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on Banking |
| By: | Elliott, David; Meisenzahl, Ralf; Peydró, José-Luis; Turner, Bryce C. |
| Abstract: | We show that credit supply effects and associated real effects of monetary policy depend on the size of nonbank presence in the respective lending market. Nonbank presence also alters how monetary policy affects the distribution of risk. For identification, we use exhaustive loan-level data since the 1990s and Gertler-Karadi (2015) monetary policy shocks. First, different from the literature showing that low monetary policy rates increase credit supply and risk-taking by banks, we find that higher monetary policy rates shifts credit supply for corporates, mortgages, and consumers shifts from regulated banks to less regulated, more fragile nonbanks. Moreover, this shift is more pronounced for ex-ante riskier borrowers. Second, nonbanks reduce the effectiveness of the bank lending channel of monetary policy at the loan-level. However, this reduction varies substantially across lending markets. Total credit and real effects are largely neutralized in consumer loans and the associated consumption, but not in corporate loans and investment. |
| Keywords: | nonbank lending,shadow banks,monetary policy,syndicated loans,consumer loans,mortgages |
| JEL: | E51 E52 G21 G23 G28 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:216796&r=all |
| By: | Irani, Rustom; Iyer, Rajkamal; Peydró, José-Luis; Meisenzahl, Ralf |
| Abstract: | We investigate the connections between bank capital regulation and the prevalence of lightly regulated nonbanks (shadow banks) in the U.S. corporate loan market. For identification, we exploit a supervisory credit register of syndicated loans, loan-time fixed-effects, and shocks to capital requirements arising from surprise features of the U.S. implementation of Basel III. We find that less-capitalized banks reduce loan retention, particularly among loans with higher capital requirements and at times when capital is scarce, and nonbanks step in. This reallocation has important spillovers: during the 2008 crisis, loans funded by nonbanks with fragile liabilities are less likely to be rolled over and experience greater price volatility. |
| Keywords: | shadow banks,risk-based capital regulation,Basel III,intercations between banks and nonbanks,trading by banks,non-performing loans |
| JEL: | G01 G21 G23 G28 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:216799&r=all |
| By: | Peydró, José-Luis; Polo, Andrea; Sette, Enrico |
| Abstract: | Monetary policy transmission may be impaired if banks rebalance their portfolios towards securities to e.g. risk-shift or hoard liquidity. We identify the bank lending and risk-taking channels by exploiting – Italian’s unique – credit and security registers. In crisis times, with higher ECB liquidity, less capitalized banks react by increasing securities over credit supply, inducing worse firm-level real effects. However, they buy securities with lower yields and haircuts, thus reaching-for-safety and liquidity. Differently, in pre-crisis time, securities do not crowd-out credit supply. The substitution from lending to securities in crisis times helps less capitalized banks to repair their balance-sheets and then restart credit supply with a one year-lag. |
| Keywords: | securities,credit supply,bank capital,monetary policy,reach-for-yield,haircuts,held to maturity,available for sale,trading book,Euro Area Sovereign Debt Crisis |
| JEL: | G01 G21 G28 E52 E58 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:216808&r=all |
| By: | Kick, Thomas; Malinkovich, Swetlana; Merkl, Christian |
| Abstract: | In the presence of financial frictions, banks' capital position may constrain their ability to provide loans. The banking sector may thus have important feedback effects on the macroeconomy. To shed new light on this issue, we combine two approaches. First, we use microeconomic balance sheet data from Germany and estimate banks' loan supply response to capital changes. Second, we modify the model of Gertler and Karadi (2011) such that it can be calibrated to the estimated partial equilibrium elasticity of bank loan supply with respect to bank capital. Although the targeted elasticity is remarkably different from the one in the baseline model, banks continue to be an important originator and amplifier of macroeconomic shocks. Thus, combining microeconometric results with macroeconomic modeling provides evidence on the effects of the banking sector on the macroeconomy. |
| Keywords: | DSGE,Bank Capital,Loan Supply,Financial Frictions |
| JEL: | E24 E32 E44 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:272020&r=all |
| By: | Alin Marius Andries (Alexandru Ioan Cuza University - Faculty of Economics and Business Administration); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)); Nicu Sprincean (Alexandru Ioan Cuza University of Iasi); Radu Tunaru (University of Sussex) |
| Abstract: | In this paper we gauge the degree of interconnectedness and quantify the linkages between global and other systemically important institutions, and the global financial system. We document that the two groups and the financial system become more interconnected during the global financial crisis when linkages across groups grow. In contrast, during tranquil times linkages within groups prevail. Global systemically important banks contribute most to system-wide distress, but are also most exposed. Other systemically important institutions bear more individual market risk. The two groups and the global financial system also co-vary for periods of up to 60 days. In sum, both groups perform in ways that defy any straightforward categorization. |
| Keywords: | systemic risk, interconnectedness, bank networks |
| JEL: | G21 D85 G01 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2040&r=all |
| By: | Farmer, J Doyne (Institute for New Economic Thinking, University of Oxford,); Kleinnijenhuis, Alissa M (Institute for New Economic Thinking, University of Oxford, UK and MIT Sloan School of Management, Massachusetts Institute of Technology,); Nahai-Williamson, Paul (Bank of England); Wetzer, Thom (Faculty of Law, University of Oxford) |
| Abstract: | We propose a structural framework for the development of system-wide financial stress tests with multiple interacting contagion, amplification channels and heterogeneous financial institutions. This framework conceptualises financial systems through the lens of five building blocks: financial institutions, contracts, markets, constraints, and behaviour. Using this framework, we implement a system-wide stress test for the European financial system. We obtain three key findings. First, the financial system may be stable or unstable for a given microprudential stress test outcome, depending on the system’s shock-amplifying tendency. Second, the ‘usability’ of banks’ capital buffers (the willingness of banks to use buffers to absorb losses) is of great consequence to systemic resilience. Third, there is a risk that the size of capital buffers needed to limit systemic risk could be severely underestimated if calibrated in the absence of system-wide approaches. |
| Keywords: | Systemic risk; stress testing; financial contagion; financial institutions; capital requirements; macroprudential policy |
| JEL: | C63 G17 G21 G23 G28 |
| Date: | 2020–05–14 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0861&r=all |
| By: | Mendicino, Caterina; Nikolov, Kalin; Suarez, Javier; Supera, Dominik; Ramirez, Juan-Rubio |
| Abstract: | We study the interaction between borrowers' and banks' solvency in a quantitative macroeconomic model with financial frictions in which bank assets are a portfolio of defaultable loans. We show that ex-ante imperfect diversification of bank lending generates bank asset returns with limited upside but significant downside risk. The asymmetric distribution of these returns and their implications for the evolution of bank net worth are important for capturing the frequency and severity of twin default crises – simultaneous rises in firm and bank defaults associated with sizeable negative effects on economic activity. As a result, our model implies higher optimal capital requirements than common specifications of bank asset returns, which neglect or underestimate the impact of borrower default on bank solvency. JEL Classification: G01, G28, E44 |
| Keywords: | bank capital requirements, bank default, financial crises, firm default |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202414&r=all |
| By: | Dassatti Camors, Cecilia; Peydró, José-Luis; R.-Tous, Francesc; Vicente, Sergio |
| Abstract: | We analyze the impact of reserve requirements on the supply of credit to the real sector. For identification, we exploit a tightening of reserve requirements in Uruguay during a global capital inflows boom, where the change affected more foreign liabilities, in conjunction with its credit register that follows all bank loans granted to non-financial firms. Following a difference-in-differences approach, we compare lending to the same firm before and after the policy change among banks differently affected by the policy. The results show that the tightening of the reserve requirements for banks lead to a reduction of the supply of credit to firms. Importantly, the stronger quantitative results are for the tightening of reserve requirements to bank liabilities stemming from non-residents. Moreover, more affected banks increase their exposure into riskier firms, and larger banks mitigate the tightening effects. Finally, the firm-level analysis reveals that the cut in credit supply in the loan-level analysis is binding for firms. The results have implications for global monetary and financial stability policies |
| Keywords: | macroprudential policy,reserve requirements |
| JEL: | E51 E52 F38 G21 G28 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:216795&r=all |
| By: | Sotirios Kokas; Dmitri Vinogradov; Marios Zachariadis |
| Abstract: | By adjusting lending, banks can smooth the macroeconomic impact of deposit fluctuations. This may however lead to extended periods of disproportionately high lending relative to deposit intake, resulting in the accumulation of risk in the banking system. Using bank-level data for 8,477 banks in 129 countries for the 24-year period from 1992 to 2015, we examine how individual banks’ market power and other characteristics may contribute to smoothing or amplification of shocks and to the accumulation of risk. We find that the higher their market power the lower is the growth rate of lending relative to deposits. As a result, in periods of falling deposits, higher market power for the average bank would be associated with a greater fall in lending resulting in amplification of adverse effects as deposits fall during relatively bad times. Strikingly, at very high levels of market power there is a threshold past which the effect of market power on the growth rate of lending relative to deposits turns positive so that “superpower” banks contribute to smoothing of adverse effects when deposits are falling. In periods of rising deposits, however, such banks lead to amplification and accumulation of risk in the economy |
| Keywords: | smoothing, amplification, risk accumulation, market power, competition, crisis. |
| JEL: | E44 E51 F3 F4 G21 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2018_03&r=all |
| By: | Huang, qhuang |
| Abstract: | We document a significantly positive relationship between executive compensation and risk-taking of Chinese listed banks over the 2007–2018 period. The finding is robust to the risk measures (Z-score, systematic risk and stock return volatility) used, the way to calculate executive compensation, and model specifications as well as estimation techniques. Further analysis suggests that bank past performance (captured by return on equity) strongly moderates the relationship between executive compensation and risk-taking. We also find a modest U-shaped association of bank Z-score with executive compensation. Our study appears to support the regulation on executive compensation for the sake of bank stability. |
| Keywords: | Executive compensation; Bank risk; Bank performance; Z-score; Chinese banks |
| JEL: | G21 M12 |
| Date: | 2020–04–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100377&r=all |
| By: | Bubeck, Johannes; Maddaloni, Angela; Peydró, José-Luis |
| Abstract: | We show that negative monetary policy rates induce systemic banks to reach-for-yield. For identification, we exploit the introduction of negative deposit rates by the European Central Bank in June 2014 and a novel securities register for the 26 largest euro area banking groups. Banks with more customer deposits are negatively affected by negative rates, as they do not pass negative rates to retail customers, in turn investing more in securities, especially in those yielding higher returns. Effects are stronger for less capitalized banks, private sector (financial and non-financial) securities and dollar-denominated securities. Affected banks also take higher risk in loans. |
| Keywords: | negative rates,non-standard monetary policy,reach-for-yield,securities,banks |
| JEL: | E43 E52 E58 G01 G21 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:216806&r=all |
| By: | Bottero, Margherita; Minoiu, Camelia; Peydró, José-Luis; Polo, Andrea; Presbitero, Andrea; Sette, Enrico |
| Abstract: | We show that negative interest rate policy (NIRP) has expansionary effects on bank credit supply—and the real economy—through a portfolio rebalancing channel, and that, by shifting down and flattening the yield curve, NIRP differs from rate cuts just above the zero-lower-bound. For identification, we exploit ECB’s NIRP and matched administrative datasets from Italy. NIRP affects banks with higher net short-term interbank positions or, more broadly, more liquid balance-sheets. NIRPaffected banks reduce liquid assets, expand credit supply (to ex-ante riskier firms), and cut rates, inducing sizable firm-level real effects. By contrast, there is no evidence of a contractionary retail deposit channel. |
| Keywords: | negative interest rates,portfolio rebalancing,bank lending channel and of monetary policy,liquidity management,Eurozone crisis |
| JEL: | E52 E58 G01 G21 G28 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:216807&r=all |
| By: | Akin, Ozlem; Marín, J.M.; Peydró, José-Luis |
| Abstract: | Banking crises are recurrent phenomena, often induced by excessive bank risk-taking, which may be due to behavioural reasons (over-optimistic banks neglecting risks) and to conflicts of interest between bank shareholders/managers and debtholders/taxpayers (banks exploiting moral hazard). We test whether US banks' stock returns in the 2007-08 financial crisis are associated with bank insiders' sales of their own bank’s shares in the period prior to 2006Q2 (the peak and reversal in real estate prices). We find that top-five executives' sales of shares predict bank performance during the crisis. Interestingly, effects are insignificant for the sales of independent directors and other officers. Moreover, the top-five executives' impact is stronger for banks with higher exposure to the real estate bubble, where a one standard deviation increase of insider sales is associated with a 13.33 percentage point drop in stock returns during the crisis period. Finally, even though bankers in riskier banks sold more shares (furthering their own interests), they did not change their bank’s policies, e.g. by reducing bank-level exposure to real estate. The informational content of bank insider trading before the crisis suggests that insiders knew that their banks were taking excessive risks, which has important implications for theory, public policy, and the understanding of crises, as well as a supervisory tool for early warning signals. |
| Keywords: | financial crises,insider trading,banking,risk-taking,principal-agent problems |
| JEL: | G01 G02 G21 G28 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:216803&r=all |
| By: | Wenqian Huang; Előd Takáts |
| Abstract: | We investigate empirically how the balance sheet characteristics of central counterparties (CCPs) affect their modelling of credit risk. CCPs set initial margin (IM), i.e., the collateral for transactions, to limit counterparty credit risk. When a CCP's IM model fails on a large scale, the CCP could fail too, losing its skin-in-the-game capital. We find that higher skin-in-the-game is significantly a ssociated with more p rudent modelling, in contrast to profits (a proxy for franchise value) and forms of capital other than skin-in-the-game. The results may help to inform the ongoing policy debate on how to incentivise prudent credit risk management at CCPs. |
| Keywords: | central counterparties (CCPs), capital, risk-taking |
| JEL: | F34 F42 G21 G38 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:866&r=all |
| By: | De Nora, Giorgia (Central Bank of Ireland); O'Brien, Eoin (Central Bank of Ireland); O'Brien, Martin (Central Bank of Ireland) |
| Abstract: | This note outlines the rationale underlying the release of the Countercyclical Capital Buffer (CCyB) in Ireland in the light of the recent COVID-19 developments. The COVID-19 outbreak presents an exceptional shock, triggering the materialisation of potential challenges for financial stability. An active use of macroprudential policy, and in particular the release of the CCyB, allows the banking system to absorb the impact of this shock. In doing so, it limits the scope for the banking system to amplify the shock to the detriment of the real economy, by facilitating banks maintaining a sustainable supply of credit to the economy in the challenging times ahead. We discuss how this particular policy response fits in the Central Bank’s CCyB framework, how it interacts with other prudential policy measures, and the size of capital relief and potential additional credit supply capacity it affords. |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:fsnote:1/fs/20&r=all |
| By: | Philipp Kirchner (University of Kassel); Benjamin Schwanebeck (University of Hagen) |
| Abstract: | This paper studies the interaction of international shadow banking with monetary and macroprudential policy in a two-country currency union DSGE model. We fiÂ…nd evidence that cross-country fiÂ…nancial integration through the shadow banking system is a source of fiÂ…nancial contagion in response to idiosyncratic real and fiÂ…nancial shocks due to harmonization of fiÂ…nancial spheres. The resulting high degree of business cycle synchronization across countries, especially for Â…financial variables, makes union-wide policy tools more ffective. Nevertheless, optimal monetary policy at the union-level is too blunt an instrument to adequately stabilize business cycle downturns and needs to be accompanied by macroprudential regulation. Our welfare analysis reveals that the gains from the availability of country-speciÂ…c prudential tools vanish with the degree of fiÂ…nancial integration as union-wide macroprudential regulation is able to effectively reduce losses among the union members. |
| Keywords: | fiÂ…nancial frictions; shadow banking; currency union; Â…financial integration; macroprudential policy |
| JEL: | E32 E44 E58 F45 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:202024&r=all |
| By: | Jérémie BERTRAND (IESEG School of Management); Laurent WEILL (LaRGE Research Center, Université de Strasbourg) |
| Abstract: | This study analyzes the month-of-the-year effect on lending decisions. Using data from a large US peer-to-peer lender, we perform regressions of loan acceptance and loan spread on month dummy variables, including a large set of borrower and loan control variables. We find evidence of a month-of-the-year effect on loan acceptance and loan pricing. December is the best month to ask for a loan, with the highest chance of acceptance and the lowest spread. Loan applications have the lowest chance of acceptance in January while loan pricing is highest in August and September. We test the potential explanations of the calendar anomalies and find some support for trade loading, such that granted loans might be inflated at the end of the quarter to hit quarterly targets. |
| Keywords: | Fintech, calendar anomalies, loan. |
| JEL: | G21 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:lar:wpaper:2020-02&r=all |
| By: | Filippo Curti; W. Scott Frame; Atanas Mihov |
| Abstract: | This study demonstrates that, among large U.S. bank holding companies (BHCs), the largest ones are exposed to more operational risk. Specifically, they have higher operational losses per dollar of total assets, a result largely driven by the BHCs' failure to meet professional obligations to clients and/or faulty product design. Operational risk at the largest U.S. institutions is also found to: (i) be particularly persistent, (ii) have a counter-cyclical component (higher losses occur during economic downturns) and (iii) materialize through more frequent tail-risk events. We illustrate two plausible channels of BHC size that contribute to operational risk – institutional complexity and moral hazard incentives arising from “too-big-to-fail." Our findings have important implications for large banking organization performance, risk and supervision. |
| Keywords: | Banking organizations; Size; Operational risk; Tail risk; Recessions |
| JEL: | G20 G21 |
| Date: | 2020–05–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:88097&r=all |
| By: | Nguyen, V.C. |
| Abstract: | To the best of our knowledge, a very few studies have focused on the effects of government ability on bank performance in developing and emerging countries. The aim of this work is to study the impact of government ability, bank-specific factors on profitability in the banking system in Vietnam. Using a panel data analysis in the period over 2014-2018, the study analyzes based on the methods of fixed, random effects, and pooled ordinary least squares. Data were collected from Vietnam’s Stock Exchange, General Statistics Office, and Worldwide Governance Indicators. Our results demonstrate that government ability has negatively affected bank efficiency while economic growth will not affect bank efficiency. In addition, the prime bank-specific factors that can significantly impact on bank efficiency are non-performing loan, loan-to-deposit ratio, loan loss reserves. A bank with a higher loan-to-deposit ratio can positively impact on the probability of a bank. In contrast to the risk, a bank with a greater risk as well as a higher level in non-performing loan in operation will negatively impact on its efficiency. |
| Date: | 2020–03–24 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:9dcqp&r=all |
| By: | Reinhardt, Dennis (Bank of England); Reynolds, Stephen (Bank of England); Sowerbutts, Rhiannon (Bank of England); van Hombeeck, Carlos (Bank of England) |
| Abstract: | We examine how banks’ cross-border lending reacts to changes in liquidity regulation using a new dataset on Individual Liquidity Guidance (ILG), which was enacted in the UK from 2000 to 2015 and is similar to the Basel III Liquidity Coverage Ratio. A one percentage point increase in liquidity requirements to total assets reduces UK resident banks’ cross-border lending growth by around 0.6 percentage points and both bank and non-bank lending are affected. But quality matters: an increase in the holdings of High Quality Liquid Asset (HQLA) qualifying sovereign debt offsets some of the reduction in total cross-border lending growth. Furthermore, the strongest reduction is driven by foreign subsidiaries from countries where sovereigns do not issue HQLA; in contrast subsidiaries from countries issuing HQLA are able to protect their lending to unrelated entities and cut their intragroup lending instead. Banks with a higher deposit share as a consequence of established retail operations, such as those headquartered in the UK, are also able to offset the effects of increases of liquidity requirement on cross-border lending. |
| Keywords: | Liquidity regulation; liquidity requirements; external lending; intensity of prudential regulations |
| JEL: | F36 G21 G28 |
| Date: | 2020–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0860&r=all |
| By: | Guglielmo Barone (University of Padua); Fabiano Schivardi (Luiss University, EIEF); Enrico Sette (Bank of Italy) |
| Abstract: | We study the effects on loan rates of a quasi-experimental change in the Italian legislation which forbids interlocking directorates between banks. We use a difference-in-differences approach and exploit multiple banking relationships to control for unobserved heterogeneity. We find that the reform decreased rates charged by previously interlocked banks to common customers by between 10-30 basis points. The effect is stronger if the firm had a weaker bargaining power vis-a-vis the interlocked banks. Consistent with the assumption that interlocking directorates facilitate collusion, interest rates on loans from interlocked banks become more dispersed after the reform. |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:eie:wpaper:2011&r=all |
| By: | Abbassi, Puriya; Iyer, Rajkamal; Peydró, José-Luis; Soto, Paul E. |
| Abstract: | Regulation needs effective supervision; but regulated entities may deviate with unobserved actions. For identification, we analyze banks, exploiting ECB's asset-quality-review (AQR) and supervisory security and credit registers. After AQR announcement, reviewed banks reduce riskier securities and credit (also overall securities and credit supply), with largest impact on riskiest securities (not on riskiest credit), and immediate negative spillovers on asset prices and firm-level credit supply. Exposed (unregulated) nonbanks buy the shed risk. AQR drives the results, not the end-of-year. After AQR compliance, reviewed banks reload riskier securities, but not riskier credit, with medium-term negative firm-level real effects (costs of supervision/safe-assets increase). |
| Keywords: | Asset quality review,stress tests,supervision,risk-masking,costs of safe assets |
| JEL: | E58 G21 G28 H63 L51 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:262020&r=all |
| By: | Agu, Chinonso .V.; Aguegboh, Ekene .S. |
| Abstract: | This paper aims at investigating the impact of information and communication technology (ICT) on bank performance in Sub-Saharan African (SSA) banking industry. The data set entails panel data for 35 Sub-Saharan African countries and we employ the system generalized method of moment (GMM) estimation technique for dynamic panel models. ICT variables understudied include: number of automated teller machines (ATMs), ATMs per 100,000 adults, ATM per 1,000 km2 and mobile money transaction; while bank performance was proxied using returns on assets (ROA), returns on earning (ROE), and net interest margin (NIM). The result reveals that ICT is negatively associated with bank performance except for ATMs per 100,000 adults and ATM per 1,000km2, which had positive impact on ROE and NIM. The findings suggest that ICT largely affects bank performance in the short run; in long run these investments become very beneficial to improving bank performance. |
| Keywords: | ICT, bank performance, return on assets, return on equity, net interest margin |
| JEL: | E44 G20 O31 |
| Date: | 2020–05–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100355&r=all |
| By: | Schüler, Yves |
| Abstract: | The Basel III framework advises considering a reference indicator at the country level to guide the setting of the countercyclical capital buffer: the credit-to-GDP gap. In this paper, I provide empirical evidence suggesting that the credit-to-GDP gap is subject to spurious medium-term cycles, i.e. artificial boom-bust cycles with a maximum duration of around 40 years. |
| Keywords: | Basel III,Hodrick-Prescott filter,detrending |
| JEL: | C10 E32 E58 G01 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:282020&r=all |
| By: | Allen, Franklin (Imperial College London); Covi, Giovanni (Bank of England); Gu, Xian (Wharton School of University of Pennsylvania.); Kowalewski, Oskar (IESEG School of Management); Montagna, Mattia (European Central Bank) |
| Abstract: | This study documents significant differences in the interbank market lending and borrowing levels across countries. We argue that the existing differences in interbank market usage can be explained by the trust of the market participants in the stability of the country’s banking sector and counterparties, proxied by the history of banking crises and failures. Specifically, banks originating from a country that has lower level of trust tend to have lower interbank borrowing. Using a proprietary dataset on bilateral exposures, we investigate the Euro Area interbank network and find the effect of trust relies on the network structure of interbank markets. Core banks acting as interbank intermediaries in the network are more significantly influenced by trust in obtaining interbank funding, while being more exposed in a community can mitigate the negative effect of low trust. Country-level institutional factors might partially substitute for the limited trust and enhance interbank activity. |
| Keywords: | Interbank market; trust; networks; centrality; community detection |
| JEL: | G01 G21 G28 |
| Date: | 2020–05–14 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0862&r=all |
| By: | Christian Lambert Nguena (University of Dschang) |
| Abstract: | Using a new database for mobile financial and banking services across countries, we analyze propoor and inclusive growth in developing countries and show the importance of mobile financial and banking development. This paper uses several econometric techniques to investigate mobile finance and banking benchmarking, determinants, and real impacts on inclusive growth in developing countries in Africa. The statistical benchmarking analysis reveals that there is a positive link between mobile banking development and economic development. Estimation of our model, using different specification and estimation techniques, shows the same result: a positive impact of mobile finance and banking development on both pro-poor and inclusive economic growth. These main findings suggest that policies to boost mobile finance and banking development in Africa should be viewed as measures that would yield fruit in the medium to long terms. Moreover, we find determinants of mobile finance and banking to be: banking sector domestic credit, human capital, remittances, credible monetary policy, infrastructure, and trade. Since mobile banking development matters for pro-poor and inclusive growth, African governments should pursue good performance in terms of these determinants by implementing specific and robust economic policies. JEL classification: G21, R1, O4Keywords: Mobile finance and banking, Africa, principal component analysis, financial innovation, financial inclusion |
| Date: | 2019–08–21 |
| URL: | http://d.repec.org/n?u=RePEc:adb:adbwps:2449&r=all |
| By: | Haelim Anderson; Jin-Wook Chang; Adam Copeland |
| Abstract: | The coronavirus outbreak raises the question of how central bank liquidity support affects financial stability and promotes economic recovery. Using newly assembled data on cross-county flu mortality rates and state-charter bank balance sheets in New York State, we investigate the effects of the 1918 influenza pandemic on the banking system and the role of the Federal Reserve during the pandemic. We find that banks located in more severely affected areas experienced deposit withdrawals. Banks that were members of the Federal Reserve System were able to access central bank liquidity, enabling them to continue or even expand lending. Banks that were not System members, however, did not borrow on the interbank market, but rather curtailed lending, suggesting that there was little-to-no pass-through of central bank liquidity. Further, in the counties most affected by the 1918 pandemic, even banks with direct access to the discount window did not borrow enough to offset large deposit withdrawals and so liquidated assets, suggesting limits to the effectiveness of liquidity provision by the Federal Reserve. Finally, we show that the pandemic caused only a short-term disruption in the financial sector. |
| Keywords: | 1918 influenza; pandemics; financial stability; bank lending; economic recovery; COVID-19 |
| JEL: | E32 G21 N22 |
| Date: | 2020–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:88088&r=all |
| By: | Altavilla, Carlo; Boucinha, Miguel; Peydró, José-Luis; Smets, Frank |
| Abstract: | We analyse the effects of supranational versus national banking supervision on credit supply, and its interactions with monetary policy. For identification, we exploit: (i) a new, proprietary dataset based on 15 European credit registers; (ii) the institutional change leading to the centralisation of European banking supervision; (iii) high-frequency monetary policy surprises; (iv) differences across euro area countries, also vis-à-vis non-euro area countries. We show that supranational supervision reduces credit supply to firms with very high ex-ante and ex-post credit risk, while stimulating credit supply to firms without loan delinquencies. Moreover, the increased risk-sensitivity of credit supply driven by centralised supervision is stronger for banks operating in stressed countries. Exploiting heterogeneity across banks, we find that the mechanism driving the results is higher quantity and quality of human resources available to the supranational supervisor rather than changes in incentives due to the reallocation of supervisory responsibility to the new institution. Finally, there are crucial complementarities between supervision and monetary policy: centralised supervision offsets excessive bank risk-taking induced by a more accommodative monetary policy stance, but does not offset more productive risk-taking. Overall, we show that using multiple credit registers – first time in the literature – is crucial for external validity. |
| Keywords: | supervision,banking,AnaCredit,monetary policy,Euro Area crisis |
| JEL: | E51 E52 E58 G01 G21 G28 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:216793&r=all |
| By: | Edith L. P. Togba (UFR des Sciences Economiques et Développement, Université Alassane Ouattara) |
| Abstract: | Le présent document analyse le lien entre la pérennité financière, l’étendue et la profondeur de la portée sociale d’institutions de microfinance appartenant à l’Union économique et monétaire ouest africaine (UEMOA). L’analyse est effectuée sur des données de panel de la période 2000 à 2014 à l’aide d’un modèle à équations simultanées dynamiques. Des résultats obtenus, il ressort une relation positive entre la pérennité financière et la profondeur de la portée sociale lorsque toutes les variables qui généralement influencent la pérennité financière sont incluses. D’autre part, relativement aux réformes initiées dans l’UEMOA, si le projet d’Appui à la réglementation sur les mutuelles d’épargne et de crédit (PARMEC) de même que le Programme régional d’appui à la finance décentralisée (PRAFIDE) affectent négativement la pérennité financière, l’impact du PRAFIDE est également négatif sur la profondeur de la portée sociale. Classification JEL: C23, G21 |
| Keywords: | Microfinance ; pérennité financière ; portée sociale ; UEMOA |
| Date: | 2019–08–20 |
| URL: | http://d.repec.org/n?u=RePEc:adb:adbwps:2445&r=all |