|
on Banking |
| By: | ; Allen N. Berger; Christa H. S. Bouwman; Raluca Roman; Gregory F. Udell |
| Abstract: | We analyze loan contract terms, investigating whether relationship borrowers fare better or worse than others in times of need, using the COVID-19 crisis as a quasi-natural experiment. COVID-19 is superior to prior crises for such analysis because its public health and government restrictions shocks directly harm borrowers, rather than banks. Our dataset includes Y-14Q, covering syndicated and non syndicated loans and small and large firms, unlike some other datasets. We find the dark side of relationships dominates across four relationship measures, 14 COVID-19 shocks, and PPP participation. There are limited pockets of bright-side findings associated with smaller firms and smaller banks. |
| Keywords: | banks; bank loans; relationship lending; loan contract terms; financial crises; COVID-19; Paycheck Protection Program (PPP) |
| JEL: | G01 G21 G28 |
| Date: | 2021–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:90420&r=all |
| By: | Haselmann, Rainer; Tröger, Tobias |
| Abstract: | This in-depth analysis proposes ways to retract from supervisory COVID-19 support measures without perils for financial stability. It simulates the likely impact of the corona crisis on euro area banks' capital and predicts a significant capital shortfall. We recommend to end accounting practices that conceal loan losses and sustain capital relief measures. Our in-depth analysis also proposes how to address the impending capital shortfall in resolution/liquidation and a supranational recapitalisation. |
| Keywords: | Covid-19,Forbearance,Bank Capitalization,Bank Resolution,Supervisory Relief Measures,Financial Stability |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewh:83&r=all |
| By: | Anusha Chari; Lakshita Jain; Nirupama Kulkarni |
| Abstract: | During the global financial crisis, the Reserve Bank of India enacted forbearance measures that lowered capital provisioning rates for loans under temporary liquidity stress. Matched bank-firm data reveal that troubled banks took advantage of the policy to also shield firms facing serious solvency issues. Perversely, in industries and bank portfolios with high proportions of failing firms, credit to healthy firms declined and was reallocated to the weakest firms. By incentivizing banks to hide true asset quality, the forbearance policy provided a license for regulatory arbitrage. The build-up of stressed assets in India’s predominantly state-owned banking system is consistent with accounting subterfuge. |
| JEL: | E58 G21 G28 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28435&r=all |
| By: | Mattia Colombo; Laura Grigolon; Emanuele Tarantino |
| Abstract: | We investigate how common ownership between lenders affects the terms of syndicated loans. We provide a novel view on common ownership as a mechanism to mitigate the effects of information asymmetry on borrowers' quality. As the lead bank does not need to signal the quality of the borrower by means of dissipative signals, high common ownership should have a negative impact on loan rates, the share of the loan retained by the lead bank, and the dispersion in loan returns. We empirically verify all three predictions, leveraging on differences in the level of common ownership across lenders and facilities within a loan. Common ownership affects the terms of the loan more strongly in presence of opaque or new borrowers, when the lead arranger is more likely to hold an information advantage over the syndicate members. As information flows from the lead arranger to syndicate members, we show that member-to-lead and member-to-member common ownership does not affect the terms of syndicated loans. |
| Keywords: | common ownership, ownership, control, syndicated loans, loans, banking |
| JEL: | L10 L11 G14 G21 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2021_279&r=all |
| By: | Huberto M. Ennis; Elizabeth C. Klee |
| Abstract: | We study new transaction-level data of discount window borrowing in the U.S. between 2010 and 2017, merged with quarterly data on bank financial con- ditions (balance sheet and revenue). The objective is to improve our under- standing of the reasons for why banks use the discount window during periods outside financial crises. We also provide a model of the decision of banks to borrow at the window, which is helpful for interpreting the data. We find that decisions to gain access and to borrow at the discount window are meaning- fully correlated with some relevant banks' characteristics and the composition of banks' balance sheets. Banks choose simultaneously to obtain access to the discount window and hold more cash-like liquidity as a proportion of assets. Yet, conditional on access, larger and less liquid banks tend to borrow more from the discount window. In general, our findings suggest that banks could, in principle, adapt their operations to modulate, and possibly reduce, their use of the discount window in "normal" times. |
| Keywords: | Banking; Central Bank; Federal Reserve; Liquidity |
| JEL: | E52 E58 G28 |
| Date: | 2021–03–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2021-16&r=all |
| By: | Sewon Hur; César Sosa-Padilla; Zeynep Yom |
| Abstract: | We study optimal bailout policies in the presence of banking and sovereign crises. First, we use European data to document that asset guarantees are the most prevalent way in which sovereigns intervene during banking crises. Then, we build a model of sovereign borrowing with limited commitment, where domestic banks hold government debt and also provide credit to the private sector. Shocks to bank capital can trigger banking crises, with government sometimes finding it optimal to extend guarantees over bank assets. This leads to a trade-off: Larger bailouts relax domestic financial frictions and increase output, but also imply increasing government fiscal needs and possible heightened default risk (i.e., they create a ‘diabolic loop’). We find that the optimal bailouts exhibit clear properties. Other things equal, the fraction of banking losses that the bailouts would cover is: (i) decreasing in the level of government debt; (ii) increasing in aggregate productivity; and (iii) increasing in the severity of the bank- ing crisis. Even though bailouts mitigate the adverse effects of banking crises, we find that the economy is ex ante better off without bailouts: the ‘diabolic loop’ they create is too costly. |
| JEL: | E32 F34 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28412&r=all |
| By: | Koetter, Michael; Krause, Thomas; Sfrappini, Eleonora; Tonzer, Lena |
| Abstract: | The bank recovery and resolution directive (BRRD) regulates the bail-in hierarchy to resolve distressed banks without burdening tax payers. We exploit the staggered implementation of the BRRD across 15 European Union (EU) member states to identify banks' capital cost and capital structure responses. In a first stage, we show that average capital costs of banks increased. WACC hikes are lowest in the core countries of the European Monetary Union (EMU) compared to formerly stressed EMU and non-EMU countries. This pattern is driven by changes in the relative WACC weight of equity in response to the BRRD, which indicates enhanced financial system resilience. In a second stage, we document asymmetric transmission patterns of banks' capital cost changes on to corporates' borrowing terms. Only EMU banks located in core countries that exhibit higher WACC are those that also increase firms' borrowing cost and contract credit supply. Hence, the BRRD had unintended consequences for selected segments of the real economy. |
| Keywords: | bail-in,banking union,funding costs,real effects |
| JEL: | C41 F34 G21 H63 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:42021&r=all |
| By: | Jason Allen; Robert Clark; Shaoteng Li; Nicolas Vincent |
| Abstract: | This paper analyzes the effectiveness of debt-relief programs targeting short-run household liquidity constraints implemented in Canada in response to the COVID-19 pandemic. These programs allowed individuals to push off mortgage and credit card payments and cut in half interest rates on credit card debt. Using credit bureau data, we document that, despite potential savings above $4 billion, enrollment was limited: 24% for mortgages and 7% for credit cards. By exploiting the richness of our data set, we provide evidence that close to 80% of individuals were unaware of the credit card relief program while others faced important fixed non-monetary costs preventing uptake. |
| Keywords: | Credit and credit aggregates; Coronavirus disease (COVID-19); Debt management |
| JEL: | H5 G31 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:21-13&r=all |
| By: | Altavilla, Carlo; Laeven, Luc; Peydró, José-Luis |
| Abstract: | We show strong complementarities between monetary and macroprudential policies in influencing credit. We exploit credit register data - crucially from multiple (European) countries and for both corporate and household credit - in conjunction with monetary policy surprises and indicators of macroprudential policy actions. Expansive monetary policy boosts lending more in accommodative macroprudential environments. This complementary effect of monetary and macroprudential policy is stronger for: (i) expansionary (as opposed to contractionary) monetary policy; (ii) riskier borrowers; (iii) less capitalized banks (especially when lending to riskier borrowers); (iv) consumer and corporate loans (rather than mortgages); and (v) more (ex-ante) productive firms (especially for less capitalized banks). |
| Keywords: | credit registers,household loans,corporate loans,monetary policy,macroprudential policy |
| JEL: | G21 G28 G32 G51 E58 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:232034&r=all |
| By: | Giacomo Rodano (Bank of Italy) |
| Abstract: | This paper analyses empirically the effect of judicial efficiency on bank credit contractual terms for the universe of Italian corporations borrowing from the banking sector. Exploiting within-country variation in the length of bankruptcy proceedings across different jurisdictions, the paper uses a spatial regression discontinuity design that compares credit conditions applied to firms located in municipalities on different sides of jurisdiction borders, controlling for bank characteristics. The results show that judicial efficiency is associated with a reduction in the cost of credit as well as with an increase in its availability for firms, in particular for those at high risk of default. Judicial efficiency increases leverage and investment for high risk firms. All these results suggest that the banking system tilts credit conditions in favor of safe firms as court inefficiency increases. Finally, court efficiency is also associated with a reduction in both the stock and the flow of Non Performing Loans. |
| Keywords: | judicial efficiency, creditor rights, loan contractual terms, spatial discontinuity approach |
| JEL: | G21 G33 K12 K15 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1322_21&r=all |
| By: | David Lowe; Matthew Malloy |
| Abstract: | This note explores the potential effects of the widespread adoption of a global stablecoin (GSC) on key aggregate financial sector balance sheets in the United States. To do this, we map out cash flows of GSC transactions among financial sector entities using a stylized set of 't-accounts'. By analyzing these individual transactions, we infer aggregate and compositional effects on U.S. commercial banking sector and Federal Reserve balance sheets. Through this lens, we also consider how these balance sheet changes could affect monetary policy implementation, the demand for central bank reserves, and the market for U.S. dollar safe assets. |
| Keywords: | Monetary policy; Banks; Fintech; Stablecoins |
| JEL: | E40 E50 G21 |
| Date: | 2021–03–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2021-20&r=all |
| By: | Ljubica Dordevic; Caio Ferreira; Moses Kitonga; Katharine Seal |
| Abstract: | The paper employs two complementary strategies. First, it is pursues textual analysis (text mining) of the assessment reports to identify successes and challenges the authorities are facing. Second, it analyzes the grades in the Basel Core Principles assessments, including their evolution and association with bank fragility. |
| Keywords: | Bank supervision;Bank regulation;Basel Core Principles;Global financial crisis of 2008-2009;Macroprudential policy;Bank Supervision;Bank Regulation;Basel Accords;Basel Core Principles;Global Financial Crisis;Prudential Requirements |
| Date: | 2021–03–18 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfdps:2021/005&r=all |
| By: | Bremus, Franziskus; Krause, Thomas; Noth, Felix |
| Abstract: | This paper provides evidence for the propagation of idiosyncratic mortgage supply shocks to the macroeconomy. Based on micro-level data from the Home Mortgage Disclosure Act for the 1990-2016 period, our results suggest that lender-specific mortgage supply shocks affect aggregate mortgage, house price, and employment dynamics at the regional level. The larger the idiosyncratic shocks to newly issued mortgages, the stronger are mortgage, house price, and employment growth. While shocks at the level of shadow banks significantly affect mortgage and house price dynamics, too, they do not matter much for employment. |
| Keywords: | credit supply shocks,mortgage market concentration,real effects from housing markets |
| JEL: | E44 G21 R20 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:32021&r=all |
| By: | Rodríguez, D.; Gallego, J; Jaramillo, F. |
| Abstract: | This paper examines how, in the main Colombian cities, the effect of financial inclusion (FI) on income changes along the distribution of household income considering labor informality. We construct a multidimensional FI indicator based on the World Bank definition and on the data. Using a quantile regression technique, we estimate the effect of FI on income at each quantile for informal and formal households. The findings indicate that FI has a positive impact throughout the income distribution but is greater in low-income and informal households. The results suggest that FI can have potential effects in alleviating poverty and closing the income gap. |
| Keywords: | Financial inclusion; household income; labor informality |
| JEL: | D30 |
| Date: | 2020–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:col:000561:019121&r=all |