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on Banking |
| By: | Selva Bahar Baziki; Tanju Capacioglu |
| Abstract: | We study the effects of monetary policy decisions on banks’ loan issuance and maturity decisions using a unique matched firm-bank-loan level granular database. We find that changes in the policy rate impact both credit and maturity channels - an increase of 100 basis points reduces commercial loan volumes by 1.6% and maturities by 1.2%, with tighter monetary policy having a larger effect on both. Small banks, banks with relatively weaker capital and liquidity structures, and with weaker access to foreign funding are more sensitive to policy changes. Bank ownership types and loan currency denomination also create asymmetries in responses. Banks reflect these changes to firms with which they have longer established relationships or which have a healthier past credit performance to a lesser extent. A quasi-experimental analysis adds that the intense use of a collateral guarantee scheme has increased maturities at the time of tight monetary policy stance, reversing their long-run negative relationship. These results highlight the importance of the financial regulatory process on banks’ risk taking behavior, search-for yield appetites, identifying areas of potential systemic risk buildup, and finally policy design and coordination. |
| Keywords: | Monetary policy, Transmission channel, Credit guarantee fund, Loan maturity, Bank type |
| JEL: | E51 E58 G20 G21 G28 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:2005&r=all |
| By: | Ben R. Craig (Indiana University Bloomington; Federal Reserve Bank; Deutsche Bundesbank); Yiming Ma |
| Abstract: | This paper studies systemic risk in the interbank market. We first establish that in the German interbank lending market, a few large banks intermediate funding flows between many smaller periphery banks and that shocks to these intermediary banks in the financial crisis spill over to the activities of the periphery banks. We then develop a network model in which banks trade off the costs and benefits of link formation to explain these patterns. The model is structurally estimated using banks’ preferences as revealed by the observed network structure in the precrisis period. It explains why the interbank intermediation arrangement arises, estimates the frictions underlying the arrangement, and quantifies how shocks are transmitted across the network. Model estimates based on precrisis data successfully predict changes in network-links and in lending arising from the crisis in out-of-sample tests. Finally, we quantify the systemic risk of a single intermediary and the impact of ECB funding in reducing this risk through model counterfactuals. |
| Date: | 2020–03–05 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:87581&r=all |
| By: | Benjamin Hemingway (Bank of Lithuania, Vilnius University) |
| Abstract: | This paper explores the impact of banking regulation on a competitive credit market with ex-ante asymmetric information and aggregate uncertainty. I construct a model where the government to impose a regulatory constraint that limits the losses banks make in the event of their default. I show that the addition of banking regulation results in three deviations from the standard theory. First, collateral is demanded of both high and low risk firms, even in the absence of asymmetric information. Second, if banking regulation is sufficiently strict, there may not exist an adverse selection problem. Third, a pooling Nash equilibrium can exist. |
| Keywords: | Banking, Adverse Selection, Collateral, Banking regulation |
| JEL: | D86 G21 G28 |
| Date: | 2020–02–18 |
| URL: | http://d.repec.org/n?u=RePEc:lie:wpaper:73&r=all |
| By: | Nacera Yeddou (CRIEF - Centre de Recherche sur l'Intégration Economique et Financière - Université de Poitiers); Marc Pourroy (CRIEF - Centre de Recherche sur l'Intégration Economique et Financière - Université de Poitiers) |
| Abstract: | This paper uses a new, hand-collected database on ownership structure for a sample of commercial banks from 17 western European countries to explore the relationship between bank ownership structure and bank liquidity creation over the period 2004-2018. We focus on bank ownership concentration and on the identity of the major owner. Our findings are twofold: first, we find that ownership concentration has a significant and positive impact on liquidity creation. Specifically, we find that banks with over 65% controlling ownership create more liquidity than other banks. Secondly, we analyze the impact of the nature of the owner on liquidity creation. We find that banks tend to create more liquidity when the owner is another bank or a state, holding a stake above 50%, 65% for a non-financial company, 75% for a family and 85% for a financial institution. |
| Keywords: | Liquidity Creation,Bank Ownership Structure,Liquidity Risk,Bank Regulation |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02452616&r=all |
| By: | Tamas Csabafi (Department of Economics, University of Missouri-St. Louis); Max Gillman (Department of Economics, University of Missouri-St. Louis); Ruthira Naraidoo (Department of Economics, University of Pretoria) |
| Abstract: | A technical appendix for “International Business Cycle and Financial Intermediation.” The paper extends a standard two-country international real business cycle model to include financial intermediation by banks of loans and government bonds. Taking in household deposits from home and abroad, the loans are produced by the bank in a Cobb-Douglas production approach such that a bank productivity shock can explain financial data moments. The paper contributes an explanation, for both the US relative to the Euro-area, and the US relative to China, of cross-country correlations of loan rates, deposit rates, and the loan premia. It provides a sense in which financial retrenchment resulted in the US following the 2008 bank crisis, and how the Euro-area and China reacted. The paper contributes evidence of how the Euro-area has been more Önancially integrated with the US, and China less financially integrated, with the Euro-area becoming more financially integrated after the 2008 crisis, and China becoming less so integrated. |
| Keywords: | international real business cycles, financial intermediation, credit spread, bank productivity, 2008 crisis. |
| JEL: | E13 E32 E44 F41 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:msl:workng:1017&r=all |
| By: | Pascal Paul |
| Abstract: | Banks engage in maturity transformation and the term premium compensates them for bearing the associated duration risk. Consistent with this view, I show that banks’ net interest margins and term premia have comoved in the United States over the last decades. On monetary policy announcement days, banks’ stock prices fall in response to an increase in expected future short-term interest rates but rise if term premia increase. These effects are reflected in the response of banks’ net interest margins and amplified for institutions with a larger maturity mismatch. The results reveal that banks are not immune to interest rate risk. |
| Keywords: | Banks; Maturity Transformation; Monetary Policy; Term Premium; Interest Rate Risk; Bank Profitability |
| JEL: | E43 E44 E52 E58 G21 G32 |
| Date: | 2020–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:87553&r=all |
| By: | Charles Abuka; Ronnie K. Alinda; Camelia Minoiu; José-Luis Peydró; Andrea F. Presbitero |
| Abstract: | Recent studies of monetary policy in developing countries document a weak bank lending channel based on aggregate data. In this paper, we bring new evidence using Uganda’s supervisory credit register, with microdata on loan applications, volumes and rates, coupled with unanticipated variation in monetary policy. We show that a monetary contraction reduces bank credit supply—increasing loan application rejections and tightening loan volume and rates—especially for banks with more leverage and sovereign debt exposure. There are associated spillovers on inflation and economic activity—including construction permits and trade—and even social unrest. |
| Keywords: | Bank lending channel of monetary policy; bank credit; real effects; credit register; developing countries |
| JEL: | E42 E44 E52 E58 G21 G28 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1703&r=all |
| By: | Shahzad Ijaz (Capital University of Science & Technology); Arshad Hassan (Capital University of Science & Technology); Amine Tarazi (LAPE - Laboratoire d'Analyse et de Prospective Economique - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société - UNILIM - Université de Limoges); Ahmad Fraz (Capital University of Science & Technology) |
| Abstract: | This paper investigates the effect of bank competition and financial stability on economic growth by examining panel-data from 38 European countries over 2001 to 2017. Bank competition is measured with the Boone indicator, and bank stability with Z-scores and non-performing loan ratio, all at the country level. This study employs a fixed-effect estimator, as well as a system generalized method of moment (GMM) estimator to control unobserved heterogeneity, endogene-ity, the dynamic effect of economic growth, and reverse causality in its estimation. Results show that bank stability significantly contributes to economic growth in Europe. Economic growth falls during crisis periods (both the global financial crisis and the local banking crisis), highlighting the importance of a resilient banking system during crisis periods. Moreover, empirical outcomes show that lower banking competition supports economic growth and increases financial stability. This study provides a framework for banks and regulators to boost economic growth through the channel of banking stability. |
| Keywords: | non-performing loans,channeling effect,bank stability,bank competition,economic growth,system GMM,global financial crisis,local banking crisis,bank Z-score |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02475572&r=all |
| By: | Tai-yuan Chen (Associate Dean of Business and Management, Professor, Department of Accounting; The Hong Kong University of Science and Technology) |
| Abstract: | Restrictive home-country regulations lead to degraded transparency abroad and exert negative externalities on the global banking system. Our finding that the negative externalities primarily exist in countries with weak supervisory power highlights the importance of bank supervision when regulators consider using lax regulations to attract foreign capital. Tighter home-country regulations reduce the transparency of banks’ foreign subsidiaries. Our result highlights the importance of monitoring the disclosure practices among banks’ foreign subsidiaries. |
| Keywords: | China, Financial Development, Firms |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:hku:briefs:202037&r=all |
| By: | Jiri Panos; Petr Polak |
| Abstract: | This paper aims to introduce a contemporary, computing-power-driven approach to econometric modeling in a stress-testing framework. The presented approach explicitly takes into account model uncertainty of satellite models used for projecting forward paths of financial variables employing the constrained Bayesian model averaging (BMA) technique. The constrained BMA technique allows for selecting models with reasonably severe but plausible trajectories conditional on given macro-financial scenarios. It also ensures that the modeling is conducted in a sufficiently robust and prudential manner despite the limited time-series length for the explained and/or explanatory variables. |
| Keywords: | Bayesian model averaging, model selection, model uncertainty, probability of default, stress testing |
| JEL: | C11 C22 C51 C52 E58 G21 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2019/9&r=all |