|
on Banking |
| By: | Katharina Bergant (Trinity College Dublin); Thore Kockerols (Norges Bank) |
| Abstract: | Using supervisory loan-level data on corporate loans, we show that banks facing high levels of non-performing loans relative to their capital and provisions were more likely to grant forbearance measures to the riskiest group of borrowers. More specifically, we find that risky borrowers are more likely to get an increase in the overall limit or the maturity of a loan product from a distressed lender. As a second step, we analyse the effectiveness of this practice in reducing the probability of default. We show that the most common measure of forbearance is effective in the short run but no forbearance measure significantly reduces the probability of default in the long run. Our evidence also suggests that forbearance and new lending are substitutes for banks, as high shares of forbearance are negatively correlated with new lending to the same group of borrowers. |
| Keywords: | Non-Performing Loans, Banking Regulation, Zombie Lending |
| JEL: | G21 G28 G33 |
| Date: | 2018–10–30 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2018_11&r=all |
| By: | Bremus, Franziska; Schmidt, Kirsten; Tonzer, Lena |
| Abstract: | Regulatory bank levies set incentives for banks to reduce leverage. At the same time, corporate income taxation makes funding through debt more attractive. In this paper, we explore how regulatory levies affect bank capital structure, depending on corporate income taxation. Based on bank balance sheet data from 2006 to 2014 for a panel of EU-banks, our analysis yields three main results: The introduction of bank levies leads to lower leverage as liabilities become more expensive. This effect is weaker the more elevated corporate income taxes are. In countries charging very high corporate income taxes, the incentives of bank levies to reduce leverage turn insignificant. Thus, bank levies can counteract the debt bias of taxation only partially. |
| Keywords: | bank levies,debt bias of taxation,bank capital structure |
| JEL: | G21 G28 L51 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:432020&r=all |
| By: | Morais, Bernardo; Ormazabal, Gaizka; Peydró, José-Luis; Roa, Monica; Sarmiento, Miguel |
| Abstract: | We show corporate-level real, financial, and (bank) risk-taking effects associated with calculating loan provisions based on expected—rather than incurred—credit losses. For identification, we exploit unique features of a Colombian reform and supervisory, matched loan-level data. The regulatory change induces a dramatic increase in provisions. Banks tighten all new lending conditions, adversely affecting borrowing-firms, with stronger effects for risky-firms. Moreover, to minimize provisioning, more affected (less-capitalized) banks cut credit supply to risky-firms— SMEs with shorter credit history, less tangible assets or more defaulted loans—but engage in “search-for-yield” within regulatory constraints and increase portfolio concentration, thereby decreasing risk diversification. |
| Keywords: | loan provisions,IFRS9,corporate real and credit supply effects of accounting,bank risk-taking |
| JEL: | E31 G18 G21 G28 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:223234&r=all |
| By: | Bednarek, Peter; Dinger, Valeriya; te Kaat, Daniel Marcel; von Westernhagen, Natalja |
| Abstract: | This paper examines the relationship between central bank funding and credit risk-taking. Employing comprehensive bank-firm-level data from the German credit registry during 2009:Q1-2014:Q4, we find that borrowing from the central bank is associated with rebalancing of bank portfolios towards ex-ante riskier firms. We further establish that this relationship is associated with the ECB's maturity extensions and that the risk-taking sensitivity of banks borrowing from the ECB is independent of idiosyncratic bank characteristics. Finally, we highlight that these shifts in bank lending might lead to an ex-post deterioration of bank balance sheets, but increase firm-level investment and employment. |
| Keywords: | Monetary Policy,LTRO,Bank Lending,Credit Risk-Taking,Real Effects,TFP Growth |
| JEL: | E44 E52 G21 O40 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:362020&r=all |
| By: | David A. Benson; Ken Onishi |
| Abstract: | This note analyzes competition and concentration in "middle market" lending using loan level data obtained from large bank holding companies' Y14 reports to the Federal Reserve. The middle market segment is typically considered to be credit for firms larger than small businesses but too small for large-scale commercial lending or syndicated credit. Lender choice and the supply of credit to large and small firms has been studied extensively by academics and policy makers. |
| Date: | 2020–08–10 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2020-08-10&r=all |
| By: | William Chen (Williams College); Gregory Phelan (Williams College) |
| Abstract: | Lack of coordination for prudential regulation hurts developing economies but benefits advanced economies. We consider a two-country macro model in which countries have limited ability to issue state-contingent contracts in international markets. Both countries have incentives to stabilize their economy by using prudential limits, but the emerging economy depends on the advanced economy to bear global risk. Financially developed economies are unwilling to intermediate global risk, which means bearing systemic risk, preferring financial stability over credit flows. Advanced economies prefer tighter prudential limits than would occur with coordination, giving them greater bargaining power when negotiating international agreements. |
| Keywords: | International Capital Flows, Capital Controls, Macroeconomic Instability, Macroprudential Regulation, Policy Coordination, Spillovers, Financial Crises. |
| JEL: | E44 F36 F38 F42 G15 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:wil:wileco:2020-05&r=all |
| By: | Ana Babus; Maryam Farboodi |
| Abstract: | We explore a model in which banks strategically hold interconnected and opaque portfolios, despite increasing the likelihood they are subject to financial crises. In our framework, banks choose their degree of exposure to other banks to influence how investors can use their information. In equilibrium banks choose portfolios which are neither fully opaque, nor fully transparent. However, their portfolios are excessively interconnected to obfuscate investor information. Banks can create a degree of opacity that decreases welfare, and makes bank crises more likely. Our model is suggestive about the implications of asset securitization, as well as government bailouts. |
| JEL: | D43 D82 G14 G21 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27471&r=all |
| By: | Müller, Isabella |
| Abstract: | This paper provides evidence that banks cut lending to US borrowers as a consequence of a trade shock. This adverse reaction is stronger for banks with higher ex-ante lending to US industries hit by the trade shock. Importantly, I document large heterogeneity in banks' reaction depending on their sectoral specialisation. Banks shield industries in which they are specialised in and at the same time reduce the availability of credit to industries they are not specialised in. The latter is driven by low-capital banks and lending to firms that are themselves hit by the trade shock. Banks' adjustments have adverse real effects. |
| Keywords: | trade liberalisation,credit supply,sector specialisation,real effects |
| JEL: | F14 F65 G21 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:152020&r=all |
| By: | Peydró, José-Luis; Rodriguez-Tous, Francesc; Tripathy, Jagdish; Uluc, Arzu |
| 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: | macrorpudential policy,mortgages,credit cycles,inequality,house prices |
| JEL: | E5 G01 G21 G28 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:223303&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:bubdps:372020&r=all |
| By: | Rajashri Chakrabarti; Andrew F. Haughwout; Donghoon Lee; William Nober; Joelle Scally; Wilbert Van der Klaauw |
| Abstract: | In yesterday's post, we studied the expected debt relief from the CARES Act on mortgagors and student debt borrowers. We now turn our attention to the 63 percent of American borrowers who do not have a mortgage or student loan. These borrowers will not directly benefit from the loan forbearance provisions of the CARES Act, although they may be able to receive some types of leniency that many lenders have voluntarily provided. We ask who these borrowers are, by age, geography, race and income, and how does their financial health compare with other borrowers. |
| Keywords: | COVID-19; CARES Act; forbearance; student loan; mortgage; deliquency; credit score |
| JEL: | D14 I14 |
| Date: | 2020–08–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:88602&r=all |
| By: | Bischof, Jannis; Foos, Daniel; Riepe, Jan |
| Abstract: | We investigate the relationship between the transparency of loan loss provision disclosures and the provisioning practices of privately held banks. We study a unique change in disclosure regulation under German banking law which introduces mandatory disclosures of loan loss provisions. Using proprietary data provided by the national supervisor, we are able to observe provisioning practices before and after disclosure becomes mandatory. Our findings suggest that bank managers use loan loss provisions to a lesser extent for income smoothing once they are required to disclose their accounting choice. At the same time, provisions become more informative about future loan losses. The change comes in the absence of capital market pressure and highlights the role of depositors and public pressure in the monitoring of bank managers. We exploit cross-sectional variation and show that the change is associated with differences in the local information environment and banks' funding structure. |
| Keywords: | Loan Loss Provisions,Public Disclosure,Privately Held Banks,Earnings Smoothing,Market Discipline |
| JEL: | G21 G28 M41 M48 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:402020&r=all |
| By: | Chen, Jiaqian (IMF); Finocchiaro, Daria (Research Department, Central Bank of Sweden); Lindé, Jesper (IMF and CEPR); Walentin, Karl (Research Department, Central Bank of Sweden) |
| Abstract: | We examine the effects of various borrower-based macroprudential tools in a New Keynesian environment where both real and nominal interest rates are low. Our model features long-term debt, housing transaction costs and a zero lower bound constraint on policy rates. We find that the long-term costs, in terms of forgone consumption, of all the macroprudential tools we consider are moderate. Even so, the short-term costs differ dramatically between alternative tools. Specifically, a loan-to-value tightening is more than twice as contractionary compared to a loan-to-income tightening when debt is high and monetary policy cannot accommodate. |
| Keywords: | Household debt; Zero lower bound; New Keynesian model; Collateral and borrowing constraints; Mortgage interest deductibility; Housing prices |
| JEL: | E52 E58 |
| Date: | 2020–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0389&r=all |
| By: | Uluc Aysun (University of Central Florida, Orlando, FL); Sami Alpanda (University of Central Florida, Orlando, FL) |
| Abstract: | This paper shows that national bank regulation can ensure nancial and economy stability only if business cycles are driven by domestic and non- nancial global shocks. If global nancial shocks are more important, by contrast, national regulatory policies can be destabilizing. These inferences are drawn from a two-country DSGE model with global banking, nancial regulation and the nancial accelerator mechanism. The results indicate that bank regulation suppresses the ampli cation e¤ects of the nancial accelerator mechanism when countries face domestic and non- nancial global shocks. When there is a global nancial shock, however, highly-regulated countries are more vulnerable to the ebbs and ows of global bank lending since their rms are more leveraged and externally funded. More generally, the results imply that the nancial trilemma is not binding in economies where domestic and non- nancial global shocks drive the business cycle. |
| Keywords: | bank regulation, DSGE, nancial accelerator, global banks, nancial trilemma. |
| JEL: | E32 E44 F33 F44 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:cfl:wpaper:2020-02ua&r=all |
| By: | Ramadiah, Amanah; Fricke, Daniel; Caccioli, Fabio |
| Abstract: | In this paper, we consider models of price-mediated contagion in a banking networkof common asset holdings. For these models, the literature proposed two alternativeclasses of liquidation dynamics:threshold dynamics(banks liquidate their invest-ment portfolios only after they have defaulted), andleverage targeting dynamics(banks constantly rebalance their portfolios to maintain a target leverage ratio).We introduce a one-parameter family of non-linear liquidation functions that inter-polates between these two extremes. We then test the capability of these modelsto predict actual bank defaults (and survivals) in the United States for the years2008-10. We show that the model performance depends on the type of shock be-ing imposed (idiosyncratic versus systematic). We identify the two most relevantasset classes, for which the model has predictive power when these asset classes areexposed to an initial shock. In these cases, the model performs better than alter-native benchmarks that do not account for the network of common asset holdings,irrespective of the assumed liquidation dynamics. We also show how the best per-forming liquidation dynamics depend on the combination of the initial shock leveland the market impact parameter, on the cross-sectional variation in the marketimpact parameter, and on the number of asset liquidation rounds. |
| Keywords: | systemic risk,fire sales,price-mediated contagion,common asset holdings |
| JEL: | G01 G11 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:452020&r=all |
| By: | Claudio Albanese; Stephane Crepey; Rodney Hoskinson; Bouazza Saadeddine |
| Abstract: | XVAs denote various counterparty risk related valuation adjustments that are applied to financial derivatives since the 2007--09 crisis. We root a cost-of-capital XVA strategy in a balance sheet perspective which is key in identifying the economic meaning of the XVA terms. Our approach is first detailed in a static setup that is solved explicitly. It is then plugged in the dynamic and trade incremental context of a real derivative banking portfolio. The corresponding cost-of-capital XVA strategy ensures to bank shareholders a submartingale equity process corresponding to a target hurdle rate on their capital at risk, consistently between and throughout deals. Set on a forward/backward SDE formulation, this strategy can be solved efficiently using GPU computing combined with deep learning regression methods in a whole bank balance sheet context. A numerical case study emphasizes the workability and added value of the ensuing pathwise XVA computations. |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2009.00368&r=all |
| By: | Sven Klingler; Olav Syrstad |
| Abstract: | We argue that the planned transition toward alternative benchmark rates gives reason to mourn Libor. Guided by a model in which banks and non-banks can lend to each other, subject to realistic regulatory constraints, we show empirically that tighter financial regulation increases interbank rates but lowers broad rates (in which lenders are non-banks) and that all market rates increase with more Treasury bill issuance. Hence, the proportion of non-bank lenders affects the alternative rates, introducing variation in the benchmark that is unrelated to banks’ marginal funding costs and creating a basis between regions with interbank rates and broad rates. |
| Keywords: | Benchmark rates, financial regulation, Libor, repo rates, collateral |
| JEL: | E43 G12 G18 |
| Date: | 2019–08–09 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2019_13&r=all |
| By: | Terrence Hendershott (University of California, Berkeley - Haas School of Business); Dan Li (Federal Reserve Board); Dmitry Livdan (University of California, Berkeley); Norman Schürhoff (University of Lausanne; Swiss Finance Institute; Centre for Economic Policy Research (CEPR)) |
| Abstract: | Traditional liquidity measures can provide a false impression of the liquidity and stability of financial market trading. Using data on auctions (bids wanted in competition; BWICs) from the collateralized loan obligation (CLO) market, we show that a standard measure of liquidity, the effective bid-ask spread, dramatically underestimates the true cost of immediacy because it does not account for failed attempts to trade. The true cost of immediacy is substantially higher than the observed costs for successful BWICs. This cost gap is higher in lower-rated CLOs and stressful market conditions when failure rates exceed 50%. Across our 2012-2020 sample period for trades in senior CLOs, the observed cost is four basis points (bps) while the true cost of immediacy is 13bps. In stressful periods, such as the COVID-19 pandemic, for junior tranches the observed cost of trading increases from an average of 12bps to 25bps while the true cost of immediacy increases from less than 3% to almost 15%. |
| Keywords: | Collateralized loan obligations, bids-wanted-in-competition, over-the-counter markets, liquidity, fragility |
| JEL: | G12 G14 G24 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2071&r=all |
| By: | Adetayo Adeniran (FUTA - Federal University of Technology of Akure); Hamid Jadah (University of Kerbala - Partenaires INRAE); Noor Mohammed (Imam AL- Kadhum College) |
| Abstract: | The main objective of the study is to examine the impact of information technology on strategic management in the banking sector. The specific objectives are to identify the applications of information technology in banking sector; to examine the association between education level and customer's usage of IT applications in the banking sector; and to examine the relationship between information technology and organization's strategy. The methodology of the study is supported by interview of bank customers and interview of industry experts based on purposive sampling technique. The findings revealed that Electronic cards, ATMs, online banking, electronic payment, and mobile banking were the major application of IT in Iraq banking sector. There is an association between education level of bank customers and their usage of IT applications regarding banking transactions in Iraq. There is a relationship between information technology and organization's strategy which has resulted in value creation and competitive advantage of banks. It was recommended that for better performance of IT on banking, the management of banking sector should adopt better policies that will encourage users to adopt IT usage in banks. The main contribution of this study is that information technology enhances value creation and competitive advantage in Iraq banks. |
| Keywords: | information technology,banking sector,strategic management |
| Date: | 2020–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02919679&r=all |
| By: | Geraldo Cerqueiro (Católica-Lisbon School of Business and Economics); Steven Ongena (University of Zürich, Swiss Finance Institute, KU Leuven and CEPR); Kasper Roszbach (Norges Bank and University of Groningen) |
| Abstract: | A unique legal reform in 2004 in Sweden redistributed collateral rights from banks holding floating liens to unsecured creditors without changing the value of assets on firms' balance sheets. Using a country-wide panel of all incorporated firms, we document that a zero-sum redistribution of collateral rights and the resulting reduction in collateral capacity towards banks contracts the amount and maturity of corporate debt and leads firms to slow investment and forego growth. Altering their allocation of assets, firms reduce particularly those assets with a low collateralizable value for banks and also hoard more cash. However, the reform has no impact on corporate capital intensity or efficiency, suggesting that under these newly binding credit constraints firms simply shrink their operations. |
| Keywords: | Collateral, investment, financial constraints, difference-in-differences, floating lien, seniority |
| JEL: | D22 G31 G32 |
| Date: | 2019–05–29 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2019_09&r=all |
| By: | Neil Bhutta; Andreas Fuster; Aurel Hizmo |
| Abstract: | We document wide dispersion in the mortgage rates that households pay on identical loans, and show that borrowers' financial sophistication is an important determinant of the rates obtained. We estimate a gap between the 10th and 90th percentile mortgage rate that borrowers with the same characteristics obtain for identical loans, in the same market, on the same day, of 54 basis points|equivalent to about $6,500 in upfront costs (points) for the average loan. Time-invariant lender attributes explain little of this rate dispersion, and considerable dispersion remains even within loan officer. Comparing the rates borrowers obtain to the real-time distribution of rates that lenders could offer for the same loan and borrower type, we find that borrowers who are likely to be the least financially savvy tend to substantially overpay relative to the rates available in the market. In the time series, the average overpayment decreases when overall market interest rates rise, suggesting that a rising level of borrowing costs encourages more search and negotiation. Furthermore, new survey data provide direct evidence that financial knowledge and shopping both affect the mortgage rates borrowers get, and that shopping activity increases with the level of market rates. |
| Keywords: | Financial literacy; Household finance; Interest rates; Mortgages; Price dispersion; Search; Shopping |
| JEL: | E43 G21 |
| Date: | 2020–08–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-62&r=all |
| By: | Rama Cont; Artur Kotlicki; Laura Valderrama |
| Abstract: | The traditional approach to the stress testing of financial institutions focuses on capital adequacy and solvency. Liquidity stress tests are often applied in parallel to solvency stress tests, based on scenarios which may not be consistent with those used in solvency stress tests. We propose a structural framework for the joint stress testing of solvency and liquidity: our approach exploits the mechanisms underlying the solvency-liquidity nexus to derive relations between solvency shocks and liquidity shocks. These relations are then used to model liquidity and solvency risk in a coherent framework, involving external shocks to solvency and endogenous liquidity shocks. We introduce solvency-liquidity diagrams as a method for analysing the resilience of a balance sheet to the resulting combination of solvency shocks and endogenous liquidity shocks. Finally, we define the concept of 'Liquidity at Risk' which quantifies the liquidity resources required for a financial institution facing a stress scenario. |
| Date: | 2019–07–02 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2019_11&r=all |
| By: | Cao, Jin (Norges Bank); Dinger, Valeriya (University of Osnarbruck and and Leeds University Business School); Grodecka, Anna (Department of Economics, Lund University and Knut Wicksell Centre for Financial Studies); Juelsrud, Ragnar (Norges Bank); Zhang, Xin (Research Department, Central Bank of Sweden) |
| Abstract: | To shed light on the interaction between macroprudential and monetary policies, we study the inward transmission of foreign monetary policy in conjunction with domestic macroprudential and monetary policies in Norway and Sweden. Using detailed bank-level data we show how Norwegian and Swedish banks' lending reacts to monetary policy surprises arising abroad, controlling for the domestic macroprudential stance and the interaction between monetary and macroprudential policies. In both countries, the domestic macroprudential policy helps mitigate the effects arising after foreign monetary surprises. |
| Keywords: | monetary policy; macroprudential policy; policy interactions; bank lending; inward transmission; international bank lending channel |
| JEL: | E43 E52 E58 F34 F42 G21 G28 |
| Date: | 2020–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0392&r=all |
| By: | Ricardo Correa; Wenxin Du; Gordon Y. Liao |
| Abstract: | We characterize how U.S. global systemically important banks (GSIBs) supply short-term dollar liquidity in repo and foreign exchange swap markets in the post-Global Financial Crisis regulatory environment and serve as the "lenders-of-second-to-last-resort". Using daily supervisory bank balance sheet information, we find that U.S. GSIBs modestly increase their dollar liquidity provision in response to dollar funding shortages, particularly at period-ends, when the U.S. Treasury General Account balance increases, and during the balance sheet taper of the Federal Reserve. The increase in the dollar liquidity provision is mainly financed by reducing excess reserve balances at the Federal Reserve. Intra-firm transfers between depository institutions and broker-dealer subsidiaries within the same bank holding company are crucial to this type of "reserve-draining" intermediation. Finally, we discuss factors that contributed to the repo spike in September 2019 and the subsequent response of U.S. GSIBs to recent policy interventions by the Federal Reserve. |
| JEL: | E4 F3 G2 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27491&r=all |
| By: | Kotb, Naira; Proaño Acosta, Christian |
| Abstract: | In this paper we incorporate a stock market and a banking sector in a behavioral macro-finance model with heterogenous and boundedly rational expectations. Households' savings are diversified among bank deposits and stock purchases, and banks' lending to firms is subject to capital-related costs. We find that households' participation in the stock market, coupled to the existence of a capital-constrained banking sector affects the transmission of monetary policy to the economy significantly, and that households' deposits act as a critical spill-over channel between the real and the financial sectors. In other words, we relate the regulatory stance in the banking sector with the degree of pass-through of monetary policy shocks. Further, we investigate the performance of a leaning-against-the-wind (LATW) monetary policy which targets asset prices concerning macroeconomic and financial stability. |
| Keywords: | Behavioral Macroeconomics,Banking,Stock Markets,Monetary Policy |
| JEL: | E44 E52 G21 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bamber:158&r=all |
| By: | Mark Gertler; Nobuhiro Kiyotaki; Andrea Prestipino |
| Abstract: | We develop a model of banking crises which Is consistent with two important features of the data: First, banking crises are usually preceded by credit booms. Second, credit booms often do not result in a crisis. That is, there are "good" booms as well as "bad" booms in the language of Gorton and Ordonez (2019). We then consider how the optimal macroprudential policy weighs the benefits of preventing a crisis against the costs of stopping a good boom. We show that countercyclical capital buffers are a critical feature of a successful macropudential policy. |
| JEL: | E00 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27481&r=all |
| By: | Sébastien P. Kraenzlin; Christoph Meyer; Thomas Nellen |
| Abstract: | This paper analyzes card payments to the retail sector in Switzerland during the COVID-19 crisis. We provide evidence on aggregate effects and regional shifts. Pronounced shifts - which persisted post-lockdown - can be observed from urban to suburban and rural areas and among cantons. Data allow us to identify directly two sources of shifts: "tourists and business travelers," and "e-commerce." We indirectly identify additional sources: infection risk, lockdown measures, working from home, shopping tourism, and cash substitution. The COVID-19 crisis seems to have reinforced pre-existing trends that may have faster than anticipated effects on the economy. Our analysis underscores the usefulness of real-time card payment data to inform policy makers. |
| Keywords: | COVID-19, lockdown, card payment data, regional sale shifts |
| JEL: | E21 E42 E65 R10 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2020-15&r=all |
| By: | John Y. Campbell; Nuno Clara; João F. Cocco |
| Abstract: | We study mortgage design features aimed at stabilizing the macroeconomy. We model overlapping generations of mortgage borrowers and an infinitely lived risk-averse representative mortgage lender. Mortgages are priced using an equilibrium pricing kernel derived from the lender's endogenous consumption. We consider an adjustable-rate mortgage (ARM) with an option that during recessions allows borrowers to pay only interest on their loan and extend its maturity. We find that this maturity extension option stabilizes consumption growth over the business cycle, shifts defaults to expansions, and is welfare enhancing. The cyclical properties of the maturity extension ARM are attractive to a risk-averse lender so the mortgage can be provided at a relatively low cost. |
| JEL: | E32 E52 G21 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27676&r=all |
| By: | de-Ramon, Sebastian (Bank of England); Francis, William B (Bank of England); Straughan, Michael (Bank of England) |
| Abstract: | We use quantile regression to examine the links between competition and firm-level solvency risk for all banks and building societies in the United Kingdom between 1994 and 2013. Quantile regression provides a finer picture of the relationship (as compared with standard regression techniques) across institutions ranked according to how close each is to insolvency. We find that for domestic banks and building societies already close to insolvency the association is favourable, suggesting that risk decreases (increases) with more (less) competition. For foreign-owned banks and for relatively healthy building societies farther from insolvency we find the opposite, indicating that risk increases (decreases) with more (less) competition. We find that regulation is effective in moderating adverse links between risk and competition. Our results highlight real differences in the links between competition and risk at the individual level that are useful for assessing the link at the system-wide level. |
| Keywords: | Bank competition; bank risk; Boone indicator; quantile regression |
| JEL: | G21 G28 L22 |
| Date: | 2020–09–04 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0885&r=all |
| By: | Eguren-Martin, Fernando (Bank of England); O'Neill, Cian (Bank of England); Sokol, Andrej (European Central Bank); von dem Berge, Lukas (Bank of England) |
| Abstract: | We characterise the probability distribution of capital flows for a panel of emerging market economies conditional on information contained in financial asset prices, with a focus on ‘tail’ events. Our framework, based on the quantile regression methodology, allows for a separate role of push and pull-type factors, and offers insights into the term-structure of these effects. We find that both push and pull factors have heterogeneous effects across the distribution of capital flows, with the strongest reactions in the left tail. Also, the effect of changes in pull factors is more persistent than that of push factors. Finally, we explore the role of policy, and find that macroprudential and capital flow management measures are associated with changes in the distribution of capital flows. |
| Keywords: | Capital flows; sudden stops; capital flight; retrenchment; capital flow surges; push versus pull; capital controls; macroprudential policy; financial conditions indices; quantile regression |
| JEL: | F32 F34 G15 |
| Date: | 2020–08–07 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0881&r=all |
| By: | Asima Siddique (COMSATS University Islamabad); Omar Masood (University of Lahore); Kiran Javaria (University of Lahore); Dinh Tran Ngoc Huy (International University of Japan) |
| Abstract: | The main focus of this study is to investigate the impact of non-performing loans (NPLs) and other bank specific factors on the financial performance of commercial banks in Asian developing and developed countries due to an alarmingly high ratio of non-performing loans.The bank specific factors that are used in this study are cost efficiency ratio (CER), capital adequacy ratio (CAR), size of the bank, sales growth (SG) and proxies of financial performance (FP) are return on equity (ROA) and return on asset (ROE). Secondary Panel data of ten years (2006-2015) has been used for this empirical analysis and 19 commercial banks from developing countries of Asia (Pakistan and India), while 17 commercial banks from developed countries of Asia (Japan and Saudi Arabia) are selected. Generalized method of moment is used for the coefficient estimation to overcome the effects of some endogenous variables. NPLs and CER are significantly negatively related to the financial performance (ROA and ROE) of developing and developed countries commercial banks. There is a negative relationship of bank size with most of financial performance variables. Sale growth and capital adequacy ratio has significant positive relationship both measures of financial performance (ROA and ROE) in both pools. Due to the importance of commercial banks in the overall economy of a country, there is a need for management of commercial banks and regulatory authorities to undertake policies that ensure efficiency in banking operations. |
| Keywords: | Non-Performing Loans,micro economic variables,Pakistan & India,Japan & Saudi Arabia,GMM approach |
| Date: | 2020–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02919632&r=all |
| By: | Leonardo Gambacorta; Yiping Huang; Zhenhua Li; Han Qiu; Shu Chen |
| Abstract: | The use of massive amounts of data by large technology firms (big techs) to assess firms’ creditworthiness could reduce the need for collateral in solving asymmetric information problems in credit markets. Using a unique dataset of more than 2 million Chinese firms that received credit from both an important big tech firm (Ant Group) and traditional commercial banks, this paper investigates how different forms of credit correlate with local economic activity, house prices and firm characteristics. We find that big tech credit does not correlate with local business conditions and house prices when controlling for demand factors, but reacts strongly to changes in firm characteristics, such as transaction volumes and network scores used to calculate firm credit ratings. By contrast, both secured and unsecured bank credit react significantly to local house prices, which incorporate useful information on the environment in which clients operate and on their creditworthiness. This evidence implies that a greater use of big tech credit – granted on the basis of machine learning and big data – could reduce the importance of collateral in credit markets and potentially weaken the financial accelerator mechanism. |
| Keywords: | big tech, big data, collateral, banks, asymmetric information, credit markets |
| JEL: | D22 G31 R30 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:881&r=all |
| By: | Christian Wipf |
| Abstract: | The paper compares the welfare properties of two competing organi- zations of the monetary system: The current fractional reserve banking system versus a narrow banking system where inside money is fully backed by outside money issued by the central bank. Using a New Monetarist model, the analysis shows that fractional reserve banking is bene cial because of the interest payments on inside money. Since inside money funds loans, it pays interest, compensating the agents for the in ation tax and thus reducing the welfare costs of in ation. Since narrow banking provides no such compensation fractional reserve banking typically domi- nates narrow banking in terms of welfare. This also holds if outside money pays interest. Only if fractional reserve banking is suciently constrained, narrow banking can yield higher welfare. |
| JEL: | E42 E51 G21 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:ube:dpvwib:dp2015&r=all |
| By: | Jesse Leigh Maniff; Paul Wong |
| Abstract: | This paper looks at the potential benefit that a central bank digital currency (CBDC) could provide in the context of existing payment mechanisms. Central banks today provide the primary payment mechanisms for trade and commerce: cash, used by the public, and electronic payment services, used by eligible financial institutions. |
| Date: | 2020–08–13 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2020-08-13-2&r=all |