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on Banking |
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Issue of 2022‒09‒12
39 papers chosen by Sergio Castellanos-Gamboa, , Pontificia Universidad Javeriana |
| By: | Huang, Yiping; Li, Xiang; Qiu, Han; Yu, Changhua |
| Abstract: | This paper studies monetary policy transmission through BigTech and traditional banks. By comparing business loans made by a BigTech bank with those made by traditional banks, it finds that BigTech loans tend to be smaller, and the BigTech bank grants credit to more new borrowers compared with conventional banks in response to expansionary monetary policy. The BigTech bank's advantages in information, monitoring, and risk management are the potential mechanisms. The analysis also finds that BigTech and traditional bank credits to firms that have already borrowed from these banks respond similarly to changes in monetary policy. Overall, BigTech credit amplifies monetary policy transmission mainly through the extensive margin. In addition, monetary policy has a stronger impact on the real economy through BigTech lending than traditional bank loans. |
| Keywords: | bank lending,financial technology,monetary policy transmission |
| JEL: | E52 G21 G23 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:182022&r= |
| By: | Tom Beernaert; Nicolas Soenen; Rudi Vander Vennet (-) |
| Abstract: | Euro Area banks have been confronted with unprecedented monetary policy actions by the ECB. Monetary policy may affect bank risk profiles, but the consequences may differ for short-term risk versus long-term or structural bank risk. We empirically investigate the association between the ECB’s monetary policy stance and market-perceived shortterm and long-term bank risk, using the term structure of default risk captured by bank CDS spreads. The results demonstrate that, during the period 2009-2020, ECB expansionary monetary policy diminished bank default risk in the short term. However, we do not observe a similar decline in long-term bank default risk, since we document that monetary stimulus is associated with a steepening of the bank default risk curve. The reduction of bank default risk is most pronounced during the sovereign debt crisis and for periphery Euro Area banks. From 2018 onwards, monetary policy accommodation is associated with increased bank default risk, both short term and structurally, which is consistent with the risk-taking hypothesis under which banks engage in excessive risk-taking behavior in their loan and securities portfolios to compensate profitability pressure caused by persistently low rates. The increase in perceived default risk is especially visible for banks with a high reliance on deposit funding. |
| Keywords: | Monetary policy, ECB, Bank default risk, Term structure of credit risk |
| JEL: | C58 G21 G32 E52 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:22/1050&r= |
| By: | David P. Glancy; Robert J. Kurtzman; Lara Loewenstein |
| Abstract: | Banks modify more CRE loans than CMBS, contributing to better loan performance when property incomes decline. However, banks have higher delinquency rates for less-stressed loans, consistent with modification policies encouraging strategic default. Motivated by these facts, we develop a tradeoff theory model in which lenders vary in their modification technologies. Modification frictions discourage strategic renegotiation, enabling CMBS to offer higher LTV loans and attract borrowers seeking higher leverage. The model produces cross-lender differences in LTVs and spreads consistent with the data. Reducing modification frictions at CMBS decreases welfare by restricting debt capacity for the borrowers that value it most. |
| Keywords: | Commercial real estate; Modifications; LTV |
| JEL: | R33 G21 G22 G23 |
| Date: | 2022–08–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2022-50&r= |
| By: | Lorenzo Dal Maso (University of Bologna); Kiridaran Kanagaretnam (Schulich School of Business); Gerald Lobo (University of Houston); Francesco Mazzi (University of Florence) |
| Abstract: | We examine the relation between disaster risk and banks’ loan loss provision (LLP) estimates. We propose a disaster risk measure based on the natural disasters declared as major disasters by the Federal Emergency Management Agency over the past fifteen years. We theoretically support and empirically validate our measure using three different approaches, including the UN Sendai Framework for disaster risk reduction, which relates disaster risk to natural hazard exposure, vulnerability and capacity, and hazard characteristics. Using more than 445,000 bank-quarter observations, we document that banks located in counties with higher disaster risk recognize larger LLP after controlling for other bank-level factors related to LLP estimates. We employ several techniques to ensure the robustness of our findings, including difference-in-differences estimation and matched samples. In additional analysis, we propose three alternative measures of disaster risk, explore the characteristics that better enable banks to recognize disaster risk in their LLP estimates, and investigate the consequences of managing disaster risk through LLP. Our results are important, especially because of the increasing concern about disaster risk and because they inform the growing debate on the economic consequences of disaster risk and the ability of the banking system to proactively manage the resulting credit risk through LLPs. |
| Keywords: | Disaster Risk, Loan Loss Provisions, Future Charge-offs, Future Risk-Taking, Banks |
| JEL: | M40 M41 G20 G21 E50 E59 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:frz:wpmmos:wp2022_05.rdf&r= |
| By: | Barbieri, Claudio; Couaillier, Cyril; Perales, Cristian; Rodriguez d’Acri, Costanza |
| Abstract: | Macroprudential policies should strengthen the banking sector throughout the financial cycle. However, while bank credit growth is used to capture cyclical exuberance and calibrate buffer requirements, it depends on potentially heterogeneous dynamics on the borrower and lender side. By decomposing credit growth into a common component and components capturing heterogeneity in supply and demand à la Amiti and Weinstein, 2018 applied on the euro area credit register ("AnaCredit"), we can inform the policy debates in two ways. Ex ante, we introduce a framework mapping the decomposition to different types of macroprudential instruments, specifically broad vs. targeted measures. Ex post, we also show that the resulting decomposition can be used to assess the effectiveness of adopted measures on credit supply or demand. We find evidence that buffer releases and credit guarantees increased bank credit supply during the COVID-19 pandemic and interacted positively with banks' profitability. JEL Classification: E58, E52, E44, G21 |
| Keywords: | bank-lending channel, buffer releases, capital requirements, credit dynamics, European economy |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222702&r= |
| By: | Oosthuizen, Dick; Zalla, Ryan |
| Abstract: | We present a quantitative model of deposit insurance. We characterize the policymaker’s optimal choices of coverage for depositors and premiums raised from banks. Premiums contribute to a deposit insurance fund that lowers taxpayers’ resolution cost of bank failures. We find that risk-adjusted premiums reduce moral hazard, enabling the policymaker to increase deposit insurance coverage by 3 percentage points and decrease the share of expected annual bank failures from 0.66% to 0.16%. The model predicts a fund-to-covered-deposits ratio that matches the data and declines in taxpayers’ income due to taxpayers’ risk aversion. JEL Classification: G21, G28 |
| Keywords: | bank regulation, bank runs, deposit insurance |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222704&r= |
| By: | Muñoz, Manuel A.; Smets, Frank |
| Abstract: | Since the onset of the Global Financial Crisis, the presence of institutional investors in housing markets has steadily increased over time. Real estate funds (REIFs) and other housing investment •rms leverage large-scale buy-to-rent real estate investments that enable them to set prices in rental markets. A significant fraction of this funding is being provided in the form of non-bank lending - which is not subject to regulatory LTV ratios - and REIFs are generally not constrained by leverage limits. We develop a quantitative DSGE model that incorporates the main features of the REIF industry and identify leakages of existing macroprudential policy: (i) already existing countercyclical LTV rules on residential mortgages trigger a credit reallocation towards the REIF sector that can amplify financial and business cycles; while (ii) "non-existent" countercyclical LTV rules on lending to REIFs are particularly effective in taming such cycles. Due to the different mechanisms through which they operate, both types of LTV rules complement each other and jointly yield larger welfare gains (for savers and borrowers) than in isolation. JEL Classification: E44, G23, G28 |
| Keywords: | leakages, leverage, loan-to-value ratios, real estate funds, rental housing |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:20220&r= |
| By: | Bochmann, Paul; Hiebert, Paul; Schüler, Yves S.; Segoviano, Miguel |
| Abstract: | We propose the CoJPoD, a novel framework explicitly linking the cross-sectional and cyclical dimensions of systemic risk. In this framework, banking sector distress in the form of the joint probability of default of financial intermediaries (reflecting contagion from both direct and indirect interconnectedness) is conditioned on the financial cycle (reflecting the buildup and unwinding of system-wide balance sheet leverage). An empirical application to large systemic banks in the euro area, US and UK illustrates how the unravelling of excess leverage can magnify banking sector distress. Capturing this dependence of banking sector distress on prevailing financial imbalances can enhance risk surveillance and stress testing alike. An empirical signaling exercise confirms that the CoJPoD outperforms the individual capacity of either its unconditional counterpart or the financial cycle in signaling financial crises particularly around their onset - suggesting scope to increase the precision with which macroprudential policies are calibrated. JEL Classification: C19, C54, E58, G01, G21 |
| Keywords: | financial crises, financial cycle, multivariate density optimization, portfolio credit risk, systemic risk |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222698&r= |
| By: | Schneorson, Oren |
| Abstract: | This paper investigates how interbank credit exposures affect financial stability. Policy makers often see such exposures as undermining stability by exacerbating cascading losses through the financial system. I develop a model that features a trade-off between cascading losses and risk-sharing. In contrast to previous studies I find that reducing interbank connectivity may destabilize the financial system via the bank-run channel. This is because it decreases the risk-sharing benefits of interbank connectivity. A bank-run model features two islands that are connected via a long term debt claim. Varying the size of this claim (interbank connectivity), I study how the decision to `run on the bank' is affected. I run a simulation of the model, calibrated to the U.S. banking system between 1997-2007. I find that large bankruptcy costs are required to trump the risk-sharing benefits of interbank credit exposures. JEL Classification: G01, G21, G28 |
| Keywords: | bank runs, credit risk, derivatives, financial stability |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:2022136&r= |
| By: | René M. Stulz; Alvaro G. Taboada; Mathijs A. van Dijk |
| Abstract: | Bank liquid asset holdings vary significantly across banks and through time. The determinants of liquid asset holdings from the corporate finance literature are not useful to predict banks’ liquid asset holdings. Banks have an investment motive to hold liquid assets, so that when their lending opportunities are better, they hold fewer liquid assets. We find strong support for the investment motive. Large banks hold much more liquid assets after the Global Financial Crisis (GFC), and this change cannot be explained using models of liquid asset holdings estimated before the GFC. We find evidence supportive of the hypothesis that the increase in liquid assets of large banks is due at least in part to the post-GFC regulatory changes. |
| JEL: | G21 G28 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30340&r= |
| By: | Eisenschmidt, Jens; Ma, Yiming; Zhang, Anthony Lee |
| Abstract: | We show that dealer market power impedes the pass-through of monetary policy in repo markets, which is an important first stage of monetary policy transmission. In the European repo market, most participants do not have access to trade on centralized exchanges. Rather, they rely on OTC intermediation by a small number of dealers that exhibit significant market power. As a result, the passthrough of the ECB’s policy rate to the majority of non-dealer banks and non-banks is inefficient and unequal in repo markets. Our estimates imply that a secured funding facility like the Fed’s RRP may alleviate dealer market power and improve the transmission efficiency of monetary policy to banks and non-bank financial institutions. JEL Classification: E4, E5, G2 |
| Keywords: | market power, monetary policy, non-banks, pass-through efficiency, repo market |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222706&r= |
| By: | Poonam Gupta (National Council of Applied Economic Research); Arvind Panagariya (National Council of Applied Economic Research) |
| Abstract: | Banks play a critical role in economic growth. In India, the banking sector, dominated by public sector banks (PSBs), has underserved the economy and their stakeholders. The underperformance of PSBs has persisted despite several policy initiatives during the past decade. Meanwhile, private banks have further improved their performance and have gained significant market share. In this paper, we have made the case for privatization of PSBs. Due to its better performance and adhering to the development view of the PSBs, we propose that the State Bank of India (SBI) may remain under government ownership for now, but all other banks should be privatized. In order for them to set an example for the success of future privatizations, the first two banks for privatization should be the ones with better asset quality and higher returns. The most critical element for privatization to succeed would be the withdrawal of the government from the post-privatization board of the bank. The paper proposes a couple of different pathways to successfully transition the sector toward private ownership. It cautions that the status quo will result in further erosion of the market share of PSBs toward oblivion, while impeding India’s economic growth and inflicting substantial costs onto the depositors, firms, taxpayers and the government as their majority owner in the interim. |
| Keywords: | Bank credit, Public sector banks, Privatization, India |
| JEL: | G21 G28 K23 L33 E23 |
| Date: | 2022–08–03 |
| URL: | http://d.repec.org/n?u=RePEc:nca:ncaerw:141&r= |
| By: | Bittner, Christian; Fecht, Falko; Pala, Melissa; Saidi, Farzad |
| Abstract: | This paper provides evidence of deliberate private-information disclosure within banks' international business networks. Using supervisory trade-level data, we show that banks with closer ties to a target advisor in a takeover buy more stocks of the target firm prior to the deal announcement, enabling them to benefit from the positive announcement return. We do not find such effects for bank connections to acquirer advisors or for trades in acquirer stocks. Target advisors benefit from leaking information about takeover bids to connected banks, as it drives up the final offer price without compromising the probability of bid success. |
| Keywords: | bank networks,trading,information spillovers,mergers and acquisitions,syndicated lending |
| JEL: | G11 G15 G21 G24 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:292022&r= |
| By: | Ahnert, Toni; Kuncl, Martin |
| Abstract: | We study third-party loan guarantees in a model in which lenders can screen, learn loan quality over time and can sell loans before maturity when in need of liquidity. Loan guarantees improve market liquidity and reduce lending standards, with a positive overall welfare effect. Guarantees improve the average quality of non-guaranteed loans traded and thus the market liquidity of these loans due to both selection and commitment. Because of this positive pecuniary externality, guarantees are insufficient and should be subsidized. Our results contribute to a debate about reforming government-sponsored mortgage guarantees by Fannie Mae and Freddie Mac. JEL Classification: G01, G21, G28 |
| Keywords: | adverse selection, Government Sponsored Enterprises, market liquidity, mortgage guarantees, pecuniary externality, Pigouvian subsidy |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222710&r= |
| By: | Jingzhu Chen; Yuemei Ji |
| Abstract: | We study the relationship between finance and growth using a sample of 275 Chinese cities during 2009-2018. We exclude a large amount of bank loans to local governments through the local government financing vehicles (LGFVs). This allows us to construct a new and better financial development index which measures the level of loans extended by banks to enterprises and households. Estimates from both GMM and Instrument Variables approaches indicate that financial development in the form of higher loan to GDP ratio leads to lower economic growth rate. We find that discrimination in bank lending, housing market bubbles and an unbalanced growth between real and financial sectors account for this negative relationship between finance and growth. |
| Keywords: | China, financial development, economic growth, banks, city |
| JEL: | O16 O18 O53 G21 N25 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9882&r= |
| By: | Daniel Carvalho (Banco de Portugal); Etienne Lepers (OECD); Rogelio V. Mercado, Jr. (South East Asian Central Banks (SEACEN) Research and Training Centre) |
| Abstract: | Capital flows may lead to financial vulnerabilities by fueling domestic credit booms, the so-called “capital flows-credit growth nexus, of particular concern to emerging markets. This paper makes two important contributions to the understanding of this nexus: it adopts a sectoral approach to the relationship between cross-border capital flows and domestic credit growth and it studies how different macroprudential and financial policies affect that relationship in emerging market economies. Using novel datasets on both sectoral flows and policy measures, it finds that financial policy measures can mitigate domestic credit growth, not only directly, but also indirectly, through the reduction of the sensitivity of credit to capital inflows. Furthermore, the results underscore the importance of a granular sectoral approach in identifying the full range of connections between capital flows and credit growth, as well as the appropriate policy response. While, in general, macroprudential and foreign currency-based measures are better suited to mitigate the impact of banking sector flows, capital controls appear to lessen the impact of flows to non-financial corporates and other financial corporates. Splitting by borrowing sectors, macroprudential lending standards and measures targeted at household credit weaken the impact of inflows on household credit, while the latter also strengthen the relationship between NFC flows and NFC credit, suggesting a potential shift in composition. |
| Keywords: | capital flows, domestic credit, sectors, capital controls, macroprudential measures |
| JEL: | E51 F32 G15 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:sea:wpaper:wp46&r= |
| By: | Durrani, Agha; Ongena, Steven; Ponte Marques, Aurea |
| Abstract: | What is the impact of stress tests on bank stock prices? To answer this question we study the impact of the publication of the EU-wide stress tests in 2014, 2016, 2018, and 2021 on the first (λ) and second (δ) moment of equity returns. First, we study the effect of the disclosure of stress tests on (cumulative) excess/abnormal returns through a one-factor market model. Second, we study whether both returns and volatility of bank stock prices changes upon the disclosure of stress tests through a structural GARCH model, developed by Engle and Siriwardane (2018). Our results suggest that the publication of stress tests provides new information to markets. Banks performing poorly in stress tests experience, on average, a reduction in returns and an increase in volatility, while the reverse holds true for banks performing well. Banks performing moderately have rather a small effect on both mean and variance process. Our findings are corroborated by the observed rank correlation between bank abnormal returns or equity volatility and stress test performance, which experiences a steady increase after each publication event. These results suggest that the publication of stress tests improves price discrimination between 'good' and 'bad' banks, which can be interpreted as a certification role of the stress tests in the stock market. JEL Classification: G11, G14, G21, G28 |
| Keywords: | excess return, financial stability, stock markets, stress tests, volatility |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222711&r= |
| By: | Blinder, Alan S.; Ehrmann, Michael; de Haan, Jakob; Jansen, David-Jan |
| Abstract: | Central banks are increasingly reaching out to the general public to motivate and explain their monetary policy actions. One major aim of this outreach is to guide inflation expectations; another is to ensure accountability and create trust. This article surveys a rapidly-growing literature on central bank communication with the public. We first discuss why and how such communication is more challenging than communicating with expert audiences. Then we survey the empirical evidence on the extent to which this new outreach does in fact affect inflation expectations and trust. On balance, we see some promise in the potential to inform the public better, but many challenges along the way. JEL Classification: D12, D84, E52, E58, G53 |
| Keywords: | central bank, communication, general public, monetary policy |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222694&r= |
| By: | di Iasio, Giovanni; Kaufmann, Christoph; Wicknig, Florian |
| Abstract: | The investment fund sector, the largest component of the non-bank financial system, is growing rapidly and the economy is becoming more reliant on investment fund financial intermediation. This paper builds a dynamic stochastic general equilibrium model with banks and investment funds. Banks grant loans and issue liquid deposits, which are valuable to households. Funds invest in corporate bonds and may hold liquidity in the form of bank deposits to meet investor redemption requests. Without regulation, funds hold insufficient deposits and must sell bonds when hit by large redemptions. Bond liquidation is costly and eventually reduces investment funds’ intermediation capacity. Even when accounting for side effects due to a reduction of deposits held by households, a macroprudential liquidity requirement improves welfare by reducing bond liquidation and by increasing the economy’s resilience to financial shocks akin to March 2020. JEL Classification: E44, G18, G23 |
| Keywords: | liquidity regulation, macroprudential policy, non-bank financial intermediation |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222695&r= |
| By: | Bezoui Hajar (Université Mohammed V de Rabat [Agdal]); Barmaki Loubna (Université Mohammed V de Rabat [Agdal]) |
| Abstract: | With the financial crisis of 2008, the issue of CSR seems to gain a new field of application in financial institutions and more specifically banks. The main objective of this research work is to study the impact of consumers' perceptions of corporate social responsibility on the trust they place in their companies. To this end, a field study was carried out with 286 consumers of financial products and services from banks involved in CSR in Morocco. It emerges that consumers' perceptions of CSR play a significant role in shaping consumer confidence in their banks, directly and indirectly by highlighting certain moderating variables such as consumer expectations in terms of CSR, their level of personal support for different causes and their perceptions of the motivations of companies that implement CSR policies. Our results indicate that a consumer perceives a bank as socially responsible, and in addition to its environmental responsibility, it assumes a responsibility towards its employees and consumers. The latter participates most in the formation of global CSR, and this means that it has more impact on trust than any other dimension. This study highlights the potential benefits of CSR engagement in relation to an important stakeholder category. We want to show that alongside the effects of CSR on the image and reputation of the company, CSR activities if they are well perceived by consumers play on satisfaction, loyalty and consumer confidence in the company. |
| Abstract: | Avec la crise financière de 2008, la problématique de la responsabilité sociale des entreprises semble gagner un nouveau champ d'application, celui des établissements financiers et plus précisément les banques. L'objectif principal de cette recherche est d'étudier l'impact des perceptions des consommateurs en matière de RSE sur la confiance qu'ils accordent à leurs banques. A cette fin, une étude de terrain a été réalisée auprès de 286 consommateurs des produits et services financiers auprès des banques engagées RSE au Maroc. Il en ressort que les perceptions des consommateurs en matière de RSE jouent un rôle non négligeable dans la formation de la confiance des consommateurs vis-à-vis de leurs banques, directement et indirectement en mettant en lumière certaines variables modératrices. Nos résultats indiquent qu'un consommateur perçoit une banque comme socialement responsable si celle-ci assume en plus de sa responsabilité environnementale, une responsabilité envers ses employés et ses consommateurs. Cette dernière participe le plus à la formation de la RSE globale et cela signifie qu'elle a plus d'impact sur la confiance que toutes les autres dimensions. Cette étude met en lumière les bénéfices potentiels de l'engagement RSE des banques par rapport à une catégorie de partie prenante très importante. Nous souhaitons montrer qu'à côté des effets de la RSE sur l'image et la réputation de la banque, les activités de RSE si elles sont bien perçues par les consommateurs jouent sur leur satisfaction, fidélité et confiance vis-à-vis de leurs banques. |
| Keywords: | Corporate social responsibility,Perception of corporate social responsibility,Banking sector,Moroccan consumer,Trust in the bank |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03728323&r= |
| By: | Busch, Ulrike; Khayal, Nuri; Klein, Melanie |
| Abstract: | This paper sheds light on the functioning of internal capital markets by analysing money market transactions within the German cooperatives and savings banks finance groups. Using a unique dataset, the money market statistical reporting, this is the first paper to explicitly analyze the determinants of loan rates and volumes in internal capital markets. We find that the functioning of internal capital markets diverges substantially from the non-group interbank money market. Head institutes lend larger amounts at lower spreads to their affiliated banks than to banks outside their internal capital markets. Our findings also suggests that relationship lending is associated with lower spreads in the unsecured market in general but it plays only a minor role in internal capital markets. This finding indicates that counterparty credit risk and information asymmetries are less relevant within internal capital markets. We find an almost full immediate pass-through of the reduction of the deposit facility rate in 2019 to internal capital markets, but not to the rest of the interbank money market. The introduction of the two-tier system led to a slight transitory increase in rates and to a persistent increase in loan volumes within internal capital markets but not in the rest of the interbank money market. |
| Keywords: | internal capital markets,monetary policy,interbank money market,relationship lending |
| JEL: | E44 E43 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:302022&r= |
| By: | Fraccaroli, Nicolò; Giovannini, Alessandro; Jamet, Jean-Francois; Persson, Eric |
| Abstract: | Parliamentary hearings are a fundamental tool to hold independent central banks accountable. However, it is not clear what type of information central banks provide when they communicate with parliaments compared to other existing information channels. In this article, we address this question by comparing the communication of the European Central Bank (ECB) in parliamentary hearings to its communication in the regular press conferences that follow monetary policy decisions. Using text analysis on the ECB President’s introductory statements in parliamentary hearings and press conferences from 1998 to 2021, we show that the ECB uses parliamentary hearings to discuss topics that are less covered in press conferences. We also find that the ECB’s policy stance in the hearings tends to reflect the stance in press conferences, and that the degree of language complexity is similar in the two fora. These findings support the view that the ECB mainly uses parliamentary hearings to further explain policy decisions first presented at press conferences but also to put them in a broader context. JEL Classification: E02, E52, E58 |
| Keywords: | Central Bank accountability, Central Bank communication |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222705&r= |
| By: | Ahnert, Toni; Assenmacher, Katrin; Hoffmann, Peter; Leonello, Agnese; Monnet, Cyril; Porcellacchia, Davide |
| Abstract: | This paper provides a structured overview of the burgeoning literature on the economics of CBDC. We document the economic forces that shape the rise of digital money and review motives for the issuance of CBDC. We then study the implications for the financial system and discuss of a number of policy issues and challenges. While the academic literature broadly echoes policy makers’ concerns about bank disintermediation and financial stability risks, it also provides conditions under which such adverse effects may not materialize. We also point to several knowledge gaps that merit further work, including data privacy and the study of end‐user preferences for attributes of digital payment methods. JEL Classification: E41, E42, E51, E52, E58, G21 |
| Keywords: | Central Bank Digital Currency, digital money, financial stability, monetary policy, payments |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222713&r= |
| By: | Bats, Joost; Hoondert, Jurian J.A. |
| Abstract: | This paper investigates the relationship between central bank (reverse) auctions and bill market liquidity. The analysis includes data on the purchases of bills in the auctions by the Dutch Central Bank under the European Central Bank’s Pandemic Emergency Purchase Programme (PEPP). The results indicate that auctions contribute to smooth market functioning. Two findings stand out. First, by purchasing bills using auctions rather than bilaterally, the central bank increases the bid-to-cover ratio at bill issuance, especially in times of stress. Second, bills are offered at larger sizes and lower prices in central bank auctions near primary issuance. JEL Classification: E42, E44, E52, E58, G12 |
| Keywords: | bills, Central bank auctions, liquidity |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222708&r= |
| By: | Massoc, Elsa Clara |
| Abstract: | The ECB is independent, but it is also accountable to the European parliament (EP). Yet, how the EP has held the ECB accountable has largely been overlooked. This paper starts addressing this gap by providing descriptive statistics of three accountability modalities. The paper highlights three findings. First, topics of accountability have changed. Climaterelated accountability has increased quickly and dramatically since 2017. Second, if the relationship between price stability and climate change remains an object of conflict among MEPs, a majority within the EP has emerged to put pressure for the ECB to take a more active stance against climate change, precisely on behalf of its price stability mandate. Third, MEPs engage with the climate topic in very specific ways. There is a gender divide between the climate and the price stability topics. Women engage more actively with climate-related topics. While the Greens heavily dominate the climate topic, parties from the Right dominate the topic of Price stability. Finally, MEPs adopt a more united strategy and a particularly low confrontational tone in their climate-related interventions. |
| Keywords: | accountability,European Central Bank,European Parliament,climate,price stability |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:lawfin:40&r= |
| By: | Martin Harding; Rafael Wouters |
| Abstract: | We augment a standard New Keynesian model with a financial accelerator mechanism and show that financial frictions generate large state-dependent amplification effects. We fit the model to US data and show that show that, when shocks drive the model far away from the steady state, the nonlinear model produces much stronger propagation of shocks than the linearized model. We document that these amplification effects are due to endogenous variation in financial conditions and not due to other nonlinearities in the model. Motivated by these findings, we propose a regime-switching dynamic stochastic general equilibrium framework where financial frictions endogenously fluctuate between moderate (low risk) and severe (high risk), depending on the state of the economy. This framework allows for efficient estimation with many state variables and improves fit with respect to the linear model. |
| Keywords: | Central bank research; Credit and credit aggregates; Financial stability; Monetary policy |
| JEL: | E52 E58 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:22-37&r= |
| By: | Zhiguo He; Wei Wei |
| Abstract: | China's financial system has been integral to its spectacular economic growth over the past 40 years. We review the recent literature on China's financial system and its connections to the Chinese economy based on the categories of Aggregate Financing to the Real Economy (AFRE), a broad measure of the nation's yearly flow of liquidity accounting for unique features of China's financial system. While early work on China's financial system emphasizes the state-owned enterprise (SOE) reform, the recent literature explores other more market-based financing channels—including shadow banking—that grew rapidly after 2010 and have become important components of AFRE. These new financing channels are not only intertwined with each other, but more importantly often ultimately tied back to the dominant banking sector in China. Understanding the mechanisms behind these channels and their intrinsic connections is crucial to alleviate capital allocation distortion and mitigate potential systemic financial risk in China. |
| JEL: | G10 G20 G30 O16 O17 O33 P34 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30324&r= |
| By: | Deyan Radev (Faculty of Economics and Business Administration at Sofia University); Georgi Penev (Bulgarian Fintech Association, Sofia, Bulgaria) |
| Abstract: | This paper provides insights into the drivers of the resilience of the Fintech sector in Emerging Europe by analyzing the performance of 128 Bulgarian Fintech companies in the period 2000-2021. Our results show that larger and better capitalized Fintech companies which outsource their non-core activities and focus on their main competitive strengths tend to have higher operating income and profit. We also find substantial positive real-economy effects as these companies hire actively on the labor market to maintain their growth. The results are primarily driven by the post-Brexit period of 2016-2019. These results have important managerial and policy implications and provide interesting directions for future research. |
| Keywords: | Brexit, fintech, regional clusters, resilience, emerging markets |
| JEL: | G01 R00 R11 P25 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:sko:wpaper:bep-2022-07&r= |
| By: | Eric R. Sims; Jing Cynthia Wu; Ji Zhang |
| Abstract: | This paper studies the implications of household heterogeneity for the effectiveness of quantitative easing (QE). We consider a heterogeneous agent New Keynesian (HANK) model with uninsurable household income risk. Financial intermediaries are subject to an endogenous leverage constraint that allows QE to matter. We find that macro aggregates react very similarly to a QE shock in the HANK model compared to a representative agent (RANK) version of the model. This finding is robust across different micro- and macro- distributions of wealth. |
| JEL: | E12 E52 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30329&r= |
| By: | Bletzinger, Tilman; Greif, William; Schwaab, Bernd |
| Abstract: | A safe asset is of high credit quality, retains its value in bad times, and is traded in liquid markets. We show that bonds issued by the European Union (EU) are widely considered to be of high credit quality, and that their yield spread over German Bunds remained contained during the 2020 Covid-19 pandemic recession. Recent issuances and taps under the EU’s SURE and NGEU initiatives helped improve EU bonds' market liquidity from previously low levels, also reducing liquidity risk premia. Eurosystem purchases and holdings of EU bonds did not impair market liquidity. Currently, one obstacle to EU bonds achieving a genuine euro-denominated safe asset status, approaching that of Bunds, lies in the one-off, time-limited nature of the EU’s Covid-19-related policy responses. JEL Classification: E58, G12, H63 |
| Keywords: | EU-issued bonds, European Central Bank, European Union, market liquidity, NextGenerationEU (NGEU), Pandemic Emergency Purchase Programme (PEPP) |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222712&r= |
| By: | Tanja Jakimova (National Bank of the Republic of North Macedonia); Milan Eliskovski (National Bank of the Republic of North Macedonia); Artina Bedzeti Baftijari (National Bank of the Republic of North Macedonia) |
| Abstract: | The paper deals with the challenges stemming from the phenomenon of unofficial euroization in the Republic of North Macedonia. It tries to identify the main drivers of the households` deposit euroization in the Republic of North Macedonia and contributes to the literature by providing an empirical measure of optimal level of euroization. With focus on the households` deposits, it is an additional attempt to empirically estimate the optimal level of euroisation in Republic of North Macedonia, following an already published IMF study on this issue. Looking ahead, persistence in stability-oriented macroeconomic policies and measures for promotion the use of local currency could further support the de-euroization trend in the Republic of North Macedonia. |
| Keywords: | euroization, local currency, financial stability, monetary policy, prudential policy, Republic of North Macedonia |
| JEL: | C32 E47 E58 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:mae:wpaper:2022-02&r= |
| By: | John H. Cochrane |
| Abstract: | The fiscal theory states that inflation adjusts so that the real value of government debt equals the present value of real primary surpluses. Monetary policy remains important. The central bank can set an interest rate target, which determines the path of expected inflation, while news about the present value of surpluses drives unexpected inflation. I use fiscal theory to interpret historical episodes, including the rise and fall of inflation in the 1970s and 1980s, the long quiet zero bound of the 2010s, and the reemergence of inflation in 2021, as well as to analyze the gold standard, currency pegs, the ends of hyperinflations, currency crashes, and the success of inflation targets. Going forward, fiscal theory warns that inflation will have to be tamed by coordinated monetary and fiscal policy. I thank Erik Hurst, Ed Nelson, Nina Pavcnik, and Timothy Taylor for helpful comments. |
| JEL: | E42 E52 E58 E61 E62 E63 E65 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30328&r= |
| By: | Jank, Stephan; Mönch, Emanuel; Schneider, Michael |
| Abstract: | The reuse of collateral can support the efficient allocation of safe assets in the financial system. Exploiting a novel dataset, we show that banks substantially increase their reuse of sovereign bonds in response to scarcity induced by Eurosystem asset purchases. While repo rates react little to purchase-induced scarcity when reuse is low, they become increasingly sensitive at high levels of reuse. An elevated reuse rate is also associated with more failures to deliver and a higher volatility of repo rates in the cross-section of bonds. Our results highlight the trade-off between shock absorption and shock amplification effects of collateral reuse. |
| Keywords: | safe assets,government bonds,collateral reuse,rehypothecation,repo market,securities lending |
| JEL: | E4 E5 G1 G2 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:355&r= |
| By: | Ricardo Nunes; Ali K. Ozdagli; Jenny Tang |
| Abstract: | Interest rate surprises around FOMC announcements reveal both the surprise in the monetary policy stance (the pure policy shock) and interest rate movements driven by exogenous information about the economy from the central bank (the information shock). In order to disentangle the effects of these two shocks, we use interest rate changes on days of macroeconomic data releases. On these release dates, there are no pure policy shocks, which allows us to identify the impact of information shocks and thereby distill pure policy shocks from interest rate surprises around FOMC announcements. Our results show that there is a prominent central bank information component in the widely used high-frequency policy rate surprise measure. When we remove this central bank information component, the estimated effects of monetary policy shocks are more pronounced relative to those estimated using the entire policy rate surprise. |
| Keywords: | Monetary policy; central bank information; high frequency identification; proxy structural VAR; external instruments |
| JEL: | C36 D83 E52 E58 |
| Date: | 2022–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:94666&r= |
| By: | Ferreira, Francisco H. G. |
| Abstract: | This paper assesses the evolution of thinking, analysis, and discourse about inequality in the World Bank and the International Monetary Fund since their inception in 1944, on the basis of bibliometric analysis, a reading of the literature, and personal experience. Whereas the Fund was largely unconcerned with economic inequality until the 2000s but has shown a rapidly growing interest since then, the Bank’s approach has been characterized by ebbs and flows, with five different phases being apparent. The degree of interest in inequality in the two institutions appears to be largely determined by the prevailing intellectual profile of the topic in academic research, particularly in economics, and by ideological shifts in major shareholder countries, propagated downward internally by senior management. Data availability, albeit partly endogenous, also plays a role. Looking ahead, Bank and Fund researchers continue to have an important role to play, despite a much more crowded field in inequality research. I suggest that this role involves holding firm to an emphasis on inequality “at the bottom” and highlight four themes that may deserve special attention. |
| Keywords: | inequality; World Bank; IMF; Bretton Woods institutions |
| JEL: | B29 D30 O19 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:116018&r= |
| By: | Karel Janda (Institute of Economic Studies, Faculty of Social Sciences, Charles University & Department of Banking and Insurance, Faculty of Finance and Accounting, Prague University of Economics and Business, Czech Republic); Anna Kortusova (Institute of Economic Studies, Faculty of Social Sciences, Charles University); Binyi Zhang (Institute of Economic Studies, Faculty of Social Sciences, Charles University) |
| Abstract: | Green bonds have gained prominence in China´s capital market as tools that help to fuel the transition to a climate-resilient economy. Although the issuance volume in the Chinese green bond market has been growing rapidly in recent years, the impact of the green label on bond pricing has not been adequately studied. Therefore, this paper investigates whether this newly developed financial instrument offers investors in China an attractive yield compared to other equivalent conventional bonds. By matching green bonds with their conventional counterparts and subsequently applying a fixed-effects estimation, our empirical results reveal a significant green bond yield premium of 1.8 basis points (bps) on average in the Chinese secondary market. In addition to that, we find that CBI certified green bond generate higher yields than self-labelled green bond in the Chinese market. Investors are found to be willing pay a higher price for green bonds issued by environmental, social and governance (ESG) performance-rated issuers. Our results point to some practical implications for investors and policymakers. |
| Keywords: | Green Finance; Green bonds; ESG; China |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2022_20&r= |
| By: | Thomas Nitschka; Diego M. Hager |
| Abstract: | We analyse spillovers from European Central Bank (ECB) policy surprises to asset markets outside the euro area using Switzerland as a case study. Our results suggest that Swiss asset price responses to ECB policy surprises are significant. They depend on the type and nature of the surprise and change over time. Decomposing bond yields into expected short-term interest rates and the term premium reveals that both signalling and portfolio rebalancing effects explain the responses of bond yields of various maturities to surprises resulting from scheduled ECB policy decisions. ECB policy surprises are more important to Swiss government bond yields than Swiss stock prices. |
| Keywords: | Bond, event study, international spillovers, monetary policy, stock |
| JEL: | E43 E52 G15 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2022-08&r= |
| By: | Mohamed Amrhar (ENCG - École Nationale de Commerce et de Gestion d'Agadir - Université Ibn Zohr [Agadir]); Khadija Angade (ENCG - École Nationale de Commerce et de Gestion d'Agadir - Université Ibn Zohr [Agadir]) |
| Abstract: | Financial crime is a widespread issue for organizations, institutions. Criminals adopt more complex techniques to circumvent judicial scrutiny and conduct crimes as regulators and financial authorities use new strategies to detect and prevent financial offenses. Financial crimes are financial offenses perpetrated by individuals within organizations, most of the time in order to acquire a financial advantage through the employment of illegal methods. It involves taking money or other property that belongs to someone else, to obtain a financial or professional gain. The purpose of this article is to present a review of academic literature on financial crimes theories that have emphasized the theatrical framework since the advent of the differential association theory developed by Edwin Sutherland in the 1940s, which shed light on the realms of finance and crime, and exhibit empirical findings from a documentary study of convicted public officials to provide an outline of the main forms of financial offenses that occur in the Moroccan public sector. This documentary study is founded on a nationwide sample of 139 final judgments that was collected based on financial court reports released between 2013 and 2019. The wide range of financial infractions is classified in this paper by adopting two main categories of financial offenses that are, infractions that occur in the public spending area, and state revenues area. The majority of the offenders were convicted of breaking public procurement and public debt recoverylegislation. Using a Likert scale (1 to 5), we concluded that, on average, public officials in high-ranking positions incurred severe financial sanctions. The findings also demonstrate a strong correlation between the offenders' occupations rank and the heaviness of financial sentences. This research only encompasses cases of financial offenses that have passed through the entire legal procedure and whose final decisions have already been issued; other sorts of financial offenses may be excluded owing to a lack of evidence to prosecute public officials. Furthermore, other data regarding financial offenses that occur in the public sphere are present in the criminal records of the criminal chamber responsible for financial crimes, or in cases reported by the National Authority for Probity, Prevention, and the Fight Against Corruption. However access to this data is a challenge. |
| Keywords: | Financial infractions,Categorization,Sanctioning pattern,Public sector,Morocco |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03747888&r= |
| By: | Warinthip Worasak; Nuwat Nookhwun; Pongpitch Amatyakul |
| Abstract: | This paper examines the risk-taking channel of monetary policy in the context of Thai corporate bond market. Based on newly-issued non-financial corporate bonds from 2001 to the third quarter of 2020, we find that low interest rates are associated with greater issuance of bonds with worse risk ratings, which is more pronounced for bonds from the property sector. In addition, these bonds tend to have longer maturity. However, we do not find evidence of compression of risk premium or underpricing of risks during these low-rate periods. We then examine whether any types of bond investors are prone to the search-for-yield behaviour. Using the Bank of Thailand's confidential debt securities holding dataset from 2013 onward, our results show that individuals, rather than banks and institutional investors, are the prime holder of high-risk bonds. Conditional on bond risk ratings, only two groups of bondholders appear to bias toward higher-yield bonds. These include individuals and other depository financial institutions, namely saving cooperatives and money market mutual funds. Our results point toward weak evidence of risk-taking among corporate bond investors during the low-rate environment. |
| Keywords: | Monetary policy; Interest rate; Risk taking; Search for yield; Corporate bond; Underpricing of risk; Excess bond premium |
| JEL: | E44 E52 G11 G12 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:pui:dpaper:186&r= |