nep-ban New Economics Papers
on Banking
Issue of 2020‒06‒15
24 papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Do non-performing loans matter for bank lending and the business cycle in euro area countries? By Huljak, Ivan; Martin, Reiner; Moccero, Diego; Pancaro, Cosimo
  2. Cyclical Lending Standards: A Structural Analysis By Kaiji Chen; Patrick C. Higgins; Tao Zha
  3. Disentangling the supply and demand factors of household credit in Malaysia: evidence from the credit register By Jiaming Soh
  4. Bank Lending in the Knowledge Economy By Giovanni Dell'Ariccia; Dalida Kadyrzhanova; Camelia Minoiu; Lev Ratnovski
  5. Global Liquidity and Impairment of Local Monetary Policy By Fendoglu, Salih; Gulsen, Eda; Peydró, José-Luis
  6. Macroprudential regulation and leakage to the shadow banking sector By Gebauer, Stefan; Mazelis, Falk
  7. Unconventional monetary policy and credit market activity By Juan Carlos Medina Guirado; ; ;
  8. Macroprudential policy, mortgage cycles and distributional effects: Evidence from the UK By Peydró, José-Luis; Rodriguez-Tous, Francesc; Tripathy, Jagdish; Uluc, Arzu
  9. Bank Lending, Monetary Policy Transmission, and Interest on Excess Reserves: A FAVAR Analysis By Dave, Chetan; Dressler, Scott J.; Zhang, Lei
  10. Burning Money? Government Lending in a Credit Crunch By Jiménez, Gabriel; Peydró, José-Luis; Repullo, Rafael; Saurina, Jesús
  11. Countercyclical Liquidity Policy and Credit Cycles: Evidence from Macroprudential and Monetary Policy in Brazil By Blanco Barroso, Joao; Barbone Gonzalez, Rodrigo; Peydró, José-Luis; Nazar van Doornik, Bernardus
  12. Macroprudential Policy, Mortgage Cycles and Distributional Effects: Evidence from the UK By José-Luis Peydró; Francesc R Tous; Jagdish Tripathy; Arzu Uluc
  13. Institutional Diversity in Domestic Banking Sectors and Bank Stability: A Cross-Country Study By Christopher F. Baum; Caterina Forti Grazzini; Dorothea Schäfer
  14. The Month-of-the-Year Effect in Corporate Lending By Jérémie BERTRAND; Aurore BURIETZ; Laurent WEILL
  15. The intertwining of credit and banking fragility By Jérôme Creel; Paul Hubert; Fabien Labondance
  16. Global financial cycles since 1880 By Potjagailo, Galina; Wolters, Maik H
  17. A Repo Model of Fire Sales with VWAP and LOB Pricing Mechanisms By Maxim Bichuch; Zachary Feinstein
  18. Germany’s ‘Lex Apple Pay’: Payment Service Regulation Overtakes Competition Enforcement By Jens-Uwe Franck; Dimitrios Linardatos
  19. Hedger of Last Resort: Evidence from Brazil on FX Interventions, Local Credit and Global Financial Cycles By Barbone Gonzalez, Rodrigo; Khametshin, Dmitry; Peydró, José-Luis; Polo, Andrea
  20. Take It to the Limit? The Effects of Household Leverage Caps By Van Bekkum, Sjoerd; Gabarró, Marc; Irani, Rustom; Peydró, José-Luis
  21. Post-crisis Signals in Securitization: Evidence from Auto ABS By Elizabeth C. Klee; Chae Hee Shin
  22. Patterns in demand side financial inclusion in India -- An inquiry using IHDS Panel Data By Vinay Reddy Venumuddala
  23. The People's Bank of China's response to the coronavirus pandemic - A quantitative assessment By Funke, Michael; Tsang, Andrew
  24. Financial Inclusion and Bank Stability: Evidence from Europe By Gamze Danisman; Amine Tarazi

  1. By: Huljak, Ivan; Martin, Reiner; Moccero, Diego; Pancaro, Cosimo
    Abstract: We contribute to the empirical literature on the impact of non-performing loan (NPL) ratios on aggregate banking sector variables and the macroeconomy by estimating a panel Bayesian VAR model for twelve euro area countries. The model is estimated assuming a hierarchical prior that allows for country-specific coefficients. The VAR includes a large set of variables and is identified via Choleski factorisation. We estimate the impact of exogenous shocks to the change in NPL ratios across countries. The main findings of the paper are as follows: i ) An impulse response analysis shows that an exogenous increase in the change in NPL ratios tends to depress bank lending volumes, widens bank lending spreads and leads to a fall in real GDP growth and residential real estate prices; ii ) A forecast error variance decomposition shows that shocks to the change in NPL ratios explain a relatively large share of the variance of the variables in the VAR, particularly for countries that experienced a large increase in NPL ratios during the recent crises; and iii ) A three-year structural out-of-sample scenario analysis provides quantitative evidence that reducing banks' NPL ratios can produce significant benefits in euro area countries in terms of improved macroeconomic and financial conditions. JEL Classification: G21, C32, C11
    Keywords: euro area countries, hierarchical priors, non-performing loans, panel Bayesian VAR
    Date: 2020–05
  2. By: Kaiji Chen; Patrick C. Higgins; Tao Zha
    Abstract: Lending standards are a direct measure of credit conditions. We use the micro data merged from three separate sources to construct this measure and document that an uncertain macroeconomic outlook, rather than banks' balance sheet positions, was an important reason that a majority of banks tightened bank lending standards during the Great Recession. Our extensive data analysis disciplines how we introduce credit frictions in the banking sector into a macroeconomic model. The model estimation reveals that an exogenous shock to credit supply drives cyclical lending standards and accounts for a significant portion of fluctuations in bank loans and aggregate output.
    Keywords: endogenous regime switching; asymmetric credit allocation; land prices; heavy GDP; debt-to-GDP ratio; nonlinear effects; GDP growth target; heavy loans; real estate
    JEL: C51 C81 C82 E32 E44 G21
    Date: 2020–05–21
  3. By: Jiaming Soh
    Abstract: This paper isolates the demand and supply factors of credit extension. We construct a new dataset that combines loan application information from the credit register with individuals' income and banks' balance sheet for the period 2014-2016. Using this dataset, we verify the importance of banks' balance sheet (supply factor) and individuals' income (demand factor) in determining housing and car loan approval empirically. We have two main findings. First, we find that banks' balance sheet matters. Banks with a higher funding ratio, higher capital ratio, and lower liquidity ratio are more likely to approve a housing and car loan. Among the supply factors, the funding ratio of the banks is the strongest determinant of household lending. Second, we find that the supply factors have a greater impact on household loan approval than the demand factor. Specifically, the effect of banks' funding ratio on loan approval is twice the size of income. Therefore, the declining funding ratio due to higher net external outflows may potentially explain the moderation in aggregate household loan approval growth in 2014-2016. The findings fill a research gap for the Malaysian economy and could serve to inform policies, especially in relation to the discussion on the role of banks' balance sheet in lending activities.
    Keywords: : Supply factor, demand factor, household loan approval, credit register, funding ratio
    JEL: G21 E51
    Date: 2018–10
  4. By: Giovanni Dell'Ariccia; Dalida Kadyrzhanova; Camelia Minoiu; Lev Ratnovski
    Abstract: We study the composition of bank loan portfolios during the transition of the real sector to a knowledge economy where firms increasingly use intangible capital. Exploiting heterogeneity in bank exposure to the compositional shift from tangible to intangible capital, we show that exposed banks curtail commercial lending and reallocate lending to other assets, such as mortgages. We estimate that the substantial growth in intangible capital since the mid-1980s explains around 30% of the secular decline in the share of commercial lending in banks' loan portfolios. We provide suggestive evidence that this reallocation increased the riskiness of banks' mortgage lending.
    Keywords: Bank lending; Corporate intangible capital; Real estate loans; Commercial loans
    JEL: E22 E44 G21
    Date: 2020–05–22
  5. By: Fendoglu, Salih; Gulsen, Eda; Peydró, José-Luis
    Abstract: We show that global liquidity limits the effectiveness of local monetary policy on credit markets. The mechanism is via a bank carry trade in international markets when local monetary policy tightens. For identification, we exploit global (VIX, U.S. monetary policy) shocks and loan-level data —the credit and international interbank registers— from a large emerging market, Turkey. Softer global liquidity conditions attenuate the pass-through of local monetary policy tightening on loan rates, especially for banks with more access to international wholesale markets. Effects are also important for other credit margins and for risk-taking, e.g. riskier borrowers in FX loans or defaults.
    Keywords: global financial cycle,monetary policy,emerging markets,banks,carry trade
    JEL: G01 G15 G21 G28 F30
    Date: 2019
  6. By: Gebauer, Stefan; Mazelis, Falk
    Abstract: Macroprudential policies are often aimed at the commercial banking sector, while a host of other non-bank financial institutions, or shadow banks, may not fall under their jurisdiction. We study the effects of tightening commercial bank regulation on the shadow banking sector. We develop a DSGE model that differentiates between regulated, monopolistic competitive commercial banks and a shadow banking system that relies on funding in a perfectly competitive market for investments. After estimating the model using euro area data from 1999 – 2014 including information on shadow banks, we find that tighter capital requirements on commercial banks increase shadow bank lending, which may have adverse financial stability effects. Coordinating macroprudential tightening with monetary easing can limit this leakage mechanism, while still bringing about the desired reduction in aggregate lending. In a counterfactual analysis, we compare how macroprudential policy implemented before the crisis would have dampened the business and lending cycles. JEL Classification: E32, E58, G23
    Keywords: financial frictions, macroprudential policy, monetary policy, non-bank financial institutions, policy coordination
    Date: 2020–05
  7. By: Juan Carlos Medina Guirado (UACJ); ; ;
    Abstract: Since the 2007-2009 financial recession and up until the present day, the main central banks have resorted to nontraditional policy tools to stimulate economic activity. A distinctive example was the expansion of the size of their balance sheets through the purchase of long-term government securities. In this paper I analyze the effect on credit markets of this “unconventional” monetary policy tool and compare it with that of conventional instruments such as open market operations. Our findings suggest that central bank purchases of long-term government securities stimulate credit market activity and reduce the cost of public and private borrowing only under a low interest rate and reduced fiscal debt regime. Otherwise, this policy increases the cost of servicing debt resulting in a contraction of lending. In contrast, open market operations aid credit availability but negatively affect the amount of risk-sharing in the economy.
    Keywords: Central Banking, unconventional monetary policy, financial intermediation, credit markets.
    JEL: E31 E44 E52 E58
    Date: 2020–01–04
  8. By: Peydró, José-Luis (Imperial College London); Rodriguez-Tous, Francesc (Cass Business School); Tripathy, Jagdish (Bank of England); Uluc, Arzu (Bank of England)
    Abstract: Macroprudential regulators worldwide have introduced regulations to limit household leverage in light of existing evidence which suggests that high leverage is associated with household distress during crisis. We analyse the distributional effects of such a macroprudential policy on mortgage and house price cycles. For identification, we exploit the universe of UK mortgages and a 15%-limit imposed in 2014 on lenders — not households — for high loan-to-income ratio (LTI) mortgages. Despite some regulatory arbitrage (eg increases in LTV and average loan size), more-constrained lenders issue fewer high-LTI mortgages. Partial substitution by less-constrained lenders leads to overall credit contraction to low-income borrowers in local-areas more exposed to constrained-lenders, lowering house price growth. Following the Brexit referendum (which led to house-price correction), the 2014-policy strongly implies — via lower pre-correction debt — better house prices and mortgage defaults during an episode of house price correction.
    Keywords: Macroprudential policy; mortgages; credit cycles; inequality; house prices
    JEL: G01 G21 G28
    Date: 2020–05–29
  9. By: Dave, Chetan (University of Alberta, Department of Economics); Dressler, Scott J. (Villanova University); Zhang, Lei (North Dakota State University)
    Abstract: Has paying interest on excess reserves (IOER) impacted monetary policy transmission? We employ a factor augmented VAR (i.e. FAVAR) to analyze a traditional bank lending channel (BLC) as well as a potential reserves channel. Our main results are: (i) the bank-lending response to an exogenous monetary policy innovation in the Federal Funds rate (i.e. the BLC) remains active but smaller than pre-2008 measures; (ii) the bank-lending response to any IOER-based liquidity innovations (i.e. the reserves channel) either mimics the BLC or is largely insignificant. These results provide little evidence that IOER has significantly impacted bank lending or monetary transmission.
    Keywords: Bank Lending Channel; FAVAR; IOER; Monetary Policy
    JEL: C32 E51 E52
    Date: 2020–05–28
  10. By: Jiménez, Gabriel; Peydró, José-Luis; Repullo, Rafael; Saurina, Jesús
    Abstract: We analyze a small, new credit facility of a Spanish state-owned bank during the crisis, using its continuous credit scoring system, its firm-level scores, and the credit register. Compared to privately-owned banks, the state-owned bank faces worse applicants, (softens) tightens its credit supply to (un)observed riskier firms, and has much higher defaults, especially driven by unobserved ex-ante borrower risk. In a regression discontinuity design, the supply of public credit causes: large positive real effects to financially-constrained firms (whose relationship banks reduced substantially credit supply); crowding-in of new private-bank credit; and positive spillovers to other firms. Private returns of the credit facility are negative, while social returns are positive. Overall, our results provide evidence on the existence of significant adverse selection problems in credit markets.
    Keywords: adverse selection,state-owned banks,credit crunch,real effects of public credit,crowding-in
    JEL: E44 G01 G21 G28
    Date: 2019
  11. By: Blanco Barroso, Joao; Barbone Gonzalez, Rodrigo; Peydró, José-Luis; Nazar van Doornik, Bernardus
    Abstract: We show that countercyclical liquidity policy smooths credit supply cycles, with stronger crisis effects. For identification, we exploit the Brazilian supervisory credit register and liquidity policy changes on reserve requirements, that affected banks differentially and have a monetary and prudential purpose. Liquidity policy strongly attenuates both the credit crunch in bad times and high credit supply in booms. Strong economic effects are twice as large during the crisis easing than during the boom tightening. Finally, in crises, liquidity easing: increase less credit supply by more financially constrained banks; and collateral requirements increase substantially, especially by banks providing higher credit supply.
    Keywords: liquidity,reserve requirements,credit cycles,macroprudential and monetary policy
    JEL: E51 E52 E58 G01 G21 G28
    Date: 2019
  12. By: José-Luis Peydró; Francesc R Tous; Jagdish Tripathy; Arzu Uluc
    Abstract: Macroprudential regulators worldwide have introduced regulations to limit household leverage in light of existing evidence which suggests that high leverage is associated with household distress during crisis. We analyse the distributional effects of such a macroprudential policy on mortgage and house price cycles. For identification, we exploit the universe of UK mortgages and a 15%-limit imposed in 2014 on lenders—not households—for high loan-to-income ratio (LTI) mortgages. Despite some regulatory arbitrage (e.g. increases in LTV and average loan size), more-constrained lenders issue fewer high-LTI mortgages. Partial substitution by less-constrained lenders leads to overall credit contraction to low-income borrowers in local-areas more exposed to constrained-lenders, lowering house price growth. Following the Brexit referendum (which led to house-price correction), the 2014-policy strongly implies—via lower pre-correction debt—better house prices and mortgage defaults during an episode of house price correction.
    Keywords: macroprudential policy, mortgages, credit cycles, Inequality, house prices
    JEL: E5 G01 G21 G28
    Date: 2020–06
  13. By: Christopher F. Baum; Caterina Forti Grazzini; Dorothea Schäfer
    Abstract: This paper analyzes the causal relationship between institutional diversity in domestic banking sectors and bank stability. We use a large bank- and country-level unbalanced panel data set covering the EU member states’ banking sectors between 1998 and 2014. Constructing two distinct indicators for measuring institutional diversity, we find that a high degree of institutional diversity in the domestic banking sector positively affects bank stability. The positive relationship between domestic institutional diversity and bank stability is stronger in times of crisis, providing evidence that diversity can help to absorb both financial and real shocks. In particular, greater institutional diversity smooths bank earnings risk in times of crisis. Our results are economically meaningful and offer important insights to the ongoing economic policy debate on how to reshape the architecture of the banking sector.
    Keywords: Institutional diversity, Shannon Index, Gini-Simpson Index, bank stability, financial crisis, bank competition
    JEL: G01 G20 G21 G28
    Date: 2020
  14. By: Jérémie BERTRAND (IESEG School of Management); Aurore BURIETZ (IESEG School of Management & LEM-CNRS 9221); Laurent WEILL (EM Strasbourg Business School, University of Strasbourg)
    Abstract: We investigate the existence of calendar effect in corporate lending decisions. We show that the loan amount granted by banks significantly varies across months. We find a positive effect of quarter-end and year-end months on the loan amount. We attribute these effects to trade loading behavior, according to which banks would inflate granted loans at the end of the quarter and the year to hit financial targets
    Keywords: calendar effect, corporate loans, trade loading.
    JEL: G21
    Date: 2020–05
  15. By: Jérôme Creel (Observatoire français des conjonctures économiques); Paul Hubert (Observatoire français des conjonctures économiques); Fabien Labondance (Observatoire français des conjonctures économiques)
    Abstract: Although the literature has provided evidence of the predictive power of credit for financial and banking crises, this article aims to investigate the grounds of this link by assessing the interrelationships between credit and banking fragility. The main identification assumption represents credit and banking fragility as a system of simultaneous joint data generating processes whose error terms are correlated. We test the null hypotheses that credit positively affects banking fragility—a vulnerability effect—and that banking fragility has a negative effect on credit—a trauma effect. We use seemingly unrelated regressions and 3SLS on a panel of European Union (EU) countries from 1998 to 2012 and control for the financial and macroeconomic environment. We find a positive effect of credit on banking fragility in the EU as a whole, in the Eurozone, in the core of the EU but not at its periphery, and a negative effect of banking fragility on credit in all samples.
    Keywords: Banking fragility; Credit growth; Nonperforming loans; SUR model
    JEL: E44 G20
    Date: 2019–12
  16. By: Potjagailo, Galina (Bank of England); Wolters, Maik H (University of Wuerzburg, Kiel Institute, and IMFS at Goethe University Frankfurt)
    Abstract: With the aim to provide a detailed understanding of global financial cycles and their relevance over time, we analyse co-movement in credit, house prices, equity prices, and interest rates across 17 advanced economies over 130 years. Using a time-varying dynamic factor model, we observe global co-movement across financial variables as well as variable-specific global cycles of different lengths and amplitudes. Global cycles have gained relevance over time. For equity prices, they now constitute the main driver of fluctuations in most countries. Global cycles in credit and housing have become much more pronounced and protracted since the 1980s, but their relevance increased for a sub-group of financially open and developed economies only. Panel regressions indicate that a country’s susceptibility to global financial cycles tends to increase with financial openness and financial integration, the extent of mortgage-related lending, and the efficiency of stock markets. Understanding the cross-country heterogeneity in financial market characteristics therefore matters for the design of appropriate financial stabilization policies across countries and sectors.
    Keywords: Financial cycles; financial crisis; global co-movement; dynamic factor models; time-varying parameters; macro-finance
    JEL: C32 C38 E44 F44 F65 G15 N10 N20
    Date: 2020–05–29
  17. By: Maxim Bichuch; Zachary Feinstein
    Abstract: We consider a network of banks that optimally choose a strategy of asset liquidations and borrowing in order to cover short term obligations. The borrowing is done in the form of collateralized repurchase agreements, the haircut level of which depends on the total liquidations of all the banks. Similarly the fire-sale price of the asset obtained by each of the banks depends on the amount of assets liquidated by the bank itself and by other banks. By nature of this setup, banks' behavior is considered as a Nash equilibrium. This paper provides two forms for market clearing to occur: through a common closing price and through an application of the limit order book. The main results of this work are providing sufficient conditions for existence and uniqueness of the clearing solutions (i.e., liquidations, borrowing, fire sale prices, and haircut levels).
    Date: 2020–05
  18. By: Jens-Uwe Franck; Dimitrios Linardatos
    Abstract: As of January 2020, Section 58a of the German Payment Services Supervisory Act (PSSA) provides a right for payment service providers and e-money issuers to access technical infrastructure that contributes to mobile and internet-based payment services. This right of access is intended to promote technological innovation and competition in the consumers’ interests in having a wide choice among payment services, including competing solutions for mobile and internet-based payments. The provision has been dubbed ‘Lex Apple Pay’ as it seems to have been saliently motivated by the objective to give payment service providers the right of direct access to the NFC interfaces of Apple’s mobile devices. In enacting Section 58a PSSA, the German legislature has rushed forwards, overtaking the EU Commission’s ongoing competition investigation into Apple Pay as well as the pending reform of the German Competition Act, which is aimed precisely at operators of technological platforms, which enjoy a gatekeeper position. This article explores the scope of application and the statutory requirements of this right of access as well as available defences and possible legal barriers. We point out that, to restore a level playing field in the internal market, the natural option would be to further harmonize EU payment services regulation, including the availability of a right of access to technical infrastructure for mobile and internet-based payment services and e-money issuers.
    Keywords: ‘Lex Apple Pay’; Technology platforms; Antitrust; Payment Services Regulation; Mobile Payment; Access to NFC interfaces; Wallet Apps; Internal Market Regulation
    JEL: K21 K22
    Date: 2020–05
  19. By: Barbone Gonzalez, Rodrigo; Khametshin, Dmitry; Peydró, José-Luis; Polo, Andrea
    Abstract: We show that local central bank policies attenuate global financial cycle (GFC)’s spillovers. For identification, we exploit GFC shocks and Brazilian interventions in FX derivatives using three matched administrative registers: credit, foreign credit flows to banks, and employer-employee. After U.S. Federal Reserve Taper Tantrum (followed by strong Emerging Markets FX depreciation and volatility increase), Brazilian banks with larger ex-ante reliance on foreign debt strongly cut credit supply, thereby reducing firm-level employment. However, a large FX intervention program supplying derivatives against FX risks—hedger of last resort—halves the negative effects. Finally, a 2008-2015 panel exploiting GFC shocks and local related policies confirm these results.
    Keywords: foreign exchange,monetary policy,central bank,bank credit,hedging
    JEL: E5 F3 G01 G21 G28
    Date: 2019
  20. By: Van Bekkum, Sjoerd; Gabarró, Marc; Irani, Rustom; Peydró, José-Luis
    Abstract: We analyze the effects of borrower-based macroprudential policy at the household-level. For identification, we exploit administrative Dutch tax-return and property ownership data linked to the universe of housing transactions, and the introduction of a mortgage loan-to-value limit. The regulation reduces mortgage leverage, with bunching in its limit. Ex-ante more-affected households substantially reduce overall leverage and debt servicing costs but consume greater liquidity to satisfy the regulation. Improvements in household solvency result in less financial distress and, given negative idiosyncratic shocks, better liquidity management. However, fewer households transition from renting into ownership. All of these effects are stronger for liquidity-constrained households.
    Keywords: macroprudential policy,residential mortgages,solvency vs. liquidity tradeoff,household leverage,loan-to-valud ratio
    JEL: E21 E58 G21 G28
    Date: 2019
  21. By: Elizabeth C. Klee; Chae Hee Shin
    Abstract: We find significant evidence of asymmetric information and signaling in post-crisis offerings in the auto asset-backed securities (ABS) market. Using granular regulatory reporting data, we are able to directly measure private information and quantify its effect on signaling and pricing. We show that lenders "self-finance'' unobservably higher-quality loans by holding these loans for longer periods to signal private information. This signal is priced in initial offerings of auto ABS and accurately predicts ex-post loan performance. We also demonstrate that our results are robust to exogenous shifts in the demand and supply of auto loans. Despite an environment of post-crisis enhanced transparency and securitization standards, signaling may be motivated by inattentive investors and regulations enforcing "no adverse selection'' in constructing ABS.
    Keywords: Financial regulation; Securities markets; Signaling; Securitization; Asymmetric information; Auto loans
    JEL: D82 G14 G23
    Date: 2020–05–22
  22. By: Vinay Reddy Venumuddala
    Abstract: In the following study, we inquire into the financial inclusion from a demand side perspective. Utilizing IHDS round-1 (2004-05) and round-2 (2011-12), starting from a broad picture of demand side access to finance at the country level, we venture into analysing the patterns at state level, and then lastly at district level. Particularly at district level, we focus on agriculture households in rural areas to identify if there is a shift in the demand side financial access towards non-agriculture households in certain parts of the country. In order to do this, we use District level 'Basic Statistical Returns of Scheduled Commercial Banks' for the years 2004 and 2011, made available by RBI, to first construct supply side financial inclusion indices, and then infer about a relative shift in access to formal finance away from agriculture households, using a logistic regression framework.
    Date: 2020–05
  23. By: Funke, Michael; Tsang, Andrew
    Abstract: The People’s Bank of China (PBoC) has taken numerous measures to cushion the impacts of the COVID-19 health crisis on the Chinese economy. As the current monetary policy framework features a multi-instrument mix of liquidity tools and pricing signals, we employ a dynamic-factor modeling approach to derive an indicator of China’s monetary policy stance. Our approach assumes that comovements of several monetary policy instruments share a common element that can be captured by an underlying unobserved component. We use the derived indicator to trace the response of the PBoC to the coronavirus pandemic. The estimates reveal that the PBoC has implement novel policy measures to ensure that commercial banks maintain liquidity access and credit provision during the COVID-19 crisis.
    JEL: C54 E32 E52 I15
    Date: 2020–05–31
  24. By: Gamze Danisman (Faculty of Management, Kadir Has University, Istanbul, Turkey); Amine Tarazi (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)
    Abstract: The Great Recession of 2007-2009 piqued the interest of policymakers worldwide, prompting various initiatives to stabilize the financial system and advance financial inclusion. However, few studies have considered their interconnectedness or whether any synergies or trade-offs exist between them. This paper investigates how financial inclusion affects the stability of the European banking system. The findings indicate that advancements in financial inclusion through more account ownership and digital payments have a stabilizing effect on the banking industry. A deeper investigation shows that such a stabilizing impact is mainly driven by the targeting of disadvantaged adults who are young, undereducated, unemployed, and who live in rural areas. Hence, along with its known benefits to society as a whole, financial inclusion has the additional benefit of improving the stability of the financial system. Such findings call for policy configurations that are specifically designed to achieve financial inclusion for disadvantaged individuals.
    Keywords: Financial Inclusion,Bank Stability,Account Ownership,Digital Payments,Disadvantaged Adults
    Date: 2020–05–26

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