nep-ban New Economics Papers
on Banking
Issue of 2021‒11‒01
34 papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Collateral in bank lending during the financial crises:a borrower and a lender story. By Massimiliano Affinito; Fabiana Sabatini; Massimiliano Stacchini
  2. The IRB approach and bank lending to firms By Raffaele Gallo
  3. How deep are the deep parameters? By Andrea Passalacqua; Paolo Angelini; Francesca Lotti; Giovanni Soggia
  4. Are banks still 'too big to fail'? - A market perspective By Nicole Allenspach; Oleg Reichmann; Javier Rodriguez-Martin
  5. Bank Runs, Fragility, and Credit Easing By Manuel Amador; Javier Bianchi
  6. Sovereign-Bank Diabolic Loop: The Government Procurement Channel By Diana Bonfim; Sujiao Zhao; Miguel A. Ferreira; Francisco Queiró
  7. The implementation of the IFRS 9 accounting standard in Italy by small banks and financial intermediaries: initial evidence By Andrea Canton; Tommaso Loizzo; Federico Schimperna
  8. Regulating Big Tech and Non-bank Financial Services in the Digital Era By Thammarak Moenjak; Veerathai Santiprabhob
  9. The relationship between Financial Inclusion and Monetary Stability in Mozambique: Analysis based on an Error Correction Model (VECM) By Carla Fernandes; Maria Rosa Borges; Esselina Macome; Jorge Caiado
  10. Credit Union Regulations' Mysterious Hold on Thrifts and Community Banks By Reka Sundaram-Stukel; Steven C Deller
  11. Household Credit as Stimulus? Evidence from Brazil By Gabriel Garber; Atif R. Mian; Jacopo Ponticelli; Amir Sufi
  12. Bank transactions embeddings help to uncover current macroeconomics By Maria Begicheva; Oleg Travkin; Alexey Zaytsev
  13. Retail CBDC purposes and risk transfers to the central bank By Romain Baeriswyl; Samuel Reynard; Alexandre Swoboda
  14. A Bibliography of Free Banking Scholarship (2021) By Qiao, Elizabeth
  15. 대외부문 거시건전성 정책 10년의 성과와 개선방안 (Korea's Macroprudential Policies for Cross-Border Capital Flows: Accomplishments and Road to Improvement) By An, Sungbae; Kang, Tae Soo; Kim, Kyunghun; Kang, Eunjung
  16. Empowering Women through Microfinance in Djibouti By Mohamed Abdallah Ali; Mazhar Mughal; Dina Chhorn
  17. Three Liquid Assets By Nicola Amendola; Lorenzo Carbonari; Leo Ferraris
  18. The Real Consequences of Macroprudential FX Regulations By Hyeyoon Jung
  19. Monetary and Financial Perspectives on Retail CBDC in the Thai Context By Thitima Chucherd; Chanokkarn Mek-yong; Nalin Nookhwun; Passawuth Nuntnarumit; Natta Piyakarnchana; Suparit Suwanik
  20. Regional How Powerful is Unannounced, Sterilized Foreign Exchange Intervention? By Alain Naef; Jacob P. Weber
  21. A Structural Measure of the Shadow Federal Funds Rate By Callum J. Jones; Mariano Kulish; James Morley
  22. Negative Rates in Bilateral Repo Markets By Samuel Hempel; R. Jay Kahn
  23. A DeFi Bank Run: Iron Finance, IRON Stablecoin, and the Fall of TITAN By Kanis Saengchote
  24. The Dynamics of the U.S. Overnight Triparty Repo Market By Mark Paddrik; Carlos Ramirez; Matthew McCormick
  25. Les ménages au cœur de la financiarisation. Sur Risking Together, de D. Bryan et M. Rafferty By Bruno Tinel
  26. Measuring the systemic importance of large US banks By Andrew Hawley; Marco Migueis
  27. Solidarity finance and economic growth: Case of financial intermediation (A theoretical approach) By Abdellah Haida; Mustapha Jaad
  28. Where Do DeFi Stablecoins Go? A Closer Look at What DeFi Composability Really Means By Kanis Saengchote
  29. Central Banks and Inflation: Where Do We Stand and How Did We Get Here? By Karl Whelan
  30. Relationship between threshold level of inflation and economic growth in Bangladesh- a multivariate quadratic regression analysis. By Asaduzzaman, Md
  31. Inflation, Interest, and the Secular Rise in Wealth Inequality in the U.S.: Is the Fed Responsible? By Edward N. Wolff
  32. Inflation at Risk in Thailand By Maneerat Gongsiang; Pongpitch Amatyakul
  33. Machine Learning in Finance-Emerging Trends and Challenges By Jaydip Sen; Rajdeep Sen; Abhishek Dutta
  34. The International Experience of Central Bank Asset Purchases and Inflation By Gianluca Benigno; Paolo Pesenti

  1. By: Massimiliano Affinito (Bank of Italy); Fabiana Sabatini (Bank of Italy); Massimiliano Stacchini (Bank of Italy)
    Abstract: We analyse whether and to what extent both firm and bank soundness are associated with the use of collateral in bank lending, and whether these relationships changed during the global financial crisis and the euro-area sovereign debt crisis. By using a large dataset of 2 million observations at bank and firm level covering the years 2007-13, we find that the degree of collateralization is higher for firms that are financially stressed and have low capitalization and that it increases further for these borrowers during downturns. In addition, we find that collateral policies are tighter at sounder banks, that is, at banks that are more capitalized and have a lower burden of bad loans. This result is consistent with the existence of a negative link between bank soundness and risk-taking in bank lending.
    Keywords: bank-lending channel, collateral, financial crises.
    JEL: G01 G21 E5 E51
    Date: 2021–10
  2. By: Raffaele Gallo (Bank of Italy, Directorate General for Economics, Statistics and Research.)
    Abstract: This paper examines the impact of the regulatory approach adopted to calculate capital requirements on banks’ lending policies. Since the capital absorption of loans to high-risk borrowers is greater under the internal ratings-based (IRB) method than under the standardized approach (SA), IRB banks may raise interest rates and reduce credit to riskier borrowers following their regulatory regime shift. The analysis examines banks’ lending policies around each of the shifts that occurred between 2007 and 2017. First, in a context of declining rates and credit growth, banks adopting the IRB approach decreased interest rates (credit) less (more) for riskier than for safer borrowers when compared with SA intermediaries. Second, an existing credit relationship with a high-risk borrower is more likely to end after the shift. Third, the results at the firm level suggest that high-risk borrowers partly compensated the reduction in bank credit by obtaining funds from SA institutions, but that they were not able to offset the rise in their average cost of credit because of the significant costs involved in switching lenders.
    Keywords: credit risk regulation, interest rates, bank credit, internal rating model.
    JEL: G20 G21 G28 G32
    Date: 2021–10
  3. By: Andrea Passalacqua (Board of Governors of the Federal Reserve System); Paolo Angelini (Bank of Italy); Francesca Lotti (Bank of Italy); Giovanni Soggia (Bank of Italy)
    Abstract: We show that bank supervision reduces distortions in credit markets and generates positive spillovers for the real economy. Exploiting the quasi-random selection of inspected banks in Italy, we show that financial intermediaries are more likely to reclassify loans as non-performing after an audit. Moreover, they change their lending policies as the composition of new lending shifts toward more productive firms. As a result, productive firms invest more in labor and capital, while underperforming firms are more likely to exit the market. Taken together, our results show that bank supervision is an important complement to regulation in improving credit allocation.
    Keywords: bank supervision, inspections, credit allocation, real effects.
    JEL: G22 G28
    Date: 2021–10
  4. By: Nicole Allenspach; Oleg Reichmann; Javier Rodriguez-Martin
    Abstract: This paper aims at deriving the market's assessment as to whether banks worldwide still benefit from a Too Big To Fail (TBTF) subsidy. Such a subsidy reflects the market's expectation of government support in the event of a crisis and results in reduced funding costs for the benefiting bank. To capture this effect, we use two different extensions of the Merton (1974) framework. We find that large banks benefit from a TBTF subsidy, while large nonfinancial firms do not. This subsidy has declined somewhat since the Global Financial Crisis (GFC) but remains larger than before the crisis. These conclusions also hold when considering Contingent Convertible (CoCos) and bail-in bonds as fully loss-absorbing. Moreover, we find differences in the TBTF subsidy across jurisdictions and provide evidence that these can to a large extent be explained by differences in bank health.
    Keywords: Banking, too big to fail, CreditEdge, CreditGrades
    JEL: G12 G18 G21
    Date: 2021
  5. By: Manuel Amador; Javier Bianchi
    Abstract: We present a tractable dynamic macroeconomic model of self-fulfilling bank runs. A bank is vulnerable to a run when a loss of investors' confidence triggers deposit withdrawals and leads the bank to default on its obligations. We analytically characterize how the vulnerability of an individual bank depends on macroeconomic aggregates and how the number of banks facing a run affects macroeconomic aggregates in turn. In general equilibrium, runs can be partial or complete, depending on aggregate leverage and the dynamics of asset prices. Our normative analysis shows that the effectiveness of credit easing and its welfare implications depend on whether a financial crisis is driven by fundamentals or by self-fulfilling runs.
    JEL: E44 E58 F34 G01 G21 G33
    Date: 2021–10
  6. By: Diana Bonfim; Sujiao Zhao; Miguel A. Ferreira; Francisco Queiró
    Abstract: We show that banks’ lending exposure to firms with government procurement contracts can amplify the diabolic loop between sovereigns and banks. Using the fiscal austerity measures implemented during the 2010-2011 European sovereign debt crisis as a shock to government procurement, we find that banks with higher exposure to these firms reduced lending significantly more than banks with lower exposure, controlling for firm-specific credit demand. The reduction in credit supply is economically as important as the effect of banks’ sovereign debt holdings, and affected both firms with and without government contracts. Firms with lending relationships with affected banks experienced lower sales growth, assets growth, employment growth, and investment. This decrease in real economic activity is likely to reduce tax revenue, further amplifying the diabolic loop.
    JEL: G01 G20 G31 H57
    Date: 2021
  7. By: Andrea Canton (Bank of Italy); Tommaso Loizzo (Bank of Italy); Federico Schimperna (Bank of Italy)
    Abstract: The IFRS 9 accounting standard, which entered into force in 2018, introduced far-reaching innovations, has been applied in different ways by banking and other financial institutions. Thus, sometimes relatively simple solutions have been adopted, in line with unsophisticated business operations, while in other cases, more complex choices were required. Additionally, the outbreak of the COVID-19 pandemic posed challenges for the application of the standard. In this scenario, in the second half of 2020, the Bank of Italy launched a survey on a sample of directly supervised entities, aiming to analyse the implementation of the new standard and the possible impact of the pandemic on accounting choices. This work provides a summary of the results with a dual purpose. First, it aims to provide evidence of the level of implementation of the standard by less significant banks and secondly, it highlights methodological choices or practices that may not fully comply with the standard, with potential implications for the ratios relevant for prudential supervision purposes.
    Keywords: IFRS 9, Covid-19, banks, intermediaries, accounting, supervision
    JEL: G21 G23 M41
    Date: 2021–10
  8. By: Thammarak Moenjak; Veerathai Santiprabhob
    Abstract: In the digital era, new forms of non-bank entities have emerged and gained increasingly prominent roles in providing financial services. These non-bank entities, particularly those associated with non-financial conglomerates and large technology companies (BigTech) pose new challenges for financial regulators whether in terms of financial stability, level-playing field competition, or customer protection. This article discusses emerging trends in the rise of non-bank entities in the digital era, the challenges they pose, and what financial regulatory approaches can help to address those challenges. This article proposes that a holding company structure could be applied to regulate non-financial conglomerates or BigTech firms providing financial services through subsidiaries. This proposal is expected to help address regulatory concerns where existing regulatory approaches cannot adequately cope with.
    Keywords: Regulation; Global Economy; Industrial Organization
    JEL: G23 K21 K23 O16
    Date: 2021–06
  9. By: Carla Fernandes; Maria Rosa Borges; Esselina Macome; Jorge Caiado
    Abstract: The present work aims to assess the existence of the relationship between financial inclusion and monetary stability in Mozambique based on the analysis of the vector correction error model (VECM) for the period from 2005 to 2020. The indicators used in the study follow the approach taken by Mbutor and Uba (2013), Lapukent (2015), Lenka and Bairwa (2016) and Hung (2016). In addition to indicators of traditional banking institutions, this article goes further by also incorporating indicators relating to services of electronic money institutions with the objective of capturing the impact of digital financial services on financial inclusion and their role in financial stability. The study presents results consistent with economic theory. The long-term VEC model proved to be statistically significant and confirmed the existence of a long-term relationship between financial inclusion and monetary stability. It also revealed that the deviation of the CPI from its long-term equilibrium is adjusted at a speed of 10.19%. The coefficients of the short-term VEC model were negative for the variables of branches and bank accounts. The coefficients of agents and EMI accounts were not positive, and their shocks are removed after 6 quarters, after which the expected negative sign is observed achieving monetary stability.
    Keywords: Financial Inclusion; Monetary Stability; VEC Model; Digital Financial Services JEL Classification: G20, G21, G28.
    Date: 2021–01
  10. By: Reka Sundaram-Stukel; Steven C Deller
    Abstract: The continued operation of credit unions in the 2008-2010 regulatory framework remained a source of debate in the financial sector. Competing thrifts argued for fair regulatory treatment while credit unions argued for the relaxation of restrictions on their scale and scope of operation. We provide a fresh perspective by building on central place theory and offering a family of location models for the U.S. credit unions. Our results showed that credit unions operated in areas with a low concentration of retail banks. This finding was evidence that credit unions serve niche markets and they were not a significant source of direct competition for thrifts and community banks. This may signal an increase in credit union formation in a post-pandemic world.
    Date: 2021–10
  11. By: Gabriel Garber; Atif R. Mian; Jacopo Ponticelli; Amir Sufi
    Abstract: From 2011 to 2014, the Brazilian government conducted a heavily advertised major credit expansion program through government banks as part of its effort to stimulate the economy. Using administrative data on individual-level borrowing and spending, we find that the program led to a substantial rise in borrowing by government employees, especially those with low financial literacy. We trace the impact of credit stimulus on borrowers' consumption through the 2011-16 business cycle, and find that the credit stimulus resulted in higher consumption volatility and lower average consumption over the cycle. Our results suggest a potential downside of using household credit as stimulus in emerging markets.
    JEL: D12 D14 E21 E32 G21 G28 G53 O16
    Date: 2021–10
  12. By: Maria Begicheva; Oleg Travkin; Alexey Zaytsev
    Abstract: Macroeconomic indexes are of high importance for banks: many risk-control decisions utilize these indexes. A typical workflow of these indexes evaluation is costly and protracted, with a lag between the actual date and available index being a couple of months. Banks predict such indexes now using autoregressive models to make decisions in a rapidly changing environment. However, autoregressive models fail in complex scenarios related to appearances of crises. We propose to use clients' financial transactions data from a large Russian bank to get such indexes. Financial transactions are long, and a number of clients is huge, so we develop an efficient approach that allows fast and accurate estimation of macroeconomic indexes based on a stream of transactions consisting of millions of transactions. The approach uses a neural networks paradigm and a smart sampling scheme. The results show that our neural network approach outperforms the baseline method on hand-crafted features based on transactions. Calculated embeddings show the correlation between the client's transaction activity and bank macroeconomic indexes over time.
    Date: 2021–10
  13. By: Romain Baeriswyl; Samuel Reynard; Alexandre Swoboda
    Abstract: The issuance of retail central bank digital currency (CBDC) entails a transfer of risk from commercial banks to the central bank. While this paper does not provide an overall assessment on whether or not to issue a retail CBDC, it analyzes how different mechanisms to limit the risk transfer, such as an unattractive interest rate on retail CBDC, a quantity ceiling or preventing convertibility of cash and reserves into CBDC, have different effects on the ability of retail CBDC to fulfil its intended purposes. In particular, these mechanisms hinder the use of CBDC as a medium of exchange. Specific aspects of demand and challenges related to a potential retail CBDC in Switzerland, namely, a small open economy with a safe-haven currency and a low level of government debt, are discussed.
    Keywords: Retail central bank digital currency
    JEL: E42 E52 E58
    Date: 2021
  14. By: Qiao, Elizabeth (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)
    Abstract: In this paper, the author provides a bibliography of major and minor scholarly writings on free banking up to mid-2021. It is helpful both for expanding knowledge of the history of free banking and for providing references that may be useful for thinking about some aspects of cryptocurrencies.
    Keywords: Bibliography; free banking
    JEL: E42 E50
    Date: 2021–10–23
  15. By: An, Sungbae (KOREA INSTITUTE FOR INTERNATIONAL ECONOMIC POLICY (KIEP)); Kang, Tae Soo (KAIST College of Business); Kim, Kyunghun (Hongik University); Kang, Eunjung (KOREA INSTITUTE FOR INTERNATIONAL ECONOMIC POLICY (KIEP))
    Abstract: 2008년 글로벌 금융위기는 기존의 통화정책 및 미시건전성정책만으로는 대응할 수 없다는 한계점을 인식하게 되었다. 이에 따라 다수 국가들이 거시건전성 정책수단을 도입하게 되었다. 우리나라도 2010년 이후 대외부문 거시건전성 3종 세트(외환선물환포지션 한도 규제, 외환건전성 부담금 부과, 외국인 채권투자 과세)를 도입해 성공적으로 운용해왔다. 하지만 최근에는 과거와 다른 형태의 잠재 리스크가 금융안정을 위협하고 있음에 유의할 필요가 있다. 이에 따라 본고는 지난 10년간의 거시건전성 정책을 돌이켜 본 후 이를 바탕으로 대외부문 안정성 제고를 위한 정책적 시사점 도출하고자 하였다. Major advanced economies have taken policy measures to strengthen the resilience of the financial system since the 2008 global financial crisis. On that basis, the G20 Coherent Conclusions for the Management of Capital Flows Drawing on Country Experiences was established in 2011, followed by discussions among policy circles including the OECD and IMF. Emerging economies have also taken various policy measures to manage systemic risks associated with cross-border capital flows. In 2010, the Korean government and central bank announced foreign exchange-related macroprudential measures (MPMs) aimed at building resilience against external financial shocks. These measures have greatly contributed to limiting systemic risk by curbing excessive capital inflows. Twelve years have passed since the global financial crisis started, and ten years after the introduction of FX-related macroprudential policy measures in Korea. It is now an opportune time to check the performance and effectiveness of these policies. Given the newly heightened risky environment, it is urgent to discuss how to improve macroprudential measures in response to emerging external risks. (the rest omitted)
    Keywords: Korea; macroprudential policies; cross-border; capital flows; G20; MPMs; financial crisis; risk
    Date: 2020–12–30
  16. By: Mohamed Abdallah Ali (TREE - Transitions Energétiques et Environnementales - UPPA - Université de Pau et des Pays de l'Adour - CNRS - Centre National de la Recherche Scientifique, IRMAPE - Institut de Recherche en Management et Pays Emergents - ESC Pau); Mazhar Mughal (ESC Pau); Dina Chhorn (GREThA - Groupe de Recherche en Economie Théorique et Appliquée - UB - Université de Bordeaux - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Women's empowerment is crucial to improve their political, social, economic, health and sanitary situation. This paper estimates the effect of microfinance on women's empowerment in Djibouti. Using cross-sectional data of 692 households based in Djibouti's six major centres Djibouti-ville, Arta, Ali-Sabieh, Dikhil, Obock and Tadjourah, we construct original measures of women's empowerment index covering three dimensions (economic, social and interpersonal). We examine the extent to which access to microfinance, amount of loans obtained and their duration modifies women's status at home. Employing the instrumental variables (IV) estimations and a number of econometric techniques as robustness checks, we find a significantly positive association between microcredit and women's empowerment. Households with access to loans from MFIs are respectively 35.4%, 30.9% and 10.1% more likely to be economically, socially and interpersonally empowered. The effect of access to microfinance and the number of loans is also significant. However, women who took four or more loans from microfinance institutions are 27.7%, 23.5% and 6.8% less likely to be economically, socially and interpersonally empowered. The results of the study confirm generally positive socioeconomic effects of microfinance programmes.
    Keywords: Djibouti,Instrumental variables (IV),Microfinance,Women's empowerment
    Date: 2021–10–13
  17. By: Nicola Amendola (DEF, Università di Roma "Tor Vergata"); Lorenzo Carbonari (CEIS & DEF, Università di Roma "Tor Vergata"); Leo Ferraris (Università di Milano-Bicocca)
    Abstract: We examine a theoretical model of liquidity with three assets {money, government bonds and equity- that are used for transaction purposes. Money and bonds complement each other in the payment system. The liquidity of equity is derived as an equilibrium outcome. Liquidity cycles arise from the loss of confidence of the traders in the liquidity of the system. Both open market operations and credit easing play a beneficial role for different purposes.
    Keywords: Money, Bonds, Equity, Liquidity, Credit Easing.
    JEL: E40
    Date: 2021–10–14
  18. By: Hyeyoon Jung
    Abstract: I exploit a natural experiment in South Korea to examine the real effects of macroprudential foreign exchange (FX) regulations designed to reduce risk-taking by financial intermediaries. By using crossbank variation in the regulation's tightness, I show that it causes a reduction in the supply of FX derivatives (FXD) and results in a substantial decline in exports for the firms that were heavily relying on FXD hedging. I offer a mechanism in which imbalances in hedging demand, banks' costly equity financing, and firms' costly switching of banking relationships play a central role in explaining the empirical findings.
    Keywords: real effects; macroprudential policy; international finance; derivatives hedging; FX risk management
    JEL: D14 E44 G15 G28 G32
    Date: 2021–10–01
  19. By: Thitima Chucherd; Chanokkarn Mek-yong; Nalin Nookhwun; Passawuth Nuntnarumit; Natta Piyakarnchana; Suparit Suwanik
    Abstract: This paper explores three monetary and financial issues of retail central bank digital currency (CBDC) in the Thai context. The first insight shows that opportunities in the digital age may arise for Thai citizens and businesses to reap the benefits of a more efficient form of public money and financial innovation. It is possible for Thai citizens to quickly adopt unremunerated CBDC for transactional use within a decade. Second, we point out that there are several ways to utilize retail CBDC for enhancing monetary policy effectiveness, namely, through the bank rate channel and the introduction of new monetary policy tools. Nevertheless, monetary policy should not be the first and foremost objective for the central bank to issue CBDC as there are other factors to consider. These included impacts on the central bank balance sheet and monetary operations, especially for remunerated CBDC. Disintermediation and liquidity risks for Thai financial institutions are also key concerns, which are discussed in the third part. We assess that the risks to the banking sector are low in normal periods, but the well-designed CBDC features are necessary to prevent mounting liquidity risks in distressed periods.
    Keywords: CBDC; Digital Currency; Digital Money; Financial Landscape; Monetary Policy; Financial Stability
    JEL: E41 E42 E52 E58 G21
    Date: 2021–05
  20. By: Alain Naef; Jacob P. Weber
    Abstract: Though most central banks actively intervene on the foreign exchange market, the literature offers mixed evidence on their effectiveness: particularly for unannounced interventions. We use new, declassified data from the archives of the Bank of England and the institutional features of the Bretton Woods era to estimate the effects of intervention on the exchange rate. We find that a purchase of pounds equivalent to 1% of the money supply causes a statistically significant, 4-5 basis point appreciation in the pound.
    Keywords: Monetary Policy, Foreign Exchange Markets, Bretton Woods System
    JEL: F3 N2
    Date: 2021
  21. By: Callum J. Jones; Mariano Kulish; James Morley
    Abstract: We propose a shadow policy interest rate based on an estimated structural model that accounts for the zero lower bound. The lower bound constraint, if expected to bind, is contractionary and increases the shadow rate compared to an unconstrained systematic policy response. By contrast, forward guidance and other unconventional policies that extend the expected duration of zero-interest-rate policy are expansionary and decrease the shadow rate. By quantifying these distinct effects, our structural shadow federal funds rate better captures the stance of monetary policy given economic conditions than a shadow rate based only on the term structure of interest rates.
    Keywords: Zero lower bound; Forward guidance; Shadow rate; Monetary policy
    JEL: E52 E58
    Date: 2021–10–07
  22. By: Samuel Hempel (Office of Financial Research); R. Jay Kahn (Office of Financial Research)
    Abstract: Interest rates on repurchase agreements (repo) are crucial indicators of conditions in financial markets. This brief discusses negative rates in bilateral repo markets during 2021, and shows that they stemmed from two key sources: (1) broad factors that pushed down general collateral repo rates, and (2) narrower factors that pushed bilateral repo rates below comparable tri-party general collateral rates. Broad factors include increases in bank reserves and decreases in the supply of close alternatives to repo in early 2021. Narrower factors primarily concern demand for specific collateral in the bilateral market. Finally, the brief examines the effects of negative rates on the Secured Overnight Financing Rate (SOFR) and shows the existing construction of the SOFR successfully limits the impact of specific collateral demand on the reference rate.
    Keywords: Repurchase agreement, repo specials, financial markets, reference rate
    Date: 2021–09–27
  23. By: Kanis Saengchote
    Abstract: Bank runs are a natural phenomenon for financial institutions that issue fixed value liabilities (e.g. money) that are backed by assets with uncertain value. I analyze Iron Finance, a decentralized finance (DeFi) protocol that issues stablecoin (a token with fixed nominal exchange rate: IRON) liabilities in exchange for a basket of other tokens (including a token issued by the protocol itself: TITAN). A combination of mathematical algorithms and incentive to arbitrage is used to maintain the exchange rate peg, but a shock to the protocol sent it into a downward spiral – much like a bank run. The incentives built into the protocol to defend the peg exacerbated its unravelling, raising the challenge of how DeFi protocols can address this vulnerability while remaining decentralized.
    Keywords: DeFi; Stablecoin; Bank Run; Self-fulfilling Panic
    JEL: G00 G23
    Date: 2021–07
  24. By: Mark Paddrik (Office of Financial Research); Carlos Ramirez (Board of Governors of the Federal Reserve System); Matthew McCormick (Federal Reserve Bank of Dallas)
    Abstract: The triparty repurchase agreement (repo) market is pivotal in the daily function of the U.S. financial system by acting as an important source of secured short-term funding. Despite the market’s role, little analysis has been undertaken on its intraday trading and pricing. Using supervisory transaction-level data, this brief aims to fill this gap by providing an overview of the pricing and clearing process for the overnight segment, which regularly provides over $1 trillion in daily funding. Besides highlighting the relevance of the overnight segment within the greater U.S. repo market, we present novel facts about how it behaves, emphasizing the role that participants, collateral, and trading relationships play in the market’s pricing and clearing process.
    Keywords: Repurchase agreement, overnight, triparty, intraday dynamics
    Date: 2021–07–22
  25. By: Bruno Tinel (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: In Risking Together, Bryan and Rafferty think in the manner of behavioural finance, but they think against it and invent Marxist behavioural finance. They show how households' subjectivity is reshaped by finance in their daily life, and how they unwittingly have become a key player in the production process of derivatives. Households are now integrated into finance on the supply side, through the securitization of their debt but also of their payments, and on the demand side through their savings. Households have collectively become net risk absorbers. What about the systemic issues of the financial loop in which households are now inserted? Considering the omnipotence of finance that transfers risks to households, the social institutionalization of default risk is now required.
    Abstract: Bryan et M. Rafferty Résumé Dans Risking together, Bryan et Rafferty pensent à la manière de la finance comportementale, mais ils pensent contre elle et inventent la Marxian behavioural finance. Ils montrent en quoi les ménages, amenés à penser à la manière de la finance dans leur vie quotidienne, sont devenus malgré eux un acteur clé du processus de production des produits dérivés. Les ménages sont désormais intégrés à la finance du côté offre, par la titrisation de leur dette mais aussi de leurs paiements, et du côté demande par leur épargne. Il convient alors de préciser les enjeux systémiques de la boucle financière dans laquelle s'insèrent désormais les ménages, devenus collectivement absorbeurs nets de risque. Face à la toute-puissance d'une finance qui transfère les risques aux ménages, s'impose désormais l'institutionnalisation sociale du risque de défaut.
    Keywords: Produits dérivés,titrisation,financiarisation,ménages,transfert du risque Derivatives,securitisation,financialization,households,risk transfer
    Date: 2021–08–12
  26. By: Andrew Hawley; Marco Migueis
    Abstract: The failure of large and connected financial institutions often leads to system-wide financial crises and economic downturns (Labonte 2015). Even absent outright failure and bankruptcy, perceived weakness of a large and connected financial firm can result in decrease valuation of other firms – due to perceived linkages – and overall decrease in market liquidity.
    Date: 2021–09–30
  27. By: Abdellah Haida (Laboratoire Études et recherches appliquées en sciences économiques (LERASE) - Équipe de recherche en économie de développement (ERED) - Université Ibn Zohr [Agadir]); Mustapha Jaad
    Abstract: Déclaration de divulgation : Les auteurs n'ont pas connaissance de quelconque financement qui pourrait affecter l'objectivité de cette étude. Conflit d'intérêts : Les auteurs ne signalent aucun conflit d'intérêts.
    Keywords: Faculté des sciences économiques,sociales et juridiques B.P Financial intermediation,economic growth,solidarity finance,bank relationship financing. JEL Classification : C61,C62,R51,G332 Paper type: Theoretical Research
    Date: 2021–09–03
  28. By: Kanis Saengchote
    Abstract: One of the benefits of decentralized finance (DeFi) – an alternative financial system built on blockchain – is composability, which means the system’s building blocks (tokens) can freely interact with one another to form new services. One example is stablecoin, a token with fixed exchange rate, which is backed by token collaterals. While stablecoins can be used to facilitate payments and exchanges, in DeFi they can be used to earn returns (“yield farming†), potentially multiplicatively. We use transaction-level blockchain data to analyze a stablecoin’s flows between protocols and provide suggestive evidence of DeFi yield-chasing behavior. We shed light on what DeFi total value locked might really measure and highlight the complexity in DeFi analysis and market surveillance.
    Keywords: DeFi; Stablecoin; Total Value Locked; Yield Farming; Systemic Risk
    JEL: E00 G00
    Date: 2021–07
  29. By: Karl Whelan
    Abstract: The inability of central banks to attain their target inflation rates in recent years has raised questions about the extent to which central banks can control the inflation process. This paper discusses the evolution of thought and evidence since the 1960s on the determinants of inflation and the role that should be played by central banks. The paper highlights the roles played by two streams of thought associated with Milton Friedman: Monetarist theories predicting a key role for monetary aggregates in determining inflation and the rise in popularity of the expectations-augmented Phillips curve. We discuss influence of the latter in determining the modern consensus on central bank institutions and the relative roles for fiscal and monetary policies. We conclude with a discussion of macroeconomic developments of the past decade and current policy options to stimulate the economy and restore inflation to its target levels, including the merits of “helicopter money”.
    Keywords: Inflation; Central banks; Phillips curve; Milton Friedman
    JEL: E31 E52 E58
    Date: 2021–08
  30. By: Asaduzzaman, Md
    Abstract: The main objective of this study is to empirically examine the relationship between inflation and economic growth in Bangladesh and to investigate the ongoing possible threshold effect. This study draws on diverse tables and charts, correlation matrices, pair-wise Granger Causality tests, ADRL (General to Specific Approach) test, and a quadratic regression equation estimated by OLS using time series annual data covering the sample period from 1980 to 2017. The results demonstrate that the relationship between inflation and GDP growth is non-linear with a subsistence of a breakpoint, which means the inverted U-shape curve. Moreover, the Granger Causality shows that economic growth does granger cause inflation. The empirical result indicates that when the inflation level reaches the threshold level at 7.84 percent then the economic growth is in peak position. This study proposed that the Bangladesh Bank should maintain the precautious and growth-friendly monetary policy structure by keeping inflation targeting below 7.84 percent, or else the growth might be held back.
    Keywords: Threshold Inflation, GDP Growth, Quadratic Regression Model, Bangladesh Economy
    JEL: C1 C15 C3 C32 E0 E5 E52 E58 E6 O4 O42 O47
    Date: 2021–02–02
  31. By: Edward N. Wolff
    Abstract: Two hallmarks of U.S. monetary policy since the 1981-1982 recession have been declining interest rates and moderation in inflation. Coincident with these trends has been a surge in U.S. wealth inequality, with the Gini coefficient up by 0.070 between 1983 and 2019. This paper analyzes the connection between these two developments on the basis of the Survey of Consumer Finances. Contrary to expectations, the paper finds that these two monetary effects have reduced wealth inequality rather than increasing it. The effect is sizeable, with the Gini coefficient declining by 0.045 over these years. Asset price changes and debt devaluation accounted for 72.6 percent of the advance of mean wealth over 1983-2019. They also would have led to a 204.9 percent gain in median wealth, compared to the actual rise of 23.4 percent. Moreover, they have helped lower the racial wealth gap rather than enlarging it. These results are at odds with previous literature in which estimates range from a weak negative effect on inequality to neutral, small positive, and strong positive. In terms of methodology, this paper differs from previous work by focusing on only the direct effects of interest rate changes and inflation on the household balance sheet.
    JEL: D31 H31 J15
    Date: 2021–10
  32. By: Maneerat Gongsiang; Pongpitch Amatyakul
    Abstract: Using monthly Thai data from 2003–2020, we examine the determinants of the future distribution of inflation. We evaluate how different risk factors predict 1-year- ahead future distributions of CPI inflation and its components. Risk factors come from 5 different groups of variables: inflation expectations, domestic economic activity, global economic activity, financial conditions, and component-specific factors. We obtain points on the future distributions of inflation through quantile regressions and fitting those points with skewed-t distributions. Our focus is on the outlook in the tails of the distribution, which recent literature referred to as `inflation-at-risk.' We find, as expected, that the whole inflation distribution has shifted lower, and thus the probability of negative inflation has increased markedly in recent years. There is a structural break around 2015 that affects both the distributions of inflation and their determinants. This structural break makes it challenging to make out-of-sample forecasts, thus, we focus on in-sample evaluation and explanations. For risk factors, we observe that the tightening of financial conditions and the decreasing world production are prominent sources of downside risks to inflation. Inflation expectations also play a smaller role in the lower quantiles, signaling its lower effectiveness in anchoring actual inflation during disinflationary periods. Finally, high global and domestic economic activity can be effective in decreasing downside risks in the lower tail, providing policy makers a way to counter these risks by stimulating the economy.
    Keywords: Inflation Determinants; Central Bank Policies
    JEL: E31 E52
    Date: 2021–04
  33. By: Jaydip Sen; Rajdeep Sen; Abhishek Dutta
    Abstract: The paradigm of machine learning and artificial intelligence has pervaded our everyday life in such a way that it is no longer an area for esoteric academics and scientists putting their effort to solve a challenging research problem. The evolution is quite natural rather than accidental. With the exponential growth in processing speed and with the emergence of smarter algorithms for solving complex and challenging problems, organizations have found it possible to harness a humongous volume of data in realizing solutions that have far-reaching business values. This introductory chapter highlights some of the challenges and barriers that organizations in the financial services sector at the present encounter in adopting machine learning and artificial intelligence-based models and applications in their day-to-day operations.
    Date: 2021–10
  34. By: Gianluca Benigno; Paolo Pesenti
    Abstract: Recent inflationary pressures in the global economy have rekindled the debate on the link between money growth and price stability. Specifically, does rapid central bank money creation resulting from large-scale purchases of government securities fuel inflationary spending by households and firms? We argue that there are many valid reasons to be skeptical about this textbook narrative. In this post, we look at the international experience with regard to asset purchases, money growth, and inflation dynamics in the pre-COVID era in an attempt to draw lessons from the recent past. Most notably, we find that the view that large-scale purchases of sovereign debt cause unmanageable inflationary pressures is not supported by the experiences of foreign advanced economies. As a matter of fact, despite the extent and duration of the quantitative easing programs in those economies, central banks faced challenges in achieving their inflation objectives.
    Keywords: quantitative easing; inflation
    JEL: E2 E5 E31
    Date: 2021–10–20

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