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on Banking |
| By: | C. Andreeva, Desislava; García-Posada, Miguel |
| Abstract: | We assess the impact of the Eurosystem’s Targeted Long-Term Refinancing Operations (TLTROs) on the lending policies of euro area banks. We first build a theoretical model in which banks compete in the credit and deposit markets. We distinguish between direct and indirect effects. Direct effects take place because bidding banks expand their loan supply due to the lower marginal costs implied by the TLTROs. Indirect effects on non-bidders operate via changes in the competitive environment in banks’ credit and deposit markets. We then test these predictions with a sample of 130 banks from 13 countries focusing on the first TLTRO series. Regarding direct effects, we find an easing impact on margins on loans to relatively safe borrowers, but no impact on credit standards. Regarding indirect effects, there is a positive impact on the loan supply on non-bidders which operates via an easing of credit standards. JEL Classification: G21, E52, E58 |
| Keywords: | competition, lending policies, TLTROs, unconventional monetary policy |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202364&r=all |
| By: | Wenhua Di; Nathaniel Pattison |
| Abstract: | Small business lending has historically been very local, but distances between small businesses and their lenders have steadily increased over the last forty years. This paper investigates a new lending strategy made possible by distant small business lending: industry specialization. Using data on all Small Business Administration 7(a) loans from 2001-2017, we document a substantial increase in remote, specialized small business lenders, i.e., lenders that originate many distant loans and concentrate these loans within a small number of industries. These lenders target low-risk industries and, consistent with expertise, experience better loan performance within these industries. We then examine whether this industry-specialized lending serves as a substitute or complement to traditional, geographically specialized lending. We exploit the staggered entry of a remote, specialized lender to estimate the impact of specialized lending on credit access. Entry significantly increases total lending, with no evidence of substitution away from other lenders. The results indicate that specialized lending can deepen credit markets by providing new loans to low-risk but underfinanced small businesses. |
| Keywords: | Small business lending; Banking competition; Specialization; Distance; Credit access; Technology; Fintech |
| JEL: | G21 G23 L11 |
| Date: | 2020–01–16 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:87382&r=all |
| By: | Pauline Gandré (Ecole Normale Supérieure (ENS) de Lyon; University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE)); Mike Mariathasan (KU Leuven- Faculty of Economics & Business); Ouarda Merrouche (University of Lausanne); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)) |
| Abstract: | We investigate regulatory arbitrage during the G20’s global derivatives market reform. Using hand-collected data on staggered reform progress, we find that banks shift their trading towards less regulated jurisdictions. The result is driven by agenda items – such as the promotion of central clearing – that are costly, but do not directly benefit banks. We further document that subsidiaries in jurisdictions with more reform progress shift to riskier portfolios. Alleviating endogeneity concerns we show that reform progress is primarily driven by structural (time-invariant) factors. |
| Keywords: | Bank regulation, Regulatory arbitrage, OTC Markets, Derivatives, Cross-border financial institutions, Financial risk |
| JEL: | G15 G18 G21 G23 G28 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2002&r=all |
| By: | Yuichi Ikeda; Hidetoshi Takeda |
| Abstract: | We develop a network reconstruction model based on the entropy maximization considering the sparsity of network. Here the reconstruction is to estimate network's adjacency matrix from node's local information. We reconstruct the interbank network in Japan from financial data in balance sheets of individual banks using the developed reconstruction model in the period from 2000 to 2016. The sparsity of the interbank network is successfully reproduced in the reconstructed network. We examine the accuracy of the reconstructed interbank network by comparing the actual data and analyze the characteristics of the interbank network. The comparison confirms that the accuracy of the reconstruction model is acceptably good. For the reconstructed interbank network, we obtain the following characteristics which are consistent with the previously known stylized facts: the short path length, the small clustering coefficient, the disassortative property, and the core and peripheral structure. Community analysis shows that the number of communities is 2-3 in the normal period, 1 in the economic crisis (2003, 2008-2013). The major nodes in each community have been the major commercial banks. Since 2013, the major commercial banks have lost the average PageRank and the leading regional banks have obtained both the average degree and the average PageRank. The observed changing role of banks is considered as a result of the quantitative and qualitative easing monetary policy started by Bank of Japan in April of 2013. |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2001.04097&r=all |
| By: | Ettore Panetti |
| Abstract: | How important is it to distinguish relative risk aversion (RRA) from the intertemporal elasticity of substitution (IES) to understand bank liquidity provision and financial fragility? To answer this question, I develop a banking theory in which depositors feature Epstein-Zin preferences. In equilibrium, banks provide liquidity when RRA is sufficiently high (low) only for IES larger (smaller) than 1. Under the same conditions, banks might be fragile, i.e. subject to possible self-fulfilling depositors' runs. A time-consistent deposit freeze resolves banks' fragility if RRA is sufficiently low and IES is sufficiently larger than 1. |
| JEL: | D81 G21 G28 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201917&r=all |
| By: | Selien De Schryder; Frederic Opitz (-) |
| Abstract: | We identify a novel set of macroprudential policy shocks and estimate their effects on credit cycle variables in a panel of 13 EU countries during 1999-2018. We find that a typical macroprudential policy tightening shock reduces bank credit-to-GDP by 1.8% points and household credit-to-GDP by 1.6% points over a period of four years. The non-financial corporations and total credit-to-GDP ratios, however, do not react significantly. Using state-dependent local projections, we further find that the effects on the credit-to-GDP ratios are stronger in credit cycle upturns than in downturns. We also detect a sizable leakage of firm credit from the banking to the non-banking sector next to a shift from firm to household credit. |
| Keywords: | Macroprudential policy, Effectiveness, State dependency |
| JEL: | C23 E58 G18 G28 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:19/990&r=all |
| By: | William Chen (Williams College); Gregory Phelan (Williams College) |
| Abstract: | We theoretically investigate the state-dependent effects of monetary policy on aggregate stability. In the model, banks borrow using deposits and invest in productive projects, and monetary policy affects risk-premia. Because banks do not actively issue equity, aggregate outcomes depend on the level of equity in the financial sector and equilibrium is inefficient. Monetary policy can improve household welfare by affecting banks’ leverage decisions and the rate of bank equity growth. A Fed Put is ex-ante stabilizing, decreasing volatility and the likelihood of crises; it does not lead to excessive leverage in good times but enables higher leverage in bad times. |
| Keywords: | Monetary policy, Leaning against the wind, Financial stability, Macroeconomic instability, Banks, Liquidity. |
| JEL: | E44 E52 E58 G01 G12 G20 G21 |
| Date: | 2020–01–03 |
| URL: | http://d.repec.org/n?u=RePEc:wil:wileco:2020-01&r=all |
| By: | Petr Hanzlík (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 110 00, Prague, Czech Republic); Petr Teplý (Department of Banking and Insurance, Faculty of Finance and Accounting, University of Economics in Prague, Winston Churchill Sq. 4, 130 67 Prague, Czech Republic) |
| Abstract: | In this paper, we analyze the relationship between the net interest margin (NIM) of US and European banks and market interest rates in a low interest rate environment. We contribute to the literature by examining a large sample of annual data on 1,155 banks from United States and EU member countries during the 2011-2016 period, which also covers periods of zero and negative rates in many of the observed countries. We test three hypotheses and come to three main conclusions. First, NIM is significantly influenced by the different institutional designs of bank-based or capital-based financial markets. Second, there are differences in NIM caused by bank size, although these are not fully captured by our methodology. Finally, we show significant differences by bank type: savings banks, real estate and mortgage banks, and cooperative banks report consistently lower NIMs than commercial banks and bank holdings. Contrary to other researchers, we observe a negative relationship between NIM and the yield curve slope. |
| Keywords: | banks, bank-based market, capital-based market interest rates, institutional design, net interest margin, profitability, system GMM |
| JEL: | C33 E43 G21 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2020_03&r=all |
| By: | Mathieu Simoens; Rudi Vander Vennet (-) |
| Abstract: | Post 2008, the market-to-book ratios of European and US banks have diverged markedly. We use panel regressions to investigate the determinants of the M/B ratios of 112 European and US banks. We show that the underperformance of European banks is mainly driven by non-performing loans and by the negative impact of policy rates on bank interest margins. The higher US bank valuations are mainly driven by higher pro tability and better cost eciency. Our results for European banks stress the importance of timely NPL resolution and imply that low-for-long monetary policy may harm bank health. |
| Keywords: | market-to-book ratio, European banks, US banks, franchise value, bank performance |
| JEL: | G21 G28 E52 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:19/988&r=all |
| By: | Caterina Mendicino; Kalin Nikolov; Juan Rubio-Ramirez; Javier Suarez |
| Abstract: | Twin Default Crises are rare and severe episodes of borrower and bank defaults. We build a quantitativemodel that links borrower and bank solvency. This is crucial to reproduce key features of thedata both in normal times and in Twin Default Crises. Specialization exposes banks to non-diversifiableborrowers’ default risk. Fluctuations in the non-diversifiable component of credit risk and bank leverageare important determinants of Twin Default Crises. Capturing the frequency and severity of Twin DefaultCrises is key for the correct calibration of bank capital requirements. Our framework implies highercapital requirements than alternative frameworks that do not model the link between borrower and bankdefault. |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:fda:fdaddt:2020-01&r=all |
| By: | Yuji Horioka, Charles; Niimi, Yoko |
| Abstract: | This paper shows, using data from the Family Income and Expenditure Survey, that housing credit has become increasingly available over time in Japan, especially since 2000, and that this has made it easier for Japanese households to purchase housing and enabled them to do so at an earlier age. However, it also shows that the greater availability of housing credit has increased households’ housing loan repayment burden, which has resulted in their cutting back on their other consumption expenditures and created the potential for retirement insecurity. Another concern is that the increasing availability of housing credit has been accompanied by a pronounced shift from fixed-rate to variablerate housing loans. This is cause for concern given the low level of financial literacy that prevails among the Japanese population and the likelihood that interest rates on variablerate housing loans will be raised sooner or later as monetary policy is tightened. |
| Keywords: | Homeownership, Housing credit, Housing loans, Mortgages, Household debt, Household liabilities, D14, E21, R21 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:agi:wpaper:00000165&r=all |
| By: | Maria Manuel Campos; Ana Rita Mateus; Álvaro Pina |
| Abstract: | This paper studies the dynamics of the exposure of the Portuguese banking system to the domestic public sector over 2008-2016 and assesses possible underlying motivations. The analysis relies on a new dataset built from granular information that provides full coverage of the Portuguese banking sector and the public sector. The results suggest that moral suasion was an important driver of the evolution of sovereign exposures during the euro area crisis: domestic banks provided financing to the sovereign when the Treasury needed to issue debt amidst rising yields and, although to a smaller extent, when State-Owned Enterprises faced funding shortages in international markets. Moreover, increases in central bank funding are also related to increases in holdings of sovereign debt securities. These findings mainly hold for medium-sized and large banks. In contrast, we find no evidence of gambling for resurrection behaviour by banks with lower prudential capital or depressed profitability. |
| JEL: | C23 G01 G21 H63 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201916&r=all |
| By: | Nuno, Cassola; Christoffer, Kok; Francesco Paolo, Mongelli |
| Abstract: | The prolonged crisis exposed the vulnerability of a monetary union without a banking union. The Single Supervisory Mechanism (SSM), which started operating in November 2014, is an essential step towards restoring banks to health and rebuilding trust in the banking system. The ECB is today responsible for setting a single monetary policy applicable throughout the euro area and for supervising all euro area banks in order to ensure their safety and soundness, some directly and some indirectly. Its role in the area of financial stability has also expanded through the conferral of macroprudential tasks and tools that include tightening national measures when necessary. It thus carries out these complementary functions, while its primary objective of pursuing price stability remains unchanged. What are the working arrangements of this enlarged ECB, and what are the similarities and existing synergies among these functions? In the following pages, focusing on the organisational implications of the “new†ECB, we show the relative degrees of centralisation and decentralisation that exist in discharging these functions, the cycles of policy preparation and the rules governing interaction between them. |
| Keywords: | European Central Bank, monetary policy, banking union, banking supervision, financial stability, systemic risks, macroprudential policies, decision-making process |
| JEL: | E42 E58 F36 G21 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:424&r=all |