nep-ban New Economics Papers
on Banking
Issue of 2022‒04‒25
35 papers chosen by
Sergio Castellanos-Gamboa, , Pontificia Universidad Javeriana

  1. Collective Moral Hazard and the Interbank Market By Levent Altinoglu; Joseph E. Stiglitz
  2. Zombie Lending: Theoretical, International and Historical Perspectives By Viral V. Acharya; Matteo Crosignani; Tim Eisert; Sascha Steffen
  3. Green financial products in the EU: A critical review of the status quo By Brühl, Volker
  4. Optimal timing of policy interventions in troubled banks By König, Philipp Johann; Mayer, Paul; Pothier, David
  5. Saved by the bell? Equity market responses to surprise Covid-19 lockdowns and central bank interventions By Aakriti Mathur; Rajeswari Sengupta; Bhanu Pratap
  6. A Note on Temporary Supply Shocks with Aggregate Demand Inertia By Ricardo J. Caballero; Alp Simsek
  8. Heterogeneous savers and their inflation expectation during German industrialization: Social class, wealth, and gender By Lehmann-Hasemeyer, Sibylle H.; Neumayer, Andreas; Streb, Jochen
  9. Disinflation Costs and Macroprudential Policies: Real and Welfare Effects By Busato, Francesco; Ferrara, Maria; Varlese, Monica
  10. Heterogeneous criticality in high frequency finance: a phase transition in flash crashes By Turiel, Jeremy D.; Aste, Tomaso
  11. COVID-19, Fintech, and the Recovery of Micro, Small, and Medium-sized Enterprises: Evidence from Bangladesh By Hossain, Monzur; Chowdhury, Tahreen Tahrima
  12. Interregional Flow of Funds in Japan via Loans and Deposits of Financial Institutions, and its Determinants By UESUGI, Iichiro; HIRAGA, Kazuki; MANABE, Masashi; YOSHINO, Naoyuki
  13. Evaluating the Effectiveness of Early Warning Indicators: An Application of Receiver Operating Characteristic Curve Approach to Panel Data By Yildirim, Yusuf; Sanyal, Anirban
  14. Estimating General Equilibrium Spillovers of Large-Scale Shocks By Kilian Huber
  15. The application of techniques derived from artificial intelligence to the prediction of the solvency of bank customers: case of the application of the cart type decision tree (dt) By Karim Amzile; Rajaa Amzile
  16. Динамическая факторная модель инфляции для Казахстана // Dynamic Factor Model of Inflation for Kazakhstan By Ержан Ислам // Yerzhan Islam; Сейдахметов Ансар // Seidakhmetov Ansar
  17. A Model for Pricing Federal Housing Finance Obligations: Working Paper 2022-06 By Congressional Budget Office
  18. Invisible Primes: Fintech Lending with Alternative Data By Marco Di Maggio; Dimuthu Ratnadiwakara; Don Carmichael
  19. The case of financial and banking integration of Central, Eastern and South Eastern European countries: A gravity model approach By Léonore Raguideau-Hannotin
  20. The Limits of Hegemony: Banks, Covert Actions, and Foreign Firms By Aldunate, F; González, F; Prem, M
  21. Indirect Effects of Access to Finance By Jing Cai; Adam Szeidl
  22. Cybersecurity and financial stability By Anand, Kartik; Duley, Chanelle; Gai, Prasanna
  23. Foreign Currency Debt and Exchange Rate Pass-Through By Anna Burova; Konstantin Egorov; Dmitry Mukhin
  24. Uncertainty and Monetary Policy Experimentation: Empirical Challenges and Insights from Academic Literature By Matteo Cacciatore; Dmitry Matveev; Rodrigo Sekkel
  25. Big data forecasting of South African inflation By Byron Botha; Rulof Burger; Kevin Kotze; Neil Rankin,; Daan Steenkamp
  26. Deposit Insurance in 2022: Global Trends and Key Emerging Issues By Van Roosebeke, Bert; Defina, Ryan
  28. Supply or Demand? Policy Makers' Confusion in the Presence of Hysteresis By Antonio Fatás; Sanjay R. Singh
  29. FinTech Lending, Social Networks and the Transmission of Monetary Policy By Xiaoqing Zhou
  30. The bond market impact of the South African Reserve Bank bond purchase programme By Roy Havemann; Henk Janse van Vuuren; Daan Steenkamp; Rossouw van Jaarsveld
  31. Measuring Concentration in the Japanese Loan and Deposit Markets By UESUGI, Iichiro; HIRAGA, Kazuki; MANABE, Masashi; YOSHINO, Naoyuki
  32. An Algorithmic Introduction to Savings Circles By Rediet Abebe; Adam Eck; Christian Ikeokwu; Samuel Taggart
  33. SYSTEME BANCAIRE ET CROISSANCE ECONOMIQUE AU CAMEROUN By Ekamena Ntsama, Nadine Sabine; Ngo Bilong, Adèle Micheline; Alhadji, Abdoul Dani
  34. The Financial Performance and Macrofinancial Implications of Large State-Owned Enterprises in Sub-Saharan Africa By Torsten Wezel; Naly Carvalho
  35. COVID-19 and Covered Deposits By Van Roosebeke, Bert; Defina, Ryan

  1. By: Levent Altinoglu; Joseph E. Stiglitz
    Abstract: The concentration of risk within the financial system leads to systemic instability. We propose a theory to explain the structure of the financial system and show how it alters the risk taking incentives of financial institutions when the government optimally intervenes during crises. By issuing interbank claims, risky institutions endogenously become too interconnected to fail. This concentrated structure enables institutions to share the risk of systemic crises in a privately optimal way, but leads to excessive risk taking even by peripheral institutions. Interconnectedness and excessive risk taking reinforce one another. Macroprudential regulation which limits the interconnectedness of risky institutions improves welfare.
    JEL: E44 E61 G01 G18 G28
    Date: 2022–02
  2. By: Viral V. Acharya; Matteo Crosignani; Tim Eisert; Sascha Steffen
    Abstract: This paper surveys the theory on zombie lending incentives and the consequences of zombie lending for the real economy. It also offers a historical perspective by reviewing the growing empirical evidence on zombie lending along three dimensions: (i) the role of under-capitalized banks, (ii) effects on zombie firms, and (iii) spillovers and distortions for non-zombie firms. We then provide an overview of how zombie lending can be attenuated. Finally, we use a sample of U.S. publicly listed firms to compare various measures proposed in the literature to classify firms as "zombies." We identify definitions of zombie firms that are adequate to investigate economic inefficiency in the form of real sector competitive distortions of zombie lending. We find that only definitions that are based on interest rate subsidies are able to detect these spillovers and thereby provide evidence in support of credit misallocation.
    JEL: E44 E58 G01 G2 G3
    Date: 2022–04
  3. By: Brühl, Volker
    Abstract: The financial sector plays an important role in financing the green transformation of the European economy. A critical assessment of the current regulatory framework for sustainable finance in Europe leads to ambiguous results. Although the level of transparency on ESG aspects of financial products has been significantly improved, it is questionable whether the complex, mainly disclosure-oriented architecture is sufficient to mobilise more private capital into sustainable investments. It should be discussed whether a minimum Taxonomy ratio or Green Asset Ratio has to be fulfilled to market a financial product as "green". Furthermore, because of the high complexity of the regulation, it could be helpful for the understanding of private investors to establish a simplified green rating, based on the Taxonomy ratio, to facilitate the selection of green financial products.
    JEL: G10 G20
    Date: 2022
  4. By: König, Philipp Johann; Mayer, Paul; Pothier, David
    Abstract: We analyze the problem of a policy authority (PA) that must decide when to resolve a troubled bank whose underlying solvency is uncertain. Delaying resolution increases the chance that information arrives that reveals the bank's true solvency state. However, delaying resolution also gives uninsured creditors the opportunity to withdraw, which raises the cost of bailing out insured depositors. The optimal resolution date trades off these costs with the option value of making a more efficient resolution decision following the arrival of information. Providing the bank with liquidity support buys the PA time to wait for information, but increases the PA's losses if the bank is insolvent. The PA may therefore optimally choose to delay the provision of liquidity support in order to minimize its losses.
    Keywords: Bank Resolution,Lender of Last Resort,Banking Crises
    JEL: G01 G21 G28
    Date: 2022
  5. By: Aakriti Mathur (The Graduate Institute of International and Development Studies); Rajeswari Sengupta (Indira Gandhi Institute of Development Research); Bhanu Pratap (Reserve Bank of India)
    Abstract: Negative equity market reactions at the onset of the Covid-19 crisis raised concerns about the vulnerabilities in non-financial firms, requiring swift actions by central banks to prevent system-wide stresses. We investigate the Indian context, where the announcement of a surprise, nationwide lockdown in March 2020, was followed by the announcement of an unanticipated policy package by the central bank a few days later. Using natural language processing on quarterly earnings call reports, we construct a firm-specific measure of concern about the pandemic for a set of Indian non-financial firms. We find that firms that were exposed to the pandemic in early 2020 had worse stock market performance when the lockdown was announced. These results are explained by the implications of pandemic-related uncertainty for the future cash flows of these firms. The central bank's policy package seemed to have reversed the impact of the lockdown announcement in the short-term.
    Keywords: Covid-19, event study, earnings calls, firm performance, uncertainty, central bank policies
    JEL: G14 G18 G32 E58 L25 D8
    Date: 2022–03
  6. By: Ricardo J. Caballero; Alp Simsek
    Abstract: We study optimal monetary policy during temporary supply contractions when aggregate demand has inertia and expansionary policy is constrained. In this environment, it is optimal to run the economy hot until supply recovers. Positive output gaps in the low-supply phase lessen the negative output gaps expected to emerge once supply recovers. However, the policy does not remain loose throughout the low-supply phase: The central bank undoes the initial interest rate cuts once aggregate demand gains momentum. If inflation also has inertia, the central bank still overheats the economy during the low-supply phase but gradually cools it down over time.
    JEL: E21 E32 E43 E44 E52 G12
    Date: 2022–03
  7. By: Rea, Farhan Rajal Tuha
    Abstract: Perkembangan teknologi yang semakin pesat membuat elemen masyarakat dituntut untuk dapat beradaptasi di zaman ini. Terlebih kondisi dan situasi pandemi membuat aktivitas masyarakat menjadi terbatas. Dua hal ini memberikan dampak yang signifikan yakni, ekonomi, sosial budaya, dan pendidikan. Dari segi kebutuhan umat pun tak lepas dari peran teknologi, baik dari kebutuhan berskala mikro hingga kebutuhan negara. Airlangga Hartanto yakni MENTERI Koordinator Bidang Perekonomian menaksir bahwa selama pandemi membuat transformasi perilaku masyarakat yang menjadikan peluang bagi sektor keuangan digital. Perubahan ini juga lebih mendukung ke arah pemanfaatan Financial Technology maupun sektor perbankan yang berimplikasi pada pemanfaatan dan pemberdayaan ZISWAF.
    Date: 2022–02–28
  8. By: Lehmann-Hasemeyer, Sibylle H.; Neumayer, Andreas; Streb, Jochen
    Abstract: Using microeconomic data on 2,500 savers of the savings bank Ludwigsburg, we study individual savings behavior in 19th century-Germany. We show that wealthy savers responded to an increase in the expected inflation rate (and falling real interest rate) by increasing their savings, suggesting that they pursued a real saving target that could only be defended by saving more when investment conditions became adverse. Workers' savings behavior changed over time. For a long time, poorer, often female, working-class savers were forced to reduce their savings in times of high prices because they had to spend most of their income on essential consumer goods. This changed in the 1880s, when the living conditions of the working class improved significantly due to rising real wages and greater social security. We therefore observe a structural break in the savings regime: the originally negative relationship between inflation expectations and savings was reversed into a positive one. Looking only at the aggregate may obscure the true motives and changes in behavior of heterogeneous savers.
    Keywords: expectations,inflation,industrialization,inequality,heterogeneous savers
    JEL: D15 E21 N33
    Date: 2022
  9. By: Busato, Francesco; Ferrara, Maria; Varlese, Monica
    Abstract: This paper investigates the costs of disinflation in an otherwise standard DSGE model with borrowing constraints and credit frictions, augmented with macroprudential authority. Analyzing the real and welfare effects of a permanent change in the inflation rate, we study the role of macroprudential policy and its interaction with monetary policy in ensuring financial stability. Results show that when macroprudential authority intervenes actively in order to improve financial stability, disinflation costs are limited. As for the welfare effects, disinflation is welfare improving for savers but welfare costly for borrowers and banks.
    Keywords: Disinflation, Macroprudential policy, Loan-to-value ratio, Monetary policy, Sacrifice ratio, Welfare effects
    JEL: D60 E44 E58
    Date: 2022–02–28
  10. By: Turiel, Jeremy D.; Aste, Tomaso
    Abstract: Flash crashes in financial markets have become increasingly important, attracting attention from financial regulators, market makers as well as from the media and the broader audience. Systemic risk and the propagation of shocks in financial markets is also a topic of great relevance that has attracted increasing attention in recent years. In the present work, we bridge the gap between these two topics with an in-depth investigation of the systemic risk structure of co-crashes in high frequency trading. We find that large co-crashes are systemic in their nature and differ from small ones. We demonstrate that there is a phase transition between co-crashes of small and large sizes, where the former involves mostly illiquid stocks, while large and liquid stocks are the most represented and central in the latter. This suggests that systemic effects and shock propagation might be triggered by simultaneous withdrawals or movement of liquidity by HFTs, arbitrageurs and market makers with cross-asset exposures.
    Keywords: criticality; financial networks; flash crash; high frequency trading; market microstructure; phase transition; systemic risk; EP/L015129/1; (EP/P031730/1) and EC (H2020-ICT-2018-2 825215).; ES/K002309/1
    JEL: F3 G3
    Date: 2022–02–10
  11. By: Hossain, Monzur (Asian Development Bank Institute); Chowdhury, Tahreen Tahrima (Asian Development Bank Institute)
    Abstract: We assess the impact of the COVID-19 pandemic on micro, small, and medium-sized enterprises (MSMEs) and the role of fintech, in particular, mobile financial services (MFS), in their recovery from COVID-induced losses. We use data from a survey of 216 MSMEs from Bangladesh Small and Cottage Industries Corporation industrial estates in Bangladesh during January to March 2021. Our results suggest that firms have been recovering gradually after the withdrawal from lockdown in June 2020. So far, 80% of production of the firms compared with pre-COVID levels had recovered by the end of December 2020. We use instrumental variable regression to assess the impact of the use of MFS on firms’ production, sales, and profit for three periods: lockdown (March–May 2020), limited lockdown (June–September 2020) and the reopening period (October–December 2020). We find significant and positive impact from the use of MFS on the production, sales, and profit of firms during this pandemic. The results indicate that the use of digital finance facilitates firms’ production through ensuring a stable supply of raw materials and sales that have prompted them to recover faster. However, the concern is that only about 31% of our sample firms use MFS for their businesses and an even lower proportion of firms are accustomed to using an online platform. Therefore, more incentives and supportive policies are needed to motivate MSMEs to use digital finance and online platforms to stay active in operations, particularly during the pandemic.
    Keywords: fintech; MSMEs; Bangladesh Small and Cottage Industries Corporation Estates; BSCIC; COVID-19; firm recovery; Bangladesh
    JEL: D20 D22 G10 G20
    Date: 2022–04–01
  12. By: UESUGI, Iichiro; HIRAGA, Kazuki; MANABE, Masashi; YOSHINO, Naoyuki
    Abstract: Using data on loan and deposit balances at the bank branch level, we, for the first time, develop indicators of the interregional flow of funds in Japan for the period 2005-2019 and analyze their determinants. Making use of the fact that the regions in which a bank receives deposits and those in which it extends loans are different, we calculate the extent to which deposits in a region are transformed into loans in various regions within a bank. We then aggregate the extent of transformation for all banks to create indicators of the interregional flow of funds in a country. Regarding the characteristics of these indicators, there are several salient features. First, while the majority of deposits goes to lending within the same prefecture, there is also a substantial amount of deposits used for loans in other prefectures. And second, the extent of interregional flow of funds between remote prefectures has declined over time, but the extent between neighboring prefectures has somewhat increased. Regarding the determinants of the interregional flow of funds, we also find several features. First, deposits received in prefectures with lower land prices are used for loans in prefectures with higher land values, indicating that loans related to real estate businesses remain to be an integral part of bank lending. Second, interregional flow of funds is sometimes inefficient in that deposits collected in productive/profitable prefectures are used for loans in less productive/profitable prefectures in some econometric specifications. And third, deposits in concentrated loan markets are transformed into loans in markets that are less concentrated.
    Keywords: loan and deposit market, financial intermediation, efficiency of credit allocation, interregional fund flows
    Date: 2022–03
  13. By: Yildirim, Yusuf; Sanyal, Anirban
    Abstract: Early warning indicators (EWIs) of banking crises should ideally be judged on how well they function in relation to the choice issue faced by macroprudential policymakers. Several practical features of this challenge are translated into statistical evaluation criteria, including difficulties measuring the costs and advantages of various policy interventions, as well as requirements for the timeliness and stability of EWIs. We analyze the balance panel of possible EWIs for six countries that have experienced currency crisis and banking crisis in recent times. Using possible early warning indicators, we evaluate the suitability of these EWIs in view of their predictive power and stability of signals. The paper observes that credit disbursements to non-financial sectors and central government provides stable signal about systemic risks. Further debt service ratio, inter bank rates and total reserves are also found to be useful in predicting these crisis. Lastly, the paper observes that linear combination of these indicators improves the predictive power of EWIs further.
    Keywords: EWIs, ROC, area under the curve, shrinkage
    JEL: C40 G01 G21
    Date: 2022–02–23
  14. By: Kilian Huber
    Abstract: Large-scale financial and macroeconomic shocks directly affect some firms and households and indirectly impact others through general equilibrium spillovers. In this paper, I describe how researchers can estimate spillovers directly using quasi-experimental or experimental variation. I then argue that spillover estimates suffer from distinct sources of mechanical bias that standard empirical tools cannot resolve. These biases are particularly relevant in finance and macroeconomics where multiple spillover channels and nonlinear effects are common. I offer guidance on how to detect and overcome mechanical biases. An application to a credit shock and additional examples highlight the broad relevance of the suggested methods.
    JEL: C13 C2 D5 E0 E51 G0 G21 G30 L2 R11 R23 R51
    Date: 2022–04
  15. By: Karim Amzile; Rajaa Amzile
    Abstract: In this study we applied the CART-type Decision Tree (DT-CART) method derived from artificial intelligence technique to the prediction of the solvency of bank customers, for this we used historical data of bank customers. However we have adopted the process of Data Mining techniques, for this purpose we started with a data preprocessing in which we clean the data and we deleted all rows with outliers or missing values as well as rows with empty columns, then we fixed the variable to be explained (dependent or Target) and we also thought to eliminate all explanatory (independent) variables that are not significant using univariate analysis as well as the correlation matrix, then we applied our CART decision tree method using the SPSS tool. After completing our process of building our model (AD-CART), we started the process of evaluating and testing the performance of our model, by which we found that the accuracy and precision of our model is 71%, so we calculated the error ratios, and we found that the error rate equal to 29%, this allowed us to conclude that our model at a fairly good level in terms of precision, predictability and very precisely in predicting the solvency of our banking customers.
    Date: 2022–03
  16. By: Ержан Ислам // Yerzhan Islam (National Bank of Kazakhstan); Сейдахметов Ансар // Seidakhmetov Ansar (National Bank of Kazakhstan)
    Abstract: Для центральных банков, придерживающихся политики инфляционного таргетирования, крайне важно отслеживать текущие тенденции развития инфляционных процессов. Помимо стандартного анализа влияния различных переменных необходимо понимание природы происхождения основных драйверов инфляционной динамики. В этой связи, приобретает особое значение постоянный анализ воздействия ненаблюдаемых переменных на инфляционные процессы. В рамках данной работы авторами были определены ненаблюдаемые переменные и произведена количественная оценка их влияния на динамику инфляционных процессов. // It is extremely important for central banks adhering to the policy of inflation targeting to monitor the current trends in the development of inflationary processes. In addition to the standard analysis of influence by various variables, it is necessary to understand the nature of where the main drivers of inflationary dynamics are stemming from. In this regard, the constant analysis of the impact on inflationary processes by unobserved variables is of particular importance. As part of this study, the authors have defined unobserved variables and made a quantitative assessment of their effect on the dynamics of inflationary processes.
    Keywords: инфляция, метод главных компонент, фактор, ненаблюдаемая переменная, вклад, декомпозиция, inflation, principal component analysis, factor, an unobserved variable, contribution, decomposition
    JEL: E31 E37 E39 E52
    Date: 2022
  17. By: Congressional Budget Office
    Abstract: This paper presents a risk-neutral approach used by the Congressional Budget Office to inform its estimates of the fair-value cost of mortgage obligations. The fair-value cost is the amount that a private entity would charge in a competitive market for taking the risks associated with a government activity. CBO’s approach adjusts the probability distribution of macroeconomic variables to obtain a risk-neutral distribution of default, recovery, and prepayment rates. The macroeconomic variables are calibrated by determining the adjustment that leads the estimates of the fair-
    JEL: G21 G28 H81
    Date: 2022–04–19
  18. By: Marco Di Maggio; Dimuthu Ratnadiwakara; Don Carmichael
    Abstract: We exploit anonymized administrative data provided by a major fintech platform to investigate whether using alternative data to assess borrowers' creditworthiness results in broader credit access. Comparing actual outcomes of the fintech platform’s model to counterfactual outcomes based on a “traditional model” used for regulatory reporting purposes, we find that the latter would result in a 70% higher probability of being rejected and higher interest rates for those approved. The borrowers most positively affected are the “invisible primes”--borrowers with low credit scores and short credit histories, but also a low propensity to default. We show that funding loans to these borrowers leads to better economic outcomes for the borrowers and higher returns for the fintech platform.
    JEL: G23 G5 G51
    Date: 2022–03
  19. By: Léonore Raguideau-Hannotin
    Abstract: The motivation of this article is to understand the determinants of banking integration of non-Euro CESEE EU Members. One stylized fact for these economies is the building up of external financial vulnerabilities since the beginning of the Transition period, with a large weight of cross-border banking, particularly with the European Union. In relation with the literature on the impact of gross financial flows on financial stability, we therefore estimate the long-term historical, geographical and cultural determinants of cross-border banking claims with a bilateral financial gravity model. We then analyze the impact of domestic (pull), foreign (push) and global factors using the gravity framework. Our results first show that cross-border banking in these economies is significantly driven by geographical proximity and common historical links, particularly with EU Member States. Second, we find that banking sector health variables are more significant as push factors, while structural banking system variables are more significant as pull factors. These results provide evidence in favor of an impact of European banking systems on financial liabilities in this region, in relation with the very high level of EU ownership of banking assets. Finally, US global liquidity factor matters more than exchange rate stability, which points towards policy dilemma effect in the region.
    Keywords: Gravity model, cross-border banking, Central Eastern and South Eastern European countries, European Union, push factors, pull factors, global factors, EU, CESEE
    JEL: F34 F36 C23 O52
    Date: 2022
  20. By: Aldunate, F; González, F; Prem, M
    Abstract: Economic sanctions and covert actions from hegemonic states are common tools used to influence other countries. Less is known about non-state actors such as banks and their impact across borders. We use new firm-level data from Chile to document a substantial decrease in financial relations with U.S. banks after socialist Salvador Allende took office in 1970. An analysis of links with banks from other countries reveals that part of the decrease was specific to the U.S. banking sector. Business reports and stock prices suggest that firms were mostly unaffected by the destruction of links with U.S. banks. Substitution of financial relations towards state-owned banks appears to be the key mechanism to explain these findings.
    Keywords: firms, banks, Cold War, United States, Salvador Allende.
    Date: 2022–04–18
  21. By: Jing Cai; Adam Szeidl
    Abstract: We created experimental variation across local markets in China in the share of firms having access to a new loan product, to measure the direct and indirect effects of access to finance. We find that: (1) Access to finance had a large positive direct effect on the performance of treated firms. (2) Access to finance had a similar-sized negative indirect effect on the performance of firms with treated competitors. The two effects offset in the aggregate and imply no detectable gains in producer surplus. (3) Access to finance had a positive direct effect on business practices, service quality, and consumer satisfaction, and a negative effect on price. None of these effects were offset by indirect effects, suggesting net gains in consumer surplus. (4) Two additional indirect effects were active: diffusion of borrowing to firms with treated peers, and diffusion of demand to firms with treated neighbors. (5) Combining several effects in a model-based evaluation, we estimate that the loan had a private return of 74%, most of which was offset by losses to competitors, and a social return of 60%, most of which was driven by gains to consumers.
    JEL: G00 G21 L00 O1
    Date: 2022–03
  22. By: Anand, Kartik; Duley, Chanelle; Gai, Prasanna
    Abstract: Cyber attacks can impair banks operations and precipitate bank runs. When digital infrastructure is shared, banks defend themselves by investing in cybersecurity but can free-ride on the security measures of others. Ex ante free-riding by banks interacts with the ex post coordination frictions underpinning bank runs. While the temptation to free-ride induces underinvestment in cybersecurity, the prospect of a run encourages greater investment. System-wide cybersecurity is suboptimal and sensitive to rollover risk and bank heterogeneity. Regulatory measures, including negligence rules, liquidity regulation and cyber hygiene notices, facilitate constrained efficient cybersecurity investment. We suggest testable hypotheses to inform empirical work in this area.
    Keywords: cyber attacks,bank runs,global games,weaker-link public goods
    JEL: G01 G21 G28 H41
    Date: 2022
  23. By: Anna Burova (Bank of Russia, Russian Federation); Konstantin Egorov (New Economic School); Dmitry Mukhin (London School of Economics)
    Abstract: This paper studies both theoretically and empirically the firm’s choice of currency for its debt. We use a parsimonious model with financial frictions to derive an intuitive sufficient statistic for the share of foreign-currency debt in firm’s liabilities and demonstrate its robustness in several extensions. Due to the risk management considerations, firms are more likely to borrow in dollars when the pass-through of the exchange rate into their profits is higher. We leverage this insight empirically using the micro-level data on loans issued by Russian banks to local firms as well as the data on firms’ balance sheets and cash flows. The data strongly supports the predictions of the model indicating that firms with profits more stable in dollars are more likely to borrow in foreign currency than firms with profits stable in local currency. These results extend to a choice between the euro and the dollar and survive after controlling for firms’ size and export status. Note that our results describe efficiency at the firm level, and they do not have direct implications for macroprudential policy as foreign currency debt may also affect exchange rate volatility, inflation and output.
    Keywords: currency choice, invoicing currency, borrowing currency, dollar in global economy, bank loans, exporter status, optimal debt composition
    JEL: D22 F31 F34 G11 G21 G32
    Date: 2022–02
  24. By: Matteo Cacciatore; Dmitry Matveev; Rodrigo Sekkel
    Abstract: Central banks face considerable uncertainty when conducting monetary policy. Some of the reasons for this include limitations of economic data, the unobservability of key macroeconomic variables such as potential output, structural changes to the economy and disagreements over the correct model for the transmission of monetary policy. At the same time, monetary policy is affected by uncertainty from various sources, including lack of or imperfect observation of economic variables, structural economic changes and possible misspecifications using models. We draw from the academic literature to review some of the key sources of this uncertainty and their implications for the conduct of monetary policy. First, we discuss evidence on release lags and revisions to economic data. We also highlight uncertainty around measuring unobservable variables such as the output gap and the natural rate of unemployment. The strength of a trade-off between these measures of economic slack and inflation—a cornerstone of monetary policy—is itself subject to continuous reassessment. Second, the literature finds that different sources of uncertainty may make the optimal conduct of monetary policy either more or less responsive to economic shocks. Additionally, the benefits of tackling uncertainty by engaging in purposeful monetary policy experimentation are typically small but may become more significant during major structural change or following unprecedented shocks.
    Keywords: Central bank research; Monetary policy and uncertainty; Potential output
    JEL: E3 E5
    Date: 2022–04
  25. By: Byron Botha; Rulof Burger; Kevin Kotze; Neil Rankin,; Daan Steenkamp
    Abstract: We investigate whether the use of machine learning techniques and big data can enhance the accuracy of inflation forecasts and our understanding of the drivers of South African inflation. We make use of a large dataset for the disaggregated prices of consumption goods and services to compare the forecasting performance of a suite of different statistical learning models to several traditional time series models. We find that the statistical learning models are able to compete with most benchmarks, but their relative performance is more impressive when the rate of inflation deviates from its steady state, as was the case during the recent COVID-19 lockdown, and where one makes use of a conditional forecasting function that allows for the use of future information relating to the evolution of the inflationary process. We find that the accuracy of the Reserve Bank’s near-term inflation forecasts compare favourably to those from the models considered, reflecting the inclusion of off-model information such as electricity tariff adjustments and within-month data. Lastly, we generate Shapley values to identify the most important contributors to future inflationary pressure and provide policymakers with information about the potential sources of future inflationary pressure.
    Keywords: Micro-data, Inflation, High dimensional regression, Penalised likelihood, Bayesian methods, Statistical learning
    JEL: C10 C11 C52 C55 E31
    Date: 2022–02
  26. By: Van Roosebeke, Bert; Defina, Ryan
    Abstract: The IADI Deposit Insurance report provides, on a yearly basis, an overview of global trends in deposit insurance and investigates key emerging issues. This Report was edited by Bert Van Roosebeke and Ryan Defina of the IADI Secretariat Research Unit. IADI has identified the following five themes going forward: climate change; fintech; COVID-19; deposit insurers’ role in resolution; and cross border considerations. The report also highlighted many areas whereby deposit insurers are continuing to improve their overall compliance with the IADI Core Principles for Effective Deposit Insurance Systems.
    Keywords: deposit insurance; bank resolution; fintech; COVID-19
    JEL: G21 G33
    Date: 2022–02–18
    Abstract: Koperasi sudah dikenal masyarakat Indonesia sejak lama. Badan usaha yang menjalankan kegiatan usahanya berdasarkan asas kekeluargaan juga telah banyak berkontribusi dalam peningkatan perekonomian masyarakat dan pembangunan negara. Sejak pertama kali diperkenalkan kepada masyarakat Indonesia, organisasi usaha koperasi telah mampu membantu masyarakat meningkatkan kapasitas ekonominya melalui kegiatan usaha koperasi. Sejarah panjang koperasi dimulai dari tahun 1896, ketika seorang pamongpraja Patih R. Aria Wiria Atmaja di Purwokerto mendirikan sebuah bank untuk para pegawai negeri (priyayi) Terdorong oleh keinginan untuk menolong para pegawai yang makin menderita karena terjerat oleh lintah darat yang memberikan pinjaman dengan bunga yang tinggi. Sejarah embrio koperasi di Indonesia terbagi saat Zaman Kemerdekaan, Masa Orde Baru, dan Masa Reformasi (Dewan Koperasi Indonesia, 2013). Sedangkan, Sejarah gerakan koperasi dunia dimulai pada pertengahan abad 18 dan awal abad 19 di Inggris dan pertama kali diperkenalkan dengan nama "Koperasi Pra-Industri".
    Date: 2022–03–08
  28. By: Antonio Fatás; Sanjay R. Singh (Department of Economics, University of California Davis)
    Abstract: Policy makers need to separate between temporary demand-driven shocks and permanent shocks in order to design optimal aggregate demand policies. In this paper we study the case of a central bank that ignores the presence of hysteresis when identifying shocks. By assuming that all low-frequency output fluctuations are driven by permanent technology shocks, monetary policy is not aggressive enough in response to demand shocks. In addition, we show that errors in assessing the state of the economy can be self-perpetuating if seen through the lens of the mistaken views of the policy maker. We show that a central bank that mistakes a demand shock for a supply shock, will produce permanent effects on output through their suboptimal policies. Ex-post, the central bank will see an economy that resembles what they had forecast when designing their policies. The shock is indeed persistent and this persistence validates their assumption that the shock was a supply-driven one. The interaction between forecasts, policies and hysteresis creates the dynamics of self-perpetuating errors that is the focus of this paper.
    Keywords: business cycles, hysteresis, Potential Output, Stabilization Policy
    JEL: E32 E60 O4
    Date: 2022–04–19
  29. By: Xiaoqing Zhou
    Abstract: One of the main channels through which monetary policy stimulus affects the real economy is mortgage borrowing. This channel, however, is weakened by frictions in the mortgage market. The rapid growth of financial technology-based (FinTech) lending tends to ease these frictions, given the higher quality services provided under this new lending model. This paper establishes that the role of FinTech lending in the monetary policy transmission is further amplified by consumers’ social networks. I provide empirical evidence for this network effect using county-level data and novel identification strategies. A 1 pp increase in the FinTech market share in a county’s socially connected markets raises the county’s FinTech market share by 0.23-0.26 pps. Moreover, I find that in counties where FinTech market penetration is high, the pass-through of market interest rates to borrowers is more complete. To quantify the role of FinTech lending and its network propagation in the transmission of monetary policy shocks, I build a multi-region heterogeneous-agent model with social learning that embodies key features of FinTech lending. The model shows that the responses of consumption and refinancing to a monetary stimulus are 13% higher in the presence of FinTech lending. Almost half of this improvement is accounted for by FinTech propagation through social networks.
    Keywords: FinTech; social networks; mortgage; monetary policy; regional transmission
    JEL: E21 E44 E52 G21 G23
    Date: 2022–03–25
  30. By: Roy Havemann; Henk Janse van Vuuren; Daan Steenkamp; Rossouw van Jaarsveld
    Abstract: We use a unique dataset comprising over a million trades and quotes to assess the impact of the unexpected announcement of a bond purchase programme by the South African Reserve Bank on intraday market liquidity, yields and pricing volatility. Our dataset details the timing and order details of individual bonds purchased by the South African Reserve Bank during the COVID-19 pandemic, as well as data from over a million other fixed-coupon bond trades and intraday quotes. We find that the programme was successful at shoring up market confidence and addressing dislocation in the government bond market. We show that bond spreads fell both on announcement and after purchases themselves. Bond pricing adjusted slowly, with effects typically strengthening over the course of the trading day. We find that announcement effects dominated the impact of purchases themselves. Lastly, our intraday dataset enables assessment of the spillovers of central bank announcements in major economies and we show that the Federal Reserve played an important role in stabilising South Africa’s bond market, helping to support the actions of SARB.
    Keywords: bond purchase programme, liquidity, yield curve
    JEL: C5 E43 E58 G12 G14
    Date: 2022–03
  31. By: UESUGI, Iichiro; HIRAGA, Kazuki; MANABE, Masashi; YOSHINO, Naoyuki
    Abstract: This study is the first to exhaustively calculate the degree of concentration in regional banking markets using the outstanding amount of loans and deposits at branches and headquarters of financial institutions located in Japan. Calculating the Herfindahl-Hirschman Index (HHI) for loans and deposits for each prefecture and for each urban employment area for the period 2005–2019, we show differences in the HHI across regions and its development over time. Furthermore, we decompose HHI into two factors, namely one related to the number of financial institutions and the other to deviation from the mean market share.We also examine the extent of the increase in the HHI caused by mergers of financial institutions and its persistence. The main results obtained are as follows. First, loan and deposit HHI show an upward trend; however, the HHI of loans in large metropolitan areas, which were already low, show a trend of further decline. Competition among financial institutions becomes tougher in large metropolitan regions. Second, increases in HHI are not only due to reductions in the number of financial institutions but also to increasing variations in financial institutions’ market share. And third, while the increase in loan HHI due to financial institution mergers is sustained for a certain period, its duration tends to be shorter in regions with a low market concentration.
    Keywords: Herfindahl-Hirschman Index, Market concentration, Competition, Financial institution mergers
    Date: 2022–03
  32. By: Rediet Abebe; Adam Eck; Christian Ikeokwu; Samuel Taggart
    Abstract: Rotating savings and credit associations (roscas) are informal financial organizations common in settings where communities have reduced access to formal financial institutions. In a rosca, a fixed group of participants regularly contribute sums of money to a pot. This pot is then allocated periodically using lottery, aftermarket, or auction mechanisms. Roscas are empirically well-studied in economics. They are, however, challenging to study theoretically due to their dynamic nature. Typical economic analyses of roscas stop at coarse ordinal welfare comparisons to other credit allocation mechanisms, leaving much of roscas' ubiquity unexplained. In this work, we take an algorithmic perspective on the study of roscas. Building on techniques from the price of anarchy literature, we present worst-case welfare approximation guarantees. We further experimentally compare the welfare of outcomes as key features of the environment vary. These cardinal welfare analyses further rationalize the prevalence of roscas. We conclude by discussing several other promising avenues.
    Date: 2022–03
  33. By: Ekamena Ntsama, Nadine Sabine; Ngo Bilong, Adèle Micheline; Alhadji, Abdoul Dani
    Abstract: This study aims to assess the effect of bank credit granted to the private sector and gross domestic savings on economic growth in Cameroon. We use the Ordinary Least Squares method on time series data for a period from 1980 to 2019 from the World Bank (WDI). The main results show that credit granted to the private sector by banks and gross domestic savings have a positive and significant effect on economic growth in Cameroon over the study period. In sum, we find the existence of a significant effect of the banking system on economic growth in Cameroon between 1980 and 2019. It emerges the main recommendation that the country's political decision-makers must promote the development of the banking system and focus on restructuring financial development to accelerate sustainable short- and long-term growth
    Keywords: Economic growth , private credit , gross domestic savings, financial development
    JEL: E51
    Date: 2022–04–06
  34. By: Torsten Wezel; Naly Carvalho
    Abstract: Using a newly-compiled dataset of state-owned enterprises in Sub-Saharan Africa, we present aggregate information about profitability, liquidity and leverage. We find that 40 percent of the close to 300 surveyed SOEs are unprofitable, while larger firms also tend to be illiquid and overleveraged. In cross-sectional regressions we find that SOE debt stock sustainability is impacted by firms’ profitability and liquidity, while macroeconomic factors cannot be shown to matter, expect for some governance variables. Based on these findings and citing country examples, we also illustrate that weak SOE performance may have a macrofinancial impact affecting bank soundness through delinquent loan exposures.
    Keywords: Firm Performance, State-Owned Enterprises, Sub-Saharan Africa
    Date: 2022–03–18
  35. By: Van Roosebeke, Bert; Defina, Ryan
    Abstract: Understanding and managing the risks associated with COVID-19 is a priority area of concern for deposit insurers on a global basis. This paper investigates quarterly growth rates of covered deposits and finds statistically significant evidence that during the first six quarters of the pandemic, quarterly growth of covered deposits has shifted upwards by 1.5 %-points. On a per-quarter basis, we find evidence of statistically significant increases in the second half of 2020. Results are based on a September 2021 member survey conducted by the International Association of Deposit Insurers in conjunction with the State Corporation Deposit Insurance Agency (Russian Federation).
    Keywords: deposit insurance; COVID-19
    JEL: G21 G33
    Date: 2022–03–01

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