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on Banking |
| By: | Ilzetzki, Ethan; Reinhart, Carmen M.; Rogoff, Kenneth S. |
| Abstract: | On the twentieth anniversary of its inception, the euro has yet to expand its role as an international currency. We document this fact with a wide range of indicators including its role as an anchor or reference in exchange rate arrangements—which we argue is a portmanteau measure—and as a currency for the denomination of trade and assets. On all these dimensions, the euro comprises a far smaller share than that of the US dollar. Furthermore, that share has been roughly constant since 1999. By some measures, the euro plays no larger a role than the Deutschemark and French franc that it replaced. We explore the reasons for this underperformance. While the leading anchor currency may have a natural monopoly, a number of additional factors have limited the euro’s reach, including lack of financial center, limited geopolitical reach, and US and Chinese dominance in technology research. Most important, in our view, is the comparatively scarce supply of (safe) euro-denominated assets, which we document. The European Central Bank’ lack of policy clarity may have also played a role. We show that the euro era can be divided into a “Bundesbank-plus” period and a “Whatever it Takes” period. The first shows a smooth transition from the European Exchange Rate Mechanism and continued to stabilize German inflation. The second period is characterised by an expanding ECB arsenal of credit facilities to European banks and sovereigns. |
| JEL: | E50 F30 F40 N20 |
| Date: | 2020–07–31 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:104100&r= |
| By: | Martin Indergand; Gabriela Hrasko |
| Abstract: | We propose a simple model to estimate the risk-neutral loss distribution from the credit spreads of long-term debt instruments with different seniorities. We apply our model to a sample of global systemically important banks that have issued bail-in debt in order to meet the total loss-absorbing capacity (TLAC) requirements established after the global financial crisis. Bail-in debt is a new debt category that absorbs losses in a gone-concern situation and that ranks between subordinated debt and non-eligible senior debt. With a structural model for these three debt layers, we calibrate the tail of the risk-neutral loss distribution such that it is consistent with the observed market prices. Based on this loss distribution, we find that the expected loss in a gone-concern situation exceeds TLAC for most banks and that the risk-neutral probability that TLAC will not be sufficient to cover the losses in such a situation is approximately 50%. The large expected losses that we find with our model are a consequence of the similar pricing of bail-in debt relative to other senior debt. We argue that regulators should promote further clarity about the subordination and the conversion mechanism of bail-in debt to achieve a more differentiated pricing that is more in line with regulatory expectations. |
| Keywords: | Financial stability, bank regulation, loss-absorbing capacity, creditor hierarchy, bail-in debt, bank resolution |
| JEL: | G12 G28 G32 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2021-13&r= |
| By: | William Chen (Department of Economics, Massachusetts Institute of Technology); Gregory Phelan (Department of Economics, Williams College) |
| Abstract: | Monetary policy can promote financial stability and improve household welfare. We consider a macro model with a financial sector in which banks do not actively issue equity, output and growth depend on the aggregate level of bank equity, and equilibrium is inefficient. Monetary policy rules responding to the financial sector are ex-ante stabilizing because their effects on risk premia decrease the likelihood of crises and boost leverage during downturns. Stability gains from monetary policy increase welfare whenever macroprudential policy is poorly targeted. If macroprudential policy is sufficiently well-targeted to promote financial stability, then monetary policy should not target financial stability. |
| Keywords: | Central bank mandate, Leaning against the wind, Fed Put, Macroprudential policy, Banks, Liquidity |
| JEL: | E44 E52 E58 G01 G12 G20 G21 |
| Date: | 2021–08–04 |
| URL: | http://d.repec.org/n?u=RePEc:wil:wileco:2021-12&r= |
| By: | Tuba Pelin Sumer; Suheyla Ozyildirim |
| Abstract: | Funding from foreign banks in repo, deposit and loan type is an important financing channel for Turkish banks. For hedging currency risk, Turkish banks are also making derivative transactions with foreign counterparties. In this paper, we study on-balance and off-balance sheet relations between Turkish banks and foreign-domiciled banks for 2014-2018 period using network analysis techniques. We group banks according to their business models (islamic vs conventional) and ownership structure (related vs unrelated) and document the evolution of cross-border relationships. We find that islamic domestic banks prefer islamic counterparties in on-balance sheet transactions, however they also work with the conventional banks in the derivative transactions. Additionally, we show that the share of funding from foreign domiciled banks is higher for the domestic subsidiaries of foreign banks. Finally, we find that the currency movement in 2018 seems to change some of the cross-border relations.Creation-Date: 2021 |
| Keywords: | Cross-border bank lending, Network analysis, Financial interconnectedness |
| JEL: | G21 L14 F34 G15 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:2122&r= |
| By: | Gebauer Stefan |
| Abstract: | In this paper, I show that the existence of non-bank financial institutions (NBFIs) has implications for the optimal regulation of the traditional banking sector. I develop a New Keynesian DSGE model for the euro area featuring a heterogeneous financial sector allowing for potential credit leakage towards unregulated NBFIs. Introducing NBFIs raises the importance of credit stabilization relative to other policy objectives in the welfare-based loss function of the regulator. The resulting optimal policy rule indicates that regulators adjust dynamic capital requirements more strongly in response to macroeconomic shocksdue to credit leakage. Furthermore, introducing non-bank finance not only alters the cyclicality of optimal regulation, but also has implications for the optimal steady-state level of capital requirements and loan-to-value ratios. Sector-specific characteristics such as bank market power and risk affect welfare gains from traditional and NBFI credit. |
| Keywords: | Macroprudential Regulation, Monetary Policy, Optimal Policy, Non-Bank Finance,Shadow Banking, Financial Frictions. |
| JEL: | E44 E61 G18 G23 G28 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:817&r= |
| By: | Louis-Gaëtan Giraudet (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École des Ponts ParisTech - Université Paris-Saclay - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | The zero-interest green loan (ZIGL) programme allows French homeowners to finance home energy retrofits at zero interest rate. Launched in 2009 in the wake of the Grenelle de l'environnement, the programme has strongly underperformed expectations. As the Citizen Convention for Climate now recommends extending the programme, we examine the reasons for the gap between predicted and realized ZIGLs. We find it to be best explained by a lack of profitability for banks. As a consequence, banks exploit consumers' lack of information about the programme to sell them more conventional financial products. In contrast, the role played by other frequently-cited causes, such as high transaction costs and a low interest rate environment, seems to be modest. We conclude that the efficiency of the programme could be improved by assigning loan issuance to a public bank. |
| Abstract: | L'éco-prêt à taux zéro (EPTZ) permet aux propriétaires de logements de financer des travaux de rénovation énergétique sans payer d'intérêts. Lancée en 2009, cette politique phare du Grenelle de l'environnement n'a pas rencontré le succès escompté. Aujourd'hui, la Convention citoyenne pour le climat (2020) propose de généraliser l'EPTZ. Pour juger de l'opportunité d'une telle mesure, nous nous interrogeons sur les causes possibles de l'écart entre le nombre d'EPTZ initialement prédit et effectivement réalisé. Nous identifions comme cause principale un manque d'attractivité du dispositif pour les banques. Celles-ci mettent en oeuvre des stratégies d'évitement qui prospèrent sur une forme de désintérêt des ménages. D'autres causes fréquemment avancées, comme les coûts administratifs ou l'environnement de taux d'intérêt faibles, semblent jouer un rôle moins important. Nous concluons que l'efficacité du dispositif pourrait être améliorée en transférant l'octroi des prêts à une banque publique. |
| Date: | 2021–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03278386&r= |
| By: | Jonathan Benchimol (Bank of Israel); Sophia Kazinnik (Federal Reserve Bank of Richmond); Yossi Saadon (Bank of Israel) |
| Abstract: | Have the content, sentiment, and timing of the Federal Reserve (Fed) communications changed across communication types during the COVID-19 pandemic? Did similar changes occur during the global financial and dot-com crises? We compile dictionaries specific to COVID-19 and unconventional monetary policy (UMP) and utilize sentiment analysis and topic modeling to study the Fedâs communications and answer the above questions. We show that the Fedâs communications regarding the COVID-19 pandemic concern matters of financial volatility, contextual uncertainty, and financial stability, and that they emphasize health, social welfare, and UMP. We also show that the Fedâs communication policy changes drastically during the COVID-19 pandemic compared to the GFC and dot-com crisis in terms of content, sentiment, and timing. Specifically, we find that during the past two decades, a decrease in the financial stability sentiment conveyed by the Fedâs interest rate announcements and minutes precedes a decrease in the Fedâs interest rate. |
| Keywords: | Central bank communication, Unconventional monetary policy, Financial stability, Text mining, COVID |
| JEL: | C55 E44 E58 E63 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:boi:wpaper:2021.15&r= |
| By: | Berthou Antoine,; Mayer Thierry,; Mésonnier Jean-Stéphane. |
| Abstract: | In this paper, we show that exporters react more strongly to a cut in tariffs by a distant country when their banks have already been specializing in funding exports to this country. To make our case, we build upon a theoretical model where an informational advantage provided by the exporter's bank results in a lower distribution cost in the destination country. We test the implications of this model for French exporters using the 2011 free trade agreement between the European Union and South-Korea as a quasi-natural experiment. We measure a bank's specialization in Korea using granular information on bank-firm credit lines and firm-level exports in the years preceding the agreement. We assess how customers of different banks react to this trade liberalization episode using detailed information on the bilateral tariff cuts and disaggregated data on French export flows at the firm-product level. We find robust evidence that the specialized lenders help exporters to respond more strongly to changes in tariffs. The effect is strong for all firms along the extensive margin, but only for less productive exporters along the intensive margin. |
| Keywords: | Trade Elasticities, Bank Specialization, Trade Liberalization. |
| JEL: | F14 G21 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:814&r= |
| By: | Lance Lochner; Qian Liu; Martin Gervais |
| Abstract: | This paper uses new administrative data with detailed borrower information and lengthy repayment histories from the Canada Student Loans Program (CSLP) to measure rates of return on undergraduate student loans. We document substantial heterogeneity in returns based on information available at the time loans were disbursed, including province of residence, field of study, and institution of attendance. Field of study is a particularly important determinant of rates of return, explaining 22% of the variation in predicted returns across borrowers. We explore the implications of this variation for CSLP cross-subsidization across borrowers and potential risk-based loan limits. Given the variation in ex ante predicted returns across borrowers, using all available information at the time of loan disbursement, we study the implications of potential cream-skimming of high-return borrowers by private lenders. |
| JEL: | D14 H52 H81 I22 I28 J24 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29130&r= |
| By: | Melise Jaud; Madina Kukenova; Martin Strieborny |
| Abstract: | This paper examines the transmission process from finance to the real economy in the context of product-level export survival. We find that conditional on the specific financial needs of exported products, banks and stock markets play distinctive roles in helping exporters survive in foreign markets. Stock markets rather than banks help exporters who lack easily collateralizable tangible assets. Active rather than large stock markets facilitate exports of products requiring high levels of working capital. And the trade credit can act as a substitute only for bank financing and only in the presence of well-established export links. |
| Keywords: | finance and export survival, transmission from finance to real economy, banks versus stock markets |
| JEL: | F14 G10 G21 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2021_14&r= |
| By: | Asli M. Colpan; Randall Morck |
| Abstract: | Business groups often contain banks or near banks that can protect group firms from economic shocks. A group bank subordinate to other group firms can become an “organ bank” that selflessly bails out distressed group firms and anticipates a government bailout. A group bank subordinating other group firms can extend loans to suppress their risk-taking to default risk, preserving risk-averse low-productivity zombie firms. Actual business groups can fall between these polar cases. Subordinated group banks magnify risk-taking; subordinating banks suppress risk-taking; yet both distortions promote business group firms’ survival. Limiting intragroup income and risk shifting, severing banks from business groups, or dismantling business groups may mitigate both distortions; but also limits business groups’ internal markets, thought important where external markets work poorly. |
| JEL: | F65 G01 G21 G23 N2 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29035&r= |
| By: | Francesca Biagini; Andrea Mazzon; Katharina Oberpriller |
| Abstract: | In this paper we introduce a sublinear conditional operator with respect to a family of possibly nondominated probability measures in presence of multiple ordered default times. In this way we generalize the results of [5], where a reduced-form framework under model uncertainty for a single default time is developed. Moreover, we use this operator for the valuation of credit portfolio derivatives under model uncertainty. |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2108.04047&r= |
| By: | Le Bihan Hervé,; Marx Magali,; Matheron Julien. |
| Abstract: | A number of central banks in advanced countries use ranges, or bands, around their inflation target to formulate their monetary policy strategy. The adoption of such ranges has been proposed by some policymakers in the context of the Fed and the ECB reviews of their strategies. Using a standard New Keynesian macroeconomic model, we analyze the consequences of tolerance range policies, characterized by a stronger reaction of the central bank to inflation when inflation lies outside the range than when it is close to the target, ie the central value of the band. We show that a tolerance band should not be a zone of inaction: the lack of reaction within the band endangers macroeconomic stability and leads to the possibility of multiple equilibria; the trade-off between the reaction needed outside the range versus inside seems unfavorable: a very strong reaction, when inflation is far from the target, is required to compensate a moderately lower reaction within tolerance band; these results, obtained within the framework of a stylized model, are robust to many alterations, in particular allowing for the zero lower bound. |
| Keywords: | Monetary policy; inflation ranges; inflation bands; ZLB; endogenous regime switching. |
| JEL: | E31 E52 E58 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:820&r= |
| By: | William Chen (Department of Economics, Massachusetts Institute of Technology); Gregory Phelan (Department of Economics, Williams College) |
| Abstract: | When financial intermediaries’ key characteristic is provision of liquidity through their liabilities, with financial frictions the financial sector in the aggregate is likely to over-accumulate equity, thus decreasing liquidity provision and household welfare. Aggregate household welfare is therefore decreasing in the level of aggregate intermediary equity even though the individual value of intermediaries is increasing in equity, which is why intermediaries over-accumulate equity. Subsidizing intermediary dividends can improve welfare by encouraging earlier payout and decreasing aggregate equity in the financial sector. This policy increases the likelihood that intermediaries provide more liquidity and improves the stability of the economy, even though asset prices fall. |
| Keywords: | Financial stability, Macroeconomic instability Macroprudential policy, Banks |
| JEL: | E44 E52 E58 G01 G12 G20 G21 |
| Date: | 2021–08–03 |
| URL: | http://d.repec.org/n?u=RePEc:wil:wileco:2021-11&r= |
| By: | Laetitia Gohlou Diomandé (UICL - CERF - Centre, d’Etudes, de Recherche et de Formation Continue, Sup'management.); Cedric Yao (UICL - CERF - Centre, d’Etudes, de Recherche et de Formation Continue, Sup'management.) |
| Abstract: | The asymmetry of information, resulting from the agency theory, is an aspect that is much complained about by banks regarding SMEs in Africa; and is one of the main reasons for the lack of financing of which these SMEs are victims. The informal structure of the African SME is the main reason for this information asymmetry. Thus far, banks have been content to require African SMEs to adapt to their operations, such as having financial data that meets legal requirements, but this has only widened the gap between these two actors. This thesis proposes the modeling of an information system that is as well adapted to the constraints of banks as to those of the African SME, in order to promote the permanent sharing of information between these two actors. The modeled system would allow both banks to obtain qualitative and quantitative information on African SMEs and the latter to meet the requirements of banks to obtain the financing they need. |
| Abstract: | L'asymétrie d'information, issue de la théorie de l'agence est un aspect qui est beaucoup décrié par les banques concernant les PME en Afrique ; et est l'une des causes du manque de financement dont sont victimes ces PME. Le caractère informel de la PME Africaine est la principale cause de cette asymétrie d'informations. Jusqu'à présent les banques se sont contentées d'exiger des PME Africaines qu'elles s'adaptent à leur fonctionnement comme le fait de disposer de données financières répondant aux critères légaux, mais cela n'a fait que creuser un peu plus le fossé entre ces deux acteurs. Cet article propose la modélisation d'un système d'informations aussi bien adaptée aux contraintes des banques qu'à celles de la PME Africaine, afin de favoriser le partage permanent d'informations entre ces deux acteurs. Le système modélisé permettrait à la fois aux banques d'obtenir des informations qualitatives et quantitatives sur les PME Africaines et à ces dernières de répondre aux exigences des banques pour l'obtention des financements dont elles ont besoin. |
| Keywords: | SME,Bank,Social netork,Informal sector,Financing,Asymétrie of information,information system,Process modeling,Accounting software,système d’information,asymétrie d’information,financement,secteur informel,Banque,PME,modélisation de processus,réseau social,logiciel comptable |
| Date: | 2021–08–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-03317678&r= |
| By: | David Hao Zhang; Paul S. Willen |
| Abstract: | Motivated by the assessment of racial discrimination in mortgage pricing, we introduce a new methodology for comparing the menus of options borrowers face based on their choices. First, we show how standard regression-based approaches for assessing discrimination in the menus context can lead to misleading and contradictory results. Second, we propose a new methodology that is robust these problems based on relatively weak economic assumptions. More specifically, we use pairwise dominance relationships in choices supplemented by restrictions on the range of plausible menus to define (1) a test statistic for equality in menus and (2) a difference in menus (DIM) metric for assessing whether one group of borrowers would prefer to switch to another group's menus. Our statistics are robust to arbitrary heterogeneity in borrower preferences across racial groups, are sharp in terms of identification, and can be efficiently computed using Optimal Transport methods. Third, we devise a new approach for inference on the value of Optimal Transport problems based on directional differentiation. Fourth, we use our methodology to estimate mortgage pricing differentials by race on a novel data set linking 2018--2019 Home Mortgage Disclosure Act (HMDA) data to Optimal Blue rate locks. We find robust evidence for mortgage pricing differentials by race, particularly among Conforming mortgage borrowers who are relatively creditworthy. |
| JEL: | C12 G21 G51 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29142&r= |
| By: | Biagio Bossone |
| Abstract: | This article speaks to post-Keynesian economists and their fundamental vision of monetary production economies. It focuses on the role of commercial banks as creators of money in monetary production economies and studies the rent-extraction power of banks in the form of "seigniorage." The article examines how the relative size of banks in the payment system combines with their capacity to determine quantities and prices in the market for demand deposits and gives them the power to extract seigniorage from the economy; it clarifies the distinction between seigniorage originating from commercial bank money creation and profits derived from pure financial intermediation; and analyzes how seigniorage affects the economy’s price level and resource distribution. The article draws political-economy and economic-policy implications. |
| Keywords: | Commercial banks; Interest rate; Money creation; Prices; Resource distribution; Seigniorage |
| JEL: | E19 E20 E31 E40 E52 E58 E62 G21 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:pkwp2111&r= |
| By: | Dominic Joseph |
| Abstract: | Banks and financial institutions all over the world manage portfolios containing tens of thousands of customers. Not all customers are high credit-worthy, and many possess varying degrees of risk to the Bank or financial institutions that lend money to these customers. Hence assessment of credit risk is paramount in the field of credit risk management. This paper discusses the use of Bayesian principles and simulation-techniques to estimate and calibrate the default probability of credit ratings. The methodology is a two-phase approach where, in the first phase, a posterior density of default rate parameter is estimated based the default history data. In the second phase of the approach, an estimate of true default rate parameter is obtained through simulations |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2108.03389&r= |
| By: | Eswar Prasad |
| Abstract: | This paper provides a broad analytical overview of how technological changes are likely to affect the practice of central banking. While the advent of decentralized cryptocurrencies such as Bitcoin has dominated the headlines, a broader set of changes wrought by advances in technology are likely to eventually have a more profound and lasting impact on central banks. |
| Date: | 2020–05–29 |
| URL: | http://d.repec.org/n?u=RePEc:col:000566:019463&r= |
| By: | José Dorich; Rhys R. Mendes; Yang Zhang |
| Abstract: | Since 1991, the Bank of Canada has had an inflation-targeting (IT) framework established by a joint agreement between the Bank and the Government of Canada. The framework is reviewed every five years as part of the process for renewing the inflation-control agreement. This discussion paper summarizes some interim results from Bank staff analysis done for the August 2020 workshop, “Towards the 2021 Renewal of the Bank of Canada’s Monetary Policy Framework.” The Bank will publish updated analysis later in 2021. The core of the current framework—the 2 percent inflation target—has remained unchanged since 1995. This fact reflects its success. Well-anchored inflation expectations contribute to macroeconomic stability while leaving monetary policy with greater flexibility. The 2021 renewal highlights two key challenges facing Canadian monetary policy: (1) the low neutral rate of interest; and (2) the low interest rates associated with a low neutral rate that may encourage excessive risk-taking and debt accumulation To address these challenges, Bank staff are running a “horse race” of alternative monetary policy frameworks (i.e., alternatives to the 2 percent IT framework). Their work evaluates these alternatives using a broad range of qualitative and quantitative criteria and focuses on the macroeconomic performance of the alternative frameworks. The interim results we report in this discussion paper suggest overall that no framework dominates on all margins. As a result, the ranking depends on the relative weight placed on different criteria. |
| Keywords: | Central bank research; Economic models; Inflation targets; Monetary policy; Monetary policy framework; Monetary policy transmission |
| JEL: | E58 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:21-13&r= |
| By: | Luis Garcia; Ulf Lewrick; Taja Sečnik |
| Abstract: | We study banks' year-end window dressing in the European Union to assess how it affects the identification of global systemically important banks (G-SIBs) and the associated capital surcharges. We find that G-SIBs compress their balance sheet at year-end to an extent that they can reduce their surcharges or avoid G-SIB designation altogether. G-SIBs use several levers to adjust their balance sheets. Most notably, they compress intra-financial system assets and liabilities as well as their derivative books at year-end. Moreover, G-SIBs that are more tightly constrained by capital requirements window dress more than their peers. Our findings underscore the importance of supervisory judgement in the assessment of G-SIBs and call for greater use of average as opposed to point-in-time data to measure banks' systemic importance. |
| Keywords: | systemically important bank, systemic risks, regulatory arbitrage, financial stability |
| JEL: | G20 G21 G28 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:960&r= |
| By: | Dobbie, Will; Liberman, Andres; Paravisini, Daniel; Pathania, Vikram S. |
| Abstract: | This paper tests for bias in consumer lending using administrative data from a high-cost lender in the United Kingdom. We motivate our analysis using a new principal-agent model of bias where loan examiners maximize a short-term outcome, not long-term profits, leading to bias against illiquid applicants at the margin of loan decisions. We identify the profitability of marginal applicants using the quasi-random assignment of loan examiners. Consistent with our model, we find significant bias against immigrant and older applicants when using the firm’s preferred measure of long-run profits, but not when using the short-run measure used to evaluate examiner performance. |
| Keywords: | discrimination; consumer credit |
| JEL: | J15 J16 |
| Date: | 2021–08–05 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:104984&r= |
| By: | Eduardo Dávila (Cowles Foundation, Yale University); Ansgar Walther (Imperial College London) |
| Abstract: | This paper studies the optimal design of second-best corrective regulation, when some agents or activities cannot be perfectly regulated. We show that policy elasticities and Pigouvian wedges are sufficient statistics to characterize the marginal welfare impact of regulatory policies in a large class of environments. We show that the optimal second-best policy is determined by a subset of policy elasticities: leakage elasticities, and characterize the marginal value of relaxing regulatory constraints. We apply our results to scenarios with unregulated agents/activities and with uniform regulation across agents/activities. We illustrate our results in applications to shadow banking, scale-invariant regulation, asset substitution, and fire sales. |
| Keywords: | Corrective regulation, Second-best policy, Pigouvian taxation, Policy elasticities, Leakage elasticities, Regulatory arbitrage, Financial regulation |
| JEL: | G18 G28 H21 D62 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2295&r= |
| By: | Xuan, Ngo Thanh; Linh, Hoai; , Khuc The Anh; Anh, Nguyen Khoa Duc |
| Abstract: | There are many types of risks related to banking operations such as credit risk, interest risk, operational risk. Problems related to moral hazard have led to considerable setbacks for the economy in general and banking system in particular. Besides, moral hazard is an economic and financial terminology and is used to denote the risk generated from the deterioration in ethical conduct. Hence, authors aim at reviewing theoretical framework for determinants impacting moral hazard in banks. |
| Date: | 2021–08–05 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:rq463&r= |
| By: | Pluess, Karen; Sutcliffe, Katy |
| Abstract: | There are increasing calls to re-establish the role and responsibility of banks towards society to repair trust and enhance financial stability. Through in-depth interviews with senior investment bankers, this study asks what bankers themselves think about the corporate (i.e. the industry’s core business), social (i.e. its moral responsibilities to wider society), and employee (i.e. bankers’ own feelings of purposefulness) purposes of the investment banking industry. Existing research tells us that there are significant reciprocal benefits to organisations, employees, and society at large when the three are aligned. The study’s findings suggest that while there have been important shifts in corporate and social purposes over time, bankers remain sceptical about their banks’ underlying motives and this has resulted in multiple disconnects. Perhaps surprising, the study finds that meaningful work that is also socially focused is something that investment bankers are seeking in some way. These insights should prompt banks to ensure that social purposes reflect and align with their corporate purposes; to move beyond rhetoric and virtue-signalling to action; and to help employees identify their contribution to it all. |
| Date: | 2021–08–18 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:uwejb&r= |