ; Macroprudential Policy ; Monetary Policy |
| JEL: | F34 F42 G38 G21 |
| Date: | 2019–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2019-45&r=all |
| By: | Falter, Alexander |
| Abstract: | This paper builds a macro model with a financial sector and a housing market to understand the transmission and effects of macroprudential instruments addressing mortgage credit. The model compares the introduction of a loan-to-value ratio (LTV), a countercyclical capital buffer (CCyB)-style rule and sectoral constraints similar to sectoral risk weights. The results show that instruments work largely as intended and are to different extents suitable to dampen credit booms. Moreover, there is a trade-off between effectiveness, i.e. the extent to which instruments are able to dampen credit booms, and efficiency, i.e. the extent to which instruments might exhibit unintended consequences for the financial sector or real economy. General shocks, where housing credit increases as a side effect of larger movements, might warrant the use of the CCyB or also sectoral risk weights to correct for sector specific developments. Simple sectoral shocks can be dealt with or responded to first with sectoral risk weights. The LTV is much more effective than sectoral risk weights in confining credit growth, but shows less efficiency due to strong substitution effects. |
| Keywords: | Macroprudential Regulation,Mortgage Markets,Housing Markets,Asset Markets,Waterbed Effects |
| JEL: | E31 G21 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:252019&r=all |
| By: | Firano, Zakaria; Filali adib, Fatine |
| Abstract: | This paper proposes an evaluation of intersectorial contagion risk through the analysis of the network of the intersectorial expositions, on the one hand, and the implementation of the approach of the contingent claims analysis (CCA) on the other hand. From this point of view, the matrix of the intersectorial expositions was approximated and of the indicators of centrality, resulting from the network analysis, were estimated. Then, using the CCA, which rises from the pricing theory of the options, the indicators of risk were calculated for each sector, in particular, the distance to the default, probability of default and the leverage ratio. The results obtained confirm that the financial and non-financial companies are the most systemic institutional sectors being able to constitute a principal channel of contagion. Lastly, an estimate of the joint and the conditional probabilities of default of the economic sectors was carried out, while taking as a starting point the work by Goodhart and al (2009) and by using the Archimedean copulas. |
| Keywords: | systemic risk, contagion, financial stability. |
| JEL: | D14 G1 G2 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95343&r=all |
| By: | de Quidt, Jonathan; Ghatak, Maitreesh |
| Abstract: | The bulk of the literature on microcredit has focused on either not‐for‐profit lenders or assumes a perfectly competitive, zero‐profit market equilibrium. Yet the market has experienced a significant shift toward for‐profit lending and the assumptions of perfect competition are likely to be too strong in many locations. We review the state of the literature on for‐profit lending in microcredit, consider its implications for both conventionally ‘rational’ borrowers and for borrowers with behavioral biases, and point out directions for future research. |
| JEL: | F3 G3 |
| Date: | 2018–01–25 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:87515&r=all |
| By: | José Bustamante; Walter Cuba; Rafael Nivin |
| Abstract: | This paper uses loan-level data from Peru's credit registry to determine how the role of bank-specific characteristics (i.e. bank size, liquidity, capitalization, funding, revenue, and profitability) may affect the supply of credit in domestic and foreign currency. Also, we analyze how these characteristics affect the banks' response to monetary policy shocks. Finally, we assess how the link between bank-specific characteristics and credit supply is affected by global financial conditions and commodity price changes. Our results show that well-capitalized, high-liquidity, low-risk, more profitable banks tend to grant more credit, especially in domestic currency. Moreover, we found evidence that reserve requirements both in domestic and foreign currency are effective in curbing domestic credit in Peru, giving support to the BCRP's active use of RRs as a macroprudential tool to smooth out the credit cycle. Last, we found that banks with more diversified funding sources are less affected after a negative commodity price change. |
| Keywords: | credit channel, monetary policy, credit registry data |
| JEL: | E44 G21 G32 L25 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:803&r=all |
| By: | H. Evren Damar; Reint Gropp; Adi Mordel |
| Abstract: | Deposit insurance protects depositors from failing banks, thus making insured deposits risk-free. When a deposit insurance limit is increased, some deposits that previously were uninsured become insured, thereby increasing the share of risk-free assets in households’ portfolios. This increase cannot simply be undone by households, because to invest in uninsured deposits, a household must first invest in insured deposits up to the limit. This basic insight is the starting point of the analysis in this paper. We show that in a standard portfolio allocation model, faced with a deposit insurance limit increase, households move some of their assets out of deposits into risky alternatives, such as mutual funds. Our empirical analysis, taking advantage of a deposit insurance increase in Canada in 2005 and detailed household portfolio data, confirms the insights from the model and stands up to multiple alternative explanations. Hence, we show that an increase in the deposit insurance limit results in a sizable deposit outflow. Our work has important policy lessons. First, although there is considerable evidence on the financial stability consequences of deposit insurance (as it reduces the impact of runs in a crisis), we document a novel implication where enhanced protection may also trigger deposit outflows during non-crisis times. Second, the paper highlights the link between deposit insurance and the composition of household portfolios. It emphasizes the role that uninsured deposits play in the household investment decision and the importance of studying them separately from insured deposits when analyzing portfolio allocation choice. |
| Keywords: | Financial Institutions; Financial system regulation and policies |
| JEL: | D14 G21 G28 L51 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:19-29&r=all |
| By: | Polanski, Arnold (University of East Anglia); Stoja, Evarist (University of Bristol); Chiu, Ching-Wai (Jeremy) (Bank of England) |
| Abstract: | We present a framework focused on the interdependence of high-dimensional tail events. This framework allows us to analyse and quantify tail interdependence at different levels of extremity, decompose it into systemic and residual part and to measure the contribution of a constituent to the interdependence of a system. In particular, tail interdependence can capture simultaneous distress of the constituents of a (financial or economic) system and measure its systemic risk. We investigate systemic distress in several financial datasets confirming some known stylized facts and discovering some new findings. Further, we devise statistical tests of interdependence in the tails and outline some additional extensions. |
| Keywords: | Co-exceedance; systemic distress; risk contribution; extreme risk interdependence |
| JEL: | C32 G01 |
| Date: | 2019–08–05 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0815&r=all |
| By: | Jeremy Burke; Julian Jamison; Dean Karlan; Kata Mihaly; Jonathan Zinman |
| Abstract: | There is little evidence on how the large market for credit score improvement products affects consumers or credit market efficiency. A randomized encouragement design on a standard credit builder loan (CBL) identifies null average effects on whether consumers have a credit score and the score itself, with important heterogeneity: those with loans outstanding at baseline fare worse, those without fare better. Selection, treatment effect, and prediction models indicate the CBL reveals valuable information to markets, inducing positive selection and making credit histories more precise, while keeping credit scores’ predictive power intact. With modest targeting changes, CBLs could work as intended. |
| JEL: | D12 G14 G21 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26110&r=all |
| By: | Lee, Michael Junho (Federal Reserve Bank of New York); Neuhann, Daniel (University of Texas at Austin) |
| Abstract: | We study a dynamic model of collateralized lending under adverse selection in which the quality of collateral assets is endogenously determined by hidden effort. Complementarities in incentives lead to non-ergodic dynamics: Asset quality and output grow when asset quality is high, but stagnate or deteriorate otherwise. Inefficiencies remain, even in the most efficient competitive equilibrium—investment and output are vulnerable to spells of lending market illiquidity, and these spells may persist because of suboptimal effort. Nevertheless, benevolent regulators without commitment can destroy welfare by prioritizing liquidity over incentives. Optimal interventions with commitment call for large, long-term subsidies in excess of what is required to restore liquidity. |
| Keywords: | liquidity; government intervention; adverse selection; collateral |
| JEL: | E44 E50 G01 G18 |
| Date: | 2019–08–07 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:894&r=all |
| By: | Mateusz Buczyński (Faculty of Economic Sciences, University of Warsaw); Marcin Chlebus (Faculty of Economic Sciences, University of Warsaw) |
| Abstract: | Numerous advances in the modelling techniques of Value-at-Risk (VaR) have provided the financial institutions with a wide scope of market risk approaches. Yet it remains unknown which of the models should be used depending on the state of volatility. In this article we present the backtesting results for 1% and 2.5% VaR of six indexes from emerging and developed countries using several most known VaR models, among many: GARCH, EVT, CAViaR and FHS with multiple sets of parameters. The backtesting procedure has been based on the excess ratio, Kupiec and Christoffersen tests for multiple thresholds and cost functions. The added value of this article is that we have compared the models in four different scenarios, with different states of volatility in training and testing samples. The results indicate that the best of the models that is the least affected by changes in the volatility is GARCH(1,1) with standardized student's t-distribution. Non-parmetric techniques (e.g. CAViaR with GARCH setup (see Engle and Manganelli, 2001) or FHS with skewed normal distribution) have very prominent results in testing periods with low volatility, but are relatively worse in the turbulent periods. We have also discussed an automatic method to setting a threshold of extreme distribution for EVT models, as well as several ensembling methods for VaR, among which minimum of best models has been proven to have very good results - in particular a minimum of GARCH(1,1) with standardized student's t-distribution and either EVT or CAViaR models. |
| Keywords: | Value-at-Risk, GARCH, Extreme Value Theory, Filtered Historical Simulation, CAViaR, market risk, forecast comparison |
| JEL: | G32 C52 C53 C58 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:war:wpaper:2019-12&r=all |
| By: | Mandler, Martin; Scharnagl, Michael |
| Abstract: | We analyse the macroeconomic effects of exogenous contractions in bank lending to non-financial corporations in the Euro Area, Germany, France, Italy and Spain using a Bayesian vector autoregressive model with endogenous hyperparameter selection and identification via sign restrictions. We focus on the behaviour of firms' external financing sources alternative to bank loans, such as financing via equity, debt securities, trade credit and lending from non-banks. We investigate whether these alternative financing sources are complements to or substitutes for bank lending using the joint posterior distribution of their impulse responses with that of bank loans. For the Euro Area our results show equity, debt securities and non-bank loans to be substitutes for bank loans with negative responses to a positive loan supply shock while trade credit is a complement and responds positively. We show that the substitution relationship with respect to bank loans is more clearly visible in the joint distribution of the financing sources reactions than when focusing only on the marginal impulse responses. Quantitatively, the developments in bank loans and trade credit dominate the response of the overall sum of the external financing. This result also holds in most cases at the country level. However, whether and which of the alternative financing sources are substitutes for or complements to bank loans differs across countries. |
| Keywords: | loan supply,external financing,Euro Area,Bayesian VAR,sign restrictions,joint posterior distribution |
| JEL: | C32 E32 E51 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:232019&r=all |
| By: | Paola Morales; Daniel Osorio; Juan Sebastian Lemus-Esquivel |
| Abstract: | This paper analyses the extent to which the strength of the credit channel is affected by the expansion of domestic banks abroad, widely considered the most important structural change of Colombia banking system in recent years. Using loan-level quarterly data for the period between 2007 and 2016, we estimate panel specifications that relate changes in the loan amount and the loan interest rates to variations on the domestic policy rate, the number of foreign subordinates of the lender bank and the interaction between the two. The results suggest that the response of international banks (i.e., those that have significantly expanded abroad) in the face of changes to the domestic policy rate is not statistically different to that of purely local banks, while the cost of credit is found to be slightly higher. Even though in principle this could be interpreted to the effect that internationalization has had no significant effect on the potency of the credit channel, the results tend towards a more subtle conclusion. Specifically, in the face of increases in the domestic policy rate, international banks tend to switch more strongly from domestic to foreign sources of funding. Purely local banks are able thus to capture relatively more domestic funding under these conditions, which allows their credit activity to respond to monetary policy on a similar scale to that of international banks. This result supports the idea that banks switch funding activities between their operating jurisdictions depending on monetary policy conditions, and that the internationalization of domestic banks plays a cushioning role for the economy at times when the monetary policy stance changes significantly. |
| Keywords: | bank-lending channel, internationalization of banks, banks' business models, branches and subsidiaries |
| JEL: | E43 E52 F23 F34 F44 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:801&r=all |