nep-ban New Economics Papers
on Banking
Issue of 2022‒02‒28
35 papers chosen by
Sergio Castellanos-Gamboa, , Pontificia Universidad Javeriana

  1. Pandemic Recession and Helicopter Money: Venice, 1629--1631 By Charles Goodhart; Donato Masciandaro; Stefano Ugolini
  2. Servicios Financieros Digitales en Colombia: Una caracterización y análisis de riesgos potenciales By José Bran-Guevara; Luisa Fernanda Hernández-Ávila; Daniela McAllister-Harker
  3. Making Money By Gary B. Gorton; Chase P. Ross; Sharon Y. Ross
  4. Impact of Interest Rate Cap Policies on the Lending Behavior of Microfinance Institutions: Evidence from Millions of Observations in the Credit Registry Database By Daiju Aiba; Sovannroeun Samreth; Sothearoath Oeur; Vanndy Vat
  5. Monetary Policy Frameworks: An Index and New Evidence By Mr. Chris Papageorgiou; Hendre Garbers; D. Filiz Unsal
  6. Average Inflation Targeting: Time Inconsistency and Intentional Ambiguity By Chengcheng Jia; Jing Cynthia Wu
  7. The Effect of Social Comparison on Debt Taking: Experimental Evidence By Antonia Grohmann; Melanie Koch
  8. The Changing Role of Banks in the Financial System: Social versus Conventional Banks By Simon Cornée; Anastasia Cozarenco; Ariane Szafarz
  9. Macroeconomic shocks and cedit risk in the Kenyan banking sector By Atiti, Faith; Kimani, Stephanie; Agung, Raphael
  10. State-owned banks and credit allocation in India: Evidence from an asset quality review By Das, Abhiman; Mohapatra, Sanket; Nigania, Akshita
  11. Foreign Demand for U.S. Treasury Securities during the Pandemic By Colin Weiss
  12. Asserting Independence: Optimal Monetary Policy When the Central Bank and Political Authority Disagree By Justin Svec; Daniel L. Tortorice
  13. What drives MSME's credit choices? Business versus personal loan account utilization in Kenya By Mulindi, Hillary; Josea, Kiplangat; Tiriongo, Samuel
  14. A Lawyer's Perspective on U.S. Payment System Evolution and Money in the Digital Age By Jess Cheng; Joseph Torregrossa
  15. When savings are not counted as savings: The missed opportunity to use home equity to stimulate the U.S. economy By De Koning, Kees
  16. Fifty shades of hatred and discontent: Varieties of anti-finance discourses on the European Twitter (France, Germany, Italy, Spain and the UK) By Massoc, Elsa Clara
  17. Money, credit and imperfect competition among banks By Allen Head; Timothy Kam; Sam Ng; Isaac Pan
  18. What’s ahead for euro money market benchmarks? By Daniela Della Gatta
  19. Central Bank Digital Currency: What Basis Should be Taken for Crypto Assets? By PINSHI, Christian P.
  20. Sovereign Debt Sustainability and Central Bank Credibility By Tim Willems; Mr. Jeromin Zettelmeyer
  21. Corporate environmental responsibility, financial performance, and international bank loans: Evidence from China By Huang, Yin-Siang; Lu, You-Xun
  22. Falling Use of Cash and Demand for Retail Central Bank Digital Currency By Mr. Tanai Khiaonarong; David Humphrey
  23. Gender diversity in the non-financial reporting of Italian banks By Emanuela Atripaldi; Nicole Gila; Alessia Musco; Ulrike Sauwervald
  24. Bank capital, credit risk and financial stability in Kenya By Kiemo, Samuel; Talam, Camilla; Rugiri, Irene W.
  25. Is Better Access to Mobile Networks Associated with Increased Mobile Money Adoption? Evidence from the Micro-data of Six Developing Countries By Hisahiro Naito; Shinnosuke Yamamoto
  26. Climate Risk Measurement of Assets Eligible as Collateral for Refinancing Operations – Focus on Asset Backed Securities (ABS) By Klodiana Istrefi; Florens Odendahl; Giulia Sestieri
  27. Usability of Bank Capital Buffers: The Role of Market Expectations By Antonio Garcia Pascual; José Abad
  28. Reciprocity vs. commitment in bank marketing strategies By Da Silva, Sergio; Matsushita, Raul; Santo, Barbara Espirito; Sigrist, Felipe
  29. Liquidity, Liquidity Everywhere, Not a Drop to Use - Why Flooding Banks with Central Bank Reserves May Not Expand Liquidity By Viral V. Acharya; Raghuram Rajan
  30. Taxing Banks Leverage and Syndicated Lending: A Cross-Country Comparison By Aurore Burietz; Steven Ongena; Matthieu Picault
  31. Contagion in the Banking Industry: a Robust-to-Endogeneity Analysis By Sophie Béreau; Nicolas Debarsy; Cyrille Dossougoin; Jean-Yves Gnabo
  32. Security Considerations for a Central Bank Digital Currency By Katya Delak; Tarik Hansen
  33. Shocks to Inflation Expectations By Jonathan J Adams; Philip Barrett
  34. Spillovers at the Extremes: The Macroprudential Stance and Vulnerability to the Global Financial Cycle By Anusha Chari; Karlye Dilts Stedman; Kristin Forbes
  35. The real effects of bank lobbying: Evidence from the corporate loan market By Delis, Manthos; Hasan, Iftekhar; To, Thomas; Wu, Eliza

  1. By: Charles Goodhart (LEREPS); Donato Masciandaro (LEREPS); Stefano Ugolini (LEREPS)
    Abstract: We analyse the money-financed fiscal stimulus implemented in Venice during the famine and plague of 1629--31, which was equivalent to a 'net-worth helicopter money' strategy -- a monetary expansion generating losses to the issuer. We argue that the strategy aimed at reconciling the need to subsidize inhabitants suffering from containment policies with the desire to prevent an increase in long-term government debt, but it generated much monetary instability and had to be quickly reversed. This episode highlights the redistributive implications of the design of macroeconomic policies and the role of political economy factors in determining such designs.
    Date: 2022–01
  2. By: José Bran-Guevara; Luisa Fernanda Hernández-Ávila; Daniela McAllister-Harker
    Abstract: Este documento presenta un análisis de los avances en servicios de crédito y pagos digitales en Colombia, con énfasis en sus características y riesgos potenciales que enfrentan los usuarios, oferentes de servicios y la banca central. Para cumplir con este propósito se llevaron a cabo consultas y simulaciones de solicitud de servicios en sitios web de algunos oferentes destacados. Entre sus características destaca la existencia de costos para los usuarios que pueden limitar su aceptación y uso. En relación a los riesgos potenciales, es posible reconocer algunos presentes en los servicios financieros tradicionales, como los asociados a la solvencia de los captadores de dinero, el crecimiento del crédito, el riesgo de no pago y el sobreendeudamiento de los hogares; mientras que otros son propios de los servicios digitales, como el fraude electrónico o la participación de actores no regulados en la oferta de servicios financieros, lo que podría afectar la estabilidad financiera y la efectividad de la política monetaria del banco central. Finalmente, el documento resalta la posición actual de la regulación financiera en Colombia frente a la promoción de servicios financieros digitales y algunas medidas que pueden apoyar esta labor y la mitigación de riesgos. Entre otras, son importantes la promoción de la educación económica, financiera y tecnológica, y la actualización de la regulación de los sistemas de pago de bajo valor en el país. **** ABSTRACT: This document analyses recent developments in digital credit and payments platforms in Colombia. It explores digital financial services characteristics, and the potential risks faced by users, providers, and the central bank. We compiled information obtained by simulated products requests on some digital financial services providers' websites. identify We Identified the presence of costs associated with the use of financial digital services, which can constrain users' acceptance and further expansion of these types of services. Furthermore, we recognized intrinsic risks associated with digital services such as electronic fraud and the emergence of unregulated institutions in the financial system, which could impact financial stability and the effectiveness of the monetary policy. Finally, the document presents how digital financial services are promoted in Colombia and some recommendations to financial authorities to foster its usage and mitigate risks. Some of those measures are related to the promotion of economic, financial, and technological education programs and the update of the low-value payment systems regulation.
    Keywords: Crédito digital, pagos digitales, servicios financieros, regulación financiera, digital credit, digital payments, financial services, financial regulation
    JEL: E42 E58 G28 G21
    Date: 2022–02
  3. By: Gary B. Gorton; Chase P. Ross; Sharon Y. Ross
    Abstract: It is difficult for private agents to produce money that circulates at par with no questions asked. We study two cases of privately-produced money: pre-Civil War U.S. private banknotes and modern stablecoins. Private monies are introduced when there are no better alternatives, but they initially carry an inconvenience yield. Over time, these monies may become more money-like, but they do not always achieve a positive convenience yield. Technology advances and reputation formation pushed private banknotes toward a positive convenience yield. We show that the same forces are at work for stablecoins.
    JEL: E02 E4 E41 E42 E51 G1 G21
    Date: 2022–01
  4. By: Daiju Aiba; Sovannroeun Samreth; Sothearoath Oeur; Vanndy Vat
    Abstract: In April 2017, the Cambodian central bank introduced an interest rate cap (IR cap) policy relating to lending by microfinance institutions (MFIs). There was no restriction on lending rates before the policy implementation and many of the MFIs was lending at a rate of more than 18%. Thus, there was some concern about the negative effects the IR cap policy may have on outreach efforts by MFIs. This paper explores the impact of the IR cap on MFIs, by accessing granular data from the credit registry database in Cambodia. We use 6,897,168 individual loans from all regulated financial institutions, including commercial banks, specialized banks, and microfinance institutions in the period from January 2016 to March 2019. We find that both the average size per loan and the probability of requiring collateral increased after the IR cap policy was introduced for MFIs, as small-sized loans and non-collateral loans are typically costly for microfinance institutions to extend. In addition, we found that the borrowers of small-sized loans before the IR cap were likely to be excluded from the formal financial market after the IR cap. Those findings suggest that the IR cap did have an impact on the outreach of financial systems.
    Keywords: Interest Rate Cap, Microfinance, Cambodia, Regulation, Bank Lending
    Date: 2022–01
  5. By: Mr. Chris Papageorgiou; Hendre Garbers; D. Filiz Unsal
    Abstract: We provide a multidimensional characterization of monetary policy frameworks across three pillars: Independence and Accountability, Policy and Operational Strategy, and Communications (IAPOC). We construct the IAPOC index by analyzing central banks’ laws and websites for 50 advanced economies, emerging markets, and low-income developing countries, from 2007 to 2018. Due to its scope and granularity, our index provides a holistic view of monetary policy frameworks which goes beyond existing measures of transparency or independence, as well as monetary policy or exchange rate regime classifications. Comparing the IAPOC index across countries and over time, we find that monetary policymaking is varied, fast-changing, and eclectic across the Policy and Operational Strategy and Communications pillars, especially in emerging markets and low-income developing countries.
    Keywords: Monetary Policy, Monetary Policy Regime, Exchange Rate Regime, Central Banks, Central Bank Independence, Central Bank Transparency
    Date: 2022–01–28
  6. By: Chengcheng Jia; Jing Cynthia Wu
    Abstract: We study the implications of the Fed’s new policy framework of average inflation targeting (AIT) and its ambiguous communication. The central bank has the incentive to deviate from its announced AIT and implement inflation targeting ex post to maximize social welfare. We show two motives for ambiguous communication about the horizon over which the central bank averages inflation as a result of time inconsistency. First, it is optimal for the central bank to announce different horizons depending on the state of the economy. Second, ambiguous communication helps the central bank gain credibility.
    JEL: E31 E52
    Date: 2022–01
  7. By: Antonia Grohmann; Melanie Koch
    Abstract: A number of studies show that there is a link between social comparison and high levels of household debt. However, the exact mechanisms behind this link are not yet well understood. In this paper, we disentangle two mechanisms by performing a lab experiment designed to study the effects of social image concerns and peer information on consumption choices financed through debt taking. We find that having to announce one’s consumption decision publicly makes participants less likely to take debt and more likely to leave money on the table. The more information participants receive about other participants’ choices, the more they seem to conform to these choices, leading to slightly increased debt taking and leaving money on the table.
    Keywords: Household finance, lab experiment, social comparison, peer effects
    JEL: D14 G51 D91
    Date: 2022
  8. By: Simon Cornée; Anastasia Cozarenco; Ariane Szafarz
    Abstract: Social banks have emerged as a new group of banks that call themselves as “alternative”, “ethical”, “sustainable”, and “value-based”. Their small market share increases at a rapid pace and is still expected to grow in the future. Social banks are institutions with both (at least some) activities of financial intermediation and one or several non-financial missions, typically based on environmental and social values. By unpacking the observable, real-life differences between social banks and conventional banks, this chapter paves the way to theorizing the multidimensional characteristics of social banks within the global banking industry. Business models, governance issues, lending technologies; and social outcomes appear to be key aspects to understand how innovative, value-based, social banks work and how they might one day substantively affect mainstream banking business.
    Keywords: Social Banks; Ethical Banks; Social Mission; Financial Cooperatives; Microcredit
    JEL: G21 B55 H23 G32 G28 H81
    Date: 2022–02–22
  9. By: Atiti, Faith; Kimani, Stephanie; Agung, Raphael
    Abstract: This paper examines how macroeconomic shocks affect credit risk in the Kenyan banking sector. Using an autoregressive distributed lag (ARDL) model within a time-series framework, we establish the existence of both a short-run and long-run nexus between macroeconomic variables and bank-credit risk. We establish a negative relationship between credit risk and GDP growth although not significant. We also find that the relationship between bank profitability and asset quality is negative in the short-run but positive in the long-run. The paper also documents a positive short-run relation between asset quality and private sector credit growth, which turns negative in the longrun. Furthermore, the bank asset quality-capital nexus is positive in the short-run but turns negative in the long-run. The concave relationship suggest that NPLs will rise with increases in capital to a certain threshold (moral hazard effect), after which more capital build ups decrease NPLs (disciplinary or regulatory effect). Finally, the speed of adjustment coefficient is negative and statistically significant. A shock in any period is self-correcting at a rate of 24.96%, implying that the long-run market equilibrium is restored within a period of four quarters.
    Date: 2022
  10. By: Das, Abhiman; Mohapatra, Sanket; Nigania, Akshita
    Abstract: This paper examines the role of state-owned banks’ presence in allocation of credit to different sectors in India using the central bank's Asset Quality Review (AQR) as a quasi-natural experiment. The AQR resulted in a larger increase in non-performing loans of state-owned banks as compared to other banks. We exploit the heterogeneity in the presence of state-owned and other banks across districts to identify the supply side channels for bank credit reallocation. Using a difference-in-differences analysis, we find that the top-third of districts based on presence of state-owned banks' branches experienced a higher fall in the share of credit to the industrial sector in the post-AQR period compared to other districts. Such districts also experienced a greater increase in retail loans, which are considered less risky compared to industrial loans. Further, an analysis using a panel vector autoregression finds that the AQR, through an increase in non-performing loans of state-owned banks, led to a decrease in economic growth at the district-level. The results of this study suggest that central bank policy reforms can influence bank credit allocation at the sub national level and have real economy effects.
    Date: 2022–02–23
  11. By: Colin Weiss
    Abstract: Foreign investors hold a sizable amount of U.S. Treasury securities—$7.5 trillion or about 35 percent of the total outstanding—so net purchases by foreign investors receive significant attention from a variety of sources, including academic researchers, finance professionals, and journalists. During the pandemic, foreign demand for U.S. Treasury securities has received scrutiny for a variety of reasons, including the contribution of foreign investors to the massive selloff in March 2020 (Duffie, 2020; Vissing-Jorgensen, forthcoming) and the ability of foreign investors to absorb additional Treasury securities as the Federal Reserve prepares to taper its asset purchases (Duguid and Rennison, 2021).
    Date: 2022–01–28
  12. By: Justin Svec (College of the Holy Cross); Daniel L. Tortorice (College of the Holy Cross)
    Abstract: A central bank has preferences that differ from the political authority. While the central bank is independent, i.e. it maximizes its own preferences, households do not know this. Instead, households observe the interest rate choices of the central bank and update their beliefs regarding central bank independence using Bayesian learning. We solve for the optimal interest rate policy in a New-Keynesian model where the central bank considers the effect of its policy decision on the households’ beliefs that it is independent. The model provides a theoretical measure of central bank independence and a mapping from this level of independence to expected future losses for the central bank. Because the central bank suffers large losses when it is not perceived as independent, the central bank may choose a policy that is quite distant from its rational expectations counterpart to bolster the perception of its independence. We show that productivity shocks provide greater scope for the central bank to demonstrate its independence than do demand shocks, leading the central bank to deviate more aggressively from the benchmark rational expectations policy choice for the former shock than for the latter. Finally, varying perceptions of independence over time generate time varying volatility in interest rate policy and macroeconomic outcomes.
    Keywords: Monetary Policy, Central Bank Independence, Learning
    JEL: E52 E58 D83
    Date: 2022–02
  13. By: Mulindi, Hillary; Josea, Kiplangat; Tiriongo, Samuel
    Abstract: With most economies seeking to tap on MSMEs to navigate beyond the devastating impact of Covid-19, this paper seeks to create an understanding of the MSMEs demand-side credit perspectives. Using 279 MSMEs from the KBA Inuka Enterprise program, we anchor our analysis on a three-step probit model with sample selection to examine the choices on the utilization of business versus personal accounts among MSMEs. The results reveals that the level of MSMEs turnover affect the choice to borrow, who to borrow from and the type of loan to pursue (between personal and business loan). However, the tendency of MSMEs with turnovers of over Ksh 500,000 leaning more towards the utilization of personal over business accounts remains a puzzle. Further, the age of enterprise is important for the decision to take a bank loan or other loans, with the implication that MSMEs need to have a long-term view over their businesses to be attractive to long-term funders (banks). Heterogeneity across the industry is evident and it influences MSMEs credit choices. The gender of MSME owner influences the use of a business or personal account for loans, as the results indicate men use their business accounts more than women. Lastly, registration status of MSMEs matters in accessing business loans. From the policy perspective, discussions around lessening the credit accessibility constraints imposed by turnover levels, the age of enterprise, industry of operation, gender and registration status of enterprises are key.
    Date: 2022
  14. By: Jess Cheng; Joseph Torregrossa
    Abstract: Take a close look at something that is widely used by the general public as "money"—a Federal Reserve note, a deposit with a bank, a balance with a nonbank payment company (such as PayPal or Venmo), or perhaps even a cryptocurrency—and ask what it means to use it as a store of value and a medium of exchange. That question is, in essence, a legal one.
    Date: 2022–02–04
  15. By: De Koning, Kees
    Abstract: One can describe the accumulation of wealth in home equity as a benefit to the homeowners. However, in practice the release process of such equity into cash is hindered by the fact that a joint ownership of a home by a lending institution and a household turns the equity stake into a debt obligation. If a household attempts to withdraw some cash from their home equity stake, the banking system turns such equity into a new debt obligation. This is -economically speaking- a worst-case scenario for households. When households reduce their shareholdings in companies, in government debt titles or by withdrawing money from their own bank savings, the conversion into cash does not turn itself into a new debt obligation. The result of these latter economic actions “only” reduces their accumulated savings levels. In the U.S., the level of home equity reached $25.3 trillion by the end of the third quarter 2021 according to the statistics from the Federal Reserve. With an estimated nominal GDP for the U.S. of $23.2 trillion for 2021, this single savings category of $25.3 trillion has now exceeded the total U.S. GDP level, a remarkable economic development! For the E.U., the European Central Bank has published a study in 2020 called “Household Wealth and Consumption in the Euro Area”. A rough estimate of net housing stock values in the E.U. showed a net worth in housing stock of Euro 45 trillion or in U.S. dollars $40.3 trillion in 2019. The World Bank estimated the EU GDP at U.S. $15.27 trillion for 2020. The European Central Bank, just like the Fed in the U.S., has helped governments to spend more than their tax receipts with the help of Quantitative Easing exercises. What, in economic terms, seems essential is that Central Banks and their governments take steps to put home equity levels on an equal footing with other forms of accumulated savings. For most countries involved, the level of savings incorporated in home equity represents by far the largest savings category. Why and how this can be done for the U.S. is explained in this paper.
    Keywords: Home equity in the U.S.;Long term trends in home equity;Federal Reserve interest rate policy for home equity; home foreclosures;Unemployment levels.
    JEL: E2 E21 E24 E3 E31 E4 E41 E43 E44 E5 E51 E6
    Date: 2022–01–31
  16. By: Massoc, Elsa Clara
    Abstract: Are we in a new "Polanyian moment"? If we are, it is essential to examine how "spontaneous" and punctual expressions of discontent at the individual level may give rise to collective discourses driving social and political change. It is also important to examine whether and how the framing of these discourses may vary across political economies. This paper contributes to this endeavor with the analysis of anti-finance discourses on Twitter in France, Germany, Italy, Spain and the UK between 2019 and 2020. This paper presents three main findings. First, the analysis shows that, more than ten years after the financial crisis, finance is still a strong catalyzer of political discontent. Second, it shows that there are important variations in the dominant framing of public anti-finance discourses on social media across European political economies. If the antagonistic "us versus them" is prominent in all the cases, the identification of who "us" and "them" are, vary significantly. Third, it shows that the presence of far-right tropes in the critique of finance varies greatly from virtually inexistent to a solid minority of statements.
    Keywords: finance,opinion,social media,discourse analysis
    Date: 2022
  17. 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
  18. By: Daniela Della Gatta (Banca d'Italia)
    Abstract: This paper illustrates the state of play of the interest rate benchmark reform process. Overnight rates that can be considered risk-free, such as the €STR in the euro area, have been introduced in the main currency areas. The production of rates with a maturity of more than one day, which can replace traditional benchmarks, will depend on the availability of money market data and the different indexing needs. It is reasonable to expect that several types of benchmarks will coexist in the future; this could also entail a risk of market liquidity fragmentation.
    Keywords: riforma dei tassi benchmark, tassi privi di rischio, tassi a scadenza, clausole di riserva
    JEL: E43 D47 G21 G23
    Date: 2022–02
  19. By: PINSHI, Christian P.
    Abstract: This note sparks a debate and a state of play in the age of the digital revolution, on the adoption of central bank digital currencies (CBDCs) for central banks.
    Keywords: central bank digital currencies
    JEL: E58
    Date: 2022–01
  20. By: Tim Willems; Mr. Jeromin Zettelmeyer
    Abstract: This article surveys the literature on sovereign debt sustainability from its origins in the mid-1980s to the present, focusing on four debates. First, the shift from an “accounting based” view of debt sustainability, evaluated using government borrowing rates, to a “model based” view which uses stochastic discount rates. Second, empirical tests focusing on the relationship between primary balances to debt. Third, debt sustainability in the presence of rollover risk. And fourth, whether government borrowing costs below rates of growth (“r
    Keywords: sovereign debt, debt sustainability, fiscal policy, debt crises, fiscal-monetary interactions, central bank credibility
    Date: 2022–01–28
  21. By: Huang, Yin-Siang; Lu, You-Xun
    Abstract: In the context of sustainable development and “going global” strategies, Chinese firms are paying more attention to corporate environmental responsibility (CER). Using a sample of Chinese firms from 2010-2019, this study examines the impact of CER on corporate financial performance (CFP) and international bank loans. We find that the proactive disclosure of non-hazardous industrial waste (NHIW) emissions has no significant effect on the return on assets (ROA) but significantly increases the return on equity (ROE). In addition, our results show that international banks will offer lower loan spreads and longer loan maturities to firms with better environmental performance.
    Keywords: Non-hazardous industrial waste; corporate environmental responsibility; financial performance; international bank loans
    JEL: G32 G34 Q53 Q56
    Date: 2022–01–26
  22. By: Mr. Tanai Khiaonarong; David Humphrey
    Abstract: Cash use in most countries is falling slowly. On the margin, younger adults favor cash substitutes over cash. For older adults it is the reverse. Revealed preference tied to a changing population age structure seems to be the main influence on the demand for cash and why it is falling. Cash use may continue to fall, and card use (the main cash substitute) may fall by more, if CBDC is issued. The extent of this reduction depends on the demand for retail CBDC and the incentives (primarily transaction fees) that can play a determining role in CBDC adoption and use.
    Keywords: Cash, card payments, payment substitution, central bank digital currency
    Date: 2022–02–04
  23. By: Emanuela Atripaldi (Bank of Italy); Nicole Gila (Valore D); Alessia Musco (Bank of Italy); Ulrike Sauwervald (Valore D)
    Abstract: Corporate social responsibility reporting on environmental, social and governance (ESG) sustainability allows analysts and investors to better assess firms’ risk exposure to these factors and their long-term profitability. Gender diversity in the workplace is an important element of firms’ sustainability strategy and deserves to be properly addressed and communicated to the public. We analyse how and to what extent Italian banks disclose their stance on these issues in their non-financial reporting (NFR), as required by the current regulatory framework for larger public interest entities. The analysis of NFR finds that diversity and inclusion (D&I) is material for most institutions, albeit with some differences in the granularity of information and in the way in which the information is presented. The paper identifies some aspects that banks could use in each of the three main areas considered in the reports (materiality process; D&I management; publication of quantitative information on D&I) to enhance their activities related to D&I.
    Keywords: gender diversity, diversity & inclusion, non-financial reporting, Italian banks, sustainable finance
    JEL: G21 D63 M14
    Date: 2022–02
  24. By: Kiemo, Samuel; Talam, Camilla; Rugiri, Irene W.
    Abstract: The paper sought to explore the role of bank capital in mitigating credit risk and promoting financial stability. To achieve this, we constructed a Financial Soundness Index to evaluate financial stability conditions. A Panel Vector Auto Regression Model was employed using annual bank-level data from 2001-2020 for 37 banks, to examine the effect of bank capital on credit risk and financial stability. Overall, financial stability index long-term trend shows banks remain resilient, despite the downward trend from 2011 and instability margins since 2016. The findings also reveal that bank capital, lowers credit risk and strengthens financial stability. The paper conclude that bank capital supports financial stability through mitigating credit risks, and recommends that authorities continue adopting and implementing appropriate capital policies to foster financial stability and promote bank lending.
    Keywords: Bank Capital,Credit Risk,Financial Stability,Panel Vector Auto Regression model
    Date: 2022
  25. By: Hisahiro Naito; Shinnosuke Yamamoto
    Abstract: In several developing countries in Sub-Saharan Africa, accessibility to digital financial services is increasing because of the development of mobile money services. People previously excluded from the financial system have started to have access to financial services such as receiving and sending remittances, saving, and borrowing. This study examines the effect of network accessibility on the use of mobile money in six developing countries (Bangladesh, Kenya, Nigeria, Pakistan, Tanzania, and Uganda) using GPS information on each household and mobile phone network coverage maps. We find that among these six countries, network accessibility is associated with the use of mobile money in a robust way only in Pakistan and Tanzania. In those two countries, when a household location becomes 10 km closer to the center of the area with multiple mobile networks, the probability of using mobile money increases by 10 percent. In the other countries, we did not find a robust relationship between the use of mobile money and network accessibility. This suggests that increasing network accessibility may not be an efficient method for increasing mobile money adoption in certain countries. The fact that mobile money use rates differ between Tanzania and Pakistan also suggests that the effect of mobile networks is unrelated to the overall level of mobile money adoption.
    Date: 2022–01
  26. By: Klodiana Istrefi; Florens Odendahl; Giulia Sestieri
    Abstract: Using an extensive dataset on public speaking events by ECB and euro area National Central Bank (NCB) officials, we show that communication outside of ECB regular monetary policy meeting days has a significant effect on daily movements in Eonia rates, market-based inflation expectations and sovereign bond rates. The remarks of ECB presidents are most important and market reactions to them are comparable in size to those on ECB meeting days. In addition, ECB presidents’ remarks given ahead of meetings with policy changes have a significant effect on Eonia rates of the same sign as the subsequent policy decision. Our results suggest that communication outside of regular meeting days contain a monetary policy signal and, thus, highlight the importance of this communication when studying the effects of monetary policy.
    Keywords: Monetary Policy, ECB, Communication, Financial Markets, Event Study
    JEL: E03 E50 E61
    Date: 2022
  27. By: Antonio Garcia Pascual; José Abad
    Abstract: Following the COVID shock, supervisors encouraged banks to use capital buffers to support the recovery. However, banks have been reluctant to do so. Provided the market expects a bank to rebuild its buffers, any draw-down will open up a capital shortfall that will weigh on its share price. Therefore, a bank will only decide to use its buffers if the value creation from a larger loan book offsets the costs associated with a capital shortfall. Using market expectations, we calibrate a framework for assessing the usability of buffers. Our results suggest that the cases in which the use of buffers make economic sense are rare in practice.
    Keywords: Capital Buffers, Basel III, Capital Regulation, Financial Institutions, Macropru
    Date: 2022–01–28
  28. By: Da Silva, Sergio; Matsushita, Raul; Santo, Barbara Espirito; Sigrist, Felipe
    Abstract: The bank-client relationship is grounded on reciprocity rather than commitment. This circumstance generates the banker’s paradox as customers who need the money the most are at risk for credit and cannot obtain a loan. We present survey evidence that a bank marketing strategy pretending a commitment is more successful because clients are evolutionarily adapted to understand the superiority of commitment and be receptive to its cues.
    Date: 2022–01–29
  29. By: Viral V. Acharya; Raghuram Rajan
    Abstract: Central bank balance sheet expansion is financed by commercial banks. It involves not just a substitution of liquid central bank reserves for other assets held by commercial banks, but also a counterpart alteration in commercial bank liabilities, such as in short-term deposits issued to finance reserves and in off-balance-sheet encumbrances pledged against reserves, which are also claims on liquidity. In ordinary times, when these claims are not called on, central bank balance sheet expansion will typically enhance the net availability of liquidity to the system. However, in times of stress when these offsetting claims on liquidity are exercised, the demand for liquidity can be significantly more. Furthermore, liquid commercial banks, desiring to maintain unimpeachable balance sheets, may provide only limited re-intermediation of liquidity and contribute significantly to liquidity shortages. Commercial banks do not fully internalize prospective stress ex ante or take sufficient steps to avoid it. Consequently, central bank balance sheet expansion need not eliminate episodes of stress; it may even exacerbate them. This may also attenuate any positive effects of central bank balance sheet expansion on economic activity.
    JEL: E0 G0
    Date: 2022–01
  30. By: Aurore Burietz (Catholic University of Lille - IÉSEG School of Management, Lille Campus; LEM CNRS 9221); Steven Ongena (NTNU Business School; Centre for Economic Policy Research (CEPR); Swiss Finance Institute; KU Leuven; University of Zurich - Department of Banking and Finance); Matthieu Picault (University of Orleans - Laboratoire d'économie d'Orléans)
    Abstract: Between 2010 and 2012 and with bank stability as the ultimate target, five European countries implemented a tax levy on banks’ liabilities thereby decreasing the cost of equity relative to the cost of debt. Using a difference-in-differences approach we assess the impact of this tax levy on banks’ participation in the syndicated loan market. We further investigate the impact of the tax levy along bank size and capital structure. We find that banks located in countries where the tax levy was implemented supply more credit. This increase is more significant for larger lenders and banks that are more capital constrained.
    Keywords: Banks, Tax Levy, Syndicated Loans
    JEL: F34 G21 G28
    Date: 2022–02
  31. By: Sophie Béreau (CeReFiM - Center for Research in Finance and Management [UNamur] - UNamur - Université de Namur [Namur], NaXys - Namur Center for Complex Systems [Namur] - UNamur - Université de Namur [Namur]); Nicolas Debarsy (LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique); Cyrille Dossougoin; Jean-Yves Gnabo (CeReFiM - Center for Research in Finance and Management [UNamur] - UNamur - Université de Namur [Namur], NaXys - Namur Center for Complex Systems [Namur] - UNamur - Université de Namur [Namur])
    Abstract: What drives financial contagion? The empirical literature aimed at modeling financial risk spillovers in crisis periods and documenting the role of contagion channels is subject to an endogeneity issue, as the channel itself can respond to a change in the level of risk. We tackle this issue by using a novel spatial econometric estimation procedure based on a control function approach and offer "robust-toendogeneity " evidence on the role of indirect financial contagion channels in the banking industry. Our estimations, based on on 28 large US banks during the financial crisis (2007Q3-2013Q2), confirm that several channels are endogeneous. Accounting for endogeneity is proved to be important for recovering reliable estimates of transmission mechanisms. Banks similarity in fundamentals, similarity in investment strategy as well as common exposure appear as significant drivers of contagion. Based on relevant transmission's channels, we build a simple systemic risk indicator named "Interaction Based Centrality". We show that it may help forecast vulnerable institutions in times of crisis and could thereby be used for monitoring purposes by regulatory authorities.
    Keywords: banking,common asset exposures,contagion,endogeneity,Katz centrality,market-price channel,information channel,spatial econometrics,spillover
    Date: 2022–01–05
  32. By: Katya Delak; Tarik Hansen
    Abstract: The concept of a central bank digital currency (CBDC) has gained traction in recent years, with an increasing number of central banks announcing efforts to explore CBDC use cases and designs. Institutions are in various stages of research and development, with some just beginning their research and others already entering pilot testing or even production, albeit on a limited scale.
    Date: 2022–02–03
  33. By: Jonathan J Adams (Department of Economics, University of Florida); Philip Barrett (International Monetary Fund)
    Abstract: The consensus among central bankers is that higher inflation expectations can drive up inflation today, requiring tighter policy. We assess this by devising a novel method for identifying shocks to inflation expectations: we run a structural VAR, where the expectation shock is the single dimension in the time series that causes forecasts to depart from those implied by rational expectations. We measure these shocks for inflation expectations, label them ``sentiment shocks", and study their effects on the macroeconomy. Using data on several measures of inflation expectations and other time series for the United States, we find that a positive sentiment shock causes output and interest rates to fall, but barely affects inflation. These results are a puzzle, incompatible with the standard New Keynesian model which predicts inflation and interest rates should increase.
    JEL: D84 E31 E32 E52
    Date: 2022–02
  34. By: Anusha Chari; Karlye Dilts Stedman; Kristin Forbes
    Abstract: The effects of macroprudential policy on portfolio flows vary considerably across the global financial cycle. A tighter ex-ante macroprudential stance amplifies the impact of global risk shocks on bond and equity flows, increasing outflows significantly more during risk-off episodes and increasing inflows significantly more during risk-on episodes. These amplification effects are more prominent at the “extremes,” especially for extreme risk-off periods and for regulations that target specific risks instead of generalized cyclical buffers. This paper estimates these relationships using a policy-shocks approach that corrects for reverse causality by combining high-frequency risk measures with weekly data on portfolio investment and a new measure of macroprudential regulations that captures the intensity of policy stances. Overall, the results support a growing body of evidence that macroprudential regulation can reduce the volume and volatility of bank flows but shift risks in ways that aggravate vulnerabilities in other parts of the financial system.
    JEL: E58 F3 G15 G28
    Date: 2022–01
  35. By: Delis, Manthos; Hasan, Iftekhar; To, Thomas; Wu, Eliza
    Abstract: Using a large sample of corporate loan facilities and hand-matched information on bank lobbying, we show that borrower performance improves after receiving credit from lobbying banks. This especially holds for opaque borrowers about which a bank possesses valuable information, as well as for borrowers with strong corporate governance. We also find that credit from lobbying banks funds corporate capital expenditures that increase the scope of firm operations, thereby leading to sales growth. Our findings are consistent with the information-transmission theory that political lobbying provides regulators with valuable borrower information, which results in improved bank-lending supervisory decisions and corporate borrower performance.
    Keywords: Bank lobbying; Firm performance; Syndicated loans; Information-transmission
    JEL: D72 G21 G30
    Date: 2022–01–23

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