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on Banking |
| By: | Gianni De Nicolò; Nataliya Klimenko; Sebastian Pfeil; Jean-Charles Rochet |
| Abstract: | We build a stylized dynamic general equilibrium model with financial frictions to analyze costs and benefits of capital requirements in the short-term and long-term. We show that since increasing capital requirements limits the aggregate loan supply, the equilibrium loan rate spread increases, which raises bank profitability and the market-to-book value of bank capital. Hence, banks build up larger capital buffers which (i) lowers the public losses in case of a systemic crisis and (ii) restores the banking sector’s lending capacity after the short-term credit crunch induced by tighter regulation. We confirm our model’s dynamic implications in a panel VAR estimation, which suggests that bank lending has even increased in the long-run after the implementation of Basel III capital regulation. |
| Keywords: | bank capital requirements, credit crunch, systemic risk |
| JEL: | E21 E32 F44 G21 G28 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9115&r= |
| By: | Segura, Anatoli; Villacorta, Alonso |
| Abstract: | We develop a novel framework that features loss amplification through firm-bank linkages. We use it to study optimal intervention in a lockdown that creates cash shortfalls to firms, which must borrow from banks to avoid liquidation. Firms' increase in debt reduces firms' output due to moral hazard. Banks need safe collateral to raise funds. Without intervention, aggregate risk constrains bank lending, increasing its cost and amplifying output losses. Optimal government support must provide sufficient aggregate risk insurance, and can be implemented with transfers to firms and fairly-priced guarantees on banks' debt. Non-priced bank debt guarantees and loan guarantees are suboptimal. |
| Keywords: | COVID-19; Financial Intermediation; firm's leverage; Government interventions; liquidity |
| JEL: | G01 G20 G28 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14838&r= |
| By: | Acharya, Viral V.; Bergant, Katharina; Crosignani, Matteo; Eisert, Tim; McCann, Fergal |
| Abstract: | We analyze how regulatory constraints on household leverage-in the form of loan-to-income and loan-to-value limits-affect residential mortgage credit and house prices as well as other asset classes not directly targeted by the limits. Supervisory loan level data suggest that mortgage credit is reallocated from low-to high-income borrowers and from urban to rural counties. This reallocation weakens the feedback loop between credit and house prices and slows down house price growth in "hot" housing markets. Consistent with constrained lenders adjusting their portfolio choice, more-affected banks drive this reallocation and substitute their risk-taking into holdings of securities and corporate credit. |
| Keywords: | House Prices; household leverage; macroprudential regulation; Residential Mortgage Credit |
| JEL: | E21 E44 E58 G21 R21 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14959&r= |
| By: | Goetz, Martin; Laeven, Luc; Levine, Ross |
| Abstract: | We evaluate the role of insider ownership in shaping banks' equity issuances in response to the global financial crisis. We construct a unique dataset on the ownership structure of U.S. banks and their equity issuances and discover that greater insider ownership leads to less equity issuances. Several tests are consistent with the view that bank insiders are reluctant to reduce their private benefits of control by diluting their ownership through equity issuances. Given the connection between bank equity and lending, the results stress that ownership structure can shape the resilience of banks-and hence the entire economy-to aggregate shocks. |
| Keywords: | Banking; Equity Issuances; financial crisis; Ownership Structure; regulation |
| JEL: | G21 G28 G32 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14913&r= |
| By: | Dean Corbae; Pablo D'Erasmo |
| Abstract: | We develop a model of banking industry dynamics to study the quantitative impact of regulatory policies on bank risk taking and market structure as well as the feedback effect of market structure on the efficacy of policy. Since our model is matched to U.S. data, we propose a market structure where big banks with market power interact with small, competitive fringe banks. Banks face idiosyncratic funding shocks in addition to aggregate shocks which affect the fraction of performing loans in their portfolio. A nontrivial bank size distribution arises out of endogenous entry and exit, as well as banks’ buffer stock of net worth. We show the model predictions are consistent with untargeted business cycle properties, the bank lending channel, and empirical studies of the role of concentration on financial stability. We then conduct a series of policy counterfactuals motivated by those proposed in the Dodd-Frank Act (size and state dependent capital requirements and liquidity requirements). We find that regulatory policies can have an important impact on banking market structure, which, along with selection effects, can generate changes in allocative efficiency and stability. |
| Keywords: | macroprudential policy; bank size distribution; industry dynamics with imperfect competition. |
| JEL: | E44 G21 L11 |
| Date: | 2021–06–11 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:92688&r= |
| By: | Segol, Matthieu; Kolev, Atanas; Maurin, Laurent |
| Abstract: | Firm investment, Intangible assets, Loan terms, Credit constraint, Survey data, Instrumental variable approachUsing European firm-level data from a new survey, the EIBIS, we document the effect of bank loan terms on investment in intangible assets of non-financial corporations. We show that quantity rationing is a primary determinant borrowers' propensity to invest in intangible assets. Provided that firms are satisfied with their loan size; unfavorable rate, maturity and collateral requirements have no significant effects on the probability to invest in intangible assets. These terms however, do have a negative impact on the probability to invest in multiple intangible assets, undermining the ability of firms to benefit from the complementarities of these assets. We document the effect of loan conditions on investment intensity, as well. The effect of quantity rationing on the amount invested in intagible assets is found to be limited. Other loan conditions however, like cost, maturity and collateral requirements, have significant effect on investment intensity. |
| Keywords: | Firm investment,Intangible assets,Loan terms,Credit constraint,Survey data,Instrumental variable approach |
| JEL: | G21 D82 O30 H81 C35 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eibwps:202105&r= |
| By: | Vacca, Valerio Paolo; Bichlmeier, Fabian; Biraschi, Paolo; Boschi, Natalie; Álvarez, Antonio J. Bravo; Di Primio, Luciano; Ebner, André; Hoeretzeder, Silvia; Ballesteros, Elisa Llorente; Miani, Claudia; Ricci, Giacomo; Santioni, Raffaele; Schellerer, Stefan; Westman, Hanna |
| Abstract: | The crisis management framework for banks in the European Union (EU) requires the resolution authorities to identify the existence of a public interest to resolve an ailing bank, rather than to open normal insolvency proceedings (NIPs). The Public Interest Assessment (PIA) determines whether resolution objectives, including the safeguard of financial stability, can be better preserved using resolution tools than NIPs .This paper provides a contribution to the ongoing discussion on the implementation of the PIA, by presenting an analytical framework to quantify the potential impact on the real economy stemming from a bank’s failure under NIPs through the interruption of the lending activity (“credit channel”). The framework is harmonized across the jurisdictions belonging to the Banking Union and aims to improve the quantitative leg of the PIA, to be coupled with qualitative elements. In a first step, we quantify the potential credit shortfall faced by firms and households due to the abrupt closure of a bank. In a second step, the impact of the credit shortfall on real outcomes is estimated via a FAVAR model and via a micro-econometric model. Reference values are provided to assess the relevance of the estimated outcomes. The illustrative results show that such a harmonized approach can be applied across the Banking Union and to banks of heterogeneous size. In case of mid-sized banks, this common analytical framework could reduce the uncertainty regarding the extent to which the failure of the institution could have a negative impact to the real economy if the lending activity is interrupted as possibly the case under NIPs. JEL Classification: E58, G01, G21, G28 |
| Keywords: | bank insolvency, bank lending, bank resolution, EU crisis management framework, public interest assessment |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:2021122&r= |
| By: | Ewa Wróbel (Narodowy Bank Polski) |
| Abstract: | Basing on data from bank lending surveys, we show that shocks to capital position are an important driver of bank lending standards, terms and conditions. Standards for small and medium-sized enterprises are affected more than those for large entities. Shocks to capital are channelled to firms mostly through these terms and conditions which are related to loan price: average spreads and spreads on riskier loans. The third mostly used channel is required collateral. Adverse shocks to capital position result in a lower lending, in particular for real property acquisition and for financing working capital and on current account. |
| Keywords: | bank capital, bank lending survey, structural VAR. |
| JEL: | E44 E51 G21 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:336&r= |
| By: | Maggie Sklar |
| Abstract: | In this working paper, I examine the interconnections between designated derivatives central counterparties (CCPs) with Federal Reserve deposit accounts and non-designated CCPs and the potential financial stability implications. This working paper notes the interconnections between the non-designated and designated derivatives CCPs through their clearing members and the commercial custodial banks they utilize to hold and transfer collateral. The paper then identifies additional potential contagion risks and financial stability risks, including liquidity risk, market risk, concentration risk, and loss of confidence more broadly. Although there are a number of research articles addressing these topics with respect to designated CCPs or OTC derivatives, this working paper includes the perspective looking at U.S. futures CCPs and non-designated CCPs. |
| Keywords: | Chicago Fed; Federal Reserve Bank of Chicago; Federal Reserve System; Financial Economics; Non-bank Financial Institutions; Financial Instruments; Institutional Investors; Government Policy and Regulation |
| JEL: | G23 G28 |
| Date: | 2020–10–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:92693&r= |
| By: | Reinders, Henk Jan; Schoenmaker, Dirk; Van Dijk, Mathijs A |
| Abstract: | The severe economic impact of the COVID-19 pandemic could threaten financial stability. However, assessing the gravity of this threat is challenging, since banks' accounting-based loan loss provisions are sluggish. We use a Merton contingent claims model to provide a real-time, market valuation-based assessment of the impact of COVID-19 on euro area banks' corporate loan portfolios. We calibrate the model based on observed stock price responses and use different scenarios for future volatility and incurred losses in case of default. Based on stock prices as of April 20, 2020, we estimate that the market-implied losses for euro area banks could reach over â?¬1 trillion, or 4 to 25% of corporate credits' book value (7 to 43% of available capital and reserves). Our analysis can be viewed as an early warning indicator of potential accounting losses to follow. |
| Keywords: | bank capital; Covid-19 pandemic; Financial Stability; stress test |
| JEL: | G01 G21 G28 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14922&r= |
| By: | Md Saimum Hossain; Faruque Ahamed |
| Abstract: | The study investigates the relationship between bank profitability and a comprehensive list of bank specific, industry specific and macroeconomic variables using unique panel data from 23 Bangladeshi banks with large market shares from 2005 to 2019 employing the Pooled Ordinary Least Square (POLS) Method for regression estimation. The random Effect model has been used to check for robustness. Three variables, namely, Return on Asset (ROA), Return on Equity (ROE), and Net Interest Margin (NIM), have been used as profitability proxies. Non-interest income, capital ratio, and GDP growth have been found to have a significant relationship with ROA. In addition to non-interest income, market share, bank size, and real exchange rates are significant explaining variables if profitability is measured as NIM. The only significant determinant of profitability measured by ROE is market share. The primary contribution of this study to the existing knowledge base is an extensive empirical analysis by covering the entire gamut of independent variables (bank specific, industry related, and macroeconomic) to explain the profitability of the banks in Bangladesh. It also covers an extensive and recent data set. Banking sector stakeholders may find great value from the outputs of this paper. Regulators and policymakers may find this useful in undertaking analyses in setting policy rates, banking industry stability, and impact assessment of critical policy measures before and after the enactment, etc. Investors and the bank management are to use the findings of this paper in analyzing the real drivers of profitability of the banks they are contemplating to invest and managing on a daily basis. |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2105.14198&r= |
| By: | Zhiqiang Lu; Junjie Wu; Hongyu Li; Duc Khuong Nguyen |
| Abstract: | This paper investigates the impact of local banks and digital financial inclusion on small and medium enterprise (SME) financing constraints. Using data of Chinese SMEs for the period 2007?2017, our robust results find (1) SMEs financing constraints are negatively associated with the proportion of local bank branches and the degree of digital financial inclusion; (2) the effect of local banks is more pronounced for small, transparent, and firms in the regions less dependent on bank credit; and (3) local bank branches and digital financial inclusion have a substitution effect on alleviating SMEs financial constraints. The findings shed light on how digital finance technologies could influence traditional SME-bank relationship and have important policy and managerial implications. |
| Keywords: | local banks; digital financial inclusion; financing constraints; SMEs; China. |
| Date: | 2021–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2021-008&r= |
| By: | Ozge Akinci; Gianluca Benigno; Marco Del Negro; Albert Queraltó |
| Abstract: | We introduce the concept of financial stability real interest rate using a macroeconomic banking model with an occasionally binding financing constraint as in Gertler and Kiyotaki (2010). The financial stability interest rate, r**, is the threshold interest rate that triggers the constraint being binding. Increasing imbalances in the financial sector measured by an increase in leverage are accompanied by a lower threshold that could trigger financial instability events. We also construct a theoretical implied financial condition index and show how it is related to the gap between the natural and financial stability interest rates. |
| Keywords: | r**; Financial crises; Financial stability; Occasionally binding credit constraint |
| JEL: | E40 E50 G00 |
| Date: | 2021–01–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1308&r= |
| By: | Solikin M. Juhro (Bank Indonesia) |
| Abstract: | This paper is aimed to explore salient issues of central banking practices, especially on challenges confronted by central banks in the digital era, lessons learned, as well as their implications. As we have acknowledged, in the midst of major financial crises in the last two decades, central banks faced very complex policy challenges blighted with high uncertainty, all of which have changed the practical and theoretical perspectives of central bank policy. The complexity and uncertainty of issues faced by central banks have and will continue to evolve in line with the advancement of digital technology. Navigating central banking practices in the digital era, therefore, is a very challenges task that requires the central bank's ability to create breakthroughs and orchestrate policy innovations. While the central bank policy mix is still a viable strategy, central banks are required to operate beyond conventional wisdom, with novel practices. Optimizing the benefits of technological advances and becoming a relevant regulator in the digital era must anchor the central bank's strategy in the future. |
| Keywords: | Central Bank Policy, Digital Transformation, Central Bank Digital Currency |
| JEL: | E52 E58 O3 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:idn:wpaper:wp012021&r= |
| By: | Pliszka, Kamil |
| Abstract: | This paper deals with both system-wide and banks' internal stress tests. For system-wide stress tests it describes the evolution over time, compares the stress test design in major jurisdictions, and discusses academic research. System-wide stress tests have gained in importance and nowadays serve as a key regulatory tool. For instance, they feed into the calculation of capital requirements in the EU. The literature shows that the disclosure of stress test results reveals new information to the market. Furthermore, banks that participate in system-wide stress tests increase their capital ratios and shift lending to less risky borrowers. For banks' internal stress tests, this paper gives an overview of the regulatory requirements under Pillars 1 to 3 of Basel III and reviews the academic literature. Stress testing is deeply embedded in the Basel III framework. Banks that choose to apply internal models for calculating capital requirements are subject to more stringent stress testing requirements and, for example, have to ensure capital adequacy if the internal risk parameters are being stressed. The academic research on banks' internal stress tests shows that stress scenarios derived from expert judgment should be complemented by scenarios which are selected on the basis of algorithms that consider historical characteristics of the risk factors. Furthermore, banks' conventional credit risk models can be modified and used for stress testing. As stress testing is exposed to considerable model and estimation risk, banks should carry out extensive robustness checks. In sum, both system-wide and banks' internal stress tests play a complementary role in ensuring the resilience of individual banks and the financial system to adverse shocks. |
| Keywords: | literature survey,regulatory expectations,regulatory requirements,stress testing |
| JEL: | G21 G32 G38 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:192021&r= |
| By: | Pierre L. Siklos; Martin Stefan |
| Abstract: | We simulate the impact on the nonbank liabilities of banks in a multiplex interbank environment arising from changes in currency exposure. Currency shocks as a source of financial contagion in the banking sector have not, so far, been considered. Our model considers two sources of contagion: shocks to nonbank assets and exchange rate shocks. Interbank loans can mature at different times. We demonstrate that a dominant currency can be a significant source of financial contagion. We also find evidence of asymmetries in losses stemming from large currency depreciations versus appreciations. A variety of scenarios are considered allowing for differences in the sparsity of the banking network, the relative size and number of banks, changes in nonbank assets and equity, the possibility of bank breakups, and the dominance of a particular currency. Policy implications are also drawn. |
| Keywords: | Systemic risk, financial contagion, interbank markets, multilayer networks |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2021-44&r= |
| By: | Eduardo Dávila; Ansgar Walther |
| Abstract: | This paper studies leverage regulation and monetary policy when equity investors and/or creditors have distorted beliefs relative to a planner. We characterize how the optimal leverage regulation responds to arbitrary changes in investors' and creditors' beliefs and relate our results to practical scenarios. We show that the optimal regulation depends on the type and magnitude of such changes. Optimism by investors calls for looser leverage regulation, while optimism by creditors, or jointly by both investors and creditors, calls for tighter leverage regulation. Monetary policy should be tightened (loosened) in response to either investors' or creditors' optimism (pessimism). |
| JEL: | E52 E61 G21 G28 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28879&r= |
| By: | Beck, Thorsten; Döttling, Robin; Lambert, Thomas; Van Dijk, Mathijs A |
| Abstract: | Liquidity creation (the transformation of liquid liabilities into illiquid assets) is a key function of banks. We show that liquidity creation is positively associated with economic growth at both country and industry levels. In particular, liquidity creation helps growth by boosting tangible, but not intangible investment. Our results suggest an important non-linearity; liquidity creation does not contribute to growth in countries with a higher share of industries relying on intangible assets. We rationalize these results using a model in which banks increase aggregate investment by reducing liquidity risk, but low asset tangibility hampers liquidity creation by exacerbating moral hazard problems. Together, these findings provide new insights into the functions of banks, but also highlight their more limited role in supporting innovative industries. |
| Keywords: | Banking sector development; economic growth; investment; liquidity creation; tangible assets |
| JEL: | E22 G21 O16 O40 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14956&r= |
| By: | Karadima, Maria; Louri, Helen |
| Abstract: | Following the financial and debt crises in the euro area and the delays in formulating a cohesive policy response, Greek banks faced serious problems with the increase in nonperforming loans (NPLs) being the most threatening. In this study, we attempt to empirically investigate the determinants of NPLs in the Greek banking sector, using quarterly aggregate data for the period 2003Q1-2020Q2 and the autoregressive distributed lag (ARDL) bounds testing approach. We find that NPLs are determined mostly by factors related to macroeconomic conditions in Greece during the period under investigation, rather than by bank-related factors. Of particular interest is the case of government debt, which is found to exert a significant and positive long-term impact on NPLs irrespective of some short-term dynamics that appear to provide a temporary relief. The fiscal balance is also found to exert a negative long-term effect, justifying the quest for surpluses post-crisis. As debt accumulation is a policy followed by most countries in order to stabilize economies hit by the COVID-19 crisis, its long-term effects on the financial system should be taken into account and institutional measures introduced to face the new risk. |
| Keywords: | Greece; non-performing loans; fiscal expansion; ARDL; bounds testing |
| JEL: | C22 G21 |
| Date: | 2021–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:110741&r= |
| By: | Bergant, Katharina; Grigoli, Francesco; Hansen, Niels-Jakob; Sandri, Damiano |
| Abstract: | We show that macroprudential regulation can considerably dampen the impact of global financial shocks on emerging markets. More specifically, a tighter level of regulation reduces the sensitivity of GDP growth to VIX movements and capital flow shocks. A broad set of macroprudential tools contribute to this result, including measures targeting bank capital and liquidity, foreign currency mismatches, and risky forms of credit. We also find that tighter macroprudential regulation allows monetary policy to respond more countercyclically to global financial shocks. This could be an important channel through which macroprudential regulation enhances macroeconomic stability. These findings on the benefits of macroprudential regulation are particularly notable since we do not find evidence that stricter capital controls provide similar gains. |
| Keywords: | capital controls; macroprudential policies; monetary policy |
| JEL: | E5 F3 F4 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14948&r= |
| By: | Alejandro García; Josef Schroth |
| Abstract: | Countercyclical capital buffers are regulatory measures developed in response to the global financial crisis of 2008–09. This note focuses on how time-varying capital buffers can improve financial stability in Canada. |
| Keywords: | Business fluctuations and cycles; Credit and credit aggregates; Credit risk management; Financial stability; Financial system regulation and policies; Lender of last resort |
| JEL: | E44 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:21-12&r= |
| By: | Esther Yusuf Enoch; Usman Abubakar Arabo; Abubakar Mahmud Digil |
| Abstract: | One of the major problems confronting financial institutions most especially microfinance institutions is the increasing incidence of loan defaults and consequence loan losses which manifested in their financial performance with huge uncollectible loans and advances. This study assessed the effects of credit management on financial performance on microfinance institutions in Adamawa State, Nigeria. Specifically, we examine the effect of client appraisal on the efficiency of microfinance banks in Adamawa State. The methodology employed in this study is the survey method in which both primary and secondary sources were used in the collection of data. A multi-stage sampling method was adopted in selecting a sample of 21 respondents from a total population of 52 credit officers. Questionnaires were used in the due collection of data from the respondents. Descriptive statistics (simple percentage) and inferential statistics (regression analysis) were used to analyze the data collected and in testing the hypotheses. The study showed that client appraisal has a positive effect on efficiency and productivity. |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2106.07679&r= |
| By: | Ozili, Peterson Kitakogelu; |
| Abstract: | This paper is a survey of the most important research in the economic policy uncertainty literature. Economic policy uncertainty, although still under-researched relative to mainstream topics in economics and finance, has recently received increased scholarly attention. Through synthesizing common themes in the literature, the paper highlights the progress made so far and suggest some avenues for future research which allows future researchers to position their research and differentiate themselves from other studies in the literature. The paper finds that economic policy uncertainty affects banks through a reduction in credit supply and loan re-pricing. High economic policy uncertainty compel bank managers to discretionary distort bank financial reporting in ways that help them to mitigate the depressing effect of economic policy uncertainty on their profitability. |
| Keywords: | economic policy uncertainty, banking, banks, uncertainty, index, news, government, tax code, inflation, elections. |
| JEL: | E52 E61 G18 G20 G21 G24 G28 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:108017&r= |
| By: | Julien Chevallier |
| Abstract: | The original contribution of this paper is to empirically document the contagion of the Covid-19 on financial markets. We merge databases from Johns Hopkins Coronavirus Center, Oxford-Man Institute Realized Library, NYU Volatility Lab, and St-Louis Federal Reserve Board. We deploy three types of models throughout our experiments: (i) the Susceptible-InfectiveRemoved (SIR) that predicts the infections? peak on 2020-03-27; (ii) volatility (GARCH), correlation (DCC), and risk-management (Value-at-Risk (VaR)) models that relate how bears painted Wall Street red; and, (iii) data-science trees algorithms with forward prunning, mosaic plots, and Pythagorean forests that crunch the data on confirmed, deaths, and recovered Covid-19 cases and then tie them to high-frequency data for 31 stock markets. |
| Keywords: | Covid-19; financial contagion; Johns Hopkins repository; Susceptible-InfectiveRemoved model; tree algorithm; data science |
| Date: | 2021–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2021-001&r= |
| By: | Baah Aye Kusi (University of Ghana Business School, Ghana); Elikplimi Agbloyor (University of Ghana Business School, Ghana); Simplice A. Asongu (Yaoundé, Cameroon); Joshua Yindenaba Abor (University of Ghana Business School, Ghana) |
| Abstract: | This study examines the effect of foreign bank assets and presence on banking stability in the economies with strong and weak country-level corporate governance in Africa between 2006 and 2015. Employing a Prais-Winsten panel data model on 86 banks in about 30 African economies, the findings on how foreign bank assets and presence influence banking stability in strong and weak corporate governance economies under different regulatory regimes are reported for the first time in Africa. The initial findings show that foreign bank presence and assets promote banking stability. However, the positive effect of foreign bank assets and presence is enhanced in economies with strong country-level corporate governance, while the positive effect of foreign bank assets and presence is weakened in economies with weak country-level corporate governance. After introducing different regulatory variables (regimes), it is observed that the enhancing effect of foreign bank presence and assets on banking stability in the full sample and economies with strong and weak country level corporate governance systems is deepened or improved under loan loss provision regulation regime. However, under the private and public sector-led financial transparency regulations, the reducing effect of foreign bank presence and assets on banking stability in economies with weak corporate governance systems is further dampened. These findings show that the relationship between foreign bank presence and assets is deeply shaped by corporate governance systems and regulatory regimes in Africa. Hence, policymakers must build strong corporate governance and sound regulatory regimes to enhance how foreign bank operations promote banking stability. |
| Keywords: | Stability; Foreign banks; Regulation, Corporate governance; Africa |
| JEL: | G0 G2 G3 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:abh:wpaper:21/022&r= |
| By: | Helmi Hammami; Thanh Ngo; Dinh-Tri Vo; David Trip |
| Abstract: | Purpose - This paper provides a new method to define an Euclidean common set of weights (ECSW) in data developme+E58nt analysis (DEA) that (i) allows ranking both efficient and inefficient firms, (ii) is more realistic in terms of weight determination, and (iii) generates rankings consistent with the credit ratings system. Design/methodology/approach - We first use DEA to determine the efficient frontier and then estimate a common set of weights that can minimize the Euclidean distance between the firms and that frontier. This process is illustrated by a simple numerical example and is also extended to a real life situation using the Eurozone banking sector. Findings - Our ECSW approach outperforms other common set of weights approaches in both numerical and real life examples. Additionally, the ECSW also outperforms the others in terms of providing consistent rankings to the credit ratings system. Research limitations/implications ? We did not examine the variable returns to scale assumption in DEA nor analyze productivity changes over time (e.g., the Malmquist index approach). It would be also interesting to extend the real life sample (e.g., U.S. banks or Asian banks) to test the robustness and stability of our ECSW approach. Practical implications - The paper suggests a new approach to banks' ranking alternates to the credit ratings system. Originality/value - The paper provides a more realistic approach to estimate the common set of weight in DEA that also can be an alternative for the credit ratings system. |
| Keywords: | Data envelopment analysis; Common set of weights, Euclidean distance, Banking system, Eurozone |
| Date: | 2020–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2020-012&r= |
| By: | Heng Chen; Matthew Strathearn; Marcel Voia |
| Abstract: | Constructing a novel micro-geographic individual-level data set, we study the relevance of shoe-leather costs on cash withdrawals. An unexplored issue in the literature is the consistent estimation of the marginal effect of travel distance on withdrawals when a fraction of unobserved withdrawals have free/low shoe-leather cost; i.e., consumers withdraw upon conveniently encountering a free/low cost withdrawal opportunity. To overcome this challenge, we propose a classification technique to identify respondents who have incurred these free/low cost withdrawals, and subsequently account for such endogenous selection from the exclusion restriction of the adoption of recent online financial innovations. We find that there exist significant threshold effects of distance on typical monthly withdrawal frequency. For respondents living within 1.56 kilometers of their affiliated financial institution, a one-kilometer reduction in distance is associated with an average marginal increase of 0.31 withdrawals per month. In terms of heterogeneous effects, distance plays a larger role in higher-income and older-age cohorts. These results are robust to various econometric specifications. |
| Keywords: | Bank notes; Digital currency and fintech |
| JEL: | G21 R22 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:21-28&r= |
| By: | Karadi, Peter; Nakov, Anton |
| Abstract: | This paper analyses optimal asset-purchase policies in a macroeconomic model with banks, which face occasionally-binding balance-sheet constraints. It proves analytically that asset-purchase policies are effective in offsetting large financial disturbances, which impair banks' capital position. It warns, however, that the policy is addictive because it flattens the yield curve, reduces the profitability of the banking sector and therefore slows down its recapitalization. Consequently, optimal exit from large central bank balance sheets is gradual. |
| Keywords: | Balance-Sheet-Constrained Banks; Large-scale asset purchases |
| JEL: | E32 E44 E52 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14951&r= |