nep-ban New Economics Papers
on Banking
Issue of 2020‒09‒21
eleven papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. FinTech and the COVID-19 Pandemic: Evidence from Electronic Payment Systems By Tut, Daniel
  2. Optimal Dynamic Capital Requirements and Implementable Capital Buffer Rules By Matthew B. Canzoneri; Behzad T. Diba; Luca Guerrieri; Arsenii Mishin
  3. The great lockdown: pandemic response policies and bank lending conditions By Altavilla, Carlo; Barbiero, Francesca; Boucinha, Miguel; Burlon, Lorenzo
  4. Payments Crises and Consequences By Qian Chen; Christoffer Koch; Padma Sharma; Gary Richardson
  5. Bank Diversification and Focus in Disruptive Times: China, 2007–2018 By Minzhi Wu; Emili Tortosa-Ausina
  6. Concentration and Competition in Serbian Banking Sector in the Period 2016–2018 By Bukvić, Rajko
  7. An empirical analysis of systemic and macroeconomic risk in South Africa: an application of the quantile regression By Eita, Joel Hinaunye; Ngobese, Sibusiso Blessing; Muteba Mwamba, John Weirstrass
  8. Stress-testing a shock to remittances in a post-Covid world – what impact on liquidity? By Monahov, Alexandru
  9. A Markov-Chain Measure of Systemic Banking Crisis Frequency By Tambakis, D.
  10. Macroprudential aspects of the Banking Union By Urbano López Fernández
  11. Monetary Policy and Cross-Border Interbank Market Fragmentation: Lessons from the Crisis By Tobias Blattner; Jonathan Swarbrick

  1. By: Tut, Daniel
    Abstract: This paper investigates the effects of the Covid-19 pandemic on financial institutions and consumers’ adoption of FinTech in payments. We find that the pandemic: [1] Initially had a negative impact on the adoption of FinTech, but favorable short-term regulatory changes have reversed some of the negative effects [2] The use of all electronic payment cards has significantly declined during the pandemic except for charge cards. We find an increase in the use of charge cards as consumers shift towards cheaper forms of payment [3] The pandemic has magnified interbank contagion and liquidity risks and has reduced both domestic and international electronic fund transfers via RTGS. The pandemic has also resulted in a deterioration in the quality of commercial banks’ assets and balance sheets [4] Remittance inflows via FinTech platforms have significantly declined reflecting contractions in global economic activities.
    Keywords: Covid-19, Coronavirus, Fintech, Mobile Payment, Central Banks, Financial Intermediaries, Financial Technologies, Banks, Interbank transfers, Diaspora Remittances, Settlement and Liquidity risks, clearing houses, financial stability, Pandemic, M-PESA, Digital Banking.
    JEL: E32 E52 E58 G21 G28 G32 O16 O31 O32 O33 O38 O55
    Date: 2020–07
  2. By: Matthew B. Canzoneri; Behzad T. Diba; Luca Guerrieri; Arsenii Mishin
    Abstract: We build a quantitatively relevant macroeconomic model with endogenous risk-taking. In our model, deposit insurance and limited liability can lead banks to make risky loans that are socially inefficient. This excessive risk-taking can be triggered by aggregate or sectoral shocks that reduce the return on safer loans. Excessive risk-taking can be avoided by raising bank capital requirements, but unnecessarily tight requirements lower welfare by limiting liquidity producing bank deposits. Consequently, optimal capital requirements are dynamic (or state contingent). We provide examples in which a Ramsey planner would raise capital requirements: (1) during a downturn caused by a TFP shock; (2) during an expansion caused by an investment-specific shock; and (3) during an increase in market volatility that has little effect on the business cycle. In practice, the economy is driven by a constellation of shocks, and the Ramsey policy is probably beyond the policymaker's ken; so, we also consider implementable policy rules. Some rules can mimic the optimal policy rather well but are not robust to all the calibrations we consider. Basel III guidance calls for increasing capital requirements when the credit to GDP ratio rises, and relaxing them when it falls; this rule does not perform well. In fact, slightly elevated static capital requirements generally do about as well as any implementable rule.
    Keywords: Countercylical capital buffer; DSGE models; Bank capital requirements; Ramsey policy
    JEL: C51 E58 G28
    Date: 2020–08–06
  3. By: Altavilla, Carlo; Barbiero, Francesca; Boucinha, Miguel; Burlon, Lorenzo
    Abstract: This study analyses the policy measures taken in the euro area in response to the outbreak and the escalating diffusion of new coronavirus (COVID-19) pandemic. We focus on monetary, microprudential and macroprudential policies designed specifically to support bank lending conditions. For identification, we use proprietary data on participation in central bank liquidity operations, high-frequency reactions to monetary policy announcements, and confidential supervisory information on bank capital requirements. The results show that in the absence of the funding cost relief and capital relief associated with the pandemic response measures, banks’ ability to supply credit would have been severely affected. The results also indicate that the coordinated intervention by monetary and prudential authorities amplified the effects of the individual measures in supporting liquidity conditions and helping to sustain the flow of credit to the private sector. Finally, we investigate the potential real effects of the joint pandemic response measures by estimating the adjustment in labour input variables for firms that in the past have been more exposed to similar policies. We find that, in absence of monetary and prudential policies, the pandemic would lead to a significantly larger decline in firms’ employment. JEL Classification: E51, E52, E58, G01, G21, G28
    Keywords: bank lending, COVID-19 crisis, monetary policy, prudential policy
    Date: 2020–09
  4. By: Qian Chen; Christoffer Koch; Padma Sharma; Gary Richardson
    Abstract: Banking-system shutdowns during contractions scar economies. Four times in the last forty years, governors suspended payments from state-insured depository institutions. Suspensions of payments in Nebraska (1983), Ohio (1985), and Maryland (1985), which were short and occurred during expansions, had little measurable impact on macroeconomic aggregates. Rhode Island’s payments crisis (1991), which was prolonged and occurred during a recession, lengthened and deepened the downturn. Unemployment increased. Output declined, possibly permanently relative to what might have been. We document these effects using a novel Bayesian method for synthetic control that characterizes the principal types of uncertainty in this form of analysis. Our findings suggest policies that ensure banks continue to process payments during contractions – including the bailouts of financial institutions in 2008 and the unprecedented support of the financial system during the COVID crisis – have substantial value.
    JEL: C01 C11 E02 E32 E44 E58 G01 G2 G21 G28
    Date: 2020–08
  5. By: Minzhi Wu (Department of Economics, Universitat Jaume I, Castellón, Spain); Emili Tortosa-Ausina (IVIE, Valencia and Department of Economics, Universitat Jaume I, Castellón, Spain)
    Abstract: Bank diversification and focus strategies are becoming crucial issues for commercial banks’ future viability, due to their links with the emergence of new products, services and competitors. We investigate the effects of such strategies for Chinese banks during 2007–2018, a particularly turbulent period for both macroeconomic reasons (the impact of the 2007/08 international financial crisis) as well as others related to innovation in the industry—such as the rise of FinTech. For this, we construct measures of diversification from both the two main perspectives taken into account so far by the literature, namely, incomebased indicators and asset-based indicators. In the case of income-based indicators, we consider further categories—non-interest income ratio, the Herfindahl-Hirschman index, and the entropy index. We evaluate the impact of the different indicators considered on measures of risk and profitability, and whether this impact varies depending on the type of bank—state-owned banks, national shareholding commercial banks, and city commercial banks. We argue that the links can be too intricate to be captured by linear models and, complementing the previous literature, evaluate them considering semiparametric specifications. Overall results indicate that Chinese banks do not benefit to a great deal in terms of profitability and risk by following neither income nor asset diversification strategies, although the former are higher than the latter.
    Keywords: bank, China, diversification, focus, semiparametric regression
    JEL: G21 G28 C14
    Date: 2020
  6. By: Bukvić, Rajko
    Abstract: The paper deals with the analysis of the degree of concentration and competition in Serbian banking sector in the period 2016–2018. The analyses are based on the data of bank financial statements for relevant years, as well the results of other researchers and reports of the National Bank of Serbia. It was used the traditional concentration indicators (CRn and HH indices), as well as the Gini coefficients and not only in Serbia the relatively rarely used Linda indices. The concentration degree in all cases is calculated based on five variables: total assets, deposits, capital, bank operating income and loans. Although these variables are highly correlated, the results show relative important differences. In the case of such variable as capital, the Linda indices suggested the existence of the oligopoly structure. As conclusion, it was demonstrated that in the case of the relatively large number of banks in Serbia, the existing concentration degree is generally moderate low, which provides suitable conditions for the development of healthy competition among them.
    Keywords: concentration, competition, banking sector, SCP paradigm, Serbia, indices Linda, Gini coefficient, Herfindahl-Hirschman index, Lorenz curve, concentration ratio, oligopoly
    JEL: C38 G21 L0
    Date: 2020
  7. By: Eita, Joel Hinaunye; Ngobese, Sibusiso Blessing; Muteba Mwamba, John Weirstrass
    Abstract: This study conducts an empirical analysis on how the build-up of systemic risk in the financial system affects downside macroeconomic risk of the South African economy. The study outlines and apply several systemic risk measures, namely the conditional value at risk, principal component analysis, average conditional volatility and interest rate spreads. Thereafter, the study employs the quantile regression to evaluate the predictive ability of each systemic risk measures to lower quantiles of economic activity. The study reveals that each of the systemic risk measures are significant predictors of macroeconomic risk. The results of this study serve as important tools that can help South African financial regulators and policymakers to foresee and prevent systemic risk. It enables regulators to identify the build-up of systemic vulnerabilities, systemically important financial and too connected to fail institutions. These are useful in the sense that they serve as early warning signals of financial systemic risk and the consequences of such on macroeconomic outcomes.
    Keywords: systemic risk, macroeconomic risk, quantile regression, principal component analysis
    JEL: C22 C58 G01 G21
    Date: 2020–03–28
  8. By: Monahov, Alexandru
    Abstract: Remittances have historically been a stable source of funding which has played a key role in the development efforts of many nations worldwide. As a consequence of the Covid crisis and the lockdown measures imposed to counteract the spread of the disease, the World Bank estimated a drop of 20% in remittances by the end of 2020. To study the effect that such a conjuncture would have on the financial stability of developing economies, this paper develops a remittance stress test that investigates the impact of the projected shock on banking sector liquidity at a country level. The study encompasses 112 countries and finds that small, emerging economies with underdeveloped financial sectors suffer the most, with six of the ten most affected nations experiencing a drop in their liquid asset ratios that would place their banking sector at significant liquidity risk.
    Keywords: remittances, stress test, liquidity risk, financial development, banking sector
    JEL: F24 F37 G21
    Date: 2020–06–30
  9. By: Tambakis, D.
    Abstract: This study nests historical evidence for credit growth-fuelled financial instability in a 2-state non-homogeneous Markov chain with logistic crisis incidence. A long-run frequency measure is defined and calibrated for 17 advanced economies from 1870-2016. It is found that historical (implied) crisis frequencies display a V (J )-pattern over time. A key implication is that policies strengthening capital adequacy contribute more to systemic stability than expanding deposit insurance or curbing credit booms.
    Keywords: Credit cycle, Systemic banking crises, Markov chain
    JEL: C15 E30 E58 G01
    Date: 2020–09–03
  10. By: Urbano López Fernández (UCAM - Universidad Católica San Antonio de Murcia)
    Abstract: The present document addresses the main macroprudential aspects of the Banking Union, that arose as a reply to the European sovereign debt crisis. A er the Great Recession, at international level, a certain consensus was reached regarding the necessity to set out and implement this kind of macroprudential regulation to achieve a robust financial sector. Because of this, from this perspective, each of the fundamental pillars of the Banking Union is analysed, just as its single rulebook, to check if it is in existence and, in this case, if it is su icient. Equally, some financial indicators are studied to check if regulatory changes are reflected in the data, in the full knowledge that the new mechanism has been in place for a short time. Finally, some ideas and proposals are suggested to improve several macroprudential elements of the Banking Union.
    Abstract: El presente trabajo pretende abordar los principales aspectos macroprudenciales de la Unión Bancaria, surgida como respuesta a la crisis europea de deuda soberana. Tras la Gran Recesión, a nivel internacional, se llegó a un cierto consenso acerca la necesidad de establecer e implementar este tipo de regulación macroprudencial para lograr un sector financiero más robusto. Por ello, desde esa perspectiva, se analizan cada uno de los pilares fundamentales la Unión Bancaria, así como su código único normativo, para ver si está presente y, en su caso, si lo está de manera suficiente. Igualmente, se estudian algunos indicadores financieros para ver si los cambios regulatorios se están reflejando en los datos, a sabiendas del poco recorrido temporal del nuevo mecanismo. Finalmente, se sugieren algunas ideas y propuestas para mejorar diversos elementos macroprudenciales de la Unión Bancaria.
    Keywords: Financial system,Banking Union,Macroprudential regulation,Regulación macroprudencial,Sistema financiero,Unión Bancaria
    Date: 2019
  11. By: Tobias Blattner; Jonathan Swarbrick
    Abstract: We present a two-country model featuring risky lending and cross-border interbank market frictions. We find that (i) the strength of the financial accelerator, when applied to banks operating under uncertainty in an interbank market, will critically depend on the economic and financial structure of the economy; (ii) adverse shocks to the real economy can be the source of banking crisis, causing an increase in interbank funding costs, aggravating the initial shock; and (iii) asset purchases and central bank long-term refinancing operations can be effective substitutes for, or supplements to, conventional monetary policy.
    Keywords: Business fluctuations and cycles; Credit and credit aggregates; International financial markets; Monetary policy framework; Transmission of monetary policy
    JEL: E52 F36
    Date: 2020–08

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