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on Banking |
| By: | Dean Corbae (University of Wisconsin-Madison; University of Pittsburgh; University of Iowa; National Bureau of Economic Research; University of Texas); Pablo D'Erasmo |
| Abstract: | Concentration of insured deposit funding among the top four commercial banks in the U.S. has risen from 15% in 1984 to 44% in 2018, a roughly three-fold increase. Regulation has often been attributed as a factor in that increase. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 removed many of the restrictions on opening bank branches across state lines. We interpret the Riegle-Neal act as lowering the cost of expanding a bank's funding base. In this paper, we build an industry equilibrium model in which banks endogenously climb a funding base ladder. Rising concentration occurs along a transition path between two steady states after branching costs decline. |
| Keywords: | Banking industry dynamics; Imperfect competition; Bank concentration |
| JEL: | E44 G21 L11 L13 |
| Date: | 2020–03–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:87574&r=all |
| By: | Vaclav Broza (Institute of Economic Studies, Charles University); Evzen Kocenda |
| Abstract: | We analyze link between mortgage-related regulatory penalties levied on banks and the level of systemic risk in the U.S. banking industry. We employ a frequency decomposition of volatility spillovers to draw conclusions about system-wide risk transmission with short-, medium-, and long-term dynamics. We find that after the possibility of a penalty is first announced to the public, long-term systemic risk among banks tends to increase. Short- and medium-term risk marginally declines. In contrast, a settlement with regulatory authorities leads to a decrease in the long-term systemic risk. Our analysis is robust with respect to several criteria. |
| Keywords: | bank, financial stability, global financial crisis, mortgage, penalty, systemic risk |
| JEL: | C14 C58 G14 G21 G28 K41 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:1024&r=all |
| By: | Peter Bednarek; Daniel Marcel te Kaat; Chang Ma; Alessandro Rebucci |
| Abstract: | We study how an aggregate bank flow shock impacts German cities' GDP growth depending on the state of their local real estate markets. Identification exploits a policy framework assigning refugees to cities on a quasi-random basis and variation in non-developable area for the construction of a measure of exposure to local real estate market tightness. We estimate that the German cities most exposed to real estate market pressure grew 2.5-5.0 percentage points more than the least exposed ones, cumulatively, during the 2009-2014 period. Bank flow shocks shift credit to firms with more collateral. More collateral also leads firms to hire and invest more in response to these shocks. |
| JEL: | D22 D53 E22 E3 E44 F3 G01 G15 G21 R3 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26820&r=all |
| By: | Anastasiou, Dimitrios |
| Abstract: | We employ senior bank loan officers' responses regarding actual and expected loan demand from enterprises linking successive surveys in order to determine the dominant expectation formation mechanism that best describes European senior bank loan officers’ expectations. We utilize quarterly data for loan demand from enterprises from the European Bank Lending Survey for 14 Euro-area countries spanning the period 2003Q1 to 2019Q4. Our findings suggest that the adaptive expectations mechanism is compatible with senior bank loan officers' expectations for loan demand from enterprises. Our study contributes to the understanding of the formation of loan demand expectations and hence our findings can be very useful for monetary policy purposes. |
| Keywords: | Adaptive expectations; bank lending survey; loan demand; survey‐based expectations |
| JEL: | C33 C5 D84 G2 G21 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98903&r=all |
| By: | Petr Polak; Jiri Panos |
| Abstract: | This paper describes the implementation of the IFRS 9 accounting standard into a macroprudential (top-down) stress-testing framework. It sets out to present a possible way of overcoming data issues and discusses key assumptions which have an effect on the end results and which stress testers should be aware of. According to the results, macroeconomic expectations play a crucial role in the pass-through of impairment. The paper also presents evidence about the pro-cyclicality of the IFRS 9 approach. |
| Keywords: | IFRS 9, impairments, loan loss provisions, macroprudential policy, stress testing |
| JEL: | E44 E62 G01 G21 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:rpnrpn:2019/03&r=all |
| By: | Walter Cuba (Central Reserve Bank of Peru) |
| Abstract: | This paper examines to what extent household leverage—as measured by the debt-to-income (DTI) ratio—predicts delinquency in Peru’s consumer credit market. A model is estimated to assess the relation between delinquency and the DTI ratio. The initial and current DTI ratios are assessed as delinquency predictors. The results confirm that the current DTI ratio is effective for predicting delinquency. This evidence supports its use in financial regulation to improve household credit risk assessment and control. |
| Keywords: | Household finance, credit risk, consumer delinquency |
| JEL: | G20 G21 D12 |
| Date: | 2020–03–02 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp05-2020&r=all |
| By: | Shekhar Hari Kumar (IHEID, Graduate Institute of International and Development Studies, Geneva); Aakriti Mathur (IHEID, Graduate Institute of International and Development Studies, Geneva) |
| Abstract: | In this paper, we study transmission of global funding shocks to emerging economies (EMs) from the perspective of interbank markets. Money markets enable banks to engage in risk-sharing against liquidity shocks and are sensitive to global funding conditions. Accordingly, we first show that interbank rates better reflect the magnitude of transmission of foreign liquidity shocks to EMs as compared to benchmark short-term bond yields. Next, we disentangle the transmission into its various channels, focusing in particular on two pull factors associated with the domestic banking microstructure: dependence on wholesale funding and share of foreign banks. Our results indicate that money market rates in EMs react to global shocks, and that in particular dependence on wholesale funding has a significant role to play. Finally, we provide evidence that tools of macro-prudential policy like reserve requirements can help alleviate liquidity shocks to the EM banking system, weakening this global transmission. |
| Keywords: | International transmission of liquidity shocks; quantitative easing; wholesale funding; interbank rates; macro-prudential policy; reserve requirements. |
| JEL: | E43 E44 E52 E58 F42 G15 G21 |
| Date: | 2020–03–02 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp04-2020&r=all |
| By: | Jérôme Creel (Sciences Po-OFCE, ESCP Europe); Paul Hubert (Sciences Po-OFCE); Fabien Labondance (Université de Bourgogne Franche-Comté - CRESE - Sciences Po-OFCE) |
| Abstract: | Drawing on European Union data, this paper investigates the hypothesis that private credit and banking sector fragility may affect economic growth. We capture banking sector fragility both with the ratio of bank capital to assets and non-performing loans. We assess the effect of these three variables on the growth rate of GDP per capita, using the Solow growth model as a guiding framework. We observe that credit has no effect on economic performance in the EU when banking fragilities are high. However, the potential fragility of the banking sector measured by the non- performing loans decreases GDP per capita. |
| Keywords: | Private credit, Capital to assets ratio, Non-performing loans |
| JEL: | G10 G21 O40 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:2003&r=all |
| By: | Firmin Doko Tchatoka (School of Economics, University of Adelaide); Lauren Slinger (School of Economics, University of Adelaide); Virginie Masson (School of Economics, University of Adelaide) |
| Abstract: | The liquidity effect, the short run negative response of interest rates to an increase in the money supply, has been the subject of a large number of studies, most of which based on the estimation of structural vector autoregressive models using standard instrumental variable methods (see e.g. Gali, 1992, Quarterly Journal of Economics). Using data from both the United States and Australia, we show that these SVAR models are weakly identified, and therefore the standard IV estimates of the structural coefficients and impulse response functions are biased and inconsistent. We use statistical procedures robust to weak instruments, along with the projection method of Dufour and Taamouti (2005, Econometrica), to construct confidence sets with correct coverage rate for the structural parameters and impact response functions of Gali's four variable IS-LM SVAR model. We find that these confidence sets are in general unbounded or large, and further, contain zero, thus suggesting that the evidence of the liquidity effect found in previous studies is empirically fragile. Our findings align with Pagan and Robertson (1998, Review of Economics and Statistics) who first pointed out possible identification issues in SVAR models. |
| Keywords: | Corruption; Liquidity effect; weak instruments; AR-statistic; projection method; confidence sets; correct coverage rate |
| JEL: | C01 C36 E3 E4 E5 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:adl:wpaper:2020-02&r=all |