nep-ban New Economics Papers
on Banking
Issue of 2021‒09‒13
35 papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Scale Effects on Efficiency and Profitability in the Swiss Banking Sector By Marc Blatter; Andreas Fuster
  2. Asset encumbrance in euro area banks: analysing trends, drivers and prediction properties for individual bank crises By Berthonnaud, Pierre; Cesati, Enrico; Drudi, Maria Ludovica; Jager, Kirsten; Kick, Heinrich; Lanciani, Marcello; Schneider, Ludwig; Schwarz, Claudia; Siakoulis, Vasileios; Vroege, Robert
  3. Determinants of Credit Spreads in Commercial Real Estate Senior Loans of German Lenders By Ricarda Haffki
  4. Bank credit risk and performance: the case of Tunisian banks during the period 2005 – 2015 By Khalfallah, Fatma; Necib, Adel
  5. How Dynamic is Bank Liquidity, Including when the COVID-19 Pandemic First Set In? By Maureen Cowhey; Jane E. Ihrig; Cindy M. Vojtech; Gretchen C. Weinbach
  6. Financial intermediation and risk in decentralized lending protocols By Castro-Iragorri, C; Ramírez, J; Vélez, S
  7. Bank as a Venture Capitalist By Rishabh, Kumar
  8. Fringe Banking and Financialisation: Pawnbroking in pre-famine and famine Ireland By Eoin McLaughlin; Rowena Pecchenino
  9. Why Did Small Business Fintech Lending Dry Up During March 2020? By Itzhak Ben-David; Mark J. Johnson; René M. Stulz
  10. Central bank balance sheet and systemic risk By Maëlle VAILLE
  11. Credit Rating Inflation: Is It Still Relevant and Who Prices It? By Herpfer, Christoph; Maturana, Gonzalo
  12. A semi-structural model with banking sector for stress testing scenario design By J. Sebastián Becerra; José Carreño; Juan Francisco Martínez
  13. Are Collateral-Constraint Models Ready for Macroprudential Policy Design? By Pablo Ottonello; Diego J. Perez; Paolo Varraso
  14. Does the Community Reinvestment Act Increase Small Business Lending in Lower Income Neighborhoods? By Kim, Mee Jung; Lee, Kyung Min; Earle, John S.
  15. Going with the Flow: Changes in Banks’ Business Model and Performance Implications By Nicola Cetorelli; Michael G. Jacobides; Samuel Stern
  16. Scaling up SME's credit scoring scope with LightGBM By Bastien Lextrait
  17. Furlough and Household Financial Distress during the COVID-19 Pandemic By Christoph Gortz; Danny McGowan; Mallory Yeromonahos
  18. The Third Trigger of Strategic Default: Households’ Portfolio Composition By Shotaro Watanabe; Gianluca Marcato; Bing Zhu
  19. How the withdrawal of global correspondent banks hurts Emerging Europe By Borchert, Lea; de Haas, Ralph; Kirschenmann, Karolin; Schultz, Alison
  20. The Causality between Mortgage Credit and House Price: The Turkish Case By Belgin Akcay; Mert Akyuz; Çan Karul
  21. Venture Capitalists’ Access to Finance and Its Impact on Startups By Jun Chen; Michael Ewens
  22. Bank Carbon Risk Index – A simple indicator of climate-related transition risks of lending activity By Laszlo Bokor
  23. Community Bank Access to Innovation: a speech at the Government Relations Council (GRC) meeting sponsored by The American Bankers Association, Washington, D.C. (virtual conference) By Michelle W. Bowman
  24. Estimation of the Financial Cycle with a Rank-Reduced Multivariate State-Space Model By Rob Luginbuhl
  25. Understanding How Americans Earn, Save, and Invest: New Perspectives on Consumer Behavior in Credit and Payments Markets Conference By Patrick T. Harker
  26. The Real Effects of Monetary Shocks: Evidence from Micro Pricing Moments By Gee Hee Hong; Matthew Klepacz; Ernesto Pasten; Raphael Schoenle
  27. Exchange rate fluctuations and the financial channel in emerging economies By Beckmann, Joscha; Comunale, Mariarosaria
  28. Disclosures relating to Covid-19 in the Malaysian banking industry: Theory and Practice By Malik, Arsalan Haneef; Rehman, Awais Ur; Khan, Mubashir Ali
  29. The Macro-Economics of Crypto-Currencies: The Role of Private Moneys in Monetary Policy By Noam, Eli
  30. The Heterogenous Relationship of Owner-Occupied and Investment Property with Household Portfolio Choice By Marco Felici; Franz Fuerst
  31. Banken auf dem Holzweg? Eine empirische Untersuchung der Bewertung von Kreditkarten aus Holz By Graf, Erika
  32. L’intégration des impacts environnementaux dans l’évaluation des investissements privés By Patricia Crifo; Yann Kervinio; Emile Quinet
  33. From Subsidies to Loans: The Effects of a National Student Finance Reform on the Choices of Secondary School Students By de Gendre, Alexandra; Kabátek, Jan
  34. New Insight on Investment-Cash Flow Sensitivity By Sai Ding; Minjoo Kim; Xiao Zhang
  35. Average Inflation Targeting: Time Inconsistency And Intentional Ambiguity By Chengcheng Jia; Jing Cynthia Wu

  1. By: Marc Blatter (Swiss National Bank); Andreas Fuster (Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute; Centre for Economic Policy Research (CEPR))
    Abstract: This paper analyzes efficiency and profitability in the Swiss banking sector over the period 1997- 2019. We find strong evidence for scale economies: for most banks in the sample, efficiency and profitability increase with bank size. Using an instrumental variables strategy for a subset of geographically restrained banks, we find that the effect of size on efficiency and profitability is likely causal. Scale economies have been more pronounced since 2010 than in the years prior to the global financial crisis. There is little evidence for scale economies for the largest (systemically important) banks; their relatively lower efficiency and lower profitability appear driven by certain aspects of their business model. Our results further indicate that good capitalization and high efficiency and profitability are compatible.
    Keywords: Bank efficiency, profitability, economies of scale, financial regulation
    JEL: G21 G28
    Date: 2021–08
  2. By: Berthonnaud, Pierre; Cesati, Enrico; Drudi, Maria Ludovica; Jager, Kirsten; Kick, Heinrich; Lanciani, Marcello; Schneider, Ludwig; Schwarz, Claudia; Siakoulis, Vasileios; Vroege, Robert
    Abstract: Asset encumbrance is a central concept in the context of banks’ liquidity crises, as it is associated with their capacity to obtain secured funding. This occasional paper summarises the work carried out by the task force on asset encumbrance, bringing together analyses by the ECB and those national competent authorities working on the topic. First, we describe how asset encumbrance has evolved in euro area banks, focusing on country and business model aggregates. Second, we conduct an econometric analysis of the driving factors of banks’ asset encumbrance, highlighting the relevance of credit risk, the availability of high quality collateral suitable for encumbrance, capital and sovereign funding conditions. Third, we turn our focus to the asset encumbrance dynamics of banks that have experienced a crisis. The outcome of this event study analysis indicates that asset encumbrance increases in the lead-up to a crisis, partly to offset early deposit outflows. Building on these findings, we show that asset encumbrance indicators carry predictive information for bank-specific crises as part of a multivariate early warning model. JEL Classification: G21, G01, G28, C23, C49
    Keywords: asset encumbrance, bank crisis, bank funding, collateral, early warning model, liquidity, panel econometrics
    Date: 2021–08
  3. By: Ricarda Haffki
    Abstract: This research empirically examines cross-sectional property- and credit-risk determinants of credit spreads for commercial real estate senior loans. In contrast to previous studies, we exploit a new large data set of commercial real estate mortgages of German real estate banks concentrating on senior lending activities from 2015 to 2019. These mortgages have not been securitized into CMBS loans and thus, belong to the on-balance activities of the lenders. Our results are largely consistent with theoretical predictions. In particular, credit spreads are positively related to the cap rate, reflecting the property risk, and the loan-to-value ratio, reflecting the credit risk. In focusing on senior loans, we are able to place the results in a precise context of property- and mortgage-related impacts.
    Keywords: Commercial Real Estate Loans; Credit Spreads; Determinants of Loan Pricing; Relationship Lending
    JEL: R3
    Date: 2021–01–01
  4. By: Khalfallah, Fatma; Necib, Adel
    Abstract: The main objective of this research is to study the impact of bank credit risk on performance. The empirical tests were carried out on panel data of firms belonging to the Tunisian banking sector institutions. To answer this research problem, we have analyzed in a first chapter the link between risk and financial performance. Then, based on financial theories, we formulated a set of hypotheses related to the influence of Investment, bank size, presence of women and board independence on performance. The results of the empirical tests indicate that risk has a positive effect on performance. Conversely, the empirical tests show that bank size and dual function had negative effects on performance. Finally, the results of the tests on bank risk are mixed depending on the characteristics of the board of directors.
    Keywords: ROA, ROE, Performance, Tunisian Bank, Risk, Corporate Governance
    JEL: M10
    Date: 2020–08–31
  5. By: Maureen Cowhey; Jane E. Ihrig; Cindy M. Vojtech; Gretchen C. Weinbach
    Abstract: Banks need sufficient liquidity—cash and other assets that may be easily and immediately converted into cash—to meet their financial obligations, such as when households withdraw deposits or businesses tap credit lines. One key takeaway from the Global Financial Crisis of 2007–09 was that continuity of bank intermediation is particularly important in times of stress to limit pressure on the financial system, and that banks need to consistently maintain sufficient liquidity to achieve that outcome.
    Date: 2021–08–30
  6. By: Castro-Iragorri, C; Ramírez, J; Vélez, S
    Abstract: We provide an overview of decentralized protocols like Compound and Aave that offer collateralized loans for cryptoasset investors. Compound and Aave are two of the most important application in the decentralized finance (DeFi) ecosystem. Using publicly available information on rates, supply and borrow activity, and accounts we analyze different elements of the protocols. In particular, we estimate ex-post margins that give a comprehensive account of the cost of financial intermediation. We find that ex-post margins considering all markets are 1% and lower for stablecoin markets. In addition, we estimate quarterly indicators regarding solvency, asset quality, earnings and market risk similar to the ones used in traditional banking. This provides a first look at the use of these metrics and a comparison between the similarities and challenges to our understanding of financial intermediation in these protocols based on tools used for traditional banking.
    Keywords: Decentralized finance, Compound, Aave, collateralize loans, intermediation margins, camels
    JEL: C63 C80 E51 G21 G23 G51 O16 O33
    Date: 2021–07–27
  7. By: Rishabh, Kumar (University of Basel)
    Abstract: Banks all over the world show interest in acting as venture capitalists. In this paper, I argue that banks offer venture capital (VC) financing along with traditional (collateralized) loans in response to the natural constraints of the hidden information that they face. Innovative entrepreneurs pursue new technology that promises high return but runs a high risk of failure. The more innovative entrepreneurs also have higher reservation utility. This interaction between type-dependent returns and reservation utility creates a situation where collateral alone is not sufficient to screen entrepreneurs, and the uninformed bank needs an additional screening device. VC fulfils that role.
    Keywords: Bank, Venture Capital, Collateral, Debt, Screening
    JEL: G21 G24 D86
    Date: 2021–08–31
  8. By: Eoin McLaughlin (University College Cork); Rowena Pecchenino (Maynooth University)
    Abstract: Pawnbroking, one of the oldest and most accessible forms of credit, was a common feature of life in pre-famine and famine Ireland. This paper studies the role of pawnbroking in the Irish financial system during this important period, applying insights from modern studies on fringe banking to analyse pawnbroking in Ireland. In the period under study, a formal tiered financial system existed; regulated joint stock banks offered services to industry and the better off, while fringe banks provided financial services largely, but not exclusively, to unbanked groups. The main findings are that pawnbrokers provided a steady source of credit throughout the island of Ireland and that this credit stream was more durable than that provided by alternative financial service providers in the fringe banking market, especially during the famine. Our findings suggest a nuanced interpretation is needed as we find strong interrelationships between the various financial service providers.
    Keywords: Fringe banking, financialisation, pawnbroking, Ireland
    JEL: G21 G51 N23
    Date: 2021–09
  9. By: Itzhak Ben-David; Mark J. Johnson; René M. Stulz
    Abstract: With the onset of the COVID-19 crisis in March 2020, small business lending through fintech lenders collapsed. We explore the reasons for the market shutdown using detailed data about loan applications, offers, and take-up from a major small business fintech credit platform. We document that while the number of loan applications increased sharply early in March 2020, the supply of credit collapsed as online lenders dropped from the platform and the likelihood of applicants receiving loan offers fell precipitously. Our analysis shows that the drying up of the loan supply is most consistent with fintech lenders becoming financially constrained and losing their ability to fund new loans.
    JEL: G11 G21 G33
    Date: 2021–09
  10. By: Maëlle VAILLE
    Abstract: Central banks’ balance sheet policies, while intended to address ?nancial market dislocations and stimulate the economy, may have unintended persistent e?ects on systemic risk. Using a structural bayesian vector autoregressive model, this paper estimates the impacts of exogenous innovations to the central banks’ balance sheet on the aggregate systemic risk in the euro area, the United States and Japan. Our results suggest that these policies have positive e?ects on ?nancial stability in the short and medium term and seems to have no e?ects in the long term. Moreover, we study the e?ects of central balance sheet policies shocks on ?nancial institutions’ systemic risk through a panel VAR and highlight the role of leverage in the transmission of unconventional monetary policy to ?nancial ?rms’ systemic risk.
    Keywords: balance sheet policies, srisk, structural BVAR, zero and sign restrictions, leverage
    JEL: C32 C33 E44 E52 E58
    Date: 2021
  11. By: Herpfer, Christoph; Maturana, Gonzalo
    Abstract: Credit rating agencies (CRAs) are less likely and slower to downgrade firms with performance sensitive debt (PSD) if these downgrades increase borrowing costs. This effect is not driven by selection into PSD contracts, borrowers hiding information from CRAs, or by firms about to lose their investment grade classification. Moreover, originating banks seem aware of the CRAs' conflicts of interest, and sell loans with more embedded conflicts more frequently. In contrast, secondary market participants do not price conflicts of interest to the same extent. The recent settlements between the major CRAs and the U.S. government do not appear to prevent credit inflation.
    Keywords: Credit ratings, performance-sensitive debt, rating catering
    JEL: G0 G01 G1 G10 G18 G20 G21 G24 G28 G3
    Date: 2020–10–01
  12. By: J. Sebastián Becerra; José Carreño; Juan Francisco Martínez
    Abstract: In this paper, we estimate a semi-structural New-Keynesian model for the Chilean economy. Our contribution consists of including a financial block, with an explicit description of the lending interest rate, credit volume, credit risk, and interest rate spreads. Firstly, we find the presence of a financial accelerator, that amplifies shocks. We find a significant relevance of financial sector feedback to the real economy. The incorporation of financial elements in a simple and flexible way allows the developed macro-financial model to be useful for various purposes. In this work, we carry out exercises in which extreme scenarios are simulated and are suitable for stress testing purposes.
    Date: 2021–07
  13. By: Pablo Ottonello; Diego J. Perez; Paolo Varraso
    Abstract: We study the design of macroprudential policies based on quantitative collateral-constraint models. We show that the desirability of macroprudential policies critically depends on the specific form of collateral used in debt contracts: While inefficiencies arise when current prices affect collateral---a frequent benchmark used to guide policies---they do not when only future prices affect collateral. Since the microfoundations and quantitative predictions of models with future-price collateral constraints do not appear less plausible than those using current prices, we conclude that additional empirical work is essential for the use of these models in macroprudential policy design.
    JEL: E32 E44 F32 F36 F38 G01
    Date: 2021–09
  14. By: Kim, Mee Jung (Sejong University); Lee, Kyung Min (George Mason University); Earle, John S. (George Mason University)
    Abstract: We estimate the impact of the Community Reinvestment Act (CRA) on small business lending in lower-income neighborhoods. Using 2004-2016 panel data on census tracts, we apply a combined regression discontinuity and fixed effect method. We find that the number of small business loans increases by about 3 to 4 percent and the total dollar amount of small business loans by about 6 to 10 percent in tracts becoming treated by the CRA. The results are robust along many dimensions and suggest that the CRA has a positive impact on access to finance for small businesses in lower income areas.
    Keywords: financial constraints, small business lending, community reinvestment act, lower income neighborhood
    JEL: G28 G21 R58
    Date: 2021–08
  15. By: Nicola Cetorelli; Michael G. Jacobides; Samuel Stern
    Abstract: Does the performance of banks improve or worsen when banks enter into new business activities? And does it matter which activities a bank expands into, or retreats from, and when that decision is made? These important questions have remained unaddressed due to a lack of data. In a recent publication, we used a unique data set detailing the organizational structure of the entire population of U.S. bank holding companies (BHCs). In this post, we draw on that research to show that while scope expansion on average hurts performance, entering into activities that are highly synergistic with core banking at a given point in time yields net performance benefits.
    Keywords: diversification; industry evolution; business scope
    JEL: G2
    Date: 2021–09–01
  16. By: Bastien Lextrait
    Abstract: Small and Medium Size Enterprises (SMEs) are critical actors in the fabric of the economy. Their growth is often limited by the difficulty in obtaining fi nancing. Basel II accords enforced the obligation for banks to estimate the probability of default of their obligors. Currently used models are limited by the simplicity of their architecture and the available data. State of the art machine learning models are not widely used because they are often considered as black boxes that cannot be easily explained or interpreted. We propose a methodology to combine high predictive power and powerful explainability using various Gradient Boosting Decision Trees (GBDT) implementations such as the LightGBM algorithm and SHapley Additive exPlanation (SHAP) values as post-prediction explanation model. SHAP values are among the most recent methods quantifying with consistency the impact of each input feature over the credit score. This model is developed and tested using a nation-wide sample of French companies, with a highly unbalanced positive event ratio. The performances of GBDT models are compared with traditional credit scoring algorithms such as Support Vector Machine (SVM) and Logistic Regression. LightGBM provides the best performances over the test sample, while being fast to train and economically sound. Results obtained from SHAP values analysis are consistent with previous socio-economic studies, in that they can pinpoint known influent economical factors among hundreds of other features. Providing such a level of explainability to complex models may convince regulators to accept their use in automated credit scoring, which could ultimately benefi t both borrowers and lenders.
    Keywords: Credit scoring, SMEs, Machine Learning, Gradient Boosting, Interpretability
    JEL: C53 C63 M21
    Date: 2021
  17. By: Christoph Gortz (University of Birmingham); Danny McGowan (University of Birmingham); Mallory Yeromonahos (University of Westminster)
    Abstract: We study how furlough affects household financial distress during the COVID-19 pandemic. Furlough increases the probability of late housing and bill payments by 30% and 9%, respectively. The effects exist for individuals who rent their home, but not mortgagees who can mitigate financial distress by reducing expenditure during furlough by deferring mortgage payments though the Mortgage Holiday Scheme. Furloughed individuals significantly reduce expenditure and spend their savings to offset furloughinduced income reductions. This creates wealth inequality but lowers the probability a furloughed worker experiences financial distress after returning to work. Estimates show an 80% government contribution to furloughed workers’ wages minimizes the incidence of financial distress at the lowest cost to taxpayers.
    Keywords: Furlough, Short-Time Work, Coronavirus Job Retention Scheme, Covid-19 Pandemic, Financial Distress, Automatic Stabilizers, Inequality
    JEL: D14 D31 E24 G51 H24
    Date: 2021–08
  18. By: Shotaro Watanabe; Gianluca Marcato; Bing Zhu
    Abstract: This paper investigates the relationship between strategic default in the US residential mortgage market and household portfolio composition after the Great Recession in 2007. Following the definition of strategic default proposed by Gerardi et al. (2018), we find that in addition to the well-known ‘Double Triggers’ – negative equity and payment ability – households’ portfolio composition can also affect their strategic default decision. Holding a larger amount of non-housing durable assets increases the probability of strategic default, while owning more liquid assets can reduce it through two channels: portfolio rebalancing and relative cost of default.
    Keywords: Household Finance; Mortgage; Negative Equity; Strategic Default
    JEL: R3
    Date: 2021–01–01
  19. By: Borchert, Lea; de Haas, Ralph; Kirschenmann, Karolin; Schultz, Alison
    Abstract: Correspondent banks allow local banks in emerging markets to access the international payments system. This helps local banks to make cross-border payments, clear currencies, and provide trade finance. The recent retrenchment of global correspondent banks following the increased costs of financial crime compliance may therefore disrupt international trade. This policy brief shows that the withdrawal of correspondent banks from Emerging Europe has negatively and substantially affected the exports of this region. Exploiting an unexpected change in the U.S. regulator's enforcement of financial crime legislation we compare industry-level bilateral trade flows of countries experiencing a high withdrawal with those that maintain their correspondent bank relationships. We find that the decreased availability of international payment and trade finance services has considerable negative effects on exports. This negative effect is stronger for trading partners that are geographically more distant. A survey of 93 local banks confirms that banks face growing difficulties in performing cross-border payments and in clearing currencies. In particular, access to the U.S. financial system is severely inhibited and local banks can only imperfectly substitute lost correspondent bank relationships with new partners from Russia and Austria.
    Date: 2021
  20. By: Belgin Akcay; Mert Akyuz; Çan Karul
    Abstract: Since housing is one of the most expensive commodities in Turkey as in many countries, credit and housing markets are closely linked. However, based on the literature review in this study there is no research on the relationship of credit with house price for Turkey. Thus, the study aims at examining whether there is a causal relationship between mortgage credit and house price in Turkey. For achieving this aim, we apply four causality tests for the period between 2010 and 2020 at monthly frequency: Granger causality tests, Toda-Yamamoto causality tests, Granger causality tests with Fourier approach, and Toda-Yamamoto causality tests with Fourier approach. The findings of the empirical analysis show that there is a strong one-way causality between house prices and mortgage credit and that the direction of the causality is from credit to house prices. The results of all the different causality tests reach to the identical results.
    Keywords: Covid-19 pandemic; House Prices; Mortgage Loan
    JEL: R3
    Date: 2021–01–01
  21. By: Jun Chen; Michael Ewens
    Abstract: Although an extensive literature shows that startups are financially constrained and that constraints vary by geography, the source of these constraints is still relatively unknown. We explore intermediary financing constraints, a channel studied in the banking literature, but only indirectly addressed in the venture capital (VC) literature. Our empirical setting is the VC fundraising and startup financing environment around the passage of the Volcker Rule, which restricted banks’ ability to invest in venture capital funds as limited partners (LPs). The rule change disproportionately impacted regions of the U.S. historically lacking in VC financing. We find that a one standard deviation increase in VCs’ exposure to the loss of banks as LPs led to an 18% decline in fund size and about a 10% decrease in the likelihood of raising a follow-on fund. Startups were not completely cushioned from the additional constraints on their VCs: capital raised fell and pre-money valuations declined. Overall, VC financing constraints manifest as fewer, smaller funds that change investment strategy and experience increases in bargaining power. Last, we show that the rule change increased the likelihood startups move out of impacted states, thus exacerbating the geographic disparity in high-growth entrepreneurship.
    JEL: G21 G23 G24 K22 L26
    Date: 2021–09
  22. By: Laszlo Bokor (Magyar Nemzeti Bank (Central Bank of Hungary))
    Abstract: I propose a simple indicator of climate-related transition risks of banks’ lending activity based on transaction-level loan data. The underlying idea is that the higher the greenhouse gas intensity of an economic activity (and so a debtor), the higher its transition risk. Recent Hungarian trends of this indicator alerts to significantly regrowing risks.
    Keywords: climate change, transition risk, greenhouse gas intensity, lending activity, risk indicator
    JEL: C43 G21 Q54
    Date: 2021
  23. By: Michelle W. Bowman
    Date: 2021–09–09
  24. By: Rob Luginbuhl (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: We propose a model-based method to estimate a unique financial cycle based on a rank-restricted multivariate state-space model. This permits us to use mixed-frequency data, allowing for longer sample periods. In our model the financial cycle dynamics are captured by an unobserved trigonometric cycle component. We identify a single financial cycle from the multiple time series by imposing rank reduction on this cycle component. The rank reduction can be justified based on a principal components argument. The model also includes unobserved components to capture the business cycle, time-varying seasonality, trends, and growth rates in the data. In this way we can control for these effects when estimating the financial cycle. We apply our model to US and Dutch data and conclude that a bivariate model of credit and house prices is sufficient to estimate the financial cycle.
    JEL: E5 F3 G15 G01
    Date: 2020–02
  25. By: Patrick T. Harker
    Abstract: In welcome remarks at the virtual New Perspectives on Consumer Behavior in Credit and Payments Markets Conference, Philadelphia Fed President Patrick Harker highlighted groundbreaking research from the Consumer Finance Institute. The 11th biennial conference allowed researchers to share new research on homeownership, consumer bankruptcy, pandemic housing relief, and consumer protection and regulation, with a special focus on racial inequities.
    Date: 2021–09–09
  26. By: Gee Hee Hong; Matthew Klepacz; Ernesto Pasten; Raphael Schoenle
    Abstract: This paper evaluates the informativeness of eight micro pricing moments for monetary non-neutrality. Frequency of price changes is the only robustly informative moment. The ratio of kurtosis over frequency is significant only because of frequency, and insignificant when non-pricing moments are included. Non-pricing moments are additionally informative about monetary non-neutrality, indicating potential omitted variable bias and the inability of pricing moments to serve as sufficient statistics. In contrast to existing theoretical work, this ratio has an ambiguous relationship with monetary non-neutrality in a quantitative menu cost model. We show which modeling ingredients explain this discrepancy, providing guidance on modeling choices.
    Keywords: Price-setting; menu cost; micro moments; sufficient statistics
    JEL: E13 E31 E32
    Date: 2021–09–02
  27. By: Beckmann, Joscha; Comunale, Mariarosaria
    Abstract: This paper assesses the financial channel of exchange rate fluctuations for emerging countries and the link to the conventional trade channel. We analyze whether the effective exchange rate affects GDP growth, the domestic credit and the global liquidity measure as the credit in foreign currencies, and how global liquidity affects GDP growth. We make use of local projections in order to look at the shocks’ transmission covering 11 emerging market countries for the period 2000Q1–2016Q3. We find that foreign denominated credit plays an important macroeconomic role, operating through various transmission channels. The direction of effects depends on country characteristics and is also related to the policy stance among countries. We find that domestic appreciations increase demand regarding foreign credit, implying positive effects on investment and GDP growth. However, this is valid only in the short-run; in the medium-long run, an increase of credit denominated in foreign currency (for instance, due to apeiation) decreases GDP. The financial channel works mostly in the short run except for Brazil, Malaysia, and Mexico, where the trade channel always dominates. Possibly there is a substitution effect between domestic and foreign credit in the case of shocks in exchange rate.
    JEL: F31 F41 F43 G15
    Date: 2021–08–30
  28. By: Malik, Arsalan Haneef; Rehman, Awais Ur; Khan, Mubashir Ali
    Abstract: Purpose: Covid-19 has impacted all the spheres of human lives and so on the stakeholders’ demands. This paper is aimed to discuss various strategies the banking industry may be asked to perform for coping against the Covid-19. This paper also analyzed the volume of real in-time disclosures created by the banking industry. These disclosures were also differentiated between public and private banks and between lowly and highly disclosing banks as well. Design/methodology/approach: Different strategies were used theoretically under the triple bottom line of sustainability. For empirical analysis, the data was taken from Malaysian listed and non-listed banks. Group differences and correlation analyses were performed. Findings: Banks with bigger size, more profitability, and previous engagements in CSR were more active in disclosing their strategies for Covid-19. Banks were doing least for their disclosures on environmental strategies on Covid-19. Overall, the disclosures about Covid-19 can be taken as a nexus of CSR disclosures of the banks since they have similar correlating variables and have significant correlations. Moreover, the findings were robust against alternative measures of CSR. Originality: This research is the first in time to discuss disclosures about Covid-19 generated by the banking industry. Research limitations/implications: The study was limited from the banking industry of Malaysia and had not been able to run regression analysis due to a limited number of observations. Practical implications: Various aspects of strategies under economic, social and environmental concerns had been discussed. Pertinent examples from different countries around the globe had also been given. These strategies can help practitioners in formulating their Covid-19 strategies to satisfy the stakeholders’ demands.
    Keywords: Bank size, Covid-19 disclosures, CSR, economic disclosures, environmental disclosures, social disclosures
    JEL: Q50
    Date: 2020–07–16
  29. By: Noam, Eli
    Abstract: Cryptocurrencies provide an important dimension of innovation to the evolution of the exchange medium we call money. There are now over 4,000 such currencies, and their potential and volume is growing. The impact of such currencies for money laundering, law enforcement, and banking supervision have been extensively discussed on the transaction level. But this is the "micro" level of analysis. What has been rare is a "macro" level discussion of the impact on the monetary system of a country. Central banks, which are institutions tasked with providing monetary stability, will see their problems rise while the power of their traditional tools to control money supply and interest rates - such as reserve requirements and the discount rates - is declining. But the new digital technologies - such as distributed ledgers - and new approaches provide regulatory bodies also with new and potentially powerful tools. The task for central banks and policy makers is to create new approaches to use, regulate, and incent them in shaping the macro-economic path of their economy. The paper will propose several of these approaches. This is of particular importance in an economic recovery post coronavirus. In the process, central banks will also, predictably, issue their own digital currencies, and a tiny number of those will become global super-currencies. This will create a new type of issues.
    Date: 2021
  30. By: Marco Felici; Franz Fuerst
    Abstract: The special, dual nature of property as both a consumption and an investment good makes it salient for portfolio choice. In fact, the theoretical literature predicts a constraint imposed by property on investment and the empirical literature has brought evidence that this constraint, in some form, exists, but neglecting to investigate its heterogeneity and to differentiate between owner-occupied and investment property. With reference to the predictions from a stochastic control model, we turn to the Wealth and Assets Survey panel for the UK, which allows to break down in detail households' portfolios, to show empirically how the relationship between property and stockholdings depends on the value of property relative to the size of the entire portfolio. While on average, an increase in the share of property in the total portfolio is estimated to correspond to a slight decrease or to no change in the share of stocks in liquid assets, this nexus potentially goes from positive to negative depending on the weight of property in the portfolio. Consistent with the prediction that only consumption-relevant property places a constraint on portfolio choice, the relationship can be identified robustly for owner-occupied property only.
    Keywords: Household Finance; Portfolio choice; Property
    JEL: R3
    Date: 2021–01–01
  31. By: Graf, Erika
    Abstract: Um ihren Fokus auf Nachhaltigkeit zu unterstreichen bieten vereinzelte Banken in Deutschland und der Schweiz ihrer Kundschaft seit kurzem Kreditkarten aus Holz. Wie nehmen die Kunden diese Karten in Bezug auf die Nachhaltigkeit der Karte und der Bank wahr? Auf Basis der Hinweis-Konsistenz-Theorie wird die Fragestellung mittels einer Befragung von 85 Studierenden untersucht. Mittels Faktorenanalyse werden die Aussagen zur Nachhaltigkeitseinstellung und zur Erwartung an die Bank verdichtet. Die Regressions-Analysen zeigen, dass Holz-Kreditkarten überwiegend positiv bewertet werden und zwar umso stärker je positiver die Einstellung zur Nachhaltigkeit ist. Die Analyse bestätigt ebenfalls: eine positive Bewertung der Holz-Kreditkarten führt zu einer höheren Erwartung in Bezug auf nachhaltiges Management der Bank. Banken, die Holz-Kreditkarten anbieten müssen diese erhöhten Erwartungen erfüllen können. Andernfalls laufen sie Gefahr mit dem Vorwurf des Greenwashings konfrontiert zu werden, denn einen wesentlichen Beitrag zur Müllvermeidung stellen Kreditkarten nicht dar.
    Date: 2021
  32. By: Patricia Crifo (X-DEP-ECO - Département d'Économie de l'École Polytechnique - X - École polytechnique); Yann Kervinio (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); Emile Quinet (ENPC - École des Ponts ParisTech)
    Abstract: The ecological emergency calls for a marked reorientation of public and private investments away from harmful activities towards more environmentally-friendly ones. Green finance can contribute to this, provided that it uses tools that adequately account for environmental impacts in the evaluation of investments. In this article, we discuss how socioeconomic calculus, currently used for the evaluation of investment projects by the State and its operators in France, can be useful for private actors willing to integrate the environmental impacts of their investments to a degree consistent with the collective ambition in this area. We highlight the interest of designing specific and measurable environmental targets, which legitimize and operationalize our collective ambition in the face of today's environmental challenges.
    Abstract: L'urgence écologique appelle à une réorientation marquée des investissements publics et privés des activités défavorables vers des activités plus favorables à l'environnement. La finance verte peut y contribuer, pourvu qu'elle se dote d'outils susceptibles d'intégrer dans une juste mesure les impacts environnementaux dans l'évaluation des investissements. Dans cet article, nous discutons comment le calcul socioéconomique, actuellement employé pour l'évaluation des projets d'investissement de l'État et ses opérateurs, peut constituer un outil utile aux acteurs privés désireux d'intégrer les impacts environnementaux de leurs investissements dans une mesure cohérente avec l'ambition collective en la matière. Nous y mettons en évidence l'intérêt de disposer d'objectifs environnementaux spécifiques et mesurables, qui légitiment et traduisent de manière opérationnelle notre ambition collective face aux défis écologiques actuels.
    Date: 2021–07–01
  33. By: de Gendre, Alexandra (University of Sydney); Kabátek, Jan (University of Melbourne)
    Abstract: We analyse the effects of a national student finance reform in the Netherlands, which replaced universal subsidies for higher education students by low-interest loans. We show that this reform had a large impact on education choices of secondary school students, lowering their enrolments in college-preparing tracks and increasing the share of students specializing in STEM subjects. The reform also affected the living arrangements of new college entrants. Our findings highlight that secondary school students respond to the modes of higher education financing well ahead of their graduation, and that financial aid uncertainty alone can deter many from pursuing higher education.
    Keywords: Netherlands, higher education, student finance, financial aid, policy uncertainty
    JEL: I23 I24
    Date: 2021–08
  34. By: Sai Ding; Minjoo Kim; Xiao Zhang
    Abstract: The investment-cash flow sensitivity (ICFS) of Chinese listed firms declined during the global financial crisis, which contradicts the conventional financial constraint interpretation of ICFS. We analyze this interesting phenomenon by examining how cash flow uncertainty affects the ways to finance investment in China. We find that ICFS reveals not only the information between investment and cash flow but also the relationship between internal funds and external financing. When internal funds and external financing are complements, cash flow uncertainty decreases ICFS much more than when internal funds and external financing are substitutes. Our results remain robust when we consider the problem of endogeneity and use alternative measures of key variables. Our story is also supported by the sample of US firms, indicating that our new interpretation of ICFS based on cash flow uncertainty and the relationship between internal funds and external financing can apply to the general literature of corporate finance.
    Keywords: cash flow uncertainty, financial constraint, debt, cash flow, investment, China
    JEL: E22 G31 O16
    Date: 2021–09
  35. By: Chengcheng Jia; Jing Cynthia Wu
    Abstract: We study the implications of the Fed's new policy framework of average inflation targeting (AIT) and its ambiguous communication. We show that AIT improves the trade-off between inflation and real activity by tilting the Phillips curve in a favorable way. To fully utilize this feature and maximize social welfare, the central bank has the incentive to deviate from AIT and implement inflation targeting ex post. Next, we rationalize the central bank's ambiguous communication about the horizon over which it averages inflation. Ambiguous communication, together with uncertainty about economic fundamentals, helps the central bank to gain credibility and improve welfare in the long run, in spite of the time-inconsistent nature of AIT.
    Keywords: average inflation targeting; time inconsistency; ambiguous communication
    JEL: E31 E52 E58
    Date: 2021–09–09

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.