nep-ban New Economics Papers
on Banking
Issue of 2021‒07‒12
33 papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Bank Runs, Bank Competition and Opacity By Toni Ahnert; David Martinez-Miera
  2. Liquidity Regulation and Bank Lending By Foly Ananou; Dimitris Chronopoulos; Amine Tarazi; John Wilson
  3. Monetary Policy under Subjective Beliefs of Banks: Optimal Central Bank Collateral Requirements By Florian B\¨oser
  4. Credit Information Sharing and Bank Stability: Evidence from SSA Countries By Beni Kouevi Gath
  5. Leverage Constraints and Bank Monitoring: Bank Regulation versus Monetary Policy By Florian B\¨oser; Hans Gersbach
  6. Measuring the impact of a bank failure on the real economy. An EU-wide analytical framework By Valerio Paolo Vacca; Fabian Bichlmeier; Paolo Biraschi; Natalie Boschi; Antonio J. Bravo Alvarez; Luciano Di Primio; André Ebner; Silvia Hoeretzeder; Elisa Llorente Ballesteros; Claudia Miani; Giacomo Ricci; Raffaele Santioni; Stefan Schellerer; Hanna Westman
  7. Private equity and bank capital requirements: Evidence from European firms By Marina-Eliza Spaliara; Serafeim Tsoukas; Paul Lavery
  8. The Effect of Earnings Management and Signaling on Loss Loan Provision: The Role of Bank Capitalization By Jasman
  9. Who Pays the Price? Overdraft Fee Ceilings and the Unbanked By Jennifer L. Dlugosz; Brian T. Melzer; Donald P. Morgan
  10. Limits of stress-test based bank regulation By Tirupam Goel; Isha Agarwal
  11. Measuring the evolution of competition and the impact of the financial reform in the Mexican banking sector, 2008-2019 By Enrique Bátiz-Zuk; José Luis Lara Sánchez
  12. Frequency vs. Size of Bank Fines in Local Credit Markets By Francesco Marchionne; Michele Fratianni; Federico Giri; Luca Papi
  13. Economic policy uncertainty and bank stability By Gamze Danisman; Amine Tarazi
  14. Hold the Check: Overdrafts, Fee Caps, and Financial Inclusion By Jennifer L. Dlugosz; Brian T. Melzer; Donald P. Morgan
  15. Price discrimination and mortgage choice By Coen, Jamie; Kashyap, Anil; Rostom, May
  16. Identifying the transmission channels of credit supply shocks to household debt: price and non-price effects By Varadi, Alexandra
  17. The economics of non-bank financial intermediation: why do we need to fill the regulation gap? By Maurizio Trapanese
  18. An Optimal Macroprudential Policy Mix for Segmented Credit Markets By Jelena Zivanovic
  19. The rich, the poor, and the middle class: banking crises and income distribution By Mehdi El Herradi; Aurélien Leroy
  20. A liquidity risk early warning indicator for Italian banks: a machine learning approach By Maria Ludovica Drudi; Stefano Nobili
  21. Analyzing supply and demand for business loans using microdata from the Senior Loan Officer Survey By Dylan Hogg
  22. Comparative advantage and pathways to financial development: evidence from Japan’s silk-reeling industry By Mathias Hoffmann; Toshihiro Okubo
  23. Beyond the Interest Rate Pass-through: Monetary Policy and Banks Interest Rates during the Effective Lower Bound By Christophe Blot; Fabien Labondance
  24. "Commonality, macroeconomic factors and banking profitability". By Orlando Joaqui-Barandica; Diego F. Manotas-Duque; Jorge M. Uribe-Gil
  25. Is Corporate Credit Risk Propagated to Employees? By Filipe Correia; Gustavo S. Cortes; Thiago C. Silva
  26. Information or persuasion in the mortgage market: the role of brand names By Agnese Carella; Valentina Michelangeli
  27. Community Banks and Digital Innovation By Patrick T. Harker
  28. East Asia and East Africa: Different Ways to Digitalize Payments By Qing Xu
  29. Banking the Unbanked: The Past and Future of the Free Checking Account By Stein Berre; Kristian S. Blickle; Rajashri Chakrabarti
  30. El Salvador’s Bitcoin Law is Destined to Be Caught in the FATF’s Regulatory Web By Hanke, Steve; Hanlon, Nicholas; Thakkar, Parth
  31. Analysing sectoral capital flows: Covariates, co-movements, and controls By Etienne Lepers; Rogelio Mercado
  32. Inclusión financiera sin discriminación: hacia un protocolo de trato incluyente en sucursales bancarias de México By Martínez, Ana Laura; Reséndiz, César
  33. Living on my own: the impact of the Covid-19 pandemic on housing preferences By Elisa Guglielminetti; Michele Loberto; Giordano Zevi; Roberta Zizza

  1. By: Toni Ahnert; David Martinez-Miera
    Abstract: We model the opacity and deposit rate choices of banks that imperfectly compete for uninsured deposits, are subject to runs, and face a threat of entry. We show how shocks that increase bank competition or bank transparency increase deposit rates, costly withdrawals, and thus bank fragility. Therefore, perfect competition is not socially optimal. We also propose a theory of bank opacity. The cost of opacity is more withdrawals from a solvent bank, lowering bank profits. The benefit of opacity is to deter the entry of a competitor, increasing future bank profits. The excessive opacity of incumbent banks rationalizes transparency regulation.
    Keywords: Financial institutions; Financial markets; Financial stability; Financial system regulation and policies; Wholesale funding
    JEL: G21
    Date: 2021–06
  2. By: Foly Ananou (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges); Dimitris Chronopoulos (University of St Andrews, Centre for Responsible Banking & Finance, Gateway Building, St Andrews, Fife KY16 9RJ, UK); Amine Tarazi (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges); John Wilson (Centre for Responsible Banking & Finance, University of St Andrews Gateway Building, St Andrews, Fife KY16 9RJ, UK)
    Abstract: Bank liquidity shortages during the global financial crisis of 2007-2009 led to the introduction of liquidity regulations, the impact of which has attracted the attention of academics and policymakers. In this paper, we investigate the impact of liquidity regulation on bank lending. As a setting, we use the Netherlands, where a Liquidity Balance Rule (LBR) was introduced in 2003. The LBR was imposed on Dutch banks only and did not apply to other banks operating elsewhere within the Eurozone. Using this differential regulatory treatment to overcome identification concerns and a difference-indifferences approach, we find that the LBR increased the volume of lending by Dutch banks relative to other banks located in the Eurozone. Increased equity, an inflow of retail deposits and subsequent increase in balance sheet size allowed Dutch banks to increase lending despite having to meet the LBR requirements. The LBR also affected loan composition (with corporate and retail lending increasing more than mortgage lending) and the maturity profile of loan portfolios. Our results have relevance for policymakers tasked with monitoring the impact of liquidity regulations on banks and the real economy.
    Keywords: Liquidity Coverage Ratio,Propensity Score Matching,Quasi-natural experiment,Liquidity Regulation,Liquidity Balance Rule,Basel III,Bank Lending
    Date: 2021–06–14
  3. By: Florian B\¨oser (CER–ETH – Center of Economic Research at ETH Zurich, Switzerland)
    Abstract: We study how the subjective beliefs about loan repayment on the side of liquidity-constrained banks affect the central bank’s choice of collateral standards in its lending facilities. Optimism on the side of banks, entailing a higher collateral value of bank loans, can lead to excessive lending and bank default. Pessimism, though, can entail insufficient lending and productivity losses. With an appropriate haircut on collateral, the central bank can perfectly neutralize the banks’ belief distortions and always induce the socially optimal allocation. Under uncertainty about beliefs, the central bank’s incentives to set looser collateral standards increase. This reduces the risk of deficient bank lending if sufficiently pessimistic beliefs realize. In extreme cases, monetary policy aims at mitigating productivity losses only, instead of also avoiding bank default.
    Keywords: beliefs, collateral, liquidity, central bank, banks
    JEL: D83 D84 E51 E52 E58 G21
    Date: 2021–06
  4. By: Beni Kouevi Gath
    Abstract: We assess the effect of credit information sharing on bank stability for a sample of 161 banks located in 30 Sub-Saharan African (SSA) countries over 2004-2014. We find that banks become more stable as the quality of credit information sharing institutions improves. Moreover, despite foreign banks having an informational disadvantage with respect to domestic banks due to distance-related information frictions, and hence the assumption that they would benefit more from credit information sharing, the results indicate that both types of banks are affected in the same way. This suggests that foreign banks rely on alternative strategies to compensate for their informational disadvantage in local markets.
    Keywords: Information sharing offices; bank stability; credit markets
    JEL: G21 G28 D82
    Date: 2021–07–02
  5. By: Florian B\¨oser (CER–ETH – Center of Economic Research at ETH Zurich, Switzerland); Hans Gersbach (CER–ETH – Center of Economic Research at ETH Zurich, Switzerland)
    Abstract: Bank leverage constraints can emerge from regulatory capital requirements as well as from central bank collateral requirements in reserve lending facilities. While these two channels are usually examined separately, we are able to compare them with the help of a bank money creation model in which central bank reserves have to be acquired to settle interbank liabilities. In particular, we show that with regard to bank monitoring, monetary policy via collateral requirements leads to a unique collateral leverage channel, which cannot be replicated by standard capital requirements. Through this channel, banks can expand loan supply and deposit issuance when they face liquidity constraints, by raising the collateral value of their loans with tighter monitoring of firms. The collateral leverage channel can improve welfare beyond standard bank capital regulation. Our results may inform current policy debates, such as the design of central bank collateral frameworks or the question whether monetary policy remains effective in times with large central bank reserves.
    Keywords: leverage, banks, monitoring, bank regulation, monetary policy
    JEL: E42 E52 E58 G21
    Date: 2021–06
  6. By: Valerio Paolo Vacca (Banca d'Italia); Fabian Bichlmeier (Deutsche Bundesbank); Paolo Biraschi (Single Resolution Board); Natalie Boschi (Bafin); Antonio J. Bravo Alvarez (FROB Autoridad de Resolución Ejecutiva); Luciano Di Primio (Banca d'Italia); André Ebner (Deutsche Bundesbank); Silvia Hoeretzeder (Oesterreichische Nationalbank); Elisa Llorente Ballesteros (Banco de España); Claudia Miani (Single Resolution Board); Giacomo Ricci (Banca d'Italia); Raffaele Santioni (Banca d'Italia); Stefan Schellerer (Oesterreichische Nationalbank); Hanna Westman (Rahoitusvakausvirasto)
    Abstract: We present an analytical framework for quantifying the potential impact on the real economy stemming from a bank’s sudden liquidation, focusing on the consequences that arise when a credit institution interrupts its lending activities. In a first step, we quantify the potential credit shortfall faced by firms and households due to the sudden liquidation of a bank. In a second step, we estimate the impact of a firm’s credit shortfall on real outcomes via both a Factor-Augmented Vector Autoregression (FAVAR) model and a micro-econometric model. Appropriate reference values (benchmarks) are provided to assess the estimated outcomes. The illustrative results show that this harmonized approach is feasible across the Banking Union and it is applicable to banks of heterogeneous size and significance. Particularly in the case of the medium-sized banks, the implementation of this common analytical framework could provide useful insights to reduce the uncertainty about whether resolution is in the public interest, i.e. to what extent the failure of an institution would endanger financial stability.
    Keywords: bank resolution, bank insolvency, crisis management, public interest assessment
    JEL: E58 G01 G21 G28
    Date: 2021–06
  7. By: Marina-Eliza Spaliara; Serafeim Tsoukas; Paul Lavery
    Abstract: Using firm-level data from 16 euro-area countries over 2008-2014, we investigate how the growth and investment of bank-affiliated private equity-backed companies evolve after the European Banking Authority (EBA) increases capital requirements for their parent banks. We find that portfolio companies connected to affected banks reduce their investment, asset growth, and employment growth following the capital exercise. We further show that the effect is stronger for companies likely to face financial constraints. Finally, the findings indicate that the negative effect of the capital exercise is muted when the private equity sponsor is more experienced.
    Keywords: Private equity buyouts; bank capital requirements; financial constraints; company performance
    JEL: G32 G34
    Date: 2021–06
  8. By: Jasman (Universitas Trisaksi, Indonesia Author-2-Name: Etty Murwaningsari Author-2-Workplace-Name: Faculty of Economics and Business, Universitas Trisakti, Indonesia Author-3-Name: Sekar Mayangsari Author-3-Workplace-Name: Faculty of Economics and Business, Universitas Trisakti, Indonesia Author-4-Name: Susi Dwi Mulyani Author-4-Workplace-Name: Faculty of Economics and Business, Universitas Trisakti, Indonesia Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: " Objective - Loan loss provision is an accrual for the banking industry, and therefore has a significant effect on bank accounting earnings and capital requirements. Previous studies showed inconsistent results for the relationship between earnings management, signaling, and loan loss provision. The difference in the results is thought to be caused by bank capitalization. Therefore, this study aims to investigate the role of bank capitalization on the effect of earnings management and signaling on loan loss provision. Methodology – The sample consists of 86 conventional banks in Indonesia for the period of 2015-2019. Furthermore, this study used panel data analysis of multiple regression. Findings – The results showed earnings management has no effect on loan loss provision. In contrast, signaling has a positive and significant effect. Although bank capitalization is not proven to weaken the effect of earnings management on loan loss provision, it strengthens the positive effect of signaling on loan loss provision. Novelty – This study proves that bank capitalization has an important role in moderating signaling impact on loan loss provision but not for the effect of earnings management. This is due to the potential for earnings management in banks is relatively low because banks are highly regulated entities and with regulated governance mechanisms limit the managers' discretionary accounting decisions. Type of Paper - Empirical"
    Keywords: Bank Capitalization, Earnings Management, Signaling
    JEL: G23 G32
    Date: 2021–06–30
  9. By: Jennifer L. Dlugosz; Brian T. Melzer; Donald P. Morgan
    Abstract: Nearly 25 percent of low-income households in the United States are unbanked. High fees are often cited as a reason they remain unbanked, leading some to believe that limiting bank fees would improve financial inclusion. We use the federal preemption of state limits on overdraft fees to study the impact of fee ceilings on low-income households. After preemption, national banks raise overdraft fees relative to state-chartered banks in affected states. However, banks in affected states also provide more overdraft credit and bounce a smaller share of checks following preemption. The share of low-income households that are unbanked decreases, consistent with price ceilings causing the rationing of both overdraft and banking services.
    Keywords: banks; credit; overdraft; unbanked; inclusion; checks; price ceilings; usury
    JEL: D1 E43 G21 G38 G5
    Date: 2021–06–01
  10. By: Tirupam Goel; Isha Agarwal
    Abstract: Supervisory risk assessment tools, such as stress-tests, provide complementary information about bank-specific risk exposures. Recent empirical evidence, however, underscores the potential inaccuracies inherent in such assessments. We develop a model to investigate the regulatory implications of these inaccuracies. In the absence of such tools, the regulator sets the same requirement across banks. Risk assessment tools provide a noisy signal about banks' types, and enable bank specific capital surcharges, which can improve welfare. Yet, a noisy assessment can distort banks' ex ante incentives and lead to riskier banks. The optimal surcharge is zero when assessment accuracy is below a certain threshold, and increases with accuracy otherwise.
    Keywords: capital regulation; stress-tests; information asymmetry; adverse incentives; disclosure policy; Covid-19
    Date: 2021–07
  11. By: Enrique Bátiz-Zuk; José Luis Lara Sánchez
    Abstract: This paper analyzes the monthly evolution of bank competition in Mexico from 2008 to 2019 using different measures. Subsequently, we analyze whether the 2014 financial reform had an effect on some of our competition measures. We use ordinary and quantile regression techniques and Markov switching models to identify changes in regimes. We find partial empirical evidence supporting the idea that the reform had a positive average effect and increased banks competition intensity during a few years. However, we also document heterogeneity as some large banks benefited from an increase in their market power. We perform several robustness tests and report that our measures lead to values that are congruent and similar to those available in the literature. The main policy lesson of our research is that regulators could benefit from the monitoring of competition evolution using a finer time frequency.
    JEL: D40 G21 G28 L10 L11 L50
    Date: 2021–06
  12. By: Francesco Marchionne (Indiana University); Michele Fratianni (Kelley School of Business, Bloomington, Indiana, USA and Universita' Politecnica delle Marche, Ancona, Italy); Federico Giri (Dipartimento di Scienze Economiche e Sociali - Universita' Politecnica delle Marche, Ancona, Italy); Luca Papi (Di.S.E.S. - Universita' Politecnica delle Marche)
    Abstract: We examine how banking supervisors affect credit at the local level by charging fines to individual banks. Using a macro approach to capture the direct effect on the fined bank and the indirect effect on the other banks operating in the local credit market, we estimate reputational, reallocation and balance sheet effects on Italian provinces over the period 2005-2016 by a fixed effects model and instrumental variables. Provincial gross bank loans expand after a fine independently of its size. The impact of fine frequency depends on the size of the provincial banking sector, but neither on bank governance/ownership nor crises. No statistically significant evidence supports reputational or balance sheet effects. Instead, our results suggest that it would behoove bank supervisors to favor frequency over size of bank fines. Bank fines seem to work more like a good housekeeping seal of approval, enhancing transparency and effective banking practices.
    Keywords: fine frequency, fine size, bank credit, local markets, supervision
    JEL: G01 F14 F18
    Date: 2021–06
  13. By: Gamze Danisman (Faculty of Economics, Administrative and Social Sciences, Kadir Has University, Turkey); Amine Tarazi (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)
    Abstract: We examine the influence of economic policy uncertainty on bank stability post-2007-2008 global financial crisis. We rely on the economic policy uncertainty (EPU) index introduced by Baker et al. (2016). We use 176,477 quarterly observations for US commercial banks over the period from 2011Q1 to 2020Q3 and find consistent and robust evidence that bank stability decreases as the level of economic policy uncertainty increases. We specifically control for demand-side effects which indicates that the decrease in bank stability not only originates from borrowers' and customers' conditions but also from a change in bank behavior. A deeper investigation shows that the negative impact of policy uncertainty on bank stability is stronger for larger banks, and weaker for highly capitalized banks as well as for more liquid banks. Our findings have important implications particularly for the COVID-19 policy implementations.
    Keywords: JEL classification: G18,G21,G28 Economic Policy Uncertainty,Bank Stability,Bank Risk,COVID-19
    Date: 2021–06–14
  14. By: Jennifer L. Dlugosz; Brian T. Melzer; Donald P. Morgan
    Abstract: The 25 percent of low-income Americans without a checking account operate in a separate but unequal financial world. Instead of paying for things with cheap, convenient debit cards and checks, they get by with “fringe” payment providers like check cashers, money transfer, and other alternatives. Costly overdrafts rank high among reasons why households “bounce out” of the banking system and some observers have advocated capping overdraft fees to promote inclusion. Our recent paper finds unintended (if predictable) effects of overdraft fee caps. Studying a case where fee caps were selectively relaxed for some banks, we find higher fees at the unbound banks, but also increased overdraft credit supply, lower bounced check rates, and more low-income households with checking accounts. That said, we recognize that overdraft credit is expensive, sometimes more than even payday loans. In lieu of caps, we see increased overdraft credit competition and transparency as alternative paths to cheaper deposit accounts and increased inclusion.
    Keywords: overdrafts; unbanked; inclusion; price ceilings; bounced checks
    JEL: G21 G28
    Date: 2021–06–30
  15. By: Coen, Jamie (London School of Economics); Kashyap, Anil (University of Chicago); Rostom, May (Bank of England)
    Abstract: We characterise the large number of mortgage offers for which people qualify. Almost no one picks the cheapest option, nonetheless the one selected is not usually much more expensive. A few borrowers make very expensive choices. These big mistakes are most common when the menu they face has many expensive options, and are most likely for high loan to value and loan to income borrowers. Young people and first-time buyers are more mistake-prone. The dispersion in the mortgage menu is consistent with banks attempting to price discriminate for some borrowers who might pick poorly while competing for others who might shop more effectively.
    Keywords: Price discrimination; consumer choice; mortgages
    JEL: D12 G21 G51 G53
    Date: 2021–06–25
  16. By: Varadi, Alexandra (Bank of England)
    Abstract: Using matched microdata for the UK, I estimate two distinct channels via which credit supply shocks affect mortgage debt: one that operates through price conditions in credit markets; and another that operates through non-price credit conditions and affects the quantity of credit supplied by lenders. I find substantial heterogeneity in the different channels by age, financial situation, borrower type and income. Young households and home-owners respond exclusively to non-price credit conditions, in particular to changes in the supply of riskier lending. First-time buyers, middle-income households and middle-aged borrowers increase debt following shocks to either type of credit conditions. Debt responses of financially constrained borrowers are amplified by a simultaneous loosening in mortgage spreads and in credit availability at high loan to value or high loan to income ratios. In aggregate, household leverage responds more strongly to supply shocks that change the quantity of credit, as they affect households across the distribution, both at the intensive and at the extensive margin. But a loosening in price and non-price credit conditions simultaneously or a contraction in multiple price indicators at a time can also fuel rapid credit growth.
    Keywords: Household finance; bank lending; credit conditions; mortgages
    JEL: D14 E44 G21 G51 O16
    Date: 2021–06–25
  17. By: Maurizio Trapanese (Banca d'Italia)
    Abstract: This paper presents an overall analysis of the economics of non-bank financial intermediation, and argues that the financial stability concerns stemming from this sector support the need to fill the regulation gap that exists with respect to other segments. It examines the structure of markets, the economic incentives of the agents involved, and the institutional aspects characterizing this form of intermediation as compared with that performed by banks. The policy framework developed so far has been based mainly on micro-prudential tools, looking at individual institutions and activities. The focus of the regulatory actions should not be (or should not only be) the stability of individual entities. Financial regulators should pay more attention to the effects that the collective actions and activities of non-bank financial entities may have on the financial system as a whole and on the real economy. I find that the effectiveness of micro-prudential tools is strengthened if they are accompanied by a framework containing policy measures to address systemic risk.
    Keywords: financial crises, international regulation
    JEL: F53 G01 G20
    Date: 2021–06
  18. By: Jelena Zivanovic
    Abstract: This paper analyzes the design of simple macroprudential rules for bank and non-bank credit markets in a medium-scale dynamic stochastic general equilibrium model. In the model, mutual funds support corporate bond issuance by rms with access to capital markets; a banking sector supplies loans to the remaining producers. This model is used to study the optimal design of monetary and macroprudential rules and to address whether financial stability in the banking and bond markets is welfare improving. First, in response to aggregate productivity and financial shocks, the welfare-maximizing monetary policy rule implies near price stability, while the optimal macroprudential policy rule stabilizes bank credit and bond volumes. Second, there is no trade-off between price and financial stability. Third, if the central bank cannot correctly identify a sector-specific financial shock, responding optimally as if the shock affects both sectors, then welfare outcomes are negligibly worse than those under the optimal policy.
    Keywords: Business fluctuations and cycles; Credit and credit aggregates; Credit risk management; Financial stability; Financial system regulation and policies
    JEL: E30 E44 E50
    Date: 2021–06
  19. By: Mehdi El Herradi (Aix-Marseille Univ, CNRS, AMSE, Marseille, France.); Aurélien Leroy (University of Bordeaux, Larefi, bordeaux, France.)
    Abstract: How do banking crises a ect rich, middle-class and poor households? This paper quanti es the distributional implications of banking crises for a panel of 140 economies over the 1970-2017 period. We rely on di erent empirical settings, including an instrumental variable approach, that exploit the geographical di usion of banking crises across borders. Our results show that banking crises systematically reduce the income share of rich households and positively a ect middle-class households. We also nd that income inequality increases during periods preceding the triggering of a banking crisis.
    Keywords: banking crises, income distribution, Inequality
    JEL: G01 D33 D63
    Date: 2021–06
  20. By: Maria Ludovica Drudi (Bank of Italy); Stefano Nobili (Bank of Italy)
    Abstract: The paper develops an early warning system to identify banks that could face liquidity crises. To obtain a robust system for measuring banks’ liquidity vulnerabilities, we compare the predictive performance of three models – logistic LASSO, random forest and Extreme Gradient Boosting – and of their combination. Using a comprehensive dataset of liquidity crisis events between December 2014 and January 2020, our early warning models’ signals are calibrated according to the policymaker's preferences between type I and II errors. Unlike most of the literature, which focuses on default risk and typically proposes a forecast horizon ranging from 4 to 6 quarters, we analyse liquidity risk and we consider a 3-month forecast horizon. The key finding is that combining different estimation procedures improves model performance and yields accurate out-of-sample predictions. The results show that the combined models achieve an extremely low percentage of false negatives, lower than the values usually reported in the literature, while at the same time limiting the number of false positives.
    Keywords: banking crisis, early warning models, liquidity risk, lender of last resort, machine learning
    JEL: C52 C53 G21 E58
    Date: 2021–06
  21. By: Dylan Hogg
    Abstract: Supply and demand factors each have a role in determining the level of business lending in the economy, with most hard data showing only their combined effect on prices and quantities. The Bank of Canada’s Senior Loan Officer Survey (SLOS) helps to separate supply from demand effects by gathering information from financial institutions on their lending (supply) conditions as well as on customer demand for loans. This note examines the information content of the SLOS using institution-level microdata. We find both supply and demand indicators from the SLOS have leading-indicator properties for future business loan growth. Finally, we conduct a counterfactual exercise using SLOS data to examine the role of supply and demand during the financial crisis. We find that supply and, more specifically, heightened risk perception were the key contributors to the contraction of business credit witnessed in that period.
    Keywords: Credit and credit aggregates, Financial institutions, Financial stability
    JEL: D22 G01 G2
    Date: 2021–06
  22. By: Mathias Hoffmann; Toshihiro Okubo
    Abstract: We exploit the natural experiment of Japan’s opening to international trade to examine how comparative advantage can shape a country’s long-run path towards financial development. In the late 19th century, many of Japan’s prefectures had a natural comparative advantage in silk reeling. Producing silk for export required access to finance. At the same time, for technological reasons, borrower-quality in the silk reeling industry was notoriously hard to assess. Silk exporters overcame these frictions by forming local cooperative banks. We show that in the ancient silk prefectures, local cooperative banks continued to dominate local banking markets for over a century while bigger, country-wide banks came to dominate in other regions. By the late 20th century, the silk prefectures are indistinguishable from other regions in terms of their general level of financial development. However, our results suggest that they were effectively less financially integrated with the rest of the country. Hence, comparative advantage in silk favored the emergence of a banking-system dominated by small relationship lenders. But due to the local nature of these lenders, it also caused long-term geographical segmentation in banking markets.
    Keywords: Comparative advantage, financial development, financial integration, Japan, banking history, trade credit, export finance, silk industry, relationship lending
    JEL: F15 F30 F40 G01 N15 N25 O16
    Date: 2021–05
  23. By: Christophe Blot (Sciences Po – OFCE & Université Paris Ouest Nanterre - EconomiX); Fabien Labondance (CRESE EA3190, Univ. Bourgogne Franche-Comté, F-25000 Besançon, France)
    Abstract: We investigate whether monetary policy influences the retail interest rates in the Euro Area when the policy rate reaches the effective lower bound. We estimate a panel-Error Correction Model that accounts for potential heterogeneities in the transmission of monetary policy. The analysis disentangles alternative non-standard measures implemented by the ECB. We find that unconventional measures have influenced banking interest rates beyond the pass-through of the current and expected policy rate. These effects are driven by liquidity provisions in core countries and by covered bond purchase programmes in peripheral ones.
    Keywords: Unconventional measures, retail interest rate, Heterogeneous panel
    JEL: E43 E52 E58 G21
    Date: 2021–07
  24. By: Orlando Joaqui-Barandica (Universidad del Valle, Faculty of Engineering, School of Industrial Engineering, Colombia.); Diego F. Manotas-Duque (Universidad del Valle, Faculty of Engineering, School of Industrial Engineering, Colombia.); Jorge M. Uribe-Gil (Faculty of Economics and Business, Open University of Catalonia and Riskcenter, University of Barcelona, Spain.)
    Abstract: We study banks’ profitability in the US economy by means of dynamic factor models. Our results emphasize the importance of a few common cyclical market factors that greatly determine banking profitability. We conduct exhaustive regressions in a big data set of macroeconomic variables aiming to gain interpretability of our statistical factors. This allows us to identify three main macroeconomic factors underlying banking profitability: the financial burden of households and economic activity; household income and net worth and, in the case of ROA and ROE, corporate indebtedness. We also provide an integrated perspective to analyse banks’ profitability dynamically and to inform policymakers concerned with financial stability issues, for which banks’ profitability is fundamental. Our models allow us to provide several rankings of vulnerable financial institutions considering the common market forces that we estimate. We emphasize the usefulness of such an exercise as a market-monitoring tool.
    Keywords: Banks’ ROA, Indebtedness, Dynamic factors, Financial cycles. JEL classification: E44, G20, G21.
    Date: 2021–06
  25. By: Filipe Correia; Gustavo S. Cortes; Thiago C. Silva
    Abstract: Using an administrative credit registry for individuals merged with matched employer-employee data, we investigate whether a firm’s credit risk affects its employees’ access to credit. We find that employees of companies that suffer credit rating downgrades have access to 20 percent less credit and face 10 percent higher interest rates compared with similar employees of non-downgraded firms. Workers from downgraded firms are also 5 p.p. more likely to default on loans than employees from unaffected firms. These adverse financial effects have real consequences, with employees cutting consumption by 9 percent following downgrades of their employers. Our results suggest that banks process information on the financial health of employers when pricing consumer credit.
    Date: 2021–06
  26. By: Agnese Carella (Bank of Italy); Valentina Michelangeli (Bank of Italy)
    Abstract: The role, informative or persuasive, of brand names in driving purchasing decisions is very much under debate. We exploit the rebranding of a mortgage lender to analyse households’ choice behaviour in response to brand popularity. Loan-level data on new mortgages suggest that (1) brand awareness reduces the equilibrium price of residential mortgage contracts and (2) the reduction mainly reflects consumers’ selection of cheaper products due to better information. Our calibrated model implies an overall gain equal to 6 per cent of the initial loan amount and a roughly 10 percentage point increase in the share of households that shift to cheaper lenders.
    Keywords: brand, mortgages, household finance
    JEL: D12 D15 D83 G21 G51
    Date: 2021–06
  27. By: Patrick T. Harker
    Abstract: During opening remarks at the virtual Innovation Office Hours, Philadelphia Fed President Patrick Harker underscored the importance of facilitating face-to-face discussions between banks and fintech firms. “Constructive dialogue among banks, fintech firms, and the Federal Reserve will help us to listen and learn from each other,” he said. The series allows supervised financial institutions and nonbank fintech firms to meet with Fed staff to discuss financial technology innovation.
    Date: 2021–06–28
  28. By: Qing Xu (Université Côte d'Azur, France; GREDEG CNRS)
    Abstract: Financial digitalization leads to the global payment revolution. M-payment is one of the essential digital payment methods that increase the efficiency of financial and economic activities, especially for developing countries. This chapter presents different development paths and adoption models of m-payment in East Asia & East Africa. China and South Korea are examples of third-party platform-led mobile payment models; Japan is an example of a bank-based mobile payment model; while East African countries implemented originally a mobile operator-led model and then moved toward a hybrid model with more banks and mobile operators involvement. It presents finally some concluding remarks and reflections on other world regions.
    Keywords: digitalize payments, mobile payment, mobile payment operational models, East Asia, East Africa
    JEL: E42 E44 G23
    Date: 2021–06
  29. By: Stein Berre; Kristian S. Blickle; Rajashri Chakrabarti
    Abstract: About one in twenty American households are unbanked (meaning they do not have a demand deposit or checking account) and many more are underbanked (meaning they do not have the range of bank-provided financial services they need). Unbanked and underbanked households are more likely to be lower-income households and households of color. Inadequate access to financial services pushes the unbanked to use high-cost alternatives for their transactional needs and can also hinder access to credit when households need it. That, in turn, can have adverse effects on the financial health, educational opportunities, and welfare of unbanked households, thereby aggravating economic inequality. Why is access to financial services so uneven? The roots to part of this problem are historical, and in this post we will look back four decades to changes in regulation, shifts in the ownership structure of retail financial services, and the decline of free/low-cost checking accounts in the United States to search out a few of the contributory factors.
    Keywords: unbanked; banks; mutual banks; fintech
    JEL: G1 G2
    Date: 2021–06–30
  30. By: Hanke, Steve (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise); Hanlon, Nicholas (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise); Thakkar, Parth (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)
    Abstract: In the middle of the night of June 8th, El Salvador’s Congress hastily passed the Bitcoin Law. This law will make bitcoin legal tender (actually, forced tender). Since the modalities concerning the implementation of the Bitcoin Law change with each passing day, we cannot opine on the details surrounding the scheduled launch of the Bitcoin Law on September 7, 2021. That said, it’s abundantly clear that if the Bitcoin Law is actually implemented, El Salvadoran banks, merchants, and their customers will cross swords with Financial Action Task Force regulators and be ensnared in the FATF’s web of regulations.
    Date: 2021–07–02
  31. By: Etienne Lepers (OECD); Rogelio Mercado (Asian Development Bank)
    Abstract: This paper assembles a comprehensive sectoral capital flows dataset for 64 advanced and emerging economies from 2000-18. This includes direct, portfolio and other investments to and from five sectors: central banks (CB), general government (GG), banks (BKs), non-financial corporates (NFCs) and other financial corporates (OFCs) and a corresponding dataset on capital controls imposed on these sectors. The paper uses this data to examine the usefulness of a sectoral approach in assessing capital flow covariates, co-movements, and the effectiveness of capital controls. The findings show that: 1) private sectoral flows have varying sensitivities to global financial conditions and different cyclicality with respect to output growth. For instance, unlike other flows, NFCs respond to global commodity prices but not global risk aversion and, unlike banks, OFCs cut foreign investment in periods of domestic investment; 2) co-movements of resident and non-resident OFC sectoral flows add to the observed positive correlation between gross inflows and outflows; and, 3) the tightening of capital controls on NFCs and OFCs appear effective in reducing the volume of flows to these sectors.
    Keywords: capital controls, capital flows correlations, sectoral capital flows
    JEL: F21 F38 F41 G20
    Date: 2021–07–02
  32. By: Martínez, Ana Laura; Reséndiz, César
    Abstract: En este documento se incorporan las pautas elementales derivadas del derecho a la igualdad y no discriminación dispuestas en la Ley Federal para Prevenir y Eliminar la Discriminación (LFPED) y se responde a la búsqueda de la promoción de la igualdad en las esferas sociales, políticas y económicas de la vida de la población mexicana. En el estudio se reconoce la naturaleza transversal del problema de la discriminación estructural y su impacto en los bajos niveles de bancarización que prevalecen en México, buscando visibilizar los procesos discriminatorios que se fundamentan en prejuicios inconscientes y automáticos que impactan las interacciones financieras de amplios grupos de la sociedad mexicana.
    Date: 2021–06–23
  33. By: Elisa Guglielminetti (Bank of Italy); Michele Loberto (Bank of Italy); Giordano Zevi (Bank of Italy); Roberta Zizza (Bank of Italy)
    Abstract: We quantify the impact of the Covid-19 pandemic on housing demand of Italian households by exploiting new information on their search activity on the market. The data comes from two unique datasets: the Italian Housing Market Survey, conducted quarterly on a large sample of real estate agents, and the universe of weekly housing sales advertisements taken from, a popular online portal for real estate services in Italy. The latter includes high-frequency and house-specific measures of online interest of potential home buyers. The pandemic induced a large increase in demand for houses located in areas with lower population density, mainly driven by a significant shift in preferences towards larger, single-family housing units, endowed with outdoor spaces. Fear of contagion, lockdown measures and the rise of remote working arrangements all likely shaped the evolution of housing demand, with potential long-lasting consequences on the housing market.
    Keywords: Covid-19, housing market, real estate, online housing advertisements, survey data, working from home
    JEL: I18 O18 R21 R31
    Date: 2021–06

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.