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on Banking |
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Issue of 2022‒05‒16
34 papers chosen by Sergio Castellanos-Gamboa, , Pontificia Universidad Javeriana |
| By: | Victoria Böhnke (University of Münster); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)); Florentina Paraschiv (Zeppelin University, Chair of Finance; Norwegian University of Science and Technology, Faculty of Economics and Management, NTNU Business School; University of St. Gallen, Institute for Operations Research and Computational Finance); Endre J Reite (Norwegian University of Science and Technology (NTNU) - Department of International Business) |
| Abstract: | The internal ratings-based (IRB) approach maps banks’ risk profiles more adequately than the standardized approach. After switching to IRB, banks’ risk-weighted asset (RWA) densities are thus expected to diverge, especially across countries with different supervisory strictness and risk levels. However, when examining 52 listed banks headquartered in 14 European countries that adopted the IRB approach, we observe a convergence of their RWA densities over time. We test if this convergence can be entirely explained by differences in the size of the banks, loss levels, country risk, and/or time of IRB implementation, yet this is not the case. Whereas banks in high-risk countries, with lax regulation, reduce their RWA densities, banks elsewhere increase theirs. Especially for banks in high-risk countries, RWA densities underestimate banks’ actual economic risk. Hence, the IRB approach allows for regulatory arbitrage, whereby authorities only enforce strict supervision on capital requirements if they do not jeopardize bank resilience. |
| Keywords: | Capital regulation, credit risk, internal ratings-based approach, regulatory arbitrage, risk-weighted assets |
| JEL: | G21 G28 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2233&r= |
| By: | Barry Eichengreen (University of California, Berkeley); Poonam Gupta (National Council of Applied Economic Research); Tim Marple (University of California, Berkeley) |
| Abstract: | We review arguments for CBDC issuance in India. These include facilitating payments,enhancing financial inclusion, enabling the central bank and government to retain control of the payments system, facilitating cross-border payments, reducing dependence on the dollardominatedglobal payments system, providing an encompassing platform for digital financial innovation. We then compare progress in India with other countries. In setting an end 2022 target date for issuance, India is in line with the other BRICS, but not with other countries with comparable levels of per capita GDP, which have been more reluctant to commit to a date. Nor is it in line with other countries with comparably independent central banks, which have been more cautious about setting a deadline. Finally, we sketch a roadmap and timeline for India’s CBDC project going forward. |
| Keywords: | Central Bank, Digital Currency, India, Monetary Systems, Payment Systems |
| JEL: | E40 E42 E51 E50 E58 G21 |
| Date: | 2022–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:nca:ncaerw:138&r= |
| By: | Marco Del Angel; Gary Richardson |
| Abstract: | Regulatory independence forms a foundation for modern financial systems. To illuminate the value of this ubiquitous institution, we examine a Progressive Era policy experiment in which hitherto independent regulators came under gubernatorial supervision. After this change, failure rates declined during gubernatorial election campaigns for banks under gubernatorial jurisdiction. Declines did not occur during campaigns for other officials or for nationally chartered banks. Declines in bank resolutions during campaigns reduced business bankruptcies. We corroborate these claims with new data and novel IV regressions. Our results indicate that political subservience of financial regulators links electoral and economic cycles. |
| JEL: | G01 G21 G33 H1 H7 K2 L51 N1 N2 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29938&r= |
| By: | Guillermo A. Calvo; Andrés Velasco |
| Abstract: | We study the effects of monetary and fiscal policies when both money and government bonds provide liquidity services. Because money is the unit of account, the price of money is the inverse of the price level. If prices are sticky, so is the price of money in terms of goods, and this is one important reason why money is liquid and attractive. By contrast, the price of government bonds is free to jump and often does, especially in response to news about changes in fiscal policy and the supply of bonds. Those movements in government bond prices affect available liquidity, and therefore aggregate demand, inflation and output. Under these conditions, bond-financed fiscal expansions can be contractionary, causing deflation and a temporary recession. To avoid those effects, changes in bond supply must be matched by changes in money supply and in the interest rate on money. We conclude that in a liquidity-dependent world, fiscal and monetary policies are joined at the hip. |
| JEL: | E12 E4 E42 E44 E52 E58 E62 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29865&r= |
| By: | Javier Eliecer Pirateque-Niño; Daniela Rodríguez-Novoa; José Hernán Piñeros-Gordo |
| Abstract: | This paper analyzes empirically the relationship between monetary policy interventions and the net interest margin of Colombian credit institutions for the 2003 – 2019 period. Considering the endogeneity problem that arises when analysing this relationship, we calculate a series of monetary policy shocks as the residuals of regressing the monetary policy rate on a set of quantifiable variables that the Central Bank of Colombia’s Board of Directors had at each of its monetary policy meetings. Thereafter, we conduct a panel regression analysis in which we relate these shocks, and a set of macroeconomic and bank-specific variables to the net interest margin. Through a non-linear approach, we find a significant quadratic relationship, which reflects that once the endogeneity problem is overcome, the net interest margin increases to policy shocks. The net interest margin increases to positive policy shocks due to the different dynamics of deposits and loans, and increases to negative policy shocks given the higher sensitivity of banks’ funding costs compared to the one of interest income. **** Este documento analiza empíricamente la relación entre las intervenciones de política monetaria y el margen neto de interés de los establecimientos de crédito en Colombia entre 2003 y 2019. Con el fin de controlar por la endogeneidad que subyace a esta relación, se calcula una serie de choques de política monetaria. Estos choques corresponden a los residuales de una regresión entre la tasa de política monetaria y un conjunto de variables cuantificables disponibles para la Junta Directiva del Banco de la República al momento de cada una de sus reuniones de política monetaria. Seguido de esto, se realiza un análisis de panel de datos en el que se utilizan como variables explicativas del margen neto de interés la serie de choques, algunas variables macroeconómicas y algunas propias de cada entidad. Mediante una aproximación no lineal, se encuentra una relación cuadrática significativa, la cual indica que una vez se supera el problema de endogeneidad, el margen neto de interés se incrementa ante choques de política monetaria. Ante choques positivos de política monetaria, el aumento en el margen neto de interés obedece al comportamiento asimétrico de los préstamos y los depósitos. Por su parte, ante choques negativos de política monetaria el margen neto de interés incrementa dada la mayor sensibilidad de los costos de fondeo bancarios frente a los ingresos por intereses. |
| Keywords: | net interest margin, monetary policy shock, credit intensity, interest rates, margen neto de interés, choques de política monetaria, intensidad del crédito, tasas de interés |
| JEL: | E43 E44 E52 G21 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1197&r= |
| By: | Mr. Serkan Arslanalp; Chima Simpson-Bell; Mr. Barry J. Eichengreen |
| Abstract: | We document a decline in the dollar share of international reserves since the turn of the century. This decline reflects active portfolio diversification by central bank reserve managers; it is not a byproduct of changes in exchange rates and interest rates, of reserve accumulation by a small handful of central banks with large and distinctive balance sheets, or of changes in coverage of surveys of reserve composition. Strikingly, the decline in the dollar’s share has not been accompanied by an increase in the shares of the pound sterling, yen and euro, other long-standing reserve currencies and units that, along with the dollar, have historically comprised the IMF’s Special Drawing Rights. Rather, the shift out of dollars has been in two directions: a quarter into the Chinese renminbi, and three quarters into the currencies of smaller countries that have played a more limited role as reserve currencies. A characterization of the evolution of the international reserve system in the last 20 years is thus as ongoing movement away from the dollar, a recent if still modest rise in the role of the renminbi, and changes in market liquidity, relative returns and reserve management enhancing the attractions of nontraditional reserve currencies. These observations provide hints of how the international system may evolve going forward. |
| Keywords: | International reserves, currency composition, dollar; USD share; dollar dominance; currency share; dollar share; share of foreign exchange; Reserve currencies; Currencies; International reserves; Reserves management; Asset valuation; Global; Africa |
| Date: | 2022–03–24 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2022/058&r= |
| By: | Ignacio Lozano-Espitia; Fernando Arias-Rodríguez |
| Abstract: | This paper aims to provide evidence on the relationship between fiscal and monetary policy in Colombia through an empirical exploration of the credit risk channel. Under this approach, fiscal policy plays an important explanatory role in the sovereign risk premium, which, in turn, could affect the exchange rate and inflation expectations. The Central Bank reacts to inflation expectations using the policy interest rate; consequently, such reaction could be indirectly influenced by fiscal behavior. Using monthly data from January 2003 to December 2019, we estimate both jointly and independently the reduced-form core equations of a system that describes the credit risk channel in a small open economy. Our findings are in line with the model predictions. Fiscal policy affected the country’s sovereign risk during this period, but only slightly. Hence, there is insufficient evidence to sustain the idea that monetary policy has been significantly influenced by government fiscal management. **** Este documento analiza la relación entre las políticas fiscal y monetaria en Colombia, mediante la evaluación empírica del canal de riesgo crediticio. En este enfoque, la política fiscal explicaría la prima de riesgo soberano la cual, a su vez, puede afectar la tasa de cambio nominal y las expectativas de inflación. El Banco Central reacciona a las expectativas de inflación usando la tasa de interés de política; así, dicha reacción estaría influenciada indirectamente por la política fiscal. Utilizando información mensual de 2003 a 2019 se estima, de manera conjunta e independiente, un sistema de ecuaciones que describe de forma reducida el funcionamiento del canal de riesgo de crédito en una economía pequeña y abierta. Nuestros resultados son coherentes con las predicciones del modelo teórico. Se encuentra que la política fiscal afectó el riesgo soberano del país durante el período de estudio, aunque de manera modesta. Sin embargo, no hay suficiente evidencia para afirmar que la política monetaria haya sido influenciada de manera importante por la política fiscal, descartándose situaciones de dominancia fiscal. |
| Keywords: | Policy interaction, fiscal policy, monetary policy, sovereign credit risk, Interacción de políticas, política fiscal, política monetaria, riesgo de crédito soberano. |
| JEL: | E61 E63 E62 E52 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1196&r= |
| By: | John Y. Campbell; Martin Lettau; Burton G. Malkiel; Yexiao Xu |
| Abstract: | This paper reviews the literature on idiosyncratic equity volatility since the publication of “Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk” in 2001. We respond to replication studies by Chiah, Gharghori, and Zhong and by Leippold and Svaton, and we present volatility estimates through the end of 2021, significantly extending the period covered in our original paper as well as the two replication studies. After spiking in the 1999- 2000 period, idiosyncratic volatility declined thereafter; but sharp increases in market, industry, and idiosyncratic volatility occurred during the global financial crisis of 2008-2009 and the COVID-19 pandemic of 2020-2021. We argue that market microstructure effects are not of first-order importance for volatility measurement, and we discuss the roles of fundamental factors and investor sentiment in driving the observed fluctuations in volatility. |
| JEL: | G10 G12 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29916&r= |
| By: | Mr. Kangni R Kpodar; Thorsten Beck; Mathilde Janfils |
| Abstract: | This paper uses data across 365 corridors to document time and country variation in remittance fees and explore factors predicting variation in remittance fees. We document a general reduction in such fees over the past decade although the goal of fees below 3 percent has not been met yet in many corridors. We identify both cost- and risk-based constraints and market structure as barriers to lower remittance fees. Higher transaction costs as result of a more rural population in the sending country and lower scale are associated with higher remittance fees. However, lower risks due to the stability of fixed exchange rates and Internet rather than cash payment are associated with lower remittance fees. Finally, remittance corridors dominated by banks and few players are characterized by higher fees. |
| Keywords: | Remittances; migration; access to financial services |
| Date: | 2022–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2022/063&r= |
| By: | Heng Chen; Walter Engert; Kim Huynh; Daneal O’Habib |
| Abstract: | Chen et al. (2021) show that almost one-third of First Nations band offices in Canada are within 1 kilometre (km) of an automated banking machine (ABM) or financial institution (FI) branch and more than half are within 5 km. Further, over three-quarters of band offices are within 20 km of an ABM or FI branch and almost 90% are within 50 km. We focus on 49 First Nations locations that are more than 100 km away from an ABM or FI branch or do not have an identifiable travel route (by road or boat) to an ABM or FI branch. We refer to these First Nations as financially remote. We show that these locations have small populations and limited access to internet and mobile services. As a result, these First Nations have poor access to cash sources and physical delivery of financial services as well as limited access to digital payments and electronic banking. We also assess the remoteness of these locations according to an alternative method based on measures of agglomeration (community population) and proximity to other communities. We find that, according to this measure, these 49 financially remote First Nations are generally among the most geographically remote communities in Canada. Further, we show that these First Nations are also among the lowest scoring communities in Canada according to a measure of community well-being based on indicators of educational attainment, labour force activity, income and housing. The geographical remoteness of these 49 First Nations, their small populations, limited infrastructure and digital services, and relatively low community well-being all likely contribute to their poor access to cash and financial services. |
| Keywords: | Bank notes; Digital currencies and fintech; Financial institutions; Financial services; Payment clearing and settlement systems |
| JEL: | E4 E41 E42 E5 G2 G21 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:22-11&r= |
| By: | Lara Coulier; Selien De Schryder (-) |
| Abstract: | We construct new data-driven intensity-adjusted indices for a broad set of macroprudential policy announcements in the European Union (EU) that are able to capture the restrictiveness and bindingness of the macroprudential policy actions. The indices are used to assess the effectiveness of borrower-based macroprudential policy in reducing credit in the EU from 1995 to 2019. Our results indicate that these instruments have successfully reduced household, housing, and to a smaller extent consumption credit, especially in the long run. Moreover, we find that standard dummy approaches used to measure macroprudential policy signal different effects of borrower-based policies in our sample and are more sensitive to outliers, resulting in deceptive and incomplete results. |
| Keywords: | Macroprudential policy, intensity-adjustment, household credit, panel data analysis |
| JEL: | E58 C23 G18 G28 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:22/1044&r= |
| By: | Amaliah, Nur Indah |
| Abstract: | Bank syariah pada menjalankan usahanya memakai prinsip bebas riba yaitu suatu aktivitas operasional yg tidak membenarkan adanya penerapan bunga, menjadi alternatifnya bank syariah menerapkan sistem profit and loss sharing atau lebih dikenal menggunakan kata profit sharing. |
| Date: | 2022–04–04 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:2jhrf&r= |
| By: | Jacob Goss; Daniel Mangrum; Joelle Scally |
| Abstract: | The pandemic forbearance for federal student loans was recently extended for a sixth time—marking a historic thirty-month pause on federal student loan payments. The first post in this series uses survey data to help us understand which borrowers are likely to struggle when the pandemic forbearance ends. The results from this survey and the experience of some federal borrowers who did not receive forbearance during the pandemic suggest that delinquencies could surpass pre-pandemic levels after forbearance ends. These concerns have revived debates over the possibility of blanket forgiveness of federal student loans. Calls for student loan forgiveness entered the mainstream during the 2020 election with most proposals centering around blanket federal student loan forgiveness (typically $10,000 or $50,000) or loan forgiveness with certain income limits for eligibility. Several studies (examples here, here, and here) have attempted to quantify the costs and distribution of benefits of some of these policies. However, each of these studies either relies on data that do not fully capture the population that owes student loan debt or does not separate student loans owned by the federal government from those owned by commercial banks and are thus not eligible for forgiveness with most proposals. In this post, we use representative data from anonymized credit reports that allows us to identify federal loans, calculate the total cost of these proposals, explore important heterogeneity in who owes federal student loans, and examine who would likely benefit from federal student loan forgiveness. |
| Keywords: | inequality; student loans; household finance |
| JEL: | D14 Q12 |
| Date: | 2022–04–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:94083&r= |
| By: | Sala, Hector (Universitat Autònoma de Barcelona); Trivín, Pedro (Universitat Autònoma de Barcelona) |
| Abstract: | This paper studies the direct impact of households' debt on consumption over the business cycle. We use household-level panel data for Spain, and focus on a interesting period of analysis, 2002-2017, characterized by large variations in leverage, consumption, and asset prices. We find that debt levels exert a negative impact on consumption, which is particularly strong in periods of high leverage and falling asset prices. This negative effect is persistent in time and significant along the post-Great Recession deleveraging process of Spanish households. We further observe that: (i) changes in households' debt in past periods are not relevant in determining consumption; (ii) households adjust faster their consumption to debt that is non-related to real estate assets; (iii) results are not driven by the characteristics of real estate loans; and (iv) credit constraints do not play a major role in shaping the debt-consumption nexus. We conclude that, in contrast to the spending normalization hypothesis, it is debt overhang what is likely to prevail in a situation of high leverage and financial stress such as the one brought by the Great Recession. Consequently, policies preventing households to embark in excessive leverage in good times and debt relief policies in bad times have a role to play to avoid larger consumption decreases in recessive periods. |
| Keywords: | consumption, household debt, financial stress, debt overhang, survey |
| JEL: | D12 D14 E21 G01 G51 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp15222&r= |
| By: | Pongpitch Amatyakul; Nutnicha Theppornpitak |
| Abstract: | In this paper, we aim to assess the impacts of using monetary policies and fiscal transfers on the economy using an agent-based model. The model used is based on the original model developed by Ashraf et al. (2017), where agents endogenously develop trading networks of goods and labor, to study the impacts of the banking sector, and extended by Popoyan et al. (2017) to include different policy rate rules and macroprudential policy. We evaluate different fiscal policies and their interactions with monetary policy on how the economy performs based on aggregates such as total output and inflation, as well as based on granular data such as the wealth and consumption of the agents at specific percentiles. The findings are that consumption-based policies are best for reducing the aggregate effects on GDP, targeted policies are efficient if the government's goal is to help a specific group, and unconditional transfers are the least efficient of the three. In addition, we analyze the effects of implementing monetary and fiscal policies synchronously after a COVID-19-like crisis, and we do not find conclusive evidence that combining the two policies are better than the sum of the individual effects, but it is likely to be necessary to do both in order to get the economy back to its original path in a timely manner. |
| Keywords: | Monetary policy; Fiscal policy; Simulation |
| JEL: | E52 E62 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:pui:dpaper:177&r= |
| By: | Azifah, Nurul |
| Abstract: | Bank syariah atau dalam istilah internasional dikenal sebagai Islamic Banking atau disebut dengan interest free banking. Kata Islamic tidak dapat dilepaskan dari asal usul sistem perbankan itu sendiri. Bank syariah pada awalnya dikembangkan sebagai bentuk suatu respon dari beberapa kelompok ekonom muslim dan kalangan kalangan praktisi perbankan muslim yang berupaya memenuhi dan mengakomodasi desakan dari berbagai pihak yang menginginkan tersedianya lembaga jasa keuangan yang dilaksanakan sesuai dengan prinsip islam. Sektor keuangan islam sangat mempengaruhi pertumbuhan ekonomi dalam tiga dekade terakhir. Institusi keuangan syariah seperti bank syariah telah mampu bersaing dan dan beroperasi secara efektif dan efisien. Industri perbankan syariah berkontribusi pada stabilitas sistem keuangan dan lebih mampu menahan guncangan krisis (Rizvi (Rizvi et al, 2019). Pada tahun 2007 terjadi krisis pinjaman (subprime) di Amerika Serikat yang berimbas langsung terhadap kestabilan ekonomi global, semua lembaga-lembaga keuangan tidak stabil dan ekonomi sedang buruk sementara perbankan syariah tetap beroperasi secara stabil (Mat Rahim & Zakaria, 2013; N. Trad et al 2017). |
| Date: | 2022–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:69bak&r= |
| By: | Alice Eliet-Doillet (Ecole Polytechnique Fédérale de Lausanne); Andrea Maino (University of Geneva) |
| Abstract: | This paper investigates the impact of central banks when supporting policies aiming at greening the financial system. The July 2021 Monetary Policy Strategy Review of the European Central Bank unexpectedly dedicated a whole workstream to climate change. The announcement had a significant effect on the pricing and issuance of green bonds in the Eurozone. We find that ECB eligible green bonds’ Yield-to-Maturity decreased following the announcement when compared to equivalent conventional bonds. Firms incorporated in the Eurozone reacted to the announcement by increasing the amount of green bond issued, for both the segments of ECB-eligible and non-ECB-eligible green bonds. |
| Keywords: | Climate Change, Central Banks, Green Bonds, Carbon Emissions, Quantitative Easing, Monetary Policy, ESG |
| JEL: | Q58 E52 E58 G12 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2235&r= |
| By: | Markus Leippold (University of Zurich; Swiss Finance Institute); Felix Matthys (ITAM) |
| Abstract: | This paper analyzes the impact of economic policy uncertainty on the term structure of real and nominal interest rates. We derive a general equilibrium model where the real side of the economy is driven by government policy uncertainty and the central bank sets money supply endogenously following a Taylor rule. We analyze the impact of government and monetary policy uncertainty on nominal yields, short rates, bond risk premia and the term structure of bond yield volatility. Furthermore, we show that our standard affine yield curve model is able to capture both, the shape of the term structure of interest rates as well as the hump-shaped bond yield volatility curve. Finally, the empirical analysis shows that, whereas higher government policy uncertainty leads to a decline in yields, and an increase in bond yield volatility, monetary policy uncertainty does not have a significant contemporaneous effect on movements in the yield or volatility but is however an important predictor for bond risk premia. |
| Keywords: | Term structure modeling, yield volatility curve, policy uncertainty, bond risk premia |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2236&r= |
| By: | , ABDUROHIM; Purwoko, Bambang |
| Abstract: | The intelligent behavior services currently provided by the Bank are only limited to account opening services, accepting deposits, payments, and purchasing vouchers for Telkomsel, Indosat, PLN, PDAM, and others. This intelligent behavior service has attracted much interest, especially for people who have not been in direct contact with the banking world. In addition to the time of service that knows no time, providing services for agents is not complicated. Hence, the current business model is very suitable to meet the needs of the people—The daily requirements of those the banking sector has not exploited. However, the purpose of this service is not only to fulfill daily needs but also to increase income by helping capital for people in need; thus, if the capacity increases, it will directly affect payment, which in the end, the community will be more and prosperous. However, banks have not carried out the service for distributing credit; in addition to the absence of regulations, the form of the credit distribution scheme is unclear. |
| Date: | 2022–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:m8xb2&r= |
| By: | David O. Lucca; Jonathan H. Wright |
| Abstract: | We study the recent Australian experience with yield curve control (YCC) of government bonds as perhaps the best evidence of how this policy might work in other developed economies. We interpret the evidence with a simple model in which YCC affects prices of both government and other bonds via “broad” transmission channels, but only government bond prices through “narrow” liquidity channels. YCC seemingly worked well in 2020 while the market expected short rates to stay at zero for long. But as the global recovery and inflation gained momentum in 2021, liftoff expectations moved up, the Reserve Bank of Australia purchased most of the outstanding amount of the targeted government bond, and its yield dislocated from other financial market instruments. The model and empirical evidence point to narrow transmission channels playing more prominent roles than broad channels considered in prior studies of quantitative easing (QE), such as portfolio balance effects and signaling about short term rates. We argue that asset-specific narrow channels may be primary transmission mechanisms of quantity-based QE policies as well. |
| Keywords: | monetary policy; yield curve control; quantitative easing |
| JEL: | E4 E5 G1 |
| Date: | 2022–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:94081&r= |
| By: | Nariman, Farhad (affiliation not available); Heshmati, Almas (Jönköping University, Sogang University) |
| Abstract: | The purpose of this study is demonstrating why entrepreneurs should monitor the broad dollar index. This paper explains the reason why the broad dollar index has become a risk (leverage) gauge since 2008 using the Covered Interest Parity (CIP). CIP can be viewed as a reflection of the shadow price of a bank’s balance sheet, which reflects how risky the situation is for a certain entrepreneur attempting to start a new venture. The importance of the link between banks and entrepreneurs has long been recognized. When the banking system is constrained, an entrepreneur should be informed. Entrepreneurs will be able to understand the circumstances in which they want to succeed more correctly if they are aware of the state of the banking system. Overall, the risk appetite of the banking system is critical for both traditional and export-oriented businesses. The VIX index (Chicago Board Options Exchange market volatility index) was once employed as a barometer of the banking system’s risk appetite, but things have changed since the great financial crisis and the index has been supplanted by the broad dollar index. Since 2008, the broad dollar index has been used as an indicator of a bank’s risk appetite. This paper provides entrepreneurs a handy index for assessing the economic conditions in which they choose to be entrepreneurs more accurately. |
| Keywords: | dollar shortage, entrepreneurship, balance sheet capacity, dollar index, covered interest parity |
| JEL: | F31 F34 F41 G02 G21 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp15216&r= |
| By: | Maharani, Whenny Amelya |
| Abstract: | Bank Syariah merupakan suatu lembaga keuangan yang berlandaskan sistem Ekonomi Islam, dan dalam melakukan transaksi perbankan tersebut, mengacu pada prinsip profit loss sharing. Di Indonesia sendiri, bank syariah sudah mulai berkembang pesat, apalagi saat Bank Syariah terbukti tidak terpengaruh dampak dari krisis ekonomi. Selain itu, mayoritas penduduk di Indonesia yang menganut agama Islam juga menjadi salah satu faktor pendorong, karena memang beberapa dari mereka pun sudah enggan menggunakan fasilitas kredit bank konvensional yang berlandaskan sistem bunga. Perkembangan bank syariah ini diawali dengan terbitnya Undang-undang Perbankan No.10 tahun 1998, yang isinya tentang terbaginya industri perbankan di Indonesia menjadi dua. Yaitu bank yang berlandaskan sistem bunga atau bank konvensional, dan yang kedua adalah bank dengan berlandaskan sistem bagi hasil atau bank syariah. |
| Date: | 2022–04–03 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:tmc7b&r= |
| By: | Mr. Thierry Tressel; Eugen Tereanu; Mr. Marco Gross; Xiaodan Ding |
| Abstract: | We present an analysis of the sensitivity of household mortgage probabilities of default (PDs) and loss given default (LGDs) on unemployment rates, house price growth, interest rates, and other drivers. A structural micro-macro simulation model is used to that end. It is anchored in the balance sheets and income-expense flow data from about 95,000 households and 230,000 household members from 21 EU countries and the U.S. We present country-specific nonlinear regressions based on the structural model simulation-implied relation between PDs and LGDs and their drivers. These can be used for macro scenario-conditional forecasting, without requiring the conduct of the micro simulation. We also present a policy counterfactual analysis of the responsiveness of mortgage PDs, LGDs, and bank capitalization conditional on adverse scenarios related to the COVID-19 pandemic across all countries. The economics of debt moratoria and guarantees are discussed against the background of the model-based analysis. |
| Keywords: | Credit risk, household sector, micro-macro simulation modeling, financial policies |
| Date: | 2022–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2022/065&r= |
| By: | , Nurhamna |
| Abstract: | Perbankan syariah di Indonesia semakin berkembang seiring dengan berkembangnya pertumbuhan penduduk yang berpenduduk mayoritas beragama islam. Perbankan syariah menjadi alternatif sistem perbankan yang memiliki berbagai macam produk dan pelayanan yang beragam akan siklus operasionalnya serta memiliki kemampuan menghasilkan profit menjadi indikator penting untuk keberlanjutan entitas bisnis dan untuk mengukur kemampuan bersaing dalam jangka panjang. Bank syariah adalah bank yang beroperasi dengan tidak mengandalkan bunga. Kedudukan bank syariah dengan para nasabahnya adalah sebagai mitra investor dan pedagang. Pada prinsipnya, Bank Syariah adalah sama dengan perbankan konvensional, yaitu sebagai instrumen intermediasi yang menerima dana dari orang-orang yang surplus dana (dalam bentuk penghimpunan dana) dan menyalurkannya kepada pihak yang membutuhkan (dalam bentuk produk pelemparan dana). Bank syariah menggunakan berbagai teknik dan metode investasi, dimana kontrak hubungan investasi antara bank syariah dengan para nasabahnya disebut dengan istilah pembiayaan. Dalam perbankan, pembiayaan mempunyai peranan penting terutama untuk menyalurkan dana kepada masyarakat untuk menghadapi masalah dan atau modal kerja terutama untuk |
| Date: | 2022–04–14 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:ekfdb&r= |
| By: | Radoslav Raykov; Consuelo Silva-Buston |
| Abstract: | Bank regulation is based on the premise that risks spill over more easily from large banks to the banking system than vice versa. On the contrary, we document that risk transmission is stronger in the system-to-bank direction. We term this asymmetric systemic risk, measure it with net exposure metrics, and explore the consequences and channels behind it. We show that banks with positive net exposure to the system had higher default risk during the 2008 crisis, and that bank size and trading activities were the main determinants of this net exposure, which increased default risk through trading income volatility and overall profit volatility. We argue that the current bank supervision objectives can be achieved more efficiently if regulation focuses on reducing such net exposures, rather than buffering the default risks arising from them. |
| Keywords: | Financial institutions; Financial stability; Financial system regulation and policies |
| JEL: | G10 G20 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:22-19&r= |
| By: | , Nurhamna |
| Abstract: | Perbankan syariah di Indonesia semakin berkembang seiring dengan berkembangnya pertumbuhan penduduk yang berpenduduk mayoritas beragama islam. Perbankan syariah menjadi alternatif sistem perbankan yang memiliki berbagai macam produk dan pelayanan yang beragam akan siklus operasionalnya serta memiliki kemampuan menghasilkan profit menjadi indikator penting untuk keberlanjutan entitas bisnis dan untuk mengukur kemampuan bersaing dalam jangka panjang. Bank syariah adalah bank yang beroperasi dengan tidak mengandalkan bunga. Kedudukan bank syariah dengan para nasabahnya adalah sebagai mitra investor dan pedagang. Pada prinsipnya, Bank Syariah adalah sama dengan perbankan konvensional, yaitu sebagai instrumen intermediasi yang menerima dana dari orang-orang yang surplus dana (dalam bentuk penghimpunan dana) dan menyalurkannya kepada pihak yang membutuhkan (dalam bentuk produk pelemparan dana). Bank syariah menggunakan berbagai teknik dan metode investasi, dimana kontrak hubungan investasi antara bank syariah dengan para nasabahnya disebut dengan istilah pembiayaan. Dalam perbankan, pembiayaan mempunyai peranan penting terutama untuk menyalurkan dana kepada masyarakat untuk menghadapi masalah dan atau modal kerja terutama untuk |
| Date: | 2022–04–14 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:9gv4t&r= |
| By: | Capazario, Michele |
| Abstract: | This research has attempted to derive a new Taylor-type monetary policy rule which is sensitive to changes in the functional distribution of income proxied for by the labourer’s share of national income. I then apply this new policy rule to South African data between quarter 4 of 2001 and quarter 4 of 2021. This rule, once applied, yields favorable results in terms of goodness of fit relative to other such rules applied to South African data. The application of this rule to South Africa also yields an interesting finding- the South African Reserve Bank, most likely as a means to stabilise the South African macroeconomic system, reacts more to changes in the functional distribution of income than to an equivalent change in the inflation rate or output growth. I suggest that this formulation of the Taylor rule, and others like it, be used and developed further in future research. |
| Keywords: | Taylor Rule; Structuralist; Labour Share |
| JEL: | C26 E00 E5 |
| Date: | 2022–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:112740&r= |
| By: | Sugata Marjit; Gouranga Gopal Das |
| Abstract: | This paper attempts to build up a Heckscher-Ohlin-Samuelson model of production and trade where capital is introduced outside the production process as a financial capital or credit as per the classical Ricardian wage fund framework. Stock of credit or financial capital as past savings, finances employment and machines or capital goods used in the process of production with Ricardian fixed coefficient technology. We derive the relationship between factor prices and rate of interest on one hand and relative price and endowments on the other. Availability of finance does not impact production or pattern of trade only nominal factor prices. International financial flows will not alter pattern of trade, but movement of labour and machines will. Such results change drastically when we consider a model with unemployment and finance dictates real outcomes much more than before. Introducing finance affects trade patterns with unemployment and especially with imperfect credit markets. The results could explain a vast array of stylized facts such as, financial crisis or shock, credit rationing and their impact on production, trade and unemployment. The paper has policy implications for role of financial development, quality of institutions in economic development. |
| Keywords: | wage-fund, Heckscher-Ohlin-Samuelson, Ricardo, inequality, credit, general equilibrium, financial development, unemployment, trade |
| JEL: | B12 B13 B17 F11 F63 F65 F16 O12 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9672&r= |
| By: | Demary, Markus; Herforth, Anna-Lena; Zdrzalek, Jonas |
| Abstract: | We argue that the period of low inflation has come to an end based on six structural factors, which define the new inflationary environment: [...] How high will inflation rise? How long will the new inflationary environment last? How challenging is it for central banks to counteract these inflationary pressures? A stagflation like in the 1970ies seems possible given these trends. The energy-crisis made the transformation of our energy systems necessary, which is, however, progressing slowly, thereby contributing to a longer lasting energy-triggered inflation. The highest risk will be an energy embargo, resulting in a deep recession together with high inflation. In this case monetary policy might be forced to inject high amounts of liquidity into markets despite high inflation. |
| JEL: | E31 E32 E52 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwkrep:162022&r= |
| By: | Nicola Pierri; Yannick Timmer |
| Abstract: | What are the implications of information technology (IT) in banking for financial stability? Data on US banks' IT equipment and the background of their executives reveals that higher pre-crisis IT adoption led to fewer non-performing loans and more lending during the global financial crisis. Empirical evidence indicates a direct role of IT adoption in strengthening bank resilience; this includes instrumental variable estimates exploiting the historical location of technical schools. Loan-level analysis shows that high-IT banks originated mortgages with better performance, indicating better borrower screening. No evidence points to offloading of low-quality loans, differences in business models, or enhanced monitoring. |
| Keywords: | Technology; Financial Stability; IT Adoption; Non-Performing Loans; Screening |
| JEL: | D82 D83 E44 G14 G21 O30 |
| Date: | 2022–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2022-20&r= |
| By: | Maraoui, Najia (Monastir University); Amor, Thouraya Hadj (Monastir University); Khefacha, Islem (Monastir University); Rault, Christophe (University of Orléans) |
| Abstract: | In this paper, we investigate how economic, political and institutional factors affect the choice of exchange rate regimes, using data on eight MENA (Middle East and North Africa) countries over the 1984-2016 period. Specifically, we run random-effects ordered probit regressions of the likelihood of exchange rate regimes on potential determinants of exchange rate regimes. Three important findings emerge from the analysis. i) Political and institutional factors play an important role in determining the exchange rate regime in MENA countries: a democratic political regime and a low level of corruption increases the probability to opt for a fixed regime. While, strong governments, political stability such as less internal conflicts and more government stability, more law and order enforcement and left-wing Government decreases the probability to opt for a fixed regime. ii) Bureaucracy, independent central banks, elections, terms of trade as well as the monetary independence have no effect on the choice of exchange rate regimes. iii) Financial development is not a robust determinant of the choice of exchange rate regimes. Our results still hold when considering alternative specifications and have important implications for policy makers in MENA countries. |
| Keywords: | exchange rate regimes, country risk, political and institutional factors, panel data, ordered probit regression, MENA |
| JEL: | C23 F33 F55 H80 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp15234&r= |
| By: | Ralf R. Meisenzahl; Karen M. Pence |
| Abstract: | In response to immense strains in the asset-backed securities market in 2008 and 2020, the Federal Reserve and the U.S. Treasury twice launched the Term Asset-Backed Securities Loan Facility (TALF). TALF was an unusual crisis facility because it provided loans to a wide range of nonbank financial institutions. Using detailed loan-level data unexplored by previous researchers, we study the behavior of nonbank borrowers in TALF. We find the extent to which the actions of these borrowers supported key program goals--stabilizing markets quickly, winding down the program when it was no longer needed, providing liquidity to a wide range of assets, and having borrowers internalize credit risk rather than shift it to the government--were related to institutional differences across nonbanks. Since all TALF borrowers faced the same program terms and conditions, our study is able to highlight the role of these institutional constraints. |
| Keywords: | Non-Bank Financial Institutions; Securitization; Lender of Last Resort; Term Asset-Backed Securities Loan Facility; TALF |
| JEL: | E52 E53 G12 G23 |
| Date: | 2022–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2022-21&r= |
| By: | Lawrence Christiano; Hüsnü Dalgic; Xiaoming Li |
| Abstract: | We consider bank panic models in which, depending on the configuration of fundamentals, there can be a positive probability of a bank panic. A crucial assumption in these models is that new equity cannot enter in a panic. We quantify the importance of this assumption by computing the minimal entry cost that justifies the no-entry assumption. We find that that cost is implausibly high across the several models considered. We also show that small changes in assumptions about entry have a qualitative impact on equilibria: a panic may not be possible or there could be several equilibria with different levels of panic. The economic reasons for this sensitivity are clarified by transforming the market economy into a game and studying banker best response functions. A second, additional result, is displayed in a three-period version of the panic model of Gertler and Kiyotaki (2015). That model naturally suggests the idea that welfare can be improved by imposing a restriction on bank leverage. We compute the Ramsey-optimal leverage restriction but find that there is an implementation problem: the restriction can be associated with more than one equilibrium, not just the desired one. We discuss one way to address the implementation problem. |
| JEL: | G01 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29955&r= |
| By: | Nurhazrina Mat Rahim (Faculty of Accountancy, Universiti Teknologi MARA, Cawangan Selangor, Kampus Puncak Alam, 42300 Bandar Puncak Alam, Selangor, Malaysia Author-2-Name: Norli Ali Author-2-Workplace-Name: Faculty of Accountancy, Universiti Teknologi MARA, Cawangan Selangor, Kampus Puncak Alam, 42300 Bandar Puncak Alam, Selangor, Malaysia Author-3-Name: Mohd Fairuz Adnan Author-3-Workplace-Name: Faculty of Accountancy, Universiti Teknologi MARA, Cawangan Selangor, Kampus Puncak Alam, 42300 Bandar Puncak Alam, Selangor, Malaysia Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:) |
| Abstract: | " Objective - This study aims to assess students' financial literacy levels using digital financial literacy (DFL), the most recent element. Methodology – Students who are based in Selangor, Malaysia, were chosen for this study as they recorded a high rate of youth bankruptcy. Convenience sampling was used to distribute the questionnaires among the students between March and August of 2021, where a total of 184 responses were retrieved. Findings and Novelty – The results indicated that students possessed advanced financial knowledge and confidence. Despite the extensive experience in completing online financial transactions, the students lack digital financial knowledge and an understanding of the risks associated with digital financial services. Therefore, including DFL in financial education is essential to ensuring future generations' financial well-being. This study also adds to the limited literature on financial digital literacy and serves as an eye-opener to policymakers on its importance in financial education. Type of Paper - Empirical" |
| Keywords: | Financial literacy, financial confidence, Digital financial literacy, Digital financial knowledge, Students |
| JEL: | I22 M29 O16 |
| URL: | http://d.repec.org/n?u=RePEc:gtr:gatrjs:jfbr195&r= |