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on Banking |
| By: | Juliane Begenau; Tim Landvoigt |
| Abstract: | How does the shadow banking system respond to changes in capital regulation of commercial banks? We propose a quantitative general equilibrium model with regulated and unregulated banks to study the unintended consequences of regulation. Tighter capital requirements for regulated banks cause higher convenience yield on debt of all banks, leading to higher shadow bank leverage and a larger shadow banking sector. At the same time, tighter regulation eliminates the subsidies to commercial banks from deposit insurance, reducing the competitive pressures on shadow banks to take risks. The net effect is a safer financial system with more shadow banking. Calibrating the model to data on financial institutions in the U.S., the optimal capital requirement is around 16%. |
| JEL: | E41 E44 G21 G23 G28 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28501&r=all |
| By: | Stijn Claessens; Giulio Cornelli; Leonardo Gambacorta; Francesco Manaresi; Yasushi Shiina |
| Abstract: | We analyse how macroprudential policies (MaPs), largely applied to banks and to a lesser extent borrowers, affect non-bank financial intermediation (NBFI). Using data for 24 of the jurisdictions participating in the Financial Stability Board's monitoring exercise over the period 2002–17, we study the effects of MaP episodes on bank assets and on those NBFI activities that may involve bank-like financial stability risks (the narrow measure of NBFI). We find that a net tightening of domestic MaPs increases these NBFI activities and decreases bank assets, raising the NBFI share in total financial assets. By contrast, a net tightening of MaPs in foreign jurisdictions leads to a reduction of the NBFI share – the effect of a drop in NBFI activities and an increase in domestic banking assets. Tightening and easing MaPs have largely symmetric effects on NBFI. We find that the effect of MaPs (both domestic and foreign) is economically and statistically significant for all those NBFI economic functions that may pose risks to financial stability. |
| Keywords: | macroprudential policy, non-bank financial intermediation, shadow banking, international spillovers |
| JEL: | G10 G21 O16 O40 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:927&r=all |
| By: | Tirupam Goel; Ulf Lewrick; Aakriti Mathur |
| Abstract: | Regulatory reforms following the financial crisis of 2007–08 created incentives for large global banks to lower their systemic importance. We establish that differences in profitability shape banks' response to these reforms. Indeed, profitability is key because it underpins banks' ability to generate capital and drives the opportunity cost of shrinking. Our analysis shows that only the less profitable banks lowered their systemic footprint relative to their equally unprofitable peers that were unaffected by the regulatory treatment. The more profitable banks, by contrast, continued to raise their systemic importance in sync with their untreated peers. |
| Keywords: | global systemically important bank (G-SIB), textual analysis, capital regulation, systemic risk, bank profitability, difference-in-differences (DD) |
| JEL: | G21 G28 L51 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:922&r=all |
| By: | ; Allen N. Berger; Raluca Roman; Koen Schoors |
| Abstract: | A key policy issue is whether bank bailouts weaken or strengthen market discipline. We address this by analyzing how bank bailouts influence deposit quantities and prices of recipients versus other banks. Using the Troubled Asset Relief Program (TARP) bailouts, we find both deposit quantities and prices decline, consistent with substantially reduced demand for deposits by bailed-out banks that dominate market discipline supply effects. Main findings are robust to numerous checks and endogeneity tests. However, diving deeper into depositor heterogeneity suggests nuances. Increases in uninsured deposits, transactions deposits, and deposits in banks that repaid bailout funds early suggest some temporary limited support for weakened market discipline. |
| Keywords: | Bailouts; Banking; Depositor Behavior; Market Discipline; Bank Runs |
| JEL: | G18 G21 G28 |
| Date: | 2020–03–05 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:90126&r=all |
| By: | C Bora Durdu; Molin Zhong |
| Abstract: | We explore the structural drivers of bank and nonbank credit cycles using a medium-scale DSGE model with two types of financial intermediation. We posit economy-wide and sectoral disturbances in both macro and financial sectors. We estimate that sectoral shocks to the balance sheets of entrepreneurs are important for fluctuations in bank and nonbank credit growth at the business cycle frequency. Economy-wide entrepreneurial risk shocks gain predominance for explaining the lower frequency co-movement between the two series. Macro shocks play very little role in explaining financial cycles. |
| Keywords: | emerging bond markets, credit risk, currency risk, Twin Ds, affine model |
| JEL: | E3 E44 G01 G21 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:919&r=all |
| By: | Jiaqi Li |
| Abstract: | This paper studies the impact of imperfect banking competition on aggregate fluctuations using a DSGE framework that features a Cournot banking sector. The paper highlights a new propagation mechanism of imperfect banking competition that operates via the dynamics of the expected marginal product of capital. Since capital is partly financed by bank loans, a higher expected return on capital implies that firms are more willing to borrow to invest in capital, making their capital and thus loan demand more inelastic. Market power enables banks to take advantage of the lower loan demand elasticity by charging a higher loan rate markup. Given that different shocks affect the dynamics of the expected return on capital differently, this paper finds that while the loan rate markup after a contractionary monetary policy shock increases and thus amplifies aggregate fluctuations, the impact of imperfect banking competition after a productivity shock is less clear and depends on the persistence of the shock. |
| Keywords: | Business fluctuations and cycles; Financial institutions; Interest rates |
| JEL: | E44 G21 L13 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:21-12&r=all |
| By: | Steph Clampitt; Donald P. Morgan |
| Abstract: | The Main Street Lending Program was the last of the facilities launched by the Fed and Treasury to support the flow of credit during the COVID-19 pandemic. The others primarily targeted Wall Street borrowers; Main Street was for smaller firms that rely more on banks for credit. It was a complicated program that worked by purchasing loans and sharing risk with lenders. Despite its delayed launch, Main Street purchased more debt than any other facility and was accelerating when it closed in January 2021. This post first locates Main Street in the constellation of COVID-19 credit programs, then looks in detail at its design and usage with an eye toward any future programs. |
| Keywords: | Main Street Lending Program; virus; COVID-19; bank lending |
| JEL: | G2 G21 |
| Date: | 2021–02–05 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:89776&r=all |
| By: | Chen, Shiyi; Härdle, Wolfgang Karl; Wang, Li |
| Abstract: | The paper estimates banks’ total factor efficiency (TFE) as well as TFE of each production factor by incorporating banks’ overall risk endogenously into bank’s production process as undesirable by-product in a Global-SMB Model. Our results show that, compared with a model incorporated with banks’ overall risk, a model considering only on-balance-sheet risk may over-estimate the integrated TFE (TFIE) and under-estimate TFE volatility. Significant heterogeneities of bank TFIE and TFE of each production factor exist among banks of different types and regions, as a result of still prominent unbalanced development of Chinese commercial banks. Based on the estimated TFIE, the paper further investigates the determinants of bank efficiency, and finds that shadow banking, bank size, NPL ratio, loan to deposit ratio, fiscal surplus to GDP ratio and banking sector concentration are significant determinants of bank efficiency. Besides, a model with risk-weighted assets as undesirable outputs can better capture the impact of shadow banking involvement. |
| Keywords: | Nonparametric Methods,Commercial Banks,Shadow Bank,Financial Risk |
| JEL: | C00 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:irtgdp:2020001&r=all |
| By: | Gabriel Jiménez (Banco de España); David Martínez-Miera (Universidad Carlos III de Madrid and CEPR); José-Luis Peydró (Imperial College London, ICREA, Universitat Pompeu Fabra, CREI, Barcelona GSE, and CEPR) |
| Abstract: | We show strong overall and heterogeneous economic incidence effects, as well as distortionary effects, of only shifting statutory incidence (i.e., the agent on which taxes are levied), without any tax rate change. For identification, we exploit a tax change and administrative data from the credit market: (i) a policy change in 2018 in Spain shifting an existing mortgage tax from being levied on borrowers to being levied on banks; (ii) some areas, for historical reasons, were exempt from paying this tax (or have different tax rates); and (iii) an exhaustive matched credit register. We find the following robust results: First, after the policy change, the average mortgage rate increases consistently with a strong – but not complete – tax pass-through. Second, there is a large heterogeneity in such pass-through: larger for borrowers with lower income, a smaller number of lending relationships, not working for the lender, or facing less banks in their zip-code, thereby suggesting a bargaining power mechanism at work. Third, despite no variation in the tax rate, and consistent with the non-full tax pass-through, the tax shift increases banks’ risk-taking. More affected banks reduce costly mortgage insurance in case of loan default (especially so if banks have weaker ex-ante balance sheets) and expand into non-affected but (much) ex-ante riskier consumer lending, experiencing even higher ex-post defaults within consumer loans. |
| Keywords: | taxes, incidence, banks, inequality, risk-taking, mortgages |
| JEL: | E51 G21 G28 G51 H22 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2040&r=all |
| By: | Christoph Bertsch; Mike Mariathasan |
| Abstract: | We study optimal bank leverage and recapitalization in general equilibrium when the supply of specialized investment capital is imperfectly elastic. Assuming incomplete insurance against capital shortfalls and segmented financial markets, ex-ante leverage is inefficiently high, leading to excessive insolvencies during systemic capital shortfall events. Recapitalizations by equity issuance are individually and socially optimal. Additional frictions can turn asset sales individually but not necessarily socially optimal. Our results hold for different bankruptcy protocols and we offer testable predictions for banks' capital structure management. Our model provides a rationale for macroprudential capital regulation that does not require moral hazard or informational asymmetries. |
| Keywords: | Bank capital, recapitalization, macroprudential regulation, incomplete markets, financial market segmentation, constrained inefficiency |
| JEL: | D5 D6 G21 G28 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:923&r=all |
| By: | Dorsaf Elbir Merhbene (Central Bank of Tunisia); ; |
| Abstract: | This study seeks to determine the relation between non-performing loans (NPLs) and bank profitability in Tunisia. This relation appears non-linear. We estimate a threshold of NPLs using an econometric framework. We examine the determinants affecting profitability over the Q4 2010 - Q4 2019 period for 10 Tunisian banks by estimating a model showing the impact of NPLs on bank profitability. The results indicate that banks with lower non-performing loan tend to have higher profitability. |
| Keywords: | NPLS; banking profitability |
| JEL: | G21 E58 P34 |
| Date: | 2021–02–24 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp03-2021&r=all |
| By: | Romain Baeriswyl; Lucas Marc Fuhrer; Petra Gerlach-Kristen; Jörn Tenhofen |
| Abstract: | This paper documents the change in banks' interest rate setting behaviour in a negative-rate environment. In a positive-rate environment, the pricing of mortgages and deposits follows the dynamics of capital market rates for comparable maturities. When capital market rates fall below zero, the dynamic of mortgage and deposit rates changes. Because deposit rates tend to be sticky at zero and do not fall with short-term capital market rates into negative territory, banks' liability margin shrinks. In an attempt to preserve their overall interest margin, banks raise long-term mortgage rates in response to a decline in short-term capital market rates, while they continue to decrease long-term mortgage rates when long-term market rates fall. Overall, our results imply that a policy rate cut reduces bank rates less in a negative-rate environment than in a positive-rate environment. |
| Keywords: | Interest rate pass-through, mortgages, monetary policy |
| JEL: | E43 E52 G21 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2021-05&r=all |
| By: | Nudrat Faria Shreya |
| Abstract: | The recent collapse of several microfinance sectors as well as the current COVID-19 pandemic has given rise to a growing concern about the risk of multiple borrowing among microcredit clients in developing countries. Researchers argue that availability of multiple sources of credit has tempted clients to take multiple loans simultaneously, and subsequently default on loans. However, there is little empirical evidence on the impact of multiple borrowing on welfare. Using a spatial fuzzy regression discontinuity design, in this paper I empirically study the impact of an additional source of credit on outstanding and delinquent debt and monthly income by comparing individuals with access to two sources of credit with individuals with access to a single source of credit. In addition, I find that access to an additional source of credit leads to a reduction in a borrower’s outstanding debt by USD 44.75 and a decline in number of outstanding loans by 0.07. However, an additional source of credit has no effect on delinquent debt or monthly income of borrowers. In addition, I provide evidence of no effect of outstanding debt on psychosocial wellbeing of borrowers in terms of their happiness, life satisfaction, financial satisfaction and health satisfaction. |
| Keywords: | microfinance; multiple borrowing; indebtedness; outstanding debt; psychosocial wellbeing; regression discontinuity design |
| JEL: | G21 G51 I31 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:2103&r=all |
| By: | Wahyudi, Christanto Arief; Arbay, Evi Aryati |
| Abstract: | The COVID-19 pandemic, which is spreading rapidly throughout the world, has seriously harmed many countries, including Indonesia. Many things have been detrimental due to COVID-19, one of which is the economic aspect. This pandemic made it difficult for many debtors to fulfil their credit obligations that led the government to issue a countercyclical policy to provide a stimulus to the national economy. This study aims to determine the impact of OJK Regulation No.48 of 2020 on credit quality and control of banking credit risk in Indonesia. The research method used is descriptive qualitative with a literature approach using secondary data. This OJK regulation regulates economic stimulus through credit restructuring and regulates the implementation of credit risk management in banks. The existence of this regulation can maintain the stability of banking performance by keeping the Non-Performing Loan (NPL) number below 5% and providing a reference for banks in risk management with a model that is relevant to economic conditions during the COVID-19 pandemic. |
| Date: | 2021–03–03 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:ue2bw&r=all |
| By: | Gaffney, Edward (Central Bank of Ireland); Greaney, Darren (Central Bank of Ireland) |
| Abstract: | This note describes the characteristics of Irish owner-occupier mortgages at the five major retail banks that were on COVID-19 payment breaks at the end of May 2020. We identify three factors that are particularly related to the prevalence of payment breaks. First, a history of mortgage forbearance or non-performance is strongly associated with payment breaks; about 40 per cent of mortgages on payment breaks had a prior modification. Second, loans originated during the mid2000s peak of mortgage lending were more likely than the average loan to have payment breaks, whereas mortgages from the 2010s were less likely than average to have payment breaks. Finally, there is a close relationship between payment breaks and high loan-to-income ratios at origination, especially among more recent vintages of lending. |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:fsnote:5/fs/20&r=all |