nep-ban New Economics Papers
on Banking
Issue of 2021‒04‒12
thirteen papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Financial regulation and bank supervision during a pandemic By Ozili, Peterson Kitakogelu
  2. The importance of technology in banking during a crisis By Timmer, Yannick
  3. Global syndicated lending during the COVID-19 pandemic By Hasan, Iftekhar; Politsidis, Panagiotis N.; Sharma, Zenu
  4. Bank profitability determinants: comparing the United States, Nigeria and South Africa By Ozili, Peterson
  5. Bank Supervisory Goals versus Monetary Policy Implementation By Larry D. Wall
  6. Impacts of the Interest Rate Ceiling on Microfinance Sector in Cambodia: Evidence from a Household Survey By Sovannroeun Samreth; Daiju Aiba; Sothearoath Oeur; Vanndy Vat
  7. Impact of Rural Credit on Household Welfare: Evidence from a Long-Term Panel in Bangladesh By MD. Alamgir Hossain; Abdul Malek Mohammad; Zhengfei Yu
  8. Has financial inclusion made the financial sector riskier? By Ozili, Peterson K
  9. Procyclical Leverage and Crisis Probability in a Macroeconomic Model of Bank Runs By Daisuke Ikeda; Hidehiko Matsumoto
  10. Liquidation, Leverage and Optimal Margin in Bitcoin Futures Markets By Zhiyong Cheng; Jun Deng; Tianyi Wang; Mei Yu
  11. Linking Community Banks and Fintech Platforms By Patrick T. Harker
  12. Measuring Systemic Risk in South African Banks By Somnath Chatterjee; Marea Sing
  13. Effects o Fiscal Policy on Credit Markets By Auerbach, Alan J; Gorodnichenko, Yuriy; Murphy, Daniel

  1. By: Ozili, Peterson Kitakogelu
    Abstract: Pandemics lead to a sudden decline in the level of economic activities. Lending institutions reduce credit supply to businesses due to fears of rising bad debts during a pandemic. This paper highlights some approach to financial regulation and bank supervision during a pandemic such as the SARS and COVID-19 pandemic. The approach suggested in this paper are intended to be applicable to all types of pandemic since their effect on banks and financial institutions are relatively the same.
    Keywords: Pandemic, COVID-19, coronavirus, SARS, bank regulation, financial institution, banks, bank supervision, financial regulation.
    JEL: G21 G23 G24 G28 I18
    Date: 2021
  2. By: Timmer, Yannick
    Abstract: We study the implications of information technology (IT) in banking for financial stability, using data on US banks’ IT equipment and the tech-background of their executives. We find that one standard deviation higher pre-crisis IT adoption led to 10% fewer non-performing loans during the global financial crisis. We present several pieces of evidence that indicate a direct role of IT adoption in strengthening bank resilience; these include instrumental variable estimates exploiting the historical location of technical schools. Loan-level analysis reveals that high-IT adoption banks originated mortgages with better performance and did not offload low-quality loans. JEL Classification: O3, G21, G14, E44, D82, D83
    Keywords: financial stability, it adoption, non-performing loans, technology
    Date: 2021–03
  3. By: Hasan, Iftekhar; Politsidis, Panagiotis N.; Sharma, Zenu
    Abstract: This paper examines the pricing of global syndicated loans during the COVID-19 pandemic. We find that loan spreads rise by over 11 basis points in response to a one standard deviation increase in the lender’s exposure to COVID-19 and over 5 basis points for an equivalent increase in the borrower’s exposure. This implies excess interest of about USD 5.16 million and USD 2.37 million respectively for a loan of average size and duration. The aggravating effect of the pandemic is exacerbated with the level of government restrictions to tackle the virus’s spread, with firms’ financial constraints and reliance on debt financing, whereas it is mitigated for relationship borrowers, borrowers listed in multiple exchanges or headquartered in countries that can attract institutional investors.
    Keywords: Syndicated loans, Cost of credit, COVID-19, Pandemic
    JEL: G01 G21 G29 G3
    Date: 2021–03
  4. By: Ozili, Peterson
    Abstract: This study investigates the determinants of banking sector profitability in South Africa, Nigeria and the United States. The findings reveal that cost efficiency, the size of non-performing loans and overhead cost ratio are significant determinants of the banking sector profitability. In the comparative analysis, the findings from South Africa show that the cost efficiency ratio, overhead cost to total asset ratio and non-performing loans are significant determinants of banking sector profitability. In the United States, capital adequacy ratio and the size of non-performing loans are significant determinants of banking sector profitability. In Nigeria, the overhead cost to total asset ratio and cost efficiency ratio are significant determinants of the banking sector profitability. The descriptive analysis reveal that bank net interest margin and return on asset are higher in Nigeria and lowest in the United States which suggests that the Nigerian banking sector is more profitable than the US banking sector. Return on equity is higher in South Africa and lowest in the United States.
    Keywords: banks, profitability, non-performing loans, efficiency, Nigeria, South Africa, United States.
    JEL: G20 G21 G28 G29
    Date: 2021
  5. By: Larry D. Wall
    Abstract: The global financial crisis of 2007–09 revealed substantial weaknesses in large banks' capital adequacy and liquidity. Bank regulators responded with a variety of prudential measures intended to strengthen both. However, these prudential measures resulted in conflicts with the implementation of monetary policy that helped alter the way the Federal Reserve conducts monetary policy. I review three such conflicts: regulation inhibiting interest on excess reserves arbitrage starting in 2008, regulation inhibiting banks' operations in the repo market in 2019, and regulation inhibiting their operations in the Treasury securities market in 2020. The article concludes with a discussion of the issues associated with changing specific banking regulations and some more general suggestions for dealing with these types of conflicts.
    Keywords: banking regulation; capital adequacy; bank liquidity regulation; interest on reserves; Treasury market; repo market
    JEL: E52 E58 G28
    Date: 2021–03–29
  6. By: Sovannroeun Samreth; Daiju Aiba; Sothearoath Oeur; Vanndy Vat
    Abstract: This paper examines the effects of the imposition of an interest rate ceiling in the microfinance sector in Cambodia in 2017, based on a household survey undertaken in 2019. Evidence indicates that the average interest rate was reduced after the imposition of the ceiling. Although this reduction is partially offset by the increase of the average loan assessment and processing fee, the average effective interest rate (i.e., credit cost) declined. The results also show the increase in the average loan size from formal sources at a relatively small level and the increase in the percentage of loans from informal sources by a few percentage points. Moreover, we find that relatively low-income households face a higher probability of being rejected for loans and a higher debt service ratio is positively associated with a larger loan amount. This implies the possibility of the increase of the debt burden occurring among relatively small borrowers, given that an increase of the average loan size at relatively small loan levels is observed. The evidence supporting the important role of financial literacy in reducing household debt burden is also confirmed.
    Keywords: Interest rate ceiling, Financial inclusion, Microfinance, Cambodia
    Date: 2021–03–16
  7. By: MD. Alamgir Hossain; Abdul Malek Mohammad; Zhengfei Yu
    Abstract: Access to rural credit has long been considered a potential solution to ease liquidity constraints and improve household welfare in Bangladesh.Earlier studies on rural credit mostly focused on the impact of microfinance; however, the available results could not provide conclusive findings and failed to suggest how different sources of credit, namely, banks, microfinance institutes, and informal channels affect household welfare in the long term. This study aims to evaluate the long-term impact of different rural credit sources on household welfare indicators. To generate evidence, we use five-round (1988, 2000, 2004, 2008, and 2014) panel datasets of a nationally representative sample survey. We use a household-level panel fixed-effect model to estimate the impact on different outcome indicators. The results suggest that access to rural credit from any source has no significant impact on the increase in the household economic welfare in the long term. However, in the short term, access to bank credit increases the access to rented-in land, improves rice yield, and enhances girls' school enrollment among rural households. The impact estimates are found to be consistent across different model specifications, implying the robust internal validity of the study results. Key words: Long-term impact, panel data, rural credit sources, rural households, economic welfare, Bangladesh.
    Date: 2021–03
  8. By: Ozili, Peterson K
    Abstract: This paper examines whether high levels of financial inclusion is associated with greater financial risk. The findings reveal that higher account ownership is associated with greater financial risk through high nonperforming loan and high cost inefficiency in the financial sector of developed countries, advanced countries and transition economies. Increased use of debit cards, credit cards and digital finance products reduced risk in the financial sector of advanced countries and developed countries but not for transition economies and developing countries. The findings also show that the combined use of digital finance products with increased formal account ownership improves financial sector efficiency in developing countries while the combined use of credit cards with increased formal account ownership reduces insolvency risk and improves financial sector efficiency in developing countries.
    Keywords: financial inclusion, digital finance, Fintech, financial technology, nonperforming loans, efficiency, financial innovation, insolvency risk, credit card, debit card, formal accounts, account ownership, black swan
    JEL: G21 G28 O31
    Date: 2021
  9. By: Daisuke Ikeda (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:; Hidehiko Matsumoto (Economist, Institute for Monetary and Economic Studies, Bank of Japan (currently, Assistant Professor, National Graduate Institute for Policy Studies, E-mail:
    Abstract: A macroprudential perspective posits a link between bank fundamentals and the likelihood of banking crises. We articulate this link by developing a dynamic general equilibrium model that features bank runs in a global game framework. The model endogenizes the probability of bank runs as a function of bank fundamentals, leverage in particular. The model generates procyclical leverage and shows that credit growth tends to precede banking crises, replicating the empirical finding of Schularick and Taylor (2012). Countercyclical leverage restrictions can improve social welfare by reducing the crisis probability despite dampening economic activities in normal times.
    Keywords: Banking crises, global games, macroprudential policy
    JEL: E32 E44 G21 G28
    Date: 2021–03
  10. By: Zhiyong Cheng; Jun Deng; Tianyi Wang; Mei Yu
    Abstract: Using the generalized extreme value theory to characterize tail distributions, we address liquidation, leverage, and optimal margins for bitcoin long and short futures positions. The empirical analysis of perpetual bitcoin futures on BitMEX shows that (1) daily forced liquidations to out- standing futures are substantial at 3.51%, and 1.89% for long and short; (2) investors got forced liquidation do trade aggressively with average leverage of 60X; and (3) exchanges should elevate current 1% margin requirement to 33% (3X leverage) for long and 20% (5X leverage) for short to reduce the daily margin call probability to 1%. Our results further suggest normality assumption on return significantly underestimates optimal margins. Policy implications are also discussed.
    Date: 2021–02
  11. By: Patrick T. Harker
    Abstract: Speaking at the Joint Virtual Fintech Partnership Symposium, Philadelphia Fed President Patrick Harker stressed the vitally important role community banks play in the economy and noted the risks smaller banks face in adopting new technologies. Hosted by the Federal Reserve Bank of Philadelphia and the Conference of State Bank Supervisors, the event highlighted fintech options for community banks and credit unions.
    Date: 2021–04–01
  12. By: Somnath Chatterjee; Marea Sing
    Abstract: MeasuringSystemicRiskinSouthAfricanBanks
    Date: 2021–04–06
  13. By: Auerbach, Alan J; Gorodnichenko, Yuriy; Murphy, Daniel
    Abstract: Credit markets typically freeze in recessions: access to credit declines, and the cost of credit increases. A conventional policy response is to rely on monetary tools to saturate financial markets with liquidity. Given limited space for monetary policy in the current economic conditions, we study how fiscal stimulus can influence local credit markets. Using rich geographical variation in US federal government contracts, we document that, in a local economy, interest rates on consumer loans decrease in response to an expansionary government spending shock.
    Date: 2020–05–01

This nep-ban issue is ©2021 by Christian Calmès. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.