|
on Banking |
| By: | Alejandro García; Bena Lands; Xuezhi Liu; Joshua Slive |
| Abstract: | A retail central bank digital currency denominated in Canadian dollars could, in theory, create competition for bank deposit funding. We look at the potential implications increased competition for deposit funding could have on income and liquidity for the six largest Canadian banks, using regulatory data from 2018 and 2019. |
| Keywords: | Digital currencies and fintech; Financial institutions; Financial stability |
| JEL: | E4 E41 E44 E5 G1 G10 G17 G2 G21 G3 G32 O |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:20-15&r=all |
| By: | Hamid R Tabarraei; Abdelaziz Rouabah; Olivier Pierrard |
| Abstract: | We examine the spillover effects between sovereigns and banks in a model with a heterogeneous banking system. An increase in sovereign’s default risk affects financial intermediaries through two channels in this model. First, banks’ funding costs might increase, inducing higher interest rates on loans and bonds and a cut back in these assets. Second, financial regulator’s risk-weighted asset framework would assign higher weights to lower quality assets, implying a portfolio rebalancing and more deleveraging. While capital adequacy requirements weaken the impact of shocks emerging from the real economy, they amplify the effect of shocks on banks’ balance sheets. |
| Keywords: | Central banks;Interest rates on loans;Bank capital;Market interest rates;Bank liquidity;Sovereign risk,Contagion,Interbank market,interbank,deposit rate,leverage ratio,order condition,bank 's balance |
| Date: | 2019–02–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/043&r=all |
| By: | Cappelletti, Giuseppe; Reghezza, Alessio; d’Acri, Costanza Rodriguez; Spaggiari, Martina |
| Abstract: | We investigate the impact of macroprudential capital requirements on bank lending behaviour across economic sectors, focusing on their potentially heterogenous effects and transmission channel. By employing confidential loan-level data for the euro area over 2015-18, we find that the reaction of banks to structural capital surcharges depends on the level of the required capital buffer and the economic sector of the borrowing counterpart. Although tighter buffer requirements correspond to stronger lending contractions, targeted banks curtail their lending towards credit institutions the most, while leaving loan supply to non-financial corporations almost unchanged. We find that this lending is mitigated when banks resort to central bank funding. These results have important policy implications as they provide evidence on the impact of macroprudential policy frameworks and their interaction with unconventional monetary policies. JEL Classification: E51, E58, E60, G21, G28 |
| Keywords: | credit supply, large exposure, loan-level data, macroprudential policy, unconventional monetary policy |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202440&r=all |
| By: | Vittoria Cerasi; Stefano Montoli |
| Abstract: | This paper studies the impact of different resolution policies on the choice of banks to expand abroad. The regulator can choose to resolve banks through bail-in or bail-out or a combination of the two. The choice of the regulator affects the cost of funding of banks, endogenous in the model. We study the relative profitability of alternative bank corporate structures, either multinational (large and diversified) or domestic (small and non diversified) for different levels of public support. Our model allows us to identify the potential impact of the resolution policy on the structure of the banking system. Lower levels of public support increase the cost of funding for all banks, in line with recent empirical evidence. We show that a reduction in the level of public support (from bail-out to bail-in) induces banks to expand abroad in search for alternatives to save on their funding costs. Finally, we are able to identify the optimal resolution mix by taking into account the reaction of banks to the policy. |
| Keywords: | Bank regulation; bail-in; multinational banks; bank funding cost |
| JEL: | G21 G28 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:447&r=all |
| By: | Emilia Bonaccorsi di Patti (Bank of Italy); Federica Ciocchetta (Bank of Italy) |
| Abstract: | This paper provides new estimates of cost scale economies for Italian banks, based on a model of bank production that takes into account a comprehensive definition of output including different categories of loans, deposits, off-balance sheet items, payment services, and brokerage and asset management activities. The output definition is more in line with the current business model of banks than previous studies since it explicitly accounts for transaction banking and IT capital. We find returns to scale in operating costs, especially for small and medium-sized institutions. For the largest institutions there is on average no statistically significant evidence of returns from scale on the cost side; however, banks falling into this latter category are quite heterogeneous in size and business model. A more extensive adoption of digital technologies in the future could expand the size range over which positive returns to scale are achievable. These results are robust to alternative input and output specifications and functional forms. An important caveat to this conclusion is that we focus solely on operating costs. |
| Keywords: | bank costs, scale economies, cost efficiency |
| JEL: | D24 G21 L23 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_568_20&r=all |
| By: | Alfredo Schclarek; Jiajun Xu; Jianye Yan |
| Abstract: | This paper theoretically discusses why state-owned national develop- ment banks (NDBs) may be better able to provide longer-term lending to firms (investors), in comparison to private commercial banks (CBs). NDBs can grant longer-term lending to firms (investors) because NDB bonds have more value than the bonds issued by CBs, thus allowing banks to better cope with maturity mismatch risks and liquidity problems in case of needing to make interbank payments. The reason that NDB bonds have more value than the bonds issued by CBs is that NDBs are owned by the government, hence there is a higher recapitalization willingness and capac- ity compared to private bank owners. Regarding the maturity lengthening role of NDBs, it is positively related to the amount of liquid asset holdings by NDBs, the collateral value of the investment projects that receive NDB financing, and the recapitalization willingness (or perceived willingness) and financial strength, and net worth, of the government. |
| Keywords: | Bank lending; Maturity lengthening; Debt or collateral capacity; Asset-based leverage; Interbank markets; Recapitalization; National development banks |
| JEL: | G01 G21 G28 H81 E51 E44 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:aep:anales:4197&r=all |
| By: | Martin Goetz; Luc Laeven; Ross Levine |
| Abstract: | We evaluate the role of insider ownership in shaping banks’ equity issuances in response to the global financial crisis. We construct a unique dataset on the ownership structure of U.S. banks and their equity issuances and discover that greater insider ownership leads to less equity issuances. Several tests are consistent with the view that bank insiders are reluctant to reduce their private benefits of control by diluting their ownership through equity issuances. Given the connection between bank equity and lending, the results stress that ownership structure can shape the resilience of banks—and hence the entire economy—to aggregate shocks. |
| JEL: | G21 G28 G32 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27442&r=all |
| By: | Andrea Orame (Bank of Italy) |
| Abstract: | The work analyses the characteristics of supply in the Italian credit market with a focus on the years 2009-2014. By using a new survey, I find that approximately 40 percent of the decline in business lending originates in the tightening of bank credit standards, with a significant decrease in supply after the first semester of 2011. The data also reveal a substantial supply-side heterogeneity: illiquid, profitable, efficient and group-member banks reduce their supply further, as do banks with a low dependence on interest income. Banks in larger groups also display a different supply pattern, with greater tightenings and easings. Capital and funding seem to play no significant role. |
| Keywords: | financial crisis, supply of credit, bank lending, bank fragility, universal banking, capital, regulation, governance |
| JEL: | E32 E51 G01 G21 G28 G32 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1279_20&r=all |
| By: | Alexandros Vardoulakis |
| Abstract: | Banks add value by monitoring borrowers. High funding costs make banks reluctant to lend. A central bank can ease funding by purchasing loans, but cannot distinguish which loans require more or less monitoring, exposing it to adverse selection. A multi-tier loan pricing facility arises as the optimal institutional design setting both the purchase price and banks' risk retention for given loan characteristics. This design dominates uniform (flat) structure for loan purchases, provides the right incentives to banks and achieves maximum lending at lower rates to businesses. Both the multi-tier and flat structures deliver welfare gains compared to no intervention, but the relative gain between the two depends on three sufficient statistics: the share of loans requiring monitoring, the risk-retention ratio, and the liquidity premium. |
| Keywords: | Main Street; Central bank lending facilities; Monitoring; Small business; Sufficient statistics; COVID-19 |
| JEL: | E58 G01 G28 |
| Date: | 2020–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-52&r=all |
| By: | Liu, Emily; Niepmann, Friederike; Schmidt-Eisenlohr, Tim |
| Abstract: | This paper shows that monetary policy and prudential policies interact. U.S. banks issue more commercial and industrial loans to emerging market borrowers when U.S. monetary policy eases. The effect is less pronounced for banks that are more constrained through the U.S. bank stress tests, reflected in a lower minimum capital ratio in the severely adverse scenario. This suggests that monetary policy spillovers depend on banks' capital constraints. In particular, during a period of quantitative easing when liquidity is abundant, banks are more flexible, and the scope for adjusting lending is larger when they have a bigger capital buffer. We conjecture that bank lending to emerging markets during the zero-lower bound period would have been even higher had the United States not introduced stress tests for their banks. |
| Keywords: | emerging markets; monetary policy spillovers; stress tests; U.S. bank lending |
| JEL: | E44 F31 G15 G21 G23 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14128&r=all |
| By: | Miroslav Gabrovski; Victor Ortego-Marti (Department of Economics, University of California Riverside) |
| Abstract: | This paper develops a model of the housing market with search and credit frictions. The interaction between the two sources of friction gives rise to a novel channel through which the financial sector affects prices and liquidity in the housing market and leads to multiple equilibria. In a numerical exercise, we gauge the relative contribution of credit market shocks to the observed patterns in housing prices, time-to-sell, and mortgage debt-to-price ratio in the U.S. data prior to the $2007$ housing market crash. Our results suggest that shocks associated with the credit frictions channel had a relatively larger impact on the observed build-up in mortgage debt and lack of change in time-to-sell than on the increase in prices. |
| Keywords: | Housing market; Credit Frictions; Search and Matching; Multiple Equilibria; Mortgages |
| JEL: | E2 E32 R21 R31 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:ucr:wpaper:202016&r=all |
| By: | Diana Bonfim; Sónia Félix |
| Abstract: | Bank complexity is often associated with risk, due to moral hazard and agency problems. At the same time, complexity may be linked to diversification and scale economies, thus leading to less risk. In this paper, we provide empirical evidence on the relationship between bank complexity and risk-taking. We find a positive relationship between geographical complexity and bank risk. Banks that operate in more countries, both through banks and non-banks, have riskier balance sheets and more non-performing loans. Further, banks that operate in Africa have higher risk levels due to larger volatility of returns. The link between structural complexity and bank risk is weaker, but generally negative. Our results suggest that moral hazard and agency problems may be more acute when banks operate in many geographies and in emerging market economies. In contrast, the results are consistent with diversification and scale benefits arising from operating in more business areas. |
| JEL: | F23 G21 G23 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w202010&r=all |
| By: | Eyollan Naidoo; Mukelani Nkuna; Daan Steenkamp |
| Abstract: | This paper describes bank debt issuances in South Africa and estimates the cost of these issuances, at both aggregate and individual bank levels. Issuance costs are an important indicator of conditions in debt markets and can be used to assess the impact of regulations on bank funding costs. Since debt issuance makes up about a quarter of marginal bank funding (i.e. funding for new loans) issuance costs are also useful for assessment of the transmission of funding conditions to lending rates. We show that debt issuance costs have risen meaningfully since the global financial crisis. However, the increase is less than has been the case for other forms of funding (such as long-term retail and wholesale deposits). We show banks have increased the average tenor of debt issuances, which has tended to raise the cost of issuance because rates have been higher on longer maturity issuances than on short maturity issuances. |
| Date: | 2020–08–06 |
| URL: | http://d.repec.org/n?u=RePEc:rbz:wpaper:10157&r=all |
| By: | TengTeng Xu; Kun Hu; Udaibir S Das |
| Abstract: | We analyze how bank profitability impacts financial stability from both theoretical and empirical perspectives. We first develop a theoretical model of the relationship between bank profitability and financial stability by exploring the role of non-interest income and retail-oriented business models. We then conduct panel regression analysis to examine the empirical determinants of bank risks and profitability, and how the level and the source of bank profitability affect risks for 431 publicly traded banks (U.S., advanced Europe, and GSIBs) from 2004 to 2017. Results reveal that profitability is negatively associated with both a bank’s contribution to systemic risk and its idiosyncratic risk, and an over-reliance on non-interest income, wholesale funding and leverage is associated with higher risks. Low competition is associated with low idiosyncratic risk but a high contribution to systemic risk. Lastly, the problem loans ratio and the cost-to-income ratio are found to be key factors that influence bank profitability. The paper’s findings suggest that policy makers should strive to better understand the source of bank profitability, especially where there is an over-reliance on market-based non-interest income, leverage, and wholesale funding. |
| Keywords: | Systemic risk;Financial crises;Central banks;Macroprudential policies and financial stability;Financial institutions;Financial markets;Finanical stability,bank profitability,non-interest income,business model,panel regression,General,Models with Panel Data,VaR,NII,retail-based,LTA,profitability |
| Date: | 2019–01–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/005&r=all |
| By: | Ludger Schuknecht; Vincent Siegerink |
| Abstract: | The paper empirically examines the implementation record of international financial regulation of the banking sector. The study finds that the size of the banking sector and the presence of global systemically important banks (G-SIBs) are positively associated with a stronger implementation record. These results suggest that cooperative motives of internalising externalities, creating a level playing field and preserving financial stability play a role in explaining the implementation record. We find evidence that this cooperative behaviour may be driven by the self-interest of global players as the positive record is particularly strong in countries where large banking sectors and big banks are both present, and where regulation only applies to large players. Sectoral concentration, bank health and the share of foreign ownership yield more mixed results as regards their impact on implementation. |
| Date: | 2020–08–13 |
| URL: | http://d.repec.org/n?u=RePEc:oec:dafaad:47-en&r=all |
| By: | Margherita Bottero; Camelia Minoiu; José-Luis Peydro; Andrea Polo; Andrea F Presbitero; Enrico Sette |
| Abstract: | We study negative interest rate policy (NIRP) exploiting ECB's NIRP introduction and administrative data from Italy, severely hit by the Eurozone crisis. NIRP has expansionary effects on credit supply-- -and hence the real economy---through a portfolio rebalancing channel. NIRP affects banks with higher ex-ante net short-term interbank positions or, more broadly, more liquid balance-sheets, not with higher retail deposits. NIRP-affected banks rebalance their portfolios from liquid assets to credit—especially to riskier and smaller firms—and cut loan rates, inducing sizable real effects. By shifting the entire yield curve downwards, NIRP differs from rate cuts just above the ZLB. |
| Keywords: | Bank credit;Reserve requirements;Interest rates on loans;Central banks;Bank liquidity;Negative interest rates,portfolio rebalancing,bank lending channel,liquidity management,Eurozone crisis,interbank,credit supply,ex-ante,rebalance,negative rate |
| Date: | 2019–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/044&r=all |
| By: | Daleep Singh |
| Abstract: | Remarks at Hudson Valley Pattern for Progress (delivered via videoconference). |
| Keywords: | COVID-19; Federal Reserve; facilities; markets; credit; financial conditions; liquidity; lending; Treasury; programs; pandemic; Primary Dealer Credit Facility (PDCF); Money Market Liquidity Facility (MMLF); Commercial Paper Funding Facility (CPFF); Municipal Liquidity Facility (MLF); Term Asset-Backed Securities Loan Facility (TALF); Secondary Market Corporate Credit Facility (SMCCF); CARES Act |
| Date: | 2020–07–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsp:88366&r=all |
| By: | Mathias Lé; Frédéric Vinas |
| Abstract: | How do firms finance their investment? To what extent does the financing mix depends on the nature or the size of investment? To what extent does the funding mix of investment vary along firm size? Relying on a unique database of firms covering 72% of the value added in France over three decades, this paper addresses those questions and provides a comprehensive picture of the financial resources used by firms to finance their investment. We uncover significant cross-sectional heterogeneity in the financing mix of investment along firm size, asset tangibility and investment size. In particular, we show that the commonly held view that "firms strongly rely on bank credit in a bank-based economy" weakens significantly as we consider larger firms or when it comes to finance intangible investments or relatively small investments. |
| Keywords: | Investment, Working Capital, Firm Financing, Bank Credit, Equity Finance, Retained Earnings, Firm Size, Investment Spikes . |
| JEL: | E22 G21 G30 G31 G32 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:777&r=all |
| By: | Chuluunbayar, Delgerjargal |
| Abstract: | Non-performing loans (NPLs) is leading indicator of financial system health. Understanding the determinants of credit quality is essential to conducting stress test and macro prudential policy. The macroeconomic determinants of NPLs have been found to differ between countries and are potentially sensitive to model specification, particularly a mismatch between the loan currency (foreign/domestic) and sector orientation (tradeable/non-tradeable). This paper examines the macro-determinants of NPLs in Mongolia using monthly panel data for 14 banks between December 2003 and December 2019. Using a system GMM approach for the overall sample and subsamples isolating systemically important banks, I find foreign currency loan quality to be more sensitive to macroeconomic variables and big banks more exposed to the currency mismatch problem. |
| Keywords: | Non-performing loans, Mongolian banking system, currency mismatch, system GMM approach |
| JEL: | C23 G21 |
| Date: | 2020–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101843&r=all |
| By: | John C. Williams |
| Abstract: | Remarks at the 16th Meeting of the Financial Research Advisory Committee for the Treasury’s Office of Financial Research (delivered via videoconference). |
| Keywords: | pandemic; COVID-19; Federal Reserve; securities; facilities; businesses; financial conditions; economic conditions; markets; credit; banks; households |
| Date: | 2020–07–16 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsp:88418&r=all |
| By: | McGowan, Danny; Nguyen, Huyen |
| Abstract: | We evaluate lenders' incentives to mitigate credit default risk through pricing or securitisation. Exploiting exogenous variation in credit default risk created by differences in foreclosure law along US state borders, we find that lenders in the mortgage market respond to the law in heterogeneous ways. In the agency market where the GSEs mandate a common interest rate policy, foreclosure law provokes a 4.5% increase in securitisation rates but does not affect interest rates. For nonagency loans where market participants demand risk premium, foreclosure law does not incentivise lenders to transfer the risk through the use of securitisation but causes a 625 basis point increase in interest rates. The results highlight how the GSEs' common interest rate policy inhibits lenders' risk-based pricing incentives, increases the GSEs' debt holdings by $70 billion per annum, and exposes taxpayers to preventable losses in the housing market. |
| Keywords: | loan pricing,securitisation,credit risk,GSEs |
| JEL: | G21 G28 K11 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:102020&r=all |
| By: | Henry Penikas (Bank of Russia, Russian Federation) |
| Abstract: | Basel III allows for the use of statistical models. It is called the internal-ratings-based (IRB) approach and is based on the (Vasicek, 2002) model. It assumes assets returns are standard normally distributed. It suggests incorporating different asset correlation (R) functions to assess credit risk for the loan portfolio, or the risk-weighted assets (RWA). The asset correlation func-tion solely depends on the individual default probability (PD) given certain credit exposure type. At the same time, the IRB approach requires developing PD models to predict the dis-crete default event occurrence. This means that the IRB approach is based on the Bernoulli trials. We investigate the impact of the asset returns’ correlation for the Bernoulli trials. We show that when Bernoulli trials are considered, the credit risk estimation significantly deviate from the val-ues derived under the normality assumption of asset returns. We investigate the simulated and real-world credit rating agencies’ data to specifically demonstrate the scale of the credit risk underestimation by the IRB approach. Therefore, macroprudential add-ons are of use to offset such IRB limitations. |
| Keywords: | Basel II, IRB, correlated defaults, asset correlation, binomial distribution, Bernoulli trials, macroprudential add-ons (mark-ups) |
| JEL: | C25 G21 G28 G32 G33 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:bkr:wpaper:wps56&r=all |
| By: | Toni Beutler; Matthias Gubler; Simona Hauri; Sylvia Kaufmann |
| Abstract: | We study the bank lending channel in Switzerland over three decades using unbalanced quarterly bank-individual data spanning 1987 to 2016. In contrast to the usual empirical approach, we take an agnostic stance on which bank characteristic drives the heterogenous lending response to interest rate changes. In addition, our empirical model allows for a changing lending reaction occurring over time in a state-dependent manner. Our results are consistent with the existence of a bank lending channel, which is however muted in specific periods. Such episodes are characterized by increased economic uncertainty, which negatively impacts loan growth. |
| Keywords: | Bank lending channel, economic uncertainty, Markov switching model, Bayesian econometrics, unbalanced panels |
| JEL: | C11 C34 E44 E52 G21 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2020-12&r=all |
| By: | Catarina Alexandra Neves Proença (University of Coimbra, Ph.D. Student at Faculty of Economics); Mário António Gomes Augusto (University of Coimbra, Centre for Business and Economics,CeBER, Faculty of Economics); José Maria Ruas Murteira (University of Coimbra, Centre for Business and Economics,CeBER, Faculty of Economics) |
| Abstract: | This study investigates the effect of the political connections of members of banks' Boards of Directors on the remuneration of these boards, taking into account the gender diversity of their members. Using a panel of observations on 77 banks supervised by the ECB for the period 2013 to 2017, and the generalized method of moments (GMM), our results show that, when analyzing linear effects, political connections have a negative impact on the remuneration of the members of the banks' Boards of Directors, reducing them. However, when investigating the possible moderating effect, we found that when gender diversity is high, there is a non-linear, inverted U-shaped relationship between the political connections and the remuneration of members of the Boards of Directors of banks. Our results also show that the differentiating characteristics of the female gender, accentuate the negative effects of political connections on remuneration, making the institution's interests to be privileged at the expense of those of its personal agendas. Overall, these general results prove to be robust across different choices of the measures used for gender diversity. |
| Keywords: | Political connections, Gender diversity, Remuneration, ECB, GMM. |
| JEL: | G21 G28 G34 J16 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:gmf:papers:2020-08&r=all |
| By: | Guglielmo Barone (University of Padua); Fabiano Schivardi (Luiss University); Enrico Sette (Bank of Italy) |
| Abstract: | We study the e ects on loan rates of a quasi-experimental change in the Italian leg- islation which forbids interlocking directorates between banks. We use a di erence- in-di erences approach and exploit multiple banking relationships to control for unobserved heterogeneity. We find that the reform decreased rates charged by pre- viously interlocked banks to common customers by between 10-30 basis points. The e ect is stronger if the firm had a weaker bargaining power vis-a-vis the interlocked banks. Consistent with the assumption that interlocking directorates facilitate col- lusion, interest rates on loans from interlocked banks become more dispersed after the reform. |
| Keywords: | Interlocking directorates, competition, banking |
| JEL: | G21 G34 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:lui:lleewp:20155&r=all |
| 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: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_173v2&r=all |
| By: | Boot, Arnoud; Hoffmann, Peter; Laeven, Luc; Ratnovski, Lev |
| Abstract: | We study the effects of technological change on financial intermediation, distinguishing between innovations in information (data collection and processing) and communication (relationships and distribution). Both follow historic trends towards an increased use of hard information and less in-person interaction, which are accelerating rapidly. We point to more recent innovations, such as the combination of data abundance and artificial intelligence, and the rise of digital platforms. We argue that in particular the rise of new communication channels can lead to the vertical and horizontal disintegration of the traditional bank business model. Specialized providers of financial services can chip away activities that do not rely on access to balance sheets, while platforms can interject themselves between banks and customers. We discuss limitations to these challenges, and the resulting policy implications. JEL Classification: G20, G21, E58, O33 |
| Keywords: | communication, financial innovation, financial intermediation, fintech, information |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202438&r=all |
| By: | Stuart A. Gabriel; Matteo Iacoviello; Chandler Lutz |
| Abstract: | We investigate the impact of Great Recession policies in California that substantially increased lender pecuniary and time costs of foreclosure. We estimate that the California Foreclosure Prevention Laws (CFPLs) prevented 250,000 California foreclosures (a 20% reduction) and created $300 billion in housing wealth. The CFPLs boosted mortgage modifications and reduced borrower transitions into default. They also mitigated foreclosure externalities via increased maintenance spending on homes that entered foreclosure. The CFPLs had minimal adverse side effects on the availability of mortgage credit for new borrowers. Altogether, findings suggest that policy interventions that keep borrowers in their homes may be broadly beneficial during times of widespread housing distress. |
| Keywords: | Foreclosure crisis; Mortgage forbearance; Mortgage modification; Great recession |
| JEL: | E52 E58 R20 R30 |
| Date: | 2020–07–06 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-53&r=all |
| By: | Piergiorgio Alessandri (Bank of Italy); Pierluigi Bologna (Bank of Italy); Maddalena Galardo (Bank of Italy) |
| Abstract: | The Basel III regulation explicitly prescribes the use of Hodrick-Prescott filters to estimate credit cycles and calibrate countercyclical capital buffers. However, the filter has been found to suffer from large ex-post revisions, raising concerns over its fitness for policy use. To investigate this problem, we studied the credit cycles of a panel of 26 countries between 1971 and 2018. We reached two conclusions. The bad news is that the limitations of the one-sided HP filter are serious and pervasive. The good news is that they can easily be mitigated. The filtering errors are persistent and hence predictable. This can be exploited to construct real-time estimates of the cycle that are less subject to ex-post revisions, forecast financial crises more reliably, and stimulate the build-up of bank capital before a crisis. |
| Keywords: | Hodrick-Prescott filter, credit cycle, macroprudential policy |
| JEL: | E32 G01 G21 G2 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_567_20&r=all |
| By: | Elliott, M.; Georg, C-P.; Hazell, J. |
| Abstract: | Banks face different but potentially correlated risks from outside the financial system. Financial connections can share these risks, but also create the means by which shocks can propagate. We examine this tradeoff in the context of a new stylised fact we present: German banks are more likely to have financial connections when they face more similar risks—potentially undermining the risk sharing role of financial connections and contributing to systemic risk. We find that such patterns are socially suboptimal, but can be explained by risk-shifting. Risk-shifting motivates banks to correlate their failures with their counterparties, even though it creates systemic risk. |
| Keywords: | financial networks, asset correlation, contagion |
| JEL: | G21 G11 D85 |
| Date: | 2020–07–20 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2068&r=all |
| By: | Maryam Farboodi; Péter Kondor |
| Abstract: | We propose a rational model of endogenous cycles generated by the two-way interaction between credit market sentiments and real outcomes. Sentiments are high when most lenders optimally choose lax lending standards. This leads to low interest rates and high output growth, but also to the deterioration of future credit application quality. When the quality is sufficiently low, lenders endogenously switch to tight standards, i.e. sentiments become low. This implies high credit spreads and low output, but a gradual improvement in the quality of applications, which eventually triggers a shift back to lax lending standards and the cycle continues. The equilibrium cycle might feature a long boom, a lengthy recovery, or a double-dip recession. It is generically different from the optimal cycle as atomistic lenders ignore their effect on the composition of the pool of borrowers. Carefully chosen macro-prudential or countercyclical monetary policy often improves the decentralized equilibrium cycle. |
| JEL: | D82 E32 E44 G01 G10 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27472&r=all |
| By: | Miroslav Gabrovski (University of Hawaii at Manoa); Ioannis Kospentaris (Department of Economics, University of Hawaii at Manoa, USA and University of Hawaii Economic Research Organization (UHERO), University of Hawaii at Manoa, USA) |
| Abstract: | A salient feature of over-the-counter (OTC) markets is intermediation: dealers buy from and sell to customers as well as other dealers. Traditionally, the search-theoretic literature of OTC markets has rationalized this as a consequence of random meetings and ex post bargaining between investors. We show that neither of these are necessary conditions for intermediation. We build a model of a fully decentralized OTC market in which search is directed and sellers post prices ex ante. Intermediation arises naturally as an equilibrium outcome for a broad class of matching functions commonly used in the literature. We also explore the sorting implications of the equilibrium pattern of trade and show that it is constrained efficient. |
| Keywords: | Over-the-Counter Markets; Search Frictions; Intermediation; Price Transparency; Competitive Search; Sorting |
| JEL: | G11 G12 G21 D83 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:hai:wpaper:202017&r=all |