nep-ban New Economics Papers
on Banking
Issue of 2021‒10‒18
35 papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Macroprudential Policy and the Sovereign-Bank Nexus in the Euro Area By Nikolay Hristov; Oliver Hülsewig; Benedikt Kolb
  2. Exploring the conjunction between the structures of deposit and credit markets in the digital economy under information asymmetry By Elena Deryugina; Alexey Ponomarenko; Andrey Sinyakov
  3. Banks’ consumer lending reaction to fintech and bigtech credit emergence in the context of soft versus hard credit information processing By Kowalewski; Pawel Pisany
  4. Low Interest Rates and Banks' Interest Margins: Does Belonging to a Banking Group Matter? By Isabel Argimon; Jayson M. Danton; Jakob de Haan; Javier Rodriguez-Martin; Maria Rodriguez-Moreno
  5. Neither True-friend nor Fairweather friend: Relationship Banking and SME borrowing under Covid-19 By Zhao, Tianshu; Matthews, Kent; Munday, Max
  6. Small firms and domestic bank dependence in Europe’s Great Recession By Mathias Hoffmann; Egor Maslov; Bent E. Sørensen
  7. Relationship lending, Trust, and SME bank financing in the UK By Degryse, Hans; Matthews, Kent; Zhao, Tianshu
  8. Anti-Money Laundering Enforcement, Banks, and the Real Economy By Senay Agca; Pablo Slutzky; Stefan Zeume
  9. Determinants of Price Discrimination and Switching Mortgage Provider in Times of Regulation and Digitalization By Steven Ongena; Florentina Paraschiv; Endre J Reite
  10. Overview of central banks’ in-house credit assessment systems in the euro area By Auria, Laura; Bingmer, Markus; Graciano, Carlos Mateo Caicedo; Charavel, Clémence; Gavilá, Sergio; Iannamorelli, Alessandra; Levy, Aviram; Maldonado, Alfredo; Resch, Florian; Rossi, Anna Maria; Sauer, Stephan
  11. Foreign Bank Assets and Presence on Banking Stability in Africa: Does Strong and Weak Corporate Governance Systems under different Regulatory Regimes Matter? By Kusi, Baah; Agbloyor, Elikplimi; Asongu, Simplice; Abor, Joshua
  12. Banks’ interest rate setting and transitions between liquidity surplus and deficit By Tatiana Grishina; Alexey Ponomarenko
  13. Precautionary Liquidity Shocks, Excess Reserves and Business Cycles By Bratsiotis, George J.; Theodoridis, Konstantinos
  14. Market finance as a spare tyre? Corporate investment and access to bank credit in Europe By Andersson, Malin; Maurin, Laurent; Rusinova, Desislava
  15. Investment funds, risk-taking, and monetary policy in the euro area By Giuzio, Margherita; Kaufmann, Christoph; Ryan, Ellen; Cappiello, Lorenzo
  16. Learning from trees: A mixed approach to building early warning systems for systemic banking crises By Carmine Gabriele
  17. Designing Macro-Financial Scenarios: The New CNB Framework and Satellite Models for Property Prices and Credit By Miroslav Plasil
  18. Borrower Expectations and Mortgage Performance: Evidence from the COVID-19 Pandemic By William D. Larson; Christos Makridis; Chad Redmer
  19. Unconventional monetary policy, funding expectations, and firm decisions By Ferrando, Annalisa; Popov, Alexander; Udell, Gregory F.
  20. Sovereign bond market spillovers from crisis-time developments in Greece By Daragh Clancy; Carmine Gabriele; Diana Zigraiova
  21. Central bank digital currency in Nigeria: opportunities and risks By Ozili, Peterson K
  22. RFAs’ Financial Structures and Lending Capacities: a statutory, accounting and credit rating perspective By Gong Cheng; Rudolf Alvise Lennkh
  23. Law, mobile money drivers and mobile money innovations in developing countries By Asongu, Simplice; Agyemang-Mintah, Peter; Nting, Rexon
  24. Is financial development shaping or shaking economic sophistication in African countries? By Njangang, Henri; Asongu, Simplice; Tadadjeu, Sosson; Nounamo, Yann
  25. Liquidity and tail-risk interdependencies in the euro area sovereign bond market By Daragh Clancy; Peter G. Dunne; Pasquale Filiani
  26. Discovering new plausibility checks for supervisory data By Romano, Stefania; Martinez-Heras, Jose; Raponi, Francesco Natalini; Guidi, Gregorio; Gottron, Thomas
  27. Effects of political institutions on the external debt-economic growth nexus in Africa By Nounamo, Yann; Asongu, Simplice; Njangang, Henri; Tadadjeu, Sosson
  28. Financial Inclusion and Gender Inequality in sub-Saharan Africa By Tendai Zawaira; Matthew Clance; Carolyn Chisadza; Rangan Gupta
  29. China’s Transition to a Digital Currency: Does It Threaten Dollarization? By Aysan, Ahmet Faruk; Kayani, Farrukh Nawaz
  30. A proposal to use two interest rates in the U.S.; the FED Funds Rate and the Economic Recovery Rate By De Koning, Kees
  31. A Brief Comparison of Most Prominent Crowdfunding Platforms in Turkey and USA By Uzuntepe, Beren
  32. Digital finance, green finance and social finance: is there a link? By Ozili, Peterson K
  33. The Co-Movement between Foreign Reserves, Economic Growth and Money Supply: Evidence from the WAMZ Countries By Joof, Foday
  34. The future of the Central Bank and its autonomy in the Chilean Constitutional Convention By Castro Azócar, Felipe
  35. Sustainability, Trust and Blockchain Applications: Best Practices and Fintech Prospects By Aysan, Ahmet Faruk; Bergigui, Fouad

  1. By: Nikolay Hristov; Oliver Hülsewig; Benedikt Kolb
    Abstract: We explore how changes in capital-based macroprudential regulation in the euro area affect the exposure of national banking sectors to domestic government debt, thus strengthening or weakening the sovereign-bank nexus. To do so, we construct a measure of macroprudential policy based on the Macroprudential Policy Evaluation Database (MaPPED) and estimate responses to the unsystematic component of macroprudential policy in panel vector autoregressive models for euro area ”core” and ”periphery” countries. Our main finding suggests that an unsystematic capital-based macroprudential policy tightening increases banks’ exposure to domestic sovereign bonds in the periphery countries and thus deepens the sovereign-bank nexus. By contrast, banks in the core countries expand their loan portfolios, rather than adjusting their domestic sovereign bond holdings, in response to the shock. We show that this result can be tied to the theoretical literature and investigate several transmission channels. Our results are highly robust to changes in the econometric set-up and the macroprudential indicator used.
    Keywords: macroprudential policy, euro area, sovereign-bank nexus, panel vector autoregressive model
    JEL: C33 G21 G28 H63
    Date: 2021
  2. By: Elena Deryugina (Bank of Russia, Russian Federation); Alexey Ponomarenko (Bank of Russia, Russian Federation); Andrey Sinyakov (Bank of Russia, Russian Federation)
    Abstract: In the digital economy, customer data becomes particularly valuable. Customer transactions monitored by banks, payment systems, and retail platforms are a useful source of information to assess potential borrowers’ credit risk. Thus, a dominant player at a payment or deposit market, behaving strategically, may influence the characteristics of the lending market. In this article, we show, within the game-theoretic framework, that such dominance can affect the market structure, loan pricing, financial inclusion, and credit risk accumulated on banks’ balance sheets. Our results show that specifics of the digital economy set a new link between structures of deposit and credit markets. Information asymmetries allow the dominant player to increase its profits at the expense of the profits gained by other players. At the same time, the accessibility of loans to more risky borrowers reduces while credit risks of banks’ loan portfolios decline.
    Keywords: retail payments, banking, market structure, asymmetric information, customer data
    JEL: D43 D82 G21
    Date: 2021–09
  3. By: Kowalewski (IESEG School of Management, UMR 9221 - LEM - Lille Economie Management, Lille, France Univ. Lille, UMR 9221 - LEM - Lille Economie Management, Lille, France CNRS, UMR 9221 - LEM - Lille Economie Management, Lille, France Institute of Economics, Polish Academy of Sciences, Warsaw, Poland); Pawel Pisany (Institute of Economics, Polish Academy of Sciences, Warsaw, Poland)
    Abstract: We analyze competition in the consumer lending segment between banks and financial technology (or “fintech”) companies (or “fintechs”) as well as giant technology (or “bigtech”) companies (or “bigtechs”) providing alternative credit. We use a database combining bank-level characteristics and country-level proxies for 72 countries during 2013–2018. We find that in developed markets, the relations between fintech/bigtech credit providers and banks are similar and competitive in nature. However, banks’ consumer lending grows simultaneously with fintech credit market development in emerging economies but decreases in the aftermath of bigtech credit emergence. Fintech credit seems to penetrate market segments not serviced by banks; thus, it plays a complementary role, but only in emerging economies. Bigtechs compete even more with banks and push some banking offers out of the market, both in emerging and developed economies. Furthermore, we show that domestic and privately owned banks are more negatively affected by competition from technology-based lending, particularly bigtech, compared to foreign banks. Thus, bigtech lending may be treated as a serious competition for banks’ relationship lending, based on soft credit information processing, provisioned traditionally by local banks.
    Keywords: alternative credit, fintech, bigtech, financial inclusion, local banks, competition, relationship lending, soft credit information
    JEL: G21 G23 O33
    Date: 2021–10
  4. By: Isabel Argimon; Jayson M. Danton; Jakob de Haan; Javier Rodriguez-Martin; Maria Rodriguez-Moreno
    Abstract: Using data for a large sample of banks from 31 OECD countries over 1995–2018, we analyze the impact of belonging to a banking group on banks’ net interest margins. Our results confirm a positive relationship between interest rates and interest margins, which is stronger in a low-interest rate environment. For banks belonging to an international banking group, we find that interest margins are less sensitive to the local interest rate. Our results show that banks belonging to an international group are sensitive to the interest rate prevailing in the group’s headquarter, but only in a low interest rate environment.
    Keywords: bank profitability, monetary policy transmission, net interest margin, low interest rates, banking groups
    JEL: E43 E52 G21
    Date: 2021
  5. By: Zhao, Tianshu; Matthews, Kent (Cardiff Business School); Munday, Max
    Abstract: A growing literature addresses the costs and benefits associated with relationship banking, particularly for smaller firms, but with much of this work focused on normal trading conditions. Covid-19 provides an ideal testbed to explore the resilience of relationship banking. We examine whether the presence of closer pre-Covid ties between SMEs and their banks helps in accessing funds in the Covid-19 pandemic period. Then are ties between relationship bankers and SME borrowers a case of ‘true love’ or rather are the parties more akin to ‘fair-weather friends’? Data from the UK SME Finance Monitor from 2018Q2-2020Q3 is used to examine this question. Our analysis suggests that relationship banking was important for the acquisition of bank credit pre-Covid-19 but was of limited influence in post-Covid-19 lending behaviour. Banks treated SMEs that had a good relationship with them in the same way as those that did not and with public interventions to support lenders material in this.
    Keywords: Covid-19, Relationship Banking, SMEs
    JEL: G21 G28 G40
    Date: 2021–10
  6. By: Mathias Hoffmann; Egor Maslov; Bent E. Sørensen
    Abstract: After the inception of the euro, the real economy in most member countries remained dependent on credit by domestic banks, which increasingly funded themselves through cross-border interbank funding. We find that this pattern of ‘double-decker’ banking integration exposed domestic banks to sharp declines in cross-border interbank lending during the eurozone crisis. As a result, domestic banks reduced lending which led to large declines in output in sectors with many small (bank-dependent) firms. We propose a quantitative small open economy model to account for these patterns and conclude that a global banking shock leading to a sudden stop in cross-border interbank lending in the eurozone is required to account for them.
    Keywords: Small and medium enterprises, sme access to finance, banking integration, domestic bank dependence, interbank dependence, international transmission, eurozone crisis
    JEL: F30 F36 F40 F45
    Date: 2021–10
  7. By: Degryse, Hans; Matthews, Kent (Cardiff Business School); Zhao, Tianshu
    Abstract: It is well recognized that relationship banking helps to relieve the credit constraints faced by SMEs to access bank finance. Trust is an important part of relationship banking. However, the term trust is nebulous, and relationship banking means different things to different banks and different borrowers. How trust enables the credit market for SMEs through relationship banking is largely unexplored. Using a unique primary dataset of SMEsin the UK, we construct a measure of trust-based relationship banking from the perspective of the borrower. We examine the drivers of trust-based relationship banking in terms of organizational trust in the relationship manager, defined as the delegation of operational autonomy, along with local market and social capital factors, and the style of the bank-borrower relationship. Along with bank, firm, and market factors, trust-based relationship banking helped to reduce the credit constraints faced by SMEs in the decade following the global financial crisis.
    Keywords: Trust, Relationship Banking, SME Financing, Bank Organization
    JEL: G21 G29 L14
    Date: 2021–10
  8. By: Senay Agca (George Washington University); Pablo Slutzky (University of Maryland); Stefan Zeume (University of Illinois at Urbana Champaign)
    Abstract: We exploit a tightening of anti-money laundering (AML) enforcement that imposed disproportionate costs on small banks to examine the effects of a change in bank composition on real economic outcomes. In response to intensified enforcement, counties prone to high levels of money laundering experience a departure of small banks and increased activity by large banks. This results in an increase in the number of small establishments and real estate prices. Consistent with a household demand channel, wages and employment increase in the non-tradable sector. Last, we document secured lending as a potential driver of this outcome.
    Keywords: Money laundering, Financial Institutions, Real economy, Deposits and lending, Financial crime
    JEL: G21 G28
    Date: 2021
  9. By: Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)); Florentina Paraschiv (Zeppelin University, Chair of Finance; Norwegian University of Science and Technology, Faculty of Economics and Management, NTNU Business School; University of St. Gallen, Institute for Operations Research and Computational Finance); Endre J Reite (NTNU Department of International Business)
    Abstract: In this paper, we analyse the price discrimination and household switching in the residential mortgage market. Accessing a unique proprietary micro-data set from Norway, we examine the difference between the loan rate paid by current clients when receiving a competing offer from another bank and the best rate simultaneously being offered to new customers by the current bank. The results show that current clients pay around 20 basis points more than new customers are offered; however, this rate differential is kept in check by client switching. New regulations and digitalization that enhance transparency could reduce the rate differential, but the introduction of new banking products as well as the change in timing of the rate differentiation - from immediate upfront to gradually over time - may be used to preserve it.
    Keywords: Mortgage lending, Financial regulation, Consumer protection, digitalization, Price discrimination
    JEL: D12 D14 G21 C41
    Date: 2021–09
  10. By: Auria, Laura; Bingmer, Markus; Graciano, Carlos Mateo Caicedo; Charavel, Clémence; Gavilá, Sergio; Iannamorelli, Alessandra; Levy, Aviram; Maldonado, Alfredo; Resch, Florian; Rossi, Anna Maria; Sauer, Stephan
    Abstract: The in-house credit assessment systems (ICASs) developed by euro area national central banks (NCBs) are an important source of credit risk assessment within the Eurosystem collateral framework. They allow counterparties to mobilise as collateral the loans (credit claims) granted to non-financial corporations (NFCs). In this way, ICASs increase the usability of non-marketable credit claims that are normally not accepted as collateral in private market repo transactions, especially for small and medium-sized banks that lend primarily to small and medium-sized enterprises (SMEs). This ultimately leads not only to a widened collateral base and an improved transmission mechanism of monetary policy, but also to a lower reliance on external sources of credit risk assessment such as rating agencies. The importance of ICASs is exemplified by the collateral easing measures adopted in April 2020 in response to the coronavirus (COVID-19) crisis. The measures supported the greater use of credit claim collateral and, indirectly, increased the prevalence of ICASs as a source of collateral assessment. This paper analyses in detail the role of ICASs in the context of the Eurosystem’s credit operations, describing the relevant Eurosystem guidelines and requirements in terms of, among other factors, the estimation of default probabilities, the role of statistical models versus expert analysis, input data, validation analysis and performance monitoring. It then presents the main features of each of the ICASs currently accepted by the Eurosystem as credit assessment systems, highlighting similarities and differences. JEL Classification: E58
    Keywords: credit assessments, credit claims, credit risk models, ICAS, ratings
    Date: 2021–10
  11. By: Kusi, Baah; Agbloyor, Elikplimi; Asongu, Simplice; Abor, Joshua
    Abstract: This study examines the effect of foreign bank assets and presence on banking stability in the economies with strong and weak country-level corporate governance in Africa between 2006 and 2015. Employing a Prais-Winsten panel data model on 86 banks in about 30 African economies, the findings on how foreign bank assets and presence influence banking stability in strong and weak corporate governance economies under different regulatory regimes are reported for the first time in Africa. The initial findings show that foreign bank presence and assets promote banking stability. However, the positive effect of foreign bank assets and presence is enhanced in economies with strong country-level corporate governance, while the positive effect of foreign bank assets and presence is weakened in economies with weak country-level corporate governance. After introducing different regulatory variables (regimes), it is observed that the enhancing effect of foreign bank presence and assets on banking stability in the full sample and economies with strong and weak country level corporate governance systems is deepened or improved under loan loss provision regulation regime. However, under the private and public sector-led financial transparency regulations, the reducing effect of foreign bank presence and assets on banking stability in economies with weak corporate governance systems is further dampened. These findings show that the relationship between foreign bank presence and assets is deeply shaped by corporate governance systems and regulatory regimes in Africa. Hence, policymakers must build strong corporate governance and sound regulatory regimes to enhance how foreign bank operations promote banking stability.
    Keywords: Stability; Foreign banks; Regulation, Corporate governance; Africa
    JEL: G0 G20 G30
    Date: 2021–01
  12. By: Tatiana Grishina (Bank of Russia, Russian Federation); Alexey Ponomarenko (Bank of Russia, Russian Federation)
    Abstract: Assuming that a central bank is successful in steering money market interest rates, commercial banks’ loan rate setting behaviour is not expected to change during a transition between liquidity surplus and deficit. However, this logic does not hold if a bank employs different money market instruments for the lending and borrowing activities. In this environment, it may be appropriate to adjust the loan rates when a bank transitions between liquidity surplus and deficit (i.e. switches between the benchmark money market rates). This strategy is fundamentally different from linking the loan rates to the average cost of funding (i.e. the average between retail and wholesale funding rates). The magnitude of such loan rate adjustment is limited by the (usually moderate) spread between the funding and investment money market rates.
    Keywords: Excess reserves, Lending rates, Fund transfer pricing, Russia
    JEL: E43 E51 E58 G21 C63
    Date: 2021–10
  13. By: Bratsiotis, George J.; Theodoridis, Konstantinos
    Abstract: This paper identifies a precautionary banking liquidity shock via a set of sign, zero and forecast variance restrictions imposed. The shock proxies the banking sector's reluctance to lend to the real economy induced by an exogenous preference change for liquid assets. Through the lens of a DSGE model, the precautionary liquidity shock is shown to work through two channels: reserves (balance sheet) and the deposit rate (intertemporal effect). The overall effect is a downward co-movement in output, consumption, investment, and prices, which is amplified the higher are the long-run risks in the economy and banks' responsiveness to potential risk.
    Keywords: SVAR,Sign and Zero Restrictions,DSGE,Precautionary Liquidity Shock,Excess Reserves,Deposit Rate,Risk,Financial Intermediation
    JEL: C10 C32 E30 E43 E51 G21
    Date: 2021
  14. By: Andersson, Malin; Maurin, Laurent; Rusinova, Desislava
    Abstract: We estimate a FAVAR with Bayesian techniques in order to investigate the impact of loan supply conditions on euro area corporate investment and its financing structure. We identify shocks to overall demand and loan supply with sign and impact restrictions. Although tightened financial conditions have adversely impacted corporate investment during and after the sovereign debt crisis, the resulting impediments in loan supply, illustrated by lower loan volumes and higher spreads, have been partly alleviated by strengthened corporate debt issuance. We show that (1) part of the protracted increase in debt to loan ratio since the crisis reflects bottlenecks in the provision of bank credit and (2) the tightened loan supply has been more adverse for small corporations with limited market access. Overall, our analysis of macro-financial developments suggests the need for policy actions to deepen the European corporate debt market and enhance market access for smaller corporates. JEL Classification: E22, E66, G21
    Keywords: corporate debt issuance, FAVAR model, financing structure, size spread, small and medium size corporates
    Date: 2021–10
  15. By: Giuzio, Margherita; Kaufmann, Christoph; Ryan, Ellen; Cappiello, Lorenzo
    Abstract: We examine the transmission of monetary policy via the euro area investment fund sector using a BVAR framework. We find that expansionary shocks are associated with net inflows and that these are strongest for riskier fund types, reflecting search for yield among euro area investors. Search for yield behaviour by fund managers is also evident, as they shift away from low yielding cash assets following an expansionary shock. While higher risk-taking is an intended consequence of expansionary monetary policy, this dynamic may give rise to a build-up in liquidity risk over time, leaving the fund sector less resilient to large outflows in the face of a crisis. JEL Classification: E32, G11, G23
    Keywords: liquidity management, monetary policy, non-bank financial intermediation
    Date: 2021–10
  16. By: Carmine Gabriele (ESM)
    Abstract: Banking crises can be extremely costly. The early detection of vulnerabilities can help prevent or mitigate those costs. We develop an early warning model of systemic banking crises that combines regression tree technology with a statistical algorithm (CRAGGING) to improve its accuracy and overcome the drawbacks of previously used models. Our model has a large set of desirable features. It provides endogenously-determined critical thresholds for a set of useful indicators, presented in the intuitive form of a decision tree structure. Our framework takes into account the conditional relations between various indicators when setting early warning thresholds. This facilitates the production of accurate early warning signals as compared to the signals from a logit model and from a standard regression tree. Our model also suggests that high credit aggregates, both in terms of volume and as compared to a long-term trend, as well as low market risk perception, are amongst the most important indicators for predicting the build-up of vulnerabilities in the banking sector.
    Keywords: Early warning system, banking crises, regression tree, ensemble methods
    JEL: C40 G01 G21 E44 F37
    Date: 2019–10–30
  17. By: Miroslav Plasil
    Abstract: The paper sets out to present the Czech National Bank's new methodological framework for satellite models, i.e. models that link the macroeconomic scenario obtained from the core forecasting model with the evolution of key financial variables. Consistent macro-financial scenarios are particularly needed in macroprudential stress-testing. The paper describes the main underlying concepts of the new framework and provides further technical details on four newly deployed models for residential property prices and for bank loans in the main credit segments (housing loans, consumer loans and loans to non-financial corporations). The key advantage of the new approach is a shift to better-structured and more closely interrelated models. This should help maintain the internal consistency of the macro-financial scenario, facilitate communication of the assumptions behind the projections of financial variables and provide a high degree of robustness to structural changes in the economy.
    Keywords: Gaussian process regression, macroprudential policy, satellite models, stress testing
    JEL: C51 C53 E37 E51
    Date: 2021–09
  18. By: William D. Larson (Federal Housing Finance Agency); Christos Makridis (Stanford University); Chad Redmer (United States Naval Academy - Economics Department)
    Abstract: We assess issues related to borrower beliefs and mortgage performance using new individual panel data that simultaneously cover borrower expectations, forbearance status during the COVID-19 pandemic, and a wide array of demographic characteristics. First, we establish the determinants of borrower expectations, with local experiences and those of social networks playing important roles. We then show that households who, at origination, were optimistic about future house price appreciation or pessimistic about the possibility of future unemployment were more likely to enter forbearance in 2020. However, by early-2021, appreciation-optimistic borrowers who were in forbearance were likely to have cured or prepaid their loan, while those who expected unemployment were likely to still be in forbearance. We offer three channels by which expectations affect forbearance behavior: choices of initial loan terms, associations with actual future events, and factors related to belief formation that are also plausibly associated with forbearance. Our findings highlight the crucial role borrower expectations play in both leverage choices and mortgage performance.
    Keywords: Behavioral Economics, Employment, Forbearance, Expectations
    JEL: E21 E32 G41 G51 R31
    Date: 2021–10
  19. By: Ferrando, Annalisa; Popov, Alexander; Udell, Gregory F.
    Abstract: We study the transmission of (unconventional) monetary policy to the real sector when firm decisions depend on both current and future credit market conditions. For a given level of current credit access, investment and employment increases more at firms expecting bank credit to improve in the future. Three separate unconventional policies by the ECB—the OMT, the introduction of negative rates, and the CSPP—improved expectations of future credit access for SMEs borrowing from banks that were expected to increase SME lending due to the policy. Our results enhance our understanding of the bank balance sheet channel of monetary policy. JEL Classification: D22, D84, E58, G21, H63
    Keywords: corporate investment, funding expectations, Unconventional monetary policy
    Date: 2021–10
  20. By: Daragh Clancy (ESM); Carmine Gabriele (ESM); Diana Zigraiova (ESM)
    Abstract: The systemic importance of a country is a crucial component in the European Stability Mechanism's assessment of financial assistance requests. However, disentangling the effect of developments in one country on other countries in real time is fraught with difficulties. Using empirical methods that provide ex-ante measures of risk exposure, we find that changes in the tail risks of Greek sovereign bond returns resulted in immediate and significant cross-market spillovers to other euro area sovereign bond returns. Our approach provides real-time insights on evolving cross-market interdependencies, such as Germany gradually becoming a safe haven from Greece. We confirm that developments in Greece drive our tail-risk results by linking them to a newly developed intra-day event database. This approach also allows us to provide a more intuitive quantification of the spillovers emanating from Greece. Taken together, our findings demonstrate that developments in Greece significantly affected other euro area sovereign bond markets over and beyond global, euro area and country-specific factors. Our results provide evidence for the systemic importance of Greece throughout the European sovereign debt crisis.
    Keywords: crisis, events, narrative, sovereign bonds, spillovers, tail risks
    JEL: C22 G01 G15 F36
    Date: 2020–06–11
  21. By: Ozili, Peterson K
    Abstract: This paper discussed the opportunities and risks of central bank digital currency (CBDC) in Nigeria, also known as the eNaira or e-Naira. The opportunities which CBDC present to Nigeria include, improved monetary policy transmission, efficient payments and increased financial inclusion. Some of the identified risks include rising digital illiteracy, increased propensity for cyber-attacks, data theft, and the uncertain role of banks in a full-fledged CBDC economy. This article contributes to the literature by evaluating the pros and cons of fiat digital currency such as a central bank digital currency.
    Keywords: central bank digital currency, eNaira, blockchain, cryptocurrency, central bank, CBDC, bitcoin, payment system, fiat digital currency, distributed ledger, Nigeria.
    JEL: E51 E52 E58 E59 G18 G21
    Date: 2021–10–02
  22. By: Gong Cheng (ESM); Rudolf Alvise Lennkh (Scope Ratings)
    Abstract: This paper documents the diverse financial structures – including capital structures and funding strategies – of Regional Financing Arrangements (RFAs) and offers an analysis of RFAs’ lending capacity from a statutory, accounting and credit rating perspective. Using credit rating agencies’ methodologies, the paper presents the dynamic relationship between RFAs’ financial structures, the support from their member states and their resulting creditworthiness. A stylised model is developed to demonstrate how the relative size of an institution’s paid-in and callable capital, together with its member states’ support, could have an impact on the overall credit rating and lending capacity of an RFA. This paper contributes to the growing policy discussions on the heterogeneity of RFAs and their rising importance in the Global Financial Safety Net.
    Keywords: Regional Financing Arrangements, IMF, Credit rating, Capital, Lending capacity, Global Financial Safety Net
    JEL: F33 F34 F53 F55 G24
    Date: 2020–05–28
  23. By: Asongu, Simplice; Agyemang-Mintah, Peter; Nting, Rexon
    Abstract: This study investigates how the rule of law (i.e. law) modulates demand- and supply-side drivers of mobile money to influence mobile money innovations (i.e. mobile money accounts, the mobile phone used to send money and the mobile phone used to receive money) in developing countries. The following findings from Tobit regressions are established. First, from the demand-side linkages, law modulates: (i) bank accounts and automated teller machine (ATM) penetration for negative interactive relationships with mobile money innovations and (ii) bank sector concentration for a positive interactive relationship with mobile money accounts. Second, from supply-side linkages, law interacts with: (i) mobile subscriptions for a negative relationship with the mobile phone used to send money; (ii) mobile connectivity coverage for a negative nexus on the mobile phone used to receive money and (iii) mobile connectivity performance for a negative influence on the mobile phone used to send/receive money. Policy implications are discussed in the light of enhancing the rule of law as well as improving mobile phone subscription, connectivity and performance dynamics.
    Keywords: Mobile money; technology diffusion; financial inclusion; inclusive innovation
    JEL: D10 D14 D31 D60 O30
    Date: 2021–01
  24. By: Njangang, Henri; Asongu, Simplice; Tadadjeu, Sosson; Nounamo, Yann
    Abstract: This paper aims to investigate the effect of financial development on economic complexity using a panel dataset of 24 African countries over the period 1983-2017. The empirical evidence is based on two different approaches. First, we adopt the Hoechle (2007) procedure which produces Driscoll-Kraay standard errors to account for heteroscedasticity and cross–sectional dependence. Second, we implement the system Generalized Method of Moments to account for endogeneity. The results show that financial development increases economic complexity in Africa. Looking at the regional difference, the results show that this effect is less beneficial for SSA countries.
    Keywords: Financial development, Economic complexity, Panel data analysis, Africa
    JEL: E02 G20 G24 O55 P14
    Date: 2021–01
  25. By: Daragh Clancy (ESM); Peter G. Dunne (Central Bank of Ireland); Pasquale Filiani (Central Bank of Ireland)
    Abstract: The likelihood of severe contractions in an asset's liquidity can feed back to the ex-ante risks faced by the individual providers of such liquidity. These self-reinforcing effects can spread to other assets through informational externalities and hedging relations. We explore whether such interdependencies play a role in amplifying tensions in European sovereign bond markets and are a source of cross-market spillovers. Using high-frequency data from the inter-dealer market, we find significant own- and cross-market effects that amplify liquidity contractions in the Italian and Spanish bond markets during times of heightened risk. The German Bund's safe-haven status exacerbates these amplification effects. We provide evidence of a post-crisis dampening of cross-market effects following crisis-era changes to euro area policies and institutional architecture. We identify a structural break in Italy's cross-market conditional correlation during rising political tensions in 2018, which significantly reduced liquidity. Overall, our findings demonstrate potential for the provision of liquidity across sovereign markets to be vulnerable to sudden fractures, with possible implications for euro area economic and financial stability.
    Keywords: Liquidity; Tail risks; Feedback loops; Spillovers
    JEL: G01 G15 F36
    Date: 2019–11–08
  26. By: Romano, Stefania; Martinez-Heras, Jose; Raponi, Francesco Natalini; Guidi, Gregorio; Gottron, Thomas
    Abstract: In carrying out its banking supervision tasks as part of the Single Supervisory Mechanism (SSM), the European Central Bank (ECB) collects and disseminates data on significant and less significant institutions. To ensure harmonised supervisory reporting standards, the data are represented through the European Banking Authority’s data point model, which defines all the relevant business concepts and the validation rules. For the purpose of data quality assurance and assessment, ECB experts may implement additional plausibility checks on the data. The ECB is constantly seeking ways to improve these plausibility checks in order to detect suspicious or erroneous values and to provide high-quality data for the SSM. JEL Classification: C18, C63, C81, E58, G28
    Keywords: machine learning, plausibility checks, quality assurance, supervisory data, validation rules
    Date: 2021–10
  27. By: Nounamo, Yann; Asongu, Simplice; Njangang, Henri; Tadadjeu, Sosson
    Abstract: The main contribution of this study is the determination of an endogenous threshold of institutional quality, beyond which external debt would affect economic growth differently. The focus is on 14 countries of the African Franc zone over the period 1985-2015. Based on the panel Smooth Threshold Regression model, the results reveal that the relationship between external debt and economic growth is based on institutional quality. It is found that the level of indebtedness at which the effect of external debt on economic growth becomes negative is higher in countries with lower levels of corruption and high levels of democracy. This means that poor institutional quality prevents a country from taking full advantage of its credit opportunities. Thus, the more countries become democratic, the more debt helps finance economic growth. These results are robust to sensitivity analysis and Generalized Method of Moments estimation.
    Keywords: external debt, political institutions, economic growth
    JEL: E00 O10
    Date: 2021–01
  28. By: Tendai Zawaira (Department of Economics, University of Pretoria, Hatfield 0028, South Africa); Matthew Clance (Department of Economics, University of Pretoria, Hatfield 0028, South Africa); Carolyn Chisadza (Department of Economics, University of Pretoria, Hatfield 0028, South Africa); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)
    Abstract: This study analyses the association between financial inclusion and gender inequality in sub-Saharan Africa. Our findings suggest that generally, most individuals in sub-Saharan Africa rely on informal sources of finance, such as savings at a savings club and borrowing from family and friends compared to formal financial sources. Moreover, women are more likely to turn to the informal sources compared to men which is a concern that needs to be addressed at policy level. Improving access to finance is at the center of improving gender equality and increasing the economic freedoms and opportunities that women have to contribute to their families and societies.
    Keywords: Gender, Financial development, Financial inclusion, Africa
    JEL: J16 O11
    Date: 2021–10
  29. By: Aysan, Ahmet Faruk; Kayani, Farrukh Nawaz
    Abstract: This article provides a detailed introduction to China’s launching of a digital currency. We conduct a comparative analysis concerning whether digital currency is a more stable and reliable currency than cryptocurrency and investigate whether a digital renminbi (or yuan) could replace the US dollar as a medium of exchange in international transactions. China has gained a first-mover advantage by rolling out a central bank digital currency (CBDC). But the outcome will depend on the US response as well as the future evolution of the US and Chinese economies. Most other articles on this topic focus on domestic use of the Chinese CBDC. But this study is unique in analyzing the prospects of a digital renminbi as a replacement for the US dollar in international commerce.
    Keywords: China, cryptocurrency, digital yuan, People’s Bank of China, US.
    JEL: F50
    Date: 2021–05–06
  30. By: De Koning, Kees
    Abstract: The Federal Reserve has indicated that it will gradually reduce its purchases of eligible securities (Quantitative Easing) from November 2021. At the same meeting of the Federal Reserve Board, the Committee members who decide when to start raising interest rates were split equally about a possible starting date. The current guidance rate is between 0% and 0.25%. If the guidance rate is changed, the banking sector follows. An element that needs further attention is how an interest rate rise would affect households and thereby employment levels, profit levels of companies and the tax receipts of the U.S. Government. Take mortgages as an example. A mortgage represents the encumbered element of a home. The second element is the home equity savings element. In case of an increase in base rates, the financial sector can be expected to follow up with an increase in mortgage rates. The borrowers will have no choice but to pay up. There is another option that focuses on the savings element in U.S. home equity, currently estimated at $23.6 trillion. Treating home equity savings as a key to economic expansion needs a system that helps households to temporarily reduce some of such home equity and use it for funding its consumer spending levels. The financial sector cannot lend funds at 0% as they borrow their funds at market rates. However, the Fed can do so by introducing not one but two different rates: one the Fed funds rate, which influences the rate for the financial, commercial and Government borrowing sector and the second one for a temporary release of some home equity for households; the Economic Recovery Rate (ERR). The latter –a 0% rate- can be applied as a micro and equally a macro economic tool to stimulate the U.S. economy as and when needed. Why and how such dual interest rate system could work is explained in this paper.
    Keywords: Economic Recovery Rate; Inflation; Home Equity; Mortgage lending, Economic Adjustment Tools; Quantitative Easing; Federal Reserve.
    JEL: E2 E21 E27 E4 E40 E42 E43 E44 E5
    Date: 2021–10–07
  31. By: Uzuntepe, Beren
    Abstract: Emerging and gaining significance due to the widespread use of the Internet and the power of social media, crowdfunding, via crowdfunding platforms, provides entrepreneurs with creative business ideas with the opportunity to reach extensive masses and to be able to directly access the financial resources that their projects require. Even though the interest in crowdfunding rises, the literature seems to lack enough research about these platforms. Addressing the platforms that bring together the entrepreneurs and the backers, this research aims to compare the reward-based crowdfunding platforms operating in Turkey with the international crowdfunding platforms. Containing the categories of technology and movie/video, this research discusses the differences between the most prominent crowdfunding platforms in the two countries. The findings of the research constitute importance due to the fact that it shows the way to the entrepreneurs, crowdfunding platforms, and backers while making their decisions, encourages participation in the campaigns, and sheds light on other studies about the subject.
    Keywords: Keywords: Crowdfunding, Entrepreneurial Finance, Online Platform, Reward Based Crowdfunding, KIA
    JEL: G2 G24 G3 G32 L2 L26 M1 M13 O3 O30 O34 P3 P34 P35
    Date: 2021
  32. By: Ozili, Peterson K
    Abstract: Identifying the intersection between digital finance, green finance and social finance is important for promoting sustainable financial, social and environmental development. This paper suggests a link between digital finance, green finance and social finance. Using a simple conceptual model, I show that digital finance offers a smooth, efficient and seamless channel for individuals and corporations to fund social projects that deliver a social dividend, and green projects that promote a sustainable environment. The implication is that digital finance is both an enabler and a channel for efficient green financing and social financing.
    Keywords: green finance, social finance, digital finance, sustainable development, environment, sustainable finance, innovation
    JEL: G02 G20 G21 Q56
    Date: 2021
  33. By: Joof, Foday
    Abstract: This paper analyses the impact of foreign currency reserve and economic growth on money supply, using a panel data of five West African Monetary Zone (WAMZs) member states from 2001-2019. The study employed the dynamic Panel techniques (Fully Modified Ordinary Least Square and Dynamic Ordinary Least Square) and the Static method (Fixed Effect model) for robustness check. The long run results showed that foreign currency reserves (FCR) have a positive impact on money supply, implying that a one percent increase in foreign currency reserves augments money supply (M2) by 2.87%, 0.44% and 0.08%, respectively in the long run. Similarly, economic growth is associated with an increase in money supply in both models. Furthermore, the Dumitrescu and Hurlin Causality (2012) estimation revealed a feedback association between foreign currency reserve and money supply. This means that that foreign reserves and money supply are complementary. Conversely, a unidirectional causality moving from economic growth to M2 is observed, demonstrating that economic growth causes M2 and not otherwise. This outcome is explained by the QTM (quantity theory of money) in which the velocity of money is a positive function of total money supply. As money circulates in the economy as a result of a surge in investments, consequently increases money stock. Similarly, investment opportunities that are been exploited day-by-day explains the growing money stock. Central banks should endeavor to monitor the expansionary influence of net foreign assets (NFA) on money supply growth in the WAMZ by establishing suitable methods to sterilize foreign exchange infusions into the economy.
    Keywords: foreign currency reserve, money supply, economic growth, WAMZ, Dynamic Model , Static Model
    JEL: E5 E58
    Date: 2021–10–14
  34. By: Castro Azócar, Felipe
    Abstract: Regarding the discussion on a New Constitution in Chile, the debate on the autonomy of the Central Bank has polarized: Some consider it fundamental for macroeconomic balances, and others question it as an "authoritarian enclave". Should the Constitution settle this issue? It will be seen that it is not so much what it says on paper that matters, but how the autonomy and independence of the Central Bank are articulated in the reality.
    Keywords: Constitutional autonomy; Central Bank autonomy; price stability; Chilean new constitution; economic policy
    JEL: E3 E6 K0 K23
    Date: 2021–10–09
  35. By: Aysan, Ahmet Faruk; Bergigui, Fouad
    Abstract: Since the adoption of the SDGs in 2015, it has been a 5-year journey of trial and error experimentations all over the world to come up with innovative solutions beyond business-as-usual and get the job done. In this paper, we assess blockchain-backed solutions beyond the hype. While the technology has a promising potential to trigger disruptive innovations to fulfill the SGDs, it is not mature yet with many gaps in terms of approaches and tools to develop blockchain use cases, monitor and evaluate blockchain experiments, mitigate associated risks and ethical considerations while managing changes within organizations leading blockchain-powered platforms. It is only by filing these gaps that blockchain can deliver its promises and may be effectively used as an SDG accelerator. Islamic finance can play a key role in shaping the transition towards a more circular economy. One promising way of doing so, is by scaling-up the use of blockchain-enabled solutions in the practices of circular economy and Islamic finance. As the technology is still getting mature, more innovative and applied research is needed to capitalize on the lessons learned within various geographies and across a wide range of economic, social, and environmental spectrums.
    Keywords: Blockchain, SDGs, innovation, Islamic finance, circular economy
    JEL: O3 O31
    Date: 2021–05–05

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