nep-ban New Economics Papers
on Banking
Issue of 2022‒02‒21
35 papers chosen by
Sergio Castellanos-Gamboa, , Pontificia Universidad Javeriana

  1. Measuring and Stress-Testing Market-Implied Bank Capital By Martin Indergand; Eric Jondeau; Andreas Fuster
  2. Bank risk-taking and impaired monetary policy transmission By Koenig, Philipp J.; Schliephake, Eva
  3. Firm subsidies, financial intermediation, and bank risk By Kazakov, Aleksandr; Koetter, Michael; Titze, Mirko; Tonzer, Lena
  4. Shared Destinies? Small Banks and Small Business Consolidation By Claire Brennecke; Stefan Jacewitz; Jonathan Pogach
  5. Money, Credit and Imperfect Competition Among Banks By Allen Head; Timothy Kam; Sam Ng; Isaac Pan
  6. International bank credit, nonbank lenders, and access to external financing By Jose-Maria Serena; Marina-Eliza Spaliara; Serafeim Tsoukas
  7. A Tiering Rule to Balance the Impact of Negative Policy Rates on Banks By Jean-Guillaume Sahuc; Mattia Girotti; Benoît Nguyen
  8. Supervisory Stringency, Payout Restrictions, and Bank Equity Prices By W. Blake Marsh
  9. Early Warning Performance of Univariate Credit-to-GDP Gaps By Zsuzsanna Hosszu; Gergely Lakos
  10. Consumer Credit Card Payment Deferrals During the COVID-19 Pandemic By Stephanie M. Wilshusen
  11. The Impact of Bank Lending Standards on Credit to Firms By Lorenzo Ricci; Giovanni Soggia; Lorenzo Trimarchi
  12. Unintended side effects of unconventional monetary policy By Berg, Tobias; Haselmann, Rainer; Kick, Thomas; Schreiber, Sebastian
  13. Information Sharing and Banking Efficiency in Africa: A Disaggregated Panel Data Analysis By Simplice A. Asongu; Nicholas M. Odhiambo
  14. The adverse effect of contingent convertible bonds on bank stability By Ludolph, Melina
  15. When uncertainty decouples expected and unexpected losses By Juselius, Mikael; Tarashev, Nikola
  16. Currency demand at negative policy rates By Edoardo Rainone
  17. Elections hinder firms’ access to credit By Léon, Florian; Weill, Laurent
  18. The role of mobile characteristics on mobile money innovations By Simplice A. Asongu; Nicholas M. Odhiambo
  19. The financial network channel of monetary policy transmission: An agent-based model By Michel Alexandre; Gilberto Tadeu Lima; Luca Riccetti; Alberto Russo
  20. Banks' structural power and states' choices over what structurally matters: The geo-economic foundations of state priority towards banking in France, Germany and Spain By Massoc, Elsa Clara
  21. Rolling in the deep(fakes) By Sabina Marchetti
  22. A Macroprudential Perspective on the Regulatory Boundaries of U.S. Financial Assets By David M. Arseneau; Grace Brang; Matt Darst; Jacob M. M. Faber; David E. Rappoport; Alexandros Vardoulakis
  23. The integrated approach adopted by Bank of Italy in the collection and production of credit and financial data By Massimo Casa; Laura Graziani Palmieri; Laura Mellone; Francesca Monacelli
  24. Person-to-business Instant payments: could they work in Colombia? By Carlos A. Arango-Arango; Ana Carolina Ramirez-Pineda; Manuela Restrepo-Bernal
  25. The Signalling Channel of Negative Interest Rates By Oliver de Groot; Alexander Haas
  26. Mortgage-Backed Securities By Andreas Fuster; David O. Lucca; James I. Vickery
  27. Financial Regulation, Interest Rate Responses, and Distributive Effects By Christian Loenser; Joost Röttger; Andreas Schabert
  28. Consumer Loans Dynamics in 2020 in Argentina: An Approach Using Error Correction Models By Maximiliano Gómez Aguirre Author-Email: Author-Workplace-Name: Central Bank of Argentina; Ariel Krysa
  29. Monetary policy transmission, the labour share and HANK models By Lenney, Jamie
  30. Financial exclusion and sovereign default: the role of official lenders By María Bru Muñoz
  31. Rendemic uncertainties in developing countries: Issues arising from an increased interdependence between banks and the state By Sylvain Bellefontaine,; Cécile Duquesnay,; Marion Hémar,; Benoît Jonveaux,; Maëlan Le Goff,; Emmanuelle Monat,; Meghann Puloc’h,; Maxime Terrieux,; Luciana Torrellio,; Cécile Valadier,; Alix Vigato.
  32. How should central banks react to household inflation heterogeneity? By Neyer, Ulrike; Stempel, Daniel
  33. Nowcasting the state of the Italian economy: the role of financial markets By Donato Ceci; Andrea Silvestrini
  34. State-Contingent Forward Guidance By Valentin Jouvanceau; Julien Albertini; Stéphane Moyen
  35. Toward a green economy: the role of central bank's asset purchases By Alessandro Ferrari; Valerio Nispi Landi

  1. By: Martin Indergand (Swiss National Bank - Financial Stability); Eric Jondeau (University of Lausanne - Faculty of Business and Economics (HEC Lausanne); Swiss Finance Institute; Swiss Finance Institute); Andreas Fuster (Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute; Centre for Economic Policy Research (CEPR))
    Abstract: We propose a methodology for measuring the market-implied capital of banks by subtracting from the market value of equity (market capitalization) a credit-spread-based correction for the value of shareholders' default option. We show that without such a correction, the estimated impact of a severe market downturn is systematically distorted, underestimating the risk of banks with low market capitalization. We argue that this adjusted measure of capital is the relevant market-implied capital measure for policymakers. We propose an econometric model for the combined simulation of equity prices and CDS spreads, which allows us to introduce this correction in the SRISK framework for measuring systemic risk.
    Keywords: Banking, Capital, Stress Test, Systemic Risk, Multifactor Model
    JEL: C32 G01 G21 G28 G32
    Date: 2022–01
  2. By: Koenig, Philipp J.; Schliephake, Eva
    Abstract: We consider a standard banking model with agency frictions to simultaneously study the weakening and reversal of monetary transmission and banks' risk-taking in a low-interest environment. Both, weaker monetary transmission and higher risk-taking arise because lower policy rates impair banks' net worth. The pass-through to deposit rates, the level of excess reserves and the extent of the agency problem between banks and depositors are crucial determinants of monetary transmission. If the deposit pass-through is sufficiently impaired, a reversal rate exists. For policy rates below the reversal rate further interest rate reductions lead to a disproportionate increase in risk-taking and a contraction in loan supply. JEL Classification: G21, E44, E52
    Keywords: bank lending, monetary policy, reversal rate, risk-taking channel
    Date: 2022–02
  3. By: Kazakov, Aleksandr; Koetter, Michael; Titze, Mirko; Tonzer, Lena
    Abstract: We study whether government subsidies can stimulate bank funding of marginal investment projects and the associated effect on financial stability. We do so by exploiting granular project-level information for the largest regional economic development programme in Germany since 1997: the Improvement of Regional Eco-nomic Structures programme (GRW). By combining the universe of subsidised firms to virtually all German local banks over the period 1998-2019, we test whether this large-scale transfer programme destabilised regional credit markets. Because GRW subsidies to firms are destabilised at the EU level, we can use it as an exogenous shock to identify bank responses. On average, firm subsidies do not affect bank lending, but reduce banks' distance to default. Average effects conflate important bank-level heterogeneity though. Conditional on various bank traits, we show that well capita-lised banks with more industry experience expand lending when being exposed to subsidised firms without exhibiting more risky financial profiles. Our results thus indicate that stable banks can act as an important facilitator of regional economic development policies. Against the backdrop of pervasive transfer payments to mitigate Covid-19 losses and in light of far-reaching transformation policies requiredto green the economy, our study bears important implications as to whether and which banks to incorporate into the design of transfer programmes.
    Keywords: bank stability,financial intermediation,government subsidies
    JEL: G21 G28 H25
    Date: 2022
  4. By: Claire Brennecke; Stefan Jacewitz; Jonathan Pogach
    Abstract: We identify a new source of bank consolidation in the United States. For decades, both the financial and real sides of the economy have experienced considerable consolidation. We show that banking-sector consolidation is, in part, a consequence of real-sector consolidation; because small banks are a disproportionate source of small-business credit, they are disproportionately exposed to shocks to small-business growth. Using a Bartik instrument based on national small-business trends and county-level industry exposure, we show that changes to the real-side demand for small-business credit is partially responsible for the relative decline in small banks’ deposits, income, and loan growth.
    Keywords: Consolidation; Banks and banking; Community banking; Relationship lending; Bartik instrument
    JEL: G21 G34 L25 R12
    Date: 2022–01–14
  5. By: Allen Head; Timothy Kam; Sam Ng; Isaac Pan
    Abstract: Using micro-level data for the U.S., we provide new evidence—at national and state levels—of a positive (negative) relationship between the standard deviation (coefficient of variation) and the average in bank lending-rate markups. In a quantitative theory consistent with these empirical observations, banks’ lending market power is determined in equilibrium and is a novel channel of monetary policy. At low inflation, banks tend to extract higher markups from existing loan customers rather than competing for additional loans. As a result, banking activity need not be welfare-improving if inflation is sufficiently low. This result speaks to concerns regarding market power in the banking sectors of low-inflation countries. Normatively, under a given inflation target, welfare gains arise if a central bank can use additional liquidity-provision (or tax-and-transfer) instruments to offset banks’ market-power incentives.
    Keywords: Banking and Credit; Markups Dispersion; Market Power; Stabilization Policy; Liquidity
    JEL: E41 E44 E51 E63 G21
    Date: 2022–02
  6. By: Jose-Maria Serena; Marina-Eliza Spaliara; Serafeim Tsoukas
    Abstract: Using a cross-country firm-bank dataset, we examine how an unexpected increase in bank capital requirements by the European Banking Authority (EBA) affects firms' financial choices. Our results first suggest that the regulatory shock implies a reduction in the supply of bank credit, with US firms affected the most. Yet, following the capital exercise, US firms are able to tap into the public bond markets and secure credit lines from nonbank financial institutions. This has implications for their capital structure and their real outcomes. These results suggest that diversified domestic loan markets, in which banks and nonbank financial institutions lend to corporations, can help overcome reductions in cross-border bank funding.
    Keywords: International bank credit, nonbank lenders, external financing
    JEL: G32 E22 F32 D22
    Date: 2022–01
  7. By: Jean-Guillaume Sahuc; Mattia Girotti; Benoît Nguyen
    Abstract: Negative interest rate policy makes excess liquidity costly to hold for banks and this may weaken the bank-based transmission of monetary policy. We design a rule-based tiering system for excess reserve remuneration that reduces the burden of negative rates on banks while ensuring that the central bank keeps control of interbank interest rates. Using euro-area data, we show that under the proposed tiering system, the aggregate cost of holding excess liquidity when the COVID-19 monetary stimulus fully unfolds would be more than 36% lower than that under the ECB’s current system.
    Keywords: Negative interest rates, excess liquidity, tiering system, bank profitability, interbank market
    JEL: E43 E52 G21
    Date: 2022
  8. By: W. Blake Marsh
    Abstract: I study investor responses to the 2020 bank stress tests that included restrictions on shareholder payouts. I find that banks subject to the stress tests and payout restrictions experienced both immediate and persistently lower excess stock price returns. In the cross-section, I find that excess stock returns declined with bank size but cannot otherwise be explained by pre-pandemic bank or payout characteristics, suggesting that investors penalized banks likely to experience greater regulatory scrutiny. However, the excess stock return penalties are smaller than those previously estimated in the literature examining voluntary payout reductions that signal bank distress. The results show that using supervisory discretion to take preventative actions during a crisis is less costly than waiting to take actions when banks are distressed.
    Keywords: Bank payout policy; Stress testing; Bank supervision
    JEL: G21 G28 G35
    Date: 2022–01–28
  9. By: Zsuzsanna Hosszu (Magyar Nemzeti Bank (Central Bank of Hungary)); Gergely Lakos (Magyar Nemzeti Bank (Central Bank of Hungary))
    Abstract: We use European and simulated Hungarian data to search for the univariate one-sided credit-to-GDP gap that predicts systemic banking crises most accurately. The credit-to-GDP gaps under review are optimized along four dimensions: (1) definition of outstanding credit, (2) forecasting method for extending credit-to-GDP time series, (3) filtering method and (4) maximum cycle length. Based on European data, we demonstrate that credit-to-GDP gaps calculated with narrow definition of outstanding credit and up to 1-year forecasts of credit-to-GDP outperform other specifications significantly and robustly. Regarding the other two dimensions, the Hodrick–Prescott filter with long cycles (popular in regulatory practice), the Christiano–Fitzgerald filter with medium-term cycles and the wavelet filter with short cycles prove to be the best. All three should be applied to credit-to-GDP time series calculated with narrow credit, and with no credit-to-GDP forecast, except the wavelet filter with short-term forecast. Credit-to-GDP gaps with most informative early warning signals exhibit the highest degree of comovement with the financial cycle, but not the lowest level of endpoint uncertainty. Analysis of Hungarian credit-to-GDP time series extended by ARIMA simulations reinforces the early warning quality of the Hodrick–Prescott credit gap and the wavelet credit gap to a lesser extent.
    Keywords: financial cycle, crises, early warning, univariate filtering methods
    JEL: C20 C52 E32 G28
    Date: 2022
  10. By: Stephanie M. Wilshusen
    Abstract: In response to the economic hardships stemming from COVID-19, many U.S. card-issuing banks offered measures to assist their customers who were financially affected by the pandemic. Unlike previous disaster assistance programs that were typically short in duration and localized, the COVID-19 pandemic affected millions of consumers across the country for a protracted period of time and required application of broad-based relief measures. These measures, along with federal and state stimulus and benefit payments, provided some stability to many consumers’ financial circumstances during the pandemic. It is important to consider how effective these measures have been at stabilizing consumer finances not just for those for whom these programs served as a bridge, but for those consumers who continue to need support after the programs have expired. This paper discusses several aspects of one relief measure implemented by banks during the pandemic: consumer credit card payment deferrals.
    Keywords: household finance; consumer credit; credit cards; payment deferral; COVID-19
    JEL: D14 G01 G28 G51 G41
    Date: 2022–02–08
  11. By: Lorenzo Ricci; Giovanni Soggia; Lorenzo Trimarchi
    Abstract: This paper investigates the impact of idiosyncratic shocks in bank lending standards on firm credit in Italy, using survey data from the Regional Bank Lending Survey to identify bank supply conditions. From 2009 to 2019, we document that a one-standard-deviation tightening in lending standards reduces firm credit growth by 0.21 percentage points and explains 4.3% of the total variation. This effect is driven mainly by liquidity provisionsto firms for credit lines. Examining the extensive margin of the bank-firm relationship, we find that a negative shock significantly impacts the probability of accepting new loan applications and the likelihood of the bank-firm relationship breaking up. We also show firms cannot smooth individual bank shocks by borrowing more from other lenders. Changes to lending standards have sizable and persistent effects on aggregatecredit and production, especially at times of high economic uncertainty.
    Keywords: Credit Growth, Bank Lending Standards, Credit Lines
    Date: 2022–01
  12. By: Berg, Tobias; Haselmann, Rainer; Kick, Thomas; Schreiber, Sebastian
    Abstract: Using granular supervisory data from Germany, we investigate the impact of unconventional monetary policies via central banks' purchase of corporate bonds. While this policy results in a loosening of credit market conditions as intended by policy makers, we document two unintended side effects. First, banks that are more exposed to borrowers benefiting from the bond purchases now lend more to high-risk firms with no access to bond markets. Since more loan write-offs arise from these firms and banks are not compensated for this risk by higher interest rates, we document a drop in bank profitability. Second, the policy impacts the allocation of loans among industries. Affected banks reallocate loans from investment grade firms active on bond markets to mainly real estate firms without investment grade rating. Overall, our findings suggest that central banks' quantitative easing via the corporate bond markets has the potential to contribute to both banking sector instability and real estate bubbles.
    Date: 2022
  13. By: Simplice A. Asongu (Yaounde, Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: The study assesses the how information sharing by means of mobile phones affects banking system efficiency in Africa with particular emphasis on income levels (Middle income versus Low income countries) and legal origins (English Common law versus French Civil law countries). The focus is on 53 African countries with data for the period 1996-2019 and the empirical evidence is based in Quantile regressions which enable the study to assess the nexus throughout the conditional distribution of banking system efficiency. The following findings are established: (i) mobile phone penetration promotes banking system efficiency in the 25th quantile and the median of banking system efficiency in low income countries while for middle income countries; it is significant exclusively in the bottom quantile (i.e. 10th quantile). (ii) With the exception of the highest (i.e. 90th) quantile in which the effect of the mobile phone is not significant in English Common law countries, the impact is significant throughout the conditional distribution of banking system efficiency in Common law countries. (iii) As for French Civil law countries, the nexus is only significant in the median and highest (i.e. 90th) quantile of the conditional distribution of banking system efficiency. Policy implications are discussed.
    Keywords: Allocation efficiency; Information asymmetry; Mobile phones
    JEL: G20 G29 L96 O40 O55
    Date: 2022–01
  14. By: Ludolph, Melina
    Abstract: This paper examines the impact of issuing contingent convertible (CoCo) bonds on bank risk. I apply a matching-based difference-in-differences approach to banklevel data for 246 publicly traded European banks and 61 CoCo issues from 2008−2018. My estimation results reveal that issuing CoCo bonds that meet the criteria for additional tier 1 (AT1) capital results in significantly higher z-scores one to three years after the issuance. Rather than having a net negative impact, issuing CoCos seems to impede a positive time trend towards greater bank stability. This study adds to the empirical literature on the risk-effect of contingent convertibles by identifying the causal effect of AT1 CoCo bonds on reported risk changes over a three-year post-treatment horizon based on a comprehensive sample of European banks. The results confirm theoretical predictions that currently outstanding CoCo bonds create incentives for excessive risk-taking.
    Keywords: AT1 capital,bank risk,Basel III,CoCo bonds
    JEL: G21 G23 G32 G38
    Date: 2022
  15. By: Juselius, Mikael; Tarashev, Nikola
    Abstract: A parsimonious extension of a well-known portfolio credit-risk model allows us to study a salient stylized fact – abrupt switches between high- and low-loss phases– from a risk-management perspective. As uncertainty about phase switches increases, expected losses decouple from unexpected losses, which reflect a high percentile of the loss distribution. Banks that ignore this decoupling have shortfalls of loss-absorbing resources, which is more detrimental if the portfolio is more diversified within a phase. Likewise, the risk-management benefits of improving phase-switch forecasts increase with diversification. The analysis of these findings leads us to an empirical method for comparing the degree of within-phase default clustering across portfolios.
    JEL: G21 G28 G32
    Date: 2022–01–26
  16. By: Edoardo Rainone (Bank of Italy)
    Abstract: Following the implementation of negative policy rates, interest rates on bank deposits reached their historic lows, with values close or equal to zero. This paper investigates the implications of such a new environment for the demand of currency. We find evidence of a structural break in the demand of currency when rates on deposits fall below 0.1 per cent. Exploiting time, bank and banknote denomination variation, as well as exogenous reforms that affected currency payments and holdings, our analysis finds that the increase of currency in circulation seems to be mostly driven by transactions instead of store-of-value demand.
    Keywords: financial stability, monetary policy, negative interest rates, deposits, zero lower bound, money demand
    JEL: E41 E42 E52 E58
    Date: 2022–02
  17. By: Léon, Florian; Weill, Laurent
    Abstract: To analyze whether the occurrence of elections affects access to credit for firms, we perform an investigation using firm-level data covering 44 developed and developing countries. The results show that elections impair access to credit. Specifically, firms are more credit-constrained in election years and pre-election years as elections exacerbate political uncertainty. While lower credit demand is a tangible negative effect of elections, their occurrece per se does not seem to affect credit supply. We further establish that the design of political and financial systems affects how elections influence access to credit.
    JEL: G21 D72 O16
    Date: 2022–02–09
  18. By: Simplice A. Asongu (Yaounde, Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: This study focuses on linkages between bank accounts and supply-side mobile money drivers for mobile money innovations. It seeks to understand how bank accounts can be complemented with mobile subscription and mobile connectivity dynamics (i.e., mobile connectivity coverage and mobile connectivity performance) for mobile money innovations. The empirical evidence is based on quadratic Tobit regressions. First, there are positive net relationships from the roles of mobile subscriptions and mobile connectivity coverage in modulating bank accounts for mobile money innovations. Second, mobile connectivity performance does not significantly modulate bank accounts for mobile money innovations. Third, given the negative marginal relationships associated with the positive net relationships, thresholds for complementary policies in mobile money supply factors that are worthwhile for bank accounts to stimulate mobile money innovations are provided. The thresholds are: (i) mobile subscription rates of 87.50%, 80.50%, and 98.50% of the adult population for respectively, the mobile money accounts, the mobile used to send money, and the mobile used to receive money, and (ii) mobile connectivity coverages of 64.00%, 69.33%, and 78.00% for respectively, the mobile money accounts, the mobile used to send money, and the mobile used to receive money.
    Keywords: Mobile money; technology diffusion; financial inclusion; inclusive innovation
    JEL: D10 D14 D31 D60 O30
    Date: 2022–01
  19. By: Michel Alexandre (Central Bank of Brazil and Institute of Mathematics and Computer Science, University of Sao Paulo, Sao Carlos, Brazil); Gilberto Tadeu Lima (Department of Economics, University of Sao Paulo, Brazil); Luca Riccetti (Department of Economics and Law, University of Macerata, Italy); Alberto Russo (Department of Management, Università Politecnica delle Marche, Ancona, Italy and Department of Economics, Universitat Jaume I, Castellón, Spain)
    Abstract: The purpose of this paper is to contribute to a further understanding of the impact of monetary policy shocks on a financial network, which we dub the “financial network channel of monetary policy transmisión”. To this aim, we develop an agent-based model (ABM) in which banks extend loans to firms. The bank-firm credit network is endogenously time-varying as determined by plausible behavioral assumptions, with both firms and banks being always willing to close a credit deal with the network partner perceived to be less risky. We then assess through simulations how exogenous shocks to the policy interest rate affect some key topological measures of the bank-firm credit network (density, assortativity, size of largest component, and degree distribution). Our simulations show that such topological features of the bank-firm credit network are significantly affected by shocks to the policy interest rate, and this impact varies quantitatively and qualitatively with the sign, magnitude, and duration of the shocks.
    Keywords: Financial network, monetary policy shocks, agent-based modeling
    JEL: C63 E51 E52 G21
    Date: 2022
  20. By: Massoc, Elsa Clara
    Abstract: Since the 2008 financial crisis, European largest banks' size and business models have largely remained unchallenged. Is that because of banks' continued structural power over States? This paper challenges the view that States are sheer hostages of banks' capacity to provide credit to the real economy - which is the conventional definition of structural power. Instead, it sheds light on the geo-economic dimension of banks' power: key public officials conceive the position of "their own" market-based banks in global financial markets as a crucial dimension of State power. State priority towards banking thus result from political choices over what structurally matters the most for the State. Based on a discourse analysis of parliamentary debates in France, Germany and Spain between 2010 and 2020 as well as on a comparative analysis of the implementation of a special tax on banks in the early 2010s, this paper shows that State's Finance ministries tend to prioritize geo-economic considerations over credit to firms. By contrast, Parliaments tend to prioritize investment. Power dynamics within the State thus largely shape political priorities towards banking at the domestic and international levels.
    Keywords: structural power,States,banks,geo-economics,institutions
    Date: 2022
  21. By: Sabina Marchetti (Bank of Italy)
    Abstract: Deepfakes are digital forgeries. They are highly credible multimedia representations of altered or fabricated events, created using sophisticated artificial intelligence (AI) techniques. Despite the remarkable contribution of the underlying technology to innovation in several fields, deepfakes per se are a powerful weapon for disinformation and fraudulent operations. In the financial sector, the increasing importance of online platforms for payments and banking exposes consumers and retail investors to AI-enabled attacks. Moreover, at the macro level, malicious dissemination of deepfakes through information channels such as social media can sow distrust toward financial institutions, and ultimately have systemic effects. In this paper, we describe the rapidly evolving deepfake technology, with a focus on the threats it poses to the financial sector. We then propose an analytical approach and a set of policy instruments for the effective countering of malicious deepfakes.
    Keywords: deepfakes, artificial intelligence, disinformation, financial system
    JEL: O31 O32
    Date: 2022–02
  22. By: David M. Arseneau; Grace Brang; Matt Darst; Jacob M. M. Faber; David E. Rappoport; Alexandros Vardoulakis
    Abstract: This paper uses data from the Financial Accounts of the United States to map out the regulatory boundaries of assets held by U.S. financial institutions from a macroprudential perspective. We provide a quantitative measure of the regulatory perimeter—the boundary between the part of the financial sector that is subject to some form of prudential regulatory oversight and that which is not—and show how it has evolved over the past forty years. Additionally, we measure the boundaries between different regulatory agencies and financial institutions that operate within the regulatory perimeter and illustrate how these boundaries potentially become blurred in the face of regulatory overlap. Quantifying the regulatory perimeter and the boundaries for macroprudential regulators within the perimeter is informative for assessing financial stability risks over the credit cycle.
    Keywords: Regulation; Regulatory reach; Boundary problem; Financial institutions
    JEL: E58 G18 G28
    Date: 2022–01–14
  23. By: Massimo Casa (Bank of Italy); Laura Graziani Palmieri (Bank of Italy); Laura Mellone (Bank of Italy); Francesca Monacelli (Bank of Italy)
    Abstract: The paper illustrates the phases of the process that the Bank of Italy follows to produce the statistics derived from credit and financial reporting: the identification of the information requirements; the definition of the data model; the design of the new data collection method to be used by reporting agents; cooperation between the Bank of Italy and reporting agents; data quality procedures; and dissemination of this information to internal and external users. This process takes an ‘integrated approach’ and was adopted by the Bank of Italy in the late 1980s. For the last decade, it has been a reference point for the European System of Central Banks both as regards the development of the statistical framework and for the efficiency improvements in data management and data governance on the part of the authorities. The Bank of Italy takes part in these initiatives providing a valuable contribution in terms of ideas and experience.
    Keywords: regulatory reporting, banking reporting, data model, data quality, information management, statistical production, information system
    JEL: C81 G21 M15
    Date: 2022–02
  24. By: Carlos A. Arango-Arango; Ana Carolina Ramirez-Pineda; Manuela Restrepo-Bernal
    Abstract: More than 60 countries in the world have already implemented instant payment systems (IPS). However, in many cases they have been operational mainly for person-to-person transactions. This study looks at the challenges IPS may face in developing economies like Colombia as they advance further into the P2B transactions space. Using a survey on Colombian merchants (IV-2020), the study explores the factors associated with merchants´ propensity to adopt instant payments and those associated with the adoption of current electronic payment alternatives. It shows that IPS will need to have a broad strategy to penetrate the P2B space, as they will have to compete with the low marginal costs and immediacy that cash already offers and the high levels of informality in the commerce sector, especially for micro businesses. Furthermore, IPS will have to meet the high expectations merchants have about instant payments enabling access to other financial services, enhancing their competitiveness, and increasing their bottom line. **** RESUMEN: Más de 60 países en el mundo han implementado sistemas de pagos inmediatos. Sin embargo, en muchos casos dichos sistemas tan solo ofrecen transferencias entre personas. Esta investigación analiza los desafíos que deben enfrentar los sistemas de pagos inmediatos en economías en desarrollo como la colombiana para profundizar sus servicios en el comercio al por menor. Con base en la encuesta a comercios realizada por el Banco de la República en el cuarto trimestre de 2020, la investigación explora los factores asociados a la disposición de los comercios a adoptar pagos inmediatos y otras alternativas electrónicas de pago. Los resultados confirman que los sistemas de pagos inmediatos necesitan de una estrategia clara para lograr consolidarse en el comercio al por menor. En particular, estos deben competir con los bajos costos marginales y la inmediatez en la disponibilidad de los fondos que ofrece el efectivo y los elevados niveles de informalidad, especialmente entre los micro comercios. Además, los servicios de pago inmediatos deberán cumplir con las altas expectativas que tienen los comercios de mejorar el acceso a los servicios financieros, incrementar su competitividad y mejorar su rentabilidad.
    Keywords: Instant payments, faster payments, mobile payments, cash and electronic payments, merchants, retail payments, cards, bank transfers, Pagos inmediatos, pagos móviles, pagos electrónicos, pagos en efectivo, comercios, pagos de bajo valor, pagos con tarjetas, transferencias electrónicas
    JEL: D23 D40 G20 G21 G28 E41 E58
    Date: 2022–02
  25. By: Oliver de Groot; Alexander Haas
    Abstract: Negative interest rates remain a controversial policy for central banks. We study a novel signalling channel and ask under what conditions negative rates should exist in an optimal policymaker’s toolkit. We prove two necessary conditions for the optimality of negative rates: a time-consistent policy setting and a preference for policy smoothing. These conditions allow negative rates to signal policy easing, even with deposit rates constrained at zero. In an estimated model, the signalling channel dominates the costly interest margin channel. However, the effectiveness of negative rates depends sensitively on the degree of policy inertia, level of reserves, and ZLB duration.
    Keywords: Monetary policy, Taylor rule, forward guidance, liquidity trap
    JEL: E44 E52 E61
    Date: 2022
  26. By: Andreas Fuster (Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute; Centre for Economic Policy Research (CEPR)); David O. Lucca (Federal Reserve Banks - Federal Reserve Bank of New York); James I. Vickery (Federal Reserve Bank of Philadelphia)
    Abstract: This paper reviews the mortgage-backed securities (MBS) market, with a particular emphasis on agency residential MBS in the United States. We discuss the institutional environment, security design, MBS risks and asset pricing, and the economic effects of mortgage securitization. We also assemble descriptive statistics about market size, growth, security characteristics, prepayment, and trading activity. Throughout, we highlight insights from the expanding body of academic research on the MBS market and mortgage securitization.
    Keywords: mortgage finance, securitization, agency mortgage-backed securities, TBA, option-adjusted spreads, covered bonds.
    JEL: G10 G12 G21
    Date: 2022–02
  27. By: Christian Loenser (University of Cologne); Joost Röttger (Deutsche Bundesbank); Andreas Schabert (University of Cologne)
    Abstract: This paper examines financial regulation and distortionary taxes in a heterogeneous-agents economy with pecuniary externalities induced by a collateral constraint. Limiting of the loan-to-value benefits only few unconstrained borrowers and reduces ex-ante social welfare. A Pigouvian-style symmetric debt tax (that subsidizes savings) raises collateral prices and lowers interest rates, which stimulates borrowing and generates welfare gains for almost all income groups. A Pigouvian-style asset subsidy induces a wealth appreciation, while an asset tax particularly benefits low-wealth borrowers and enhances social welfare. Overall, collateral effects are of minor importance and interest rate rather than asset price responses are decisive for welfare effects.
    Keywords: Financial regulation, heterogeneous agents, collateral constraint, pecuniary externalities
    JEL: D31 E44 G28 H23
    Date: 2022–02
  28. By: Maximiliano Gómez Aguirre Author-Email: Author-Workplace-Name: Central Bank of Argentina; Ariel Krysa (Central Bank of Argentina)
    Abstract: With the aim of quantifying the effect of the decrease in interest rates on consumer loans (both credit cards and personal loans, in local currency to the non-financial private sector) in Argentina between March and December 2020, monthly error correction models are estimated, and counterfactual scenarios are developed for each of the credit lines. The sample that is used includes the period 2004-2020 and the determinants are the corresponding interest rates and economic activity measures. As an alternative case, it is assumed that interest rates would have been fixed in 2020 at the values of February that year and/or that the parameters of elasticities that operated in the consumer credit markets were those associated with the pre-COVID-19 context. The counterfactual scenarios implemented within the econometric models suggest that the decline in the interest rate would have cushioned, with different magnitudes throughout 2020, the fall caused by effects of the pandemic both in the credit cards and personal loans real balances.
    Keywords: consumption credit, COVID-19 crisis, Argentina, credit cards, personal loans
    JEL: C01 E21 E50
    Date: 2022–01
  29. By: Lenney, Jamie (Bank of England)
    Abstract: I analyse the role of capital income in the transmission of demand shocks, such as monetary policy shocks, in a medium scale DSGE model that produces an empirically consistent counter-cyclical response of the labour share to monetary policy shocks. This is achieved by augmenting the one sector New Keynesian model with an alternate form of labour that seeks to expand the measure of goods available to consumers. I compare and contrast the transmissions of monetary policy shocks in the one sector ‘textbook’ model relative to the augmented model in both a representative agent (RANK) and heterogeneous agent (HANK) setting that includes a fully endogenous wealth distribution. The comparison highlights the role of capital income in the transmission of monetary policy shocks in these models. When the labour share moves counter-cyclically partial equilibrium decomposition’s of monetary policy transmission show a significant contractionary role for capital income.
    Keywords: DSGE; DCT; expansionary labour; HANK; inequality; intangible; New Keynesian; perturbation
    JEL: D31 E12 E21 E52 L29
    Date: 2022–01–07
  30. By: María Bru Muñoz (Banco de España)
    Abstract: Is financial exclusion after default a relevant driver of sovereign default incentives? I find new evidence that suggests that this is not the case, and that there are substantial differences in the behavior of different lenders after a sovereign default. Private lenders tend to decrease their funding to developing countries that have defaulted to banks or to the Paris Club. But the financing from official creditors, i.e. bilateral and multilateral, remains mainly unaffected by the different sovereign defaults, only with some exceptions mostly related to defaults to multilateral lenders. This different pattern for official financing is very relevant since official loans are the main source of funds for developing economies. Official creditors continue offering funding to countries even after default, casting doubt on the relevance of one of the main assumptions in sovereign default models, the so-called financial exclusion.
    Keywords: sovereign default, financial exclusion, heterogeneous lenders, official creditors, emerging markets.
    JEL: F34 G15
    Date: 2022–02
  31. By: Sylvain Bellefontaine,; Cécile Duquesnay,; Marion Hémar,; Benoît Jonveaux,; Maëlan Le Goff,; Emmanuelle Monat,; Meghann Puloc’h,; Maxime Terrieux,; Luciana Torrellio,; Cécile Valadier,; Alix Vigato.
    Abstract: An increased recourse to financing from the domestic banking sector has proved to be an important source of resilience for many developing countries in their efforts to face expenditures generated by the Covid-19 crisis. The second issue of MacroDev Semestrial Panorama offers an analysis of the consequences of an increase in sovereign indebtedness to the local financial sector and of the risks associated with this closer interconnection between states, central banks and commercial banks. Ten brief country surveys complement the issue and, through a summary of the main economic and financial challenges faced by these countries, illustrate the stakes of financing in developing economies.
    Keywords: Cameroun, Éthiopie, Ghana, Kenya, Togo, Brésil, Costa Rica, Indonésie, Liban, République dominicaine
    JEL: E
    Date: 2022–02–02
  32. By: Neyer, Ulrike; Stempel, Daniel
    Abstract: Empirical evidence suggests that considerable differentials in inflation rates exist across households. This paper investigates how central banks should react to household inflation heterogeneity in a tractable New Keynesian model. We include two households that differ in their consumer price inflation rates after adverse shocks. The central bank reacts to either an average of the households' consumer price inflation rates or their individual rates, respectively. After a negative demand shock, the consumer price inflation rates of both households diverge less from their steady states when the central bank only considers the individual inflation rate of the household experiencing the higher inflation rate. Furthermore, output fluctuates less under that regime. After a negative supply shock, a central bank only considering the household experiencing the higher inflation rate mitigates the immediate effects of the shock on both consumer price inflation rates more effectively. Our results imply that central banks, which react discretionarily to differing inflation experiences in an economy, lead to a more efficient attainment of an economy-wide inflation target and to lower fluctuations of all inflation rates.
    Keywords: Business cycles,inflation,inequality,household heterogeneity,New Keynesian models
    JEL: E31 E32 E52
    Date: 2022
  33. By: Donato Ceci (Bank of Italy); Andrea Silvestrini (Bank of Italy)
    Abstract: This paper compares several methods for constructing weekly nowcasts of recession probabilities in Italy, with a focus on the most recent period of the Covid-19 pandemic. The common thread of these methods is that they use, in different ways, the information content provided by financial market data. In particular, a battery of probit models are estimated after extracting information from a large dataset of more than 130 financial market variables observed at a weekly frequency. The predictive accuracy of these models is explored in a pseudo out-of-sample forecasting exercise. The results demonstrate that nowcasts derived from probit models estimated on a large set of financial variables are, on average, more accurate than standard probit models estimated on a single financial covariate, such as the slope of the yield curve. The proposed approach performs well even compared with probit models estimated on single time series of real economic activity, such as industrial production, or on composite PMI indicators. Overall, the financial indicators used in this paper can be easily updated as soon as new data become available on a weekly basis, thus providing a reliable real-time dating of the Italian business cycle.
    Keywords: financial markets, probit models, factor-augmented probit models, model confidence set, penalized likelihood, forecast evaluation
    JEL: C22 C25 C53 E32
    Date: 2022–02
  34. By: Valentin Jouvanceau (Bank of Lithuania); Julien Albertini (GATE, University of Lyon); Stéphane Moyen (Deutsche Bundesbank)
    Abstract: This paper proposes a new strategy for modeling and solving state-dependent forward guidance policies (SCFG). We study its transmission channels using a DSGE model with search and matching frictions in which agents account for the fact that the SCFG is an endogenous regime-switching system. A fully credible SCFG causes a boom in inflation and output but no rapid exit from the ZLB. Thus, the transmission of its effects is primarily through the realization of additional ZLB periods more than through changes in expectations. We next consider the implications of imperfect credibility. In this case of uncertainty, an SCFG is less impactful. Finally, using counterfactual experiments on the December 2012 FOMC statement, we find that it led to about 1.5 pp gain in unemployment and 0.5 pp in inflation.
    Keywords: New Keynesian model, Search and matching, ZLB, Forward guidance.
    JEL: E30 J60
    Date: 2022–01–25
  35. By: Alessandro Ferrari (Bank of Italy); Valerio Nispi Landi (Bank of Italy)
    Abstract: In a DSGE model, we study the effectiveness of a Green QE, i.e. a program of green-asset purchases by the central bank, along the transition to a carbon-free economy. The model is characterized by green firms that produce using a clean technology and brown firms that pollute but they can pay a cost to abate emissions. The transition is driven by an emission tax. We analyze the evolution of macroeconomic variables along the transition and we compare different versions of Green QE. We show two main findings, in our baseline calibration, where the green and the brown goods are imperfect substitutes. First, Green QE helps to further reduce emissions along the transition, but its quantitative impact on the stock of pollution is small. Second, we find the largest effects when the central bank invests in green assets in the early stage of the transition. Moreover, we highlight that the elasticity of substitution between the green and the brown good is a crucial parameter: if the goods are imperfect complements (an elasticity lower than one), Green QE raise emissions.
    Keywords: central bank, monetary policy, quantitative easing, climate change
    JEL: E52 E58 Q54
    Date: 2022–02

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