|
on Banking |
| By: | Aref Mahdavi Ardekani (Centre d'Economie de la Sorbonne) |
| Abstract: | By applying the interbank network simulation, this paper examines whether the causal relationship between capital and liquidity is influenced by bank positions in the interbank network. While existing literature highlights the causal relationship that moves from liquidity to capital, the question of how interbank network characteristics affect this relationship remains unclear. Using a sample of commercial banks from 28 European countries, this paper suggests that bank's interconnectedness within interbank loan and deposit networks affects their decisions to set higher or lower regulatory capital ratios when facing higher iliquidity. This study provides support for the need to implement minimum liquidity ratios to complement capital ratios, as stressed by the Basel Committee on Banking Regulation and Supervision. This paper also highlights the need for regulatory authorities to consider the network characteristics of banks |
| Keywords: | Interbank network topology; Bank regulatory capital; Liquidity risk; Basel III |
| JEL: | G21 G28 L14 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:20022r&r=all |
| By: | Yener Altunbas; David Marques‐Ibanez; Michiel van Leuvensteijn; Tianshu Zhao |
| Abstract: | We examine how bank competition in the run-up to the 2007–2009 crisis affects banks’ systemic risk during the crisis. We then investigate whether this effect is influenced by two key bank characteristics: securitization and bank capital. Using a sample of the largest listed banks from 15 countries, we find that greater market power at the bank level and higher competition at the industry level lead to higher realized systemic risk. The results suggest that the use of securitization exacerbates the effects of market power on the systemic dimension of bank risk, while capitalization partially mitigates its impact. |
| Keywords: | Banking;Systemic risk;Securitization;Financial crises;Competition;WP,bank risk,capital ratio,bank competition variable |
| Date: | 2019–07–02 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/140&r=all |
| By: | Silvia Iorgova; Chase P. Ross |
| Abstract: | Outside of financial crises, investors have little incentive to produce private information on banks’ short-term liabilities held as information-insensitive safe assets. The same does not hold true during crises. We measure daily information production using data from credit default swap spreads during the global financial crisis and the subsequent European debt crisis. We study abnormal information production around major events and interventions during these crises and find that, on average, capital injections reduced abnormal information production while early European stress tests increased it. We also link information production to outcomes: high levels of information production predict bank balance sheet contraction and higher government expenditures to support financial institutions. In an addendum, we show information production on nonfinancials dramatically increased relative to financials at the height of the COVID-19 crisis, reflecting the nonfinancial nature of the initial shock. |
| Date: | 2021–01–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/005&r=all |
| By: | Federico Cingano; Fadi Hassan |
| Abstract: | We study the impact of international financial flows on credit allocation exploiting the early 2000s boom of capital inflows in Italy. Using detailed bank-firm matched data we compare the patterns of credit allocation of banks with different exposure to the shock. Exposed banks significantly expand lending to high productivity and low credit-constraint firms. Constrained but high productivity firms also benefit from the shock. These results hold using alternative measures of firm productivity and credit constraints or of bank exposure to the flows, and do not seem to be driven by concurrent changes in bank funding or by the sorting of borrowers and lenders. We also find that the patterns of credit allocation induced by capital inflows have a positive, albeit small, impact on aggregate TFP. These results show that international financial flows did not contribute to increase misallocation. |
| Keywords: | International financial flows, misallocation, productivity |
| JEL: | F30 F43 G21 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1697&r=all |
| By: | Francesco Manaresi; Nicola Pierri |
| Abstract: | We study the impact of bank credit on firm productivity. We exploit a matched firm-bank database covering all the credit relationships of Italian corporations, together with a natural experiment, to measure idiosyncratic supply-side shocks to credit availability and to estimate a production model augmented with financial frictions. We find that a contraction in credit supply causes a reduction of firm TFP growth and also harms IT-adoption, innovation, exporting, and adoption of superior management practices, while a credit expansion has limited impact. Quantitatively, the credit contraction between 2007 and 2009 accounts for about a quarter of observed the decline in TFP. |
| Keywords: | Credit;Productivity;Supply shocks;Banking;Bank credit;WP,supply shock,credit supply,interbank market,capital stock |
| Date: | 2019–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/107&r=all |
| By: | Michael Kogler |
| Abstract: | How can tax policy improve financial stability? Recent studies suggest large stability gains from eliminating the debt bias in corporate taxation. It is well known that this reform reduces bank leverage. This paper analyzes a novel, complementary channel: risk taking. We model banks’ portfolio choice under moral hazard and emphasize the ‘incentive function’ of equity. We find that (i) an allowance for corporate equity (ACE) and a lower tax rate discourage risk taking and offer stability and welfare gains, (ii) a revenue-neutral ACE unambiguously improves financial stability, and (iii) capital regulation and deposit insurance influence the risk-taking effects of taxation. |
| Keywords: | corporate taxation, tax reform, banking, risk taking, financial stability |
| JEL: | G21 G28 H25 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8830&r=all |
| By: | Mehmet Ziya Gorpe; Giovanni Covi; Christoffer Kok |
| Abstract: | This paper presents a novel approach to investigate and model the network of euro area banks’ large exposures within the global banking system. Drawing on a unique dataset, the paper documents the degree of interconnectedness and systemic risk of the euro area banking system based on bilateral linkages. We develop a Contagion Mapping model fully calibrated with bank-level data to study the contagion potential of an exogenous shock via credit and funding risks. We find that tipping points shifting the euro area banking system from a less vulnerable state to a highly vulnerable state are a non-linear function of the combination of network structures and bank-specific characteristics. |
| Keywords: | Banking;Liquidity;Asset liquidity;Systemic risk;Commercial banks;WP,central bank,capital base,banking system,discount rate |
| Date: | 2019–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/102&r=all |
| By: | Sangyup Choi; Davide Furceri; Chansik Yoon |
| Abstract: | This paper sheds new light on the degree of international fiscal-financial spillovers by investigating the effect of domestic fiscal policies on cross-border bank lending. By estimating the dynamic response of U.S. cross-border bank lending towards the 45 recipient countries to exogenous domestic fiscal shocks (both measured by spending and revenue) between 1990Q1 and 2012Q4, we find that expansionary domestic fiscal shocks lead to a statistically significant increase in cross-border bank lending. The magnitude of the effect is also economically significant: the effect of 1 percent of GDP increase (decrease) in spending (revenue) is comparable to an exogenous decline in the federal funds rate. We also find that fiscal shocks tend to have larger effects during periods of recessions than expansions in the source country, and that the adverse effect of a fiscal consolidation is larger than the positive effect of the same size of a fiscal expansion. In contrast, we do not find systematic and statistically significant differences in the spillover effects across recipient countries depending on their exchange rate regime, although capital controls seem to play some moderating role. The extension of the analysis to a panel of 16 small open economies confirms the finding from the U.S. economy. |
| Keywords: | Cross-border banking;Bank credit;Fiscal stimulus;Expenditure;Spillovers;WP,bank lending,government spending,exchange rate,monetary policy |
| Date: | 2019–07–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/150&r=all |
| By: | Hajime Tomura (Faculty of Political Science and Economics, Waseda University) |
| Abstract: | This paper introduces the court's inability to discern different qualities of goods of the same kind into an overlapping generations model. This friction makes fiat money circulate not only as a means of payments for goods, but also as a means of liability repayments in an equilibrium. This result holds with or without dynamic inefficiency. In this equilibrium, a shortage of real money balances for liability repayments can cause underinvestment by borrowers, even if the money supply follows a Friedman rule. This problem can be resolved by an elastic money supply through an intraday discount window at a zero discount fee. In this case, supplying no fiat money overnight maximizes aggregate consumption in a monetary steady state in a dynamically efficient economy. This policy, however, can also lead to a self-fulfilling crunch of discount window lending if commercial banks intermediate the lending from the central bank with a collateral constraint, and if the discount window market is segregated. This equilibrium can be eliminated if the central bank is the monopolistic public issuer of fiat money that also acts as the lender of last resort. |
| Keywords: | Nominal contract; Discount window; Credit crunch; Lender of last resort; Payment system |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:wap:wpaper:1905&r=all |
| By: | Abhijit Banerjee; Emily Breza; Arun G. Chandrasekhar; Esther Duflo; Matthew O. Jackson; Cynthia Kinnan |
| Abstract: | Formal financial institutions can have far-reaching and long-lasting impacts on informal lending and information networks. We first study 75 villages in Karnataka, 43 of which were exposed to microfinance after we first collected detailed network data. Networks shrink more in exposed villages. Links between households that were unlikely to ever borrow from microfinance are at least as likely to disappear as links involving likely borrowers. We replicate these surprising findings in the context of a randomized controlled trial in Hyderabad, where a microfinance institution randomly selected neighborhoods to enter first. Four years after all neighborhoods were treated, households in early-entry neighborhoods had credit access longer and had larger loans. We again find fewer social relationships between households in early-entry neighborhoods, even among those ex-ante unlikely to borrow. Because the results suggest global spillovers, which are inconsistent with standard models of network formation, we develop a new dynamic model of network formation that emphasizes chance meetings, where efforts to socialize generate a global network-level externality. Finally, we analyze informal borrowing and the sensitivity of consumption to income fluctuations. Households unlikely to take up microcredit suffer the greatest loss of informal borrowing and risk sharing, underscoring the global nature of the externality. |
| JEL: | D13 D85 L14 O12 Z13 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28365&r=all |
| By: | Paul Henri Mathieu; Marco Pani; Shiyuan Chen; Rodolfo Maino |
| Abstract: | Using data collected from pan-African banks’ (PABs), balance sheets and other sources (Orbis, Fitch), this study identifies some key patterns of cross-border investment in bank subsidiaries by key banking groups in sub-Saharan Africa (SSA) and discusses some of the determinants of this investment. Using a gravity model relating the annual value of a banking group’s investment in the net equity of its subsidiaries to a set of explanatory variables, the analysis finds that cross-border banking is in part driven by a search for yield, diversification, and expansion for strategic reasons. |
| Keywords: | Banking;Exchange rates;Cross-border banking;Inflation;Stocks;WP,break,center,exchange rate |
| Date: | 2019–07–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/146&r=all |
| By: | Dirk Schoenmaker; Svend E. Hougaard Jensen |
| Abstract: | An important policy discussion is ongoing in Denmark and Sweden on joining the European Union’s banking union. Joining would bring pros and cons. A major issue is the supervision and resolution at the national level of large banks with a Scandinavian footprint. It is not evident that Denmark and Sweden would be able to resolve these large banks by themselves, if and when needed. The main rationale for joining the... |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polcon:37311&r=all |
| By: | Jansen, Mark (U of Utah); Nguyen, Hieu (U of Utah); Shams, Amin (Ohio State U) |
| Abstract: | Using a randomized experiment in auto lending, we provide evidence of higher loan profitability with algorithmic machine underwriting relative to human underwriting. Machine-underwritten loans generate 10.2% higher loan-level profit than human-underwritten loans in a sample of 140,000 randomly assigned applications. The loans underwritten by machines not only have higher interest rates but also realize a 6.8% lower incidence of default. The performance gap is mainly driven by loans with higher complexity and where potential for agency conflicts is the highest. These results are consistent with algorithmic underwriting mitigating agency conflicts and humans' limited capacity for analyzing complex problems. |
| JEL: | D14 G21 O33 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2020-19&r=all |
| By: | Ali Kabiri; Vlad Malone; Isabelle Roland; Mariana Spatareanu |
| Abstract: | How does banks' default risk affect the probability of default of non-financial businesses? The literature has addressed this question by focusing on the direct effects on the banks' corporate customers - demonstrating the existence of bank-induced increases in firms' probabilities of default. However, it fails to consider the indirect effects through the interfirm transmission of default risk along supply chains. Supply chain relationships have been shown to be a powerful channel for default risk contagion. Therefore, the literature might severely underestimate the overall impact of bank shocks on default risk in the business economy. Our paper fills this gap by analyzing the direct as well as the indirect impact of banks' default risk on firms' default risk in the U.K. Relying on Input-Output tables, we devise methods that enable us to examine this question in the absence of microeconomic data on supply chain links. To capture all potential propagation channels, we account for horizontal linkages between the firm and its competitors in the same industry, and for vertical linkages, both between the firm and its suppliers in upstream industries and between the firm and its customers in downstream industries. In addition, we identify trade credit and contract specificity as significant characteristics of supply chains, which can either amplify or dampen the propagation of default risk. Our results show that the banking crisis of 2007-2008 affected the non-financial business sector well beyond the direct impact of banks' default risk on their corporate clients. |
| Keywords: | default risk, propagation of banking crises, supply chains |
| JEL: | G21 G34 O16 O30 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1699&r=all |