nep-ban New Economics Papers
on Banking
Issue of 2020‒05‒11
thirteen papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Effects of macroprudential policies on bank lending and credit risks By Stefanie Behncke
  2. The Effects of Macroprudential Policy on Banks' Profitability By E Philip Davis; Dilruba Karim; Dennison Noel
  3. Loan Types and the Bank Lending Channel By Victoria Ivashina; Luc Laeven; Enrique Moral-Benito
  4. Within-bank spillovers of real estate shocks By Cuñat, Vicente; Cvijanovic, Dragana; Yuan, Kathy
  5. Interbank risk assessment: A simulation approach By Jager, Maximilian; Siemsen, Thomas; Vilsmeier, Johannes
  6. Negative interest rates, deposit funding and bank lending By Tan Schelling; Pascal Towbin
  7. Regulatory stress testing and bank performance By Ahnert, Lukas; Vogt, Pascal; Vonhoff, Volker; Weigert, Florian
  8. Sowing the Seeds of Financial Imbalances: The Role of Macroeconomic Performance By Elena Afanasyeva; Sam Jerow; Seung Jung Lee; Michele Modugno
  9. Influence of Central Bank Regulations on Interbank Competition in Association with EU By Abuselidze, George
  10. The Advent of a New Banking System in the U.S. - Financial Deregulation in the 1980s By Joao Rafael Cunha
  11. Elite Capture of Foreign Aid: Evidence from Offshore Bank Accounts By Joergen Juel Andersen; Niels Johannesen; Bob Rijkers
  12. Unconventional monetary policy shocks in the euro area and the sovereign-bank nexus By Hristov, Nikolay; Hülsewig, Oliver; Scharler, Johann
  13. Panel Remarks: Supervisory and Regulatory Action to Support the Economy and Protect Consumers By Kevin J. Stiroh

  1. By: Stefanie Behncke
    Abstract: I analyse the effects of two macroprudential policy measures implemented in Switzerland: the activation of the countercyclical capital buffer (CCyB) and a cap on the loan-to-value (LTV) ratios. I use a difference-in-differences method to estimate the effects of these measures on risk indicators, such as their LTV and loan-to-income (LTI) ratios and mortgage growth rates. I find that both the CCyB and the LTV cap led to a reduction in high LTV mortgages. The banks affected by the CCyB also reduced their mortgage growth rates. I do not find any evidence that these measures had unintended consequences on LTI risks or on non-mortgage credit growth.
    Keywords: Banks, countercyclical capital buffer, financial stability, loan-to-value ratio, macroprudential policy, mortgages
    JEL: E5 G21 G28
    Date: 2020
  2. By: E Philip Davis; Dilruba Karim; Dennison Noel
    Abstract: Despite the importance of profitability to banks' growth and stability, there have, to our knowledge, been no studies which assess the effect of macroprudential regulation on banks' profitability, a key aspect of the transmission of macroprudential measures. We seek to fill this lacuna with empirical estimates for a sample of 6,010 global banks. These suggest that over 2000-2013, a number of measures of macroprudential policy had a negative and significant effect on banks' profitability as measured by return of average assets and return on average equity. Furthermore, the effect of macroprudential policy on banks' profitability varies between advanced and emerging market economies, with some differences also apparent between retail and universal banks. Assessing our results in combination with existing estimates of the impact of macroprudential policy on credit expansion, some measures such as interbank restrictions, concentration limits and taxes on financial institutions are found to affect lending negatively but not profitability; others, such as loan-to-value ratios, the debt-to-income ratio, domestic currency loan limits and the general countercyclical capital buffer affect both negatively; and some, such as reserve requirements and capital surcharges on SIFIs, affect profitability with no significant effect on lending. Since it is probably desirable for banks to make profits and build up capital from retained earnings, according to our results, the first group are more desirable than the second, and the third is the least desirable.
    Keywords: Macroprudential policy, bank profitability, return of average assets, return on average equity
    JEL: E44 E58 G17 G28
    Date: 2020–05
  3. By: Victoria Ivashina; Luc Laeven; Enrique Moral-Benito
    Abstract: Using credit-registry data for Spain and Peru, we document that four main types of commercial credit—asset-based loans, cash-flow loans, trade finance and leasing—are easily identifiable and represent the bulk of corporate credit. We show that credit dynamics and bank lending channels vary across these loan types. Moreover, aggregate credit supply shocks previously identified in the literature appear to be driven by individual loan types. The effects of monetary policy and the effects of the financial crisis propagating through banks’ balance sheets are primarily driven by cash-flow loans, whereas asset-based credit is mostly insensitive to these types of effects.
    JEL: E0 G21
    Date: 2020–04
  4. By: Cuñat, Vicente; Cvijanovic, Dragana; Yuan, Kathy
    Abstract: By considering banks as portfolios of assets in different locations, we study how real estate shocks are transmitted across bank’s business areas while controlling for local demand shocks and bank location–specific factors. Affected banks substantially alter their loan portfolios: we find evidence of real estate price declines affecting both real estate and non-real estate types of lending. Banks also roll over and fail to liquidate problematic loans, while accumulating more non-performing loans. These results provide evidence of internal contagion of real estate shocks within banks.
    Keywords: Banks; Real Estate; Contagion; Crisis; Zombie Lending
    JEL: G21 R30
    Date: 2018–09–01
  5. By: Jager, Maximilian; Siemsen, Thomas; Vilsmeier, Johannes
    Abstract: We introduce a novel simulation-based network approach, which provides full-edged distributions of potential interbank losses. Based on those distributions we propose measures for (i) systemic importance of single banks, (ii) vulnerability of single banks, and (iii) vulnerability of the whole sector. The framework can be used for the calibration of macro-prudential capital charges, the assessment of systemic risks in the banking sector, and for the calculation of banks' interbank loss distributions in general. Our application to German regulatory data from End-2016 shows that the German interbank network was at that time in general resilient to the default of large banks, i.e. did not exhibit substantial contagion risk. Even though up to four contagion defaults could occur due to an exogenous shock, the system-wide 99.9% VaR barely exceeds 1.5% of banks' CET 1 capital. For single institutions, however, we found indications for elevated vulnerabilities and hence the need for a close supervision.
    Keywords: Interbank contagion,credit risk,systemic risk,loss simulation
    JEL: G17 G21 G28
    Date: 2020
  6. By: Tan Schelling; Pascal Towbin
    Abstract: In a negative interest rate environment, banks have generally proved reluctant to pass on negative interest rates to their retail depositors. Thus, banks that are more dependent on deposit funding face higher funding costs relative to other banks. This raises questions about the effect of negative interest rates on bank lending and monetary policy transmission. To study the transmission of negative interest rates, we use an unexpected policy decision by the Swiss National Bank in combination with a comprehensive and granular micro data set on individual Swiss corporate loans. We find that banks relying more heavily on deposit funding take more risks and offer looser lending terms than other banks. This result is consistent with the risk-taking channel, where a lower policy rate spurs bank risk-taking to maintain profits.
    Keywords: Negative interest rates, bank lending, deposit funding, monetary transmission
    JEL: G21 G28 E58
    Date: 2020
  7. By: Ahnert, Lukas; Vogt, Pascal; Vonhoff, Volker; Weigert, Florian
    Abstract: This paper investigates the impact of stress testing results on bank's equity and CDS performance using a large sample of twelve tests from the US CCAR and the European EBA regimes in the time period from 2010 to 2018. We find that passing banks experience positive abnormal equity returns and tighter CDS spreads, while failing banks show strong drops in equity prices and widening CDS spreads. We also document strong market reactions at the announcement date of the stress tests. Although the institutional designs between US and European stress tests differ, we generally observe similar capital market consequences for both regimes. We complement existing studies by investigating the predictability of stress test outcomes and evaluating strategic options for affected banks and investors.
    Keywords: Banks,Stress Testing,Equity Performance,CDS Performance
    JEL: G00 G21 G28
    Date: 2020
  8. By: Elena Afanasyeva; Sam Jerow; Seung Jung Lee; Michele Modugno
    Abstract: The seeds of financial imbalances are sown in times of buoyant economic growth. We study the link between macroeconomic performance and financial imbalances, focusing on the experience of the United States since the 1960s. We first follow a narrative approach to review historical episodes of significant financial imbalances and find that the onset of financial disturbances typically occurs when the economy is running hot. We then look for evidence of a statistical link between measures of macroeconomic conditions and financial imbalances. In our in-sample analysis, we find that strong economic growth is followed by a build-up of financial imbalances across all dimensions of the National Financial Conditions Index. In our out-of-sample analysis, we find that the link between strong economic performance and increases in nonfinancial leverage is particularly strong and robust. Using a structural VAR identified with narrative sign restrictions, we also demonstrate that business cycle shocks are important drivers of non financial leverage.
    Keywords: Economic performance; Nonfinancial leverage; Financial imbalances; Financial stability; VARs; Sign restrictions; Narrative; Forecasting
    JEL: C32 G21 N22
    Date: 2020–04–07
  9. By: Abuselidze, George
    Abstract: In the work it is focused on the determining factor of interbank competition, the level of competitiveness between banks and legislative regulations. They are also studied in the banking system of Baltic states. The purpose of the work is to identify existence of interbank competition, its causing reasons determining and reviewing regulatory ways, as well as identifying the impacts of National Bank regulations and developing recommendations. During the survey, in-depth analysis of the issue, to identify the existing problems and determine the ways of its solution, to comprehend the comparative analysis, conclusions and recommendations, was studied Georgian and EU (including the Baltic countries) public information about commercial banks, regulation documents, internet sources, which are characterized by a high degree of reliability. At the final stage, it was evaluated the existence of competition in the Georgian banking system and determined its stimulating factors.
    Keywords: Central Banks and their policies; Commercial banks; Interbank competition; EU; Georgia
    JEL: E52 E58 G21 G28
    Date: 2019
  10. By: Joao Rafael Cunha (University of St Andrews)
    Abstract: In this chapter, I argue that the deregulatory process that started in the 1980s in the banking industry in the United States has changed the profile of this sector. Between the Great Depression and the 1980s, the banking sector in the United States was a stable, yet not competitive sector. The financial deregulation of the 1980s changed this sector to a competitive, yet unstable one. This deregulatory process occurred mostly as a response to the economic conditions of the 1970s.
    Keywords: Financial Regulation, Deregulation, United States Banks
    JEL: G21 G28 G38 K20 N22 N42
    Date: 2020–04–29
  11. By: Joergen Juel Andersen (BI Norwegian Business School); Niels Johannesen (CEBI, Department of Economics, University of Copenhagen); Bob Rijkers (CEBI, Department of Economics, University of Copenhagen)
    Abstract: Do elites capture foreign aid? This paper documents that aid disbursements to highly aid-dependent countries coincide with sharp increases in bank deposits in offshore financial centers known for bank secrecy and private wealth management, but not in other financial centers. The estimates are not confounded by contemporaneous shocks such as civil conflicts, natural disasters and financial crises, and are robust to instrumenting with predetermined aid commitments. The implied leakage rate is around 7.5% at the sample mean and tends to increase with the ratio of aid to GDP. The findings are consistent with aid capture in the most aid-dependent countries.
    Keywords: foreign aid, corruption, offshore financial centers
    JEL: D73 F35 P16
    Date: 2020–03–09
  12. By: Hristov, Nikolay; Hülsewig, Oliver; Scharler, Johann
    Abstract: We explore the effects of the ECB's unconventional monetary policy on the banks' sovereign debt portfolios. In particular, using panel vector autoregressive (VAR) models we analyze whether banks increased their domestic government bond holdings in response to non-standard monetary policy shocks, thereby possibly promoting the sovereign-bank nexus, i.e. the exposure of banks to the debt issued by the national government. Our results suggest that euro area crisis countries' banks enlarged their exposure to domestic sovereign debt after innovations related to unconventional monetary policy. Moreover, the restructuring of sovereign debt portfolios was characterized by a home bias.
    Keywords: European Central Bank,unconventional monetary policy,panel vector autoregressive model,sovereign-bank nexus
    JEL: C32 E30 E52 E58 G21 H63
    Date: 2020
  13. By: Kevin J. Stiroh
    Abstract: Panel Remarks at The Fed and Main Street during the Coronavirus Pandemic, WebEx event, April 23, 2020.
    Keywords: bank balance sheet; loan modification; supervisory approach; Community Reinvestment Act; income; COVID-19; Paycheck Protection Program Liquidity Facility (PPPLF); PPP loans; liquidity; consumers; CARES Act
    Date: 2020–04–23

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