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on Banking |
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Issue of 2022‒09‒26
24 papers chosen by Sergio Castellanos-Gamboa, , Pontificia Universidad Javeriana |
| By: | Zhiguo He; Sheila Jiang; Douglas Xu; Xiao Yin |
| Abstract: | This paper studies the economics behind the investment in information technologies (IT) by U.S. commercial banks in the past decade. By linking banks’ IT spending to their lending technologies, we analyze the distinctive natures of banks’ dealings with information across various lending activities. Investment in communication IT is shown to be associated more with improving banks’ ability of soft information production and transmission, while investment in software IT helps enhance banks’ hard information processing capacity. We exploit polices that affect geographic regions differentially to show causally that banks respond to an increased demand for small business credit (mortgage refinance) by increasing their spending on communication (software) IT spending. We also find that the entry of fintech induces commercial banks to increase their investment in IT—more so in the software IT category. |
| JEL: | G21 G51 O12 O32 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30403&r= |
| By: | Matthew Jaremski; David C. Wheelock |
| Abstract: | This paper provides quantitative evidence on the interbank network’s role in transmitting the Panic of 1907 across the United States. Originating in a few New York City banks and trust companies, the panic led to payment suspensions and emergency currency issuance in many cities. Data on the universe of correspondent relationships shows that i) suspensions were more likely in cities whose banks had closer ties to New York, ii) banks with correspondents at the Panic’s center were more likely to close, and iii) banks responded to the panic by rearranging their correspondent relationships, with implications for network structure. |
| Keywords: | banking panics; interbank networks; contagion; bank closures; panic of 1907 |
| JEL: | E42 E44 G01 G21 N11 N21 |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:94716&r= |
| By: | Avignone, Giuseppe; Girardone, Claudia; Pancaro, Cosimo; Pancotto, Livia; Reghezza, Alessio |
| Abstract: | Do negative interest rates affect banks’ cost efficiency? We exploit the unprecedented introduction of negative policy interest rates in the euro area to investigate whether banks make a virtue out of necessity in reacting to negative interest rates by adjusting their cost efficiency. We find that banks most affected by negative interest rates responded by enhancing their cost efficiency. We also show that improvements in cost efficiency are more pronounced for banks that are larger, less profitable, with lower asset quality and that operate in more competitive banking sectors. In addition, we document that enhancements in cost efficiency are statistically significant only when breaching the zero lower bound (ZLB), indicating that the pass-through of interest rates to cost efficiency is not effective when policy rates are positive. These findings hold important policy implications as they provide evidence on a beneficial second-order effect of negative interest rates on bank efficiency. JEL Classification: E43, E44, E52, G21, F34 |
| Keywords: | bank cost efficiency, difference-in-differences, NIRP, Stochastic frontier approach |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222718&r= |
| By: | Andrew F. Haughwout; Donald P. Morgan; Michael Neubauer; Maxim L. Pinkovskiy; Wilbert Van der Klaauw |
| Abstract: | The 2010s saw a profound shift towards jumbo mortgage lending by large banks that are regulated under the Dodd-Frank Act. Using data from the Home Mortgage Disclosure Act, we show that the “jumbo shift” is correlated with being subject to the Comprehensive Capital Analysis and Review (CCAR) stress tests, and that financial regulation caused CCAR-regulated banks to change preference for nonconforming relative to conforming loans of similar size. We discuss potential mechanisms through which regulation could have affected bank incentives. |
| Keywords: | Comprehensive Capital Analysis and Review (CCAR); mortgage lending; bunching |
| JEL: | C23 G21 G28 |
| Date: | 2022–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:94715&r= |
| By: | W. Scott Frame; Nika Lazaryan; Ping McLemore; Atanas Mihov |
| Abstract: | Using supervisory data from large U.S. bank holding companies (BHCs), we document that operational loss recovery rates decrease in macroeconomic downturns. This procyclical relationship varies by business lines and loss event types and is robust to alternative data aggregations, macroeconomic measurement horizons and estimation methodologies. Further analysis shows that resource constraints faced by BHC risk management functions are a plausible explanation for these patterns. Our findings offer new evidence on how economic shocks transmit to banking industry losses with implications for risk management and supervision. |
| Keywords: | Operational risk; Operational losses; Loss recoveries; Macroeconomic environment; Banking sector |
| JEL: | G21 G28 G29 |
| Date: | 2022–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:94718&r= |
| By: | Fungáčová, Zuzana; Karas, Alexei; Solanko, Laura; Weill, Laurent |
| Abstract: | Russia has witnessed a high number of bank failures over the last two decades. Using monthly data for 2002-2020, spanning four election cycles, we test the hypothesis that bank failures are less likely before presidential elections. We find that bank failures are less likely to occur in the twelve months leading up to an election. However, we do not observe election cycles in bank failures are more pronounced for banks associated with greater political costs. Overall, our results provide mixed evidence that political cycles matter for the occurrence of bank failures in Russia. |
| JEL: | G21 D72 P3 |
| Date: | 2022–09–13 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofitp:2022_007&r= |
| By: | Rodrigo Cifuentes; Tomás Gómez; Alejandro Jara |
| Abstract: | In this paper, we find that one additional percentage point of common equity Tier 1 to risk-weighted assets ratio is associated with an increase in the Weighted Average Cost of Capital (WACC) of Chilean banks by a maximum of only 11.7 basis points. This result is found by assessing the impact of capital ratios on the return of capital and the return of debt, following alternative empirical strategies, which consider both market data and banks’ balance sheet information. We find that higher capital ratios decrease the return on banks’ capital—partially because more capital makes banks less risky—in magnitudes similar to those found in the literature for other countries. Secondly, we study the role of capital on the return of banks’ debt. We find a strong impact of capital ratios on the return of subordinated debt, and no effect on senior debt. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:960&r= |
| By: | Sérgio Leão; Rafael Schiozer; Raquel F. Oliveira; Gustavo Araujo |
| Abstract: | Firms’ currency exposure may result in financial distress and trigger macroeconomic instability. Such exposure can be hedged using currency over-the-counter derivatives. We investigate whether and how lending relationships affect the access to these derivatives using novel loan and derivatives microdata. We document that firms are more likely to buy derivatives from one of their lenders than from a non-lending bank. We also find that prices are lower for derivatives provided by the main lender. These results are stronger among small firms. Our findings are consistent with lending relationships mitigating information asymmetries and derivatives reducing a bank’s loan portfolio risk. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:565&r= |
| By: | Leonardo Gambacorta; Fahad Khalil; Bruno Maria Parigi |
| Abstract: | We study an economy in which large technology companies, big techs, provide credit to firms operating on their platforms. We focus on two advantages that big techs have with respect to banks: better information on their clients and better enforcement of credit repayment since big techs can exclude a defaulting firm from their ecosystem. While big techs have both superior enforcement and complete and private information of the firm type big techs can encroach on banks' turf only if they guarantee some privacy to firms by tempering their drive to collect information about firm characteristics and leaving some rents to them. The way big techs share information i.e. by providing information publicly or in a private way entails different outcomes in terms of efficiency. |
| Keywords: | big techs, credit markets, privacy, information sharing |
| JEL: | E51 G23 O31 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1037&r= |
| By: | Sanyal, Anirban |
| Abstract: | This paper analyzes the heterogeneous direct and spillover effect of capital control on gross capital flows across three major institutional sectors namely public sector, banks and corporate. The paper examines the possible heterogeneity in the effect of capital control on the capital inflows to these institutional sectors using spatial econometric models. The empirical findings indicate that the direct effect of capital control moderates portfolio inflows to public sector whereas the portfolio inflows to banks and corporate sector does not respond to the capital control measures. The spillover effect of capital control increases capital inflows to all sectors in other countries. The paper explains the observed heterogeneity in the capital control effects by introducing signaling effect in a portfolio choice model. The paper argues that the heterogeneous direct effect is driven by private signals of capital control received by the investors about the state of economy whereas the spillover effect of capital control is mainly driven by the hedging and search for better yield. |
| Keywords: | Capital control, Spillover effect, Portfolio Choice, Signaling effect, Spatial Durbin Model |
| JEL: | C21 F32 F42 |
| Date: | 2022–08–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:114221&r= |
| By: | Francesco Bianchi; Leonardo Melosi |
| Abstract: | Low and stable inflation requires an appropriate fiscal framework aimed at stabilizing government debt. Historically, trend inflation is critically influenced by actual or perceived changes to this framework, while cost-push shocks only account for short-lasting movements in inflation. Before the pandemic, a moderate level of fiscal inflation has counteracted deflationary pressures, helping the central bank to avoid deflation. The recent fiscal interventions in response to the Covid pandemic have altered the private sector’s beliefs about the fiscal framework, accelerating the recovery, but also determining an increase in fiscal inflation. This increase in inflation could not have been averted by simply tightening monetary policy. The conquest of post-pandemic inflation requires mutually consistent monetary and fiscal policies to avoid fiscal stagflation. |
| Keywords: | fiscal limits; Monetary policy; Fiscal policy; Inflation (Finance) - United States; Government Debt; fiscal staglation |
| JEL: | E50 E62 E30 |
| Date: | 2022–08–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:94748&r= |
| By: | Takuji Fueki (Director, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: takuji.fueki@boj.or.jp)); Yutaka Soejima (Director-General, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: yutaka.soejima@boj.or.jp)); Shunichi Yoneyama (Director, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: shunichi.yoneyama@boj.or.jp)) |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:22-e-13&r= |
| By: | Nikolaos Artavanis; Daniel Paravisini; Claudia Robles Garcia; Amit Seru; Margarita Tsoutsoura |
| Abstract: | We develop a new approach to identify different categories of depositors during periods of uncertainty and quantify their compensation to remain in the bank. We isolate withdrawals due to liquidity needs, deterioration of fundamentals, and expectation about withdrawal behavior of other depositors. We exploit variation in the cost of withdrawal induced by the maturity expiration of time deposits around unexpected uncertainty events and high-frequency microdata from a large Greek bank. Deposit withdrawals quadrupled in response to a policy uncertainty shock that doubled the short-run credit default swap (CDS) price of Greek sovereign bonds. About two-thirds of this increase is driven by direct exposure to deteriorating fundamentals, and the remainder due to strategic complementarities. We find that depositors need to be offered annualized returns exceeding 50% to remain in the bank during episodes of high uncertainty. Our findings provide new insights into the design of interventions that prevent runs by targeting depositors with the largest propensity to withdraw. |
| JEL: | D12 D81 G21 O16 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30369&r= |
| By: | Yang, Zheyu |
| Abstract: | I study the effects of monetary policy shocks on corporate bond prices in China. Using high-frequency comovement of interest rates and stock prices surprises around People’s Bank of China’s (PBoC) policy announcements on Reserve Requirements and a Bayesian structural vector autoregression, I disentangle the true monetary policy shocks from the central bank’s informational surprises. This paper documents a strong positive effect of monetary easings shocks on secondary market bond prices. More importantly, it shows that the effect is increasing with the credit risks of the bonds, i.e., risky bonds outperform safer bonds following monetary easings while underperform following monetary tightening, which is consistent with search for yield. The findings raise implications for financial stability and macroprudential policy. |
| Keywords: | risk-taking,monetary policy,asset price,China |
| JEL: | C11 E43 E52 G12 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:263253&r= |
| By: | Nusrat Jahan (Department of Economics, Carleton Univeristy) |
| Abstract: | How important are macroeconomic factors relative to financial factors in explaining the variation in corporate credit spreads in the Canadian bond market? The answer to this question is of great significance in managing the risk associated with fixed-income securities and also in preventing the negative consequences that widening of spread has on real activity. I find that although the macroeconomic determinants both in their levels and volatilities have significant effects on credit spread, their contribution in explaining the variations in spreads is actually quite small. Much of the variation in spreads are attributed to the unobserved bond-specific heterogeneity, which reaffirms the existence of a - credit spread puzzle. Classification |
| Date: | 2022–08–07 |
| URL: | http://d.repec.org/n?u=RePEc:car:carecp:22-07&r= |
| By: | Qiuqi Wang; Ruodu Wang; Johanna Ziegel |
| Abstract: | In the recent Basel Accords, the Expected Shortfall (ES) replaces the Value-at-Risk (VaR) as the standard risk measure for market risk in the banking sector, making it the most important risk measure in financial regulation. One of the most challenging tasks in risk modeling practice is to backtest ES forecasts provided by financial institutions. Ideally, backtesting should be done based only on daily realized portfolio losses without imposing specific models. Recently, the notion of e-values has gained attention as potential alternatives to p-values as measures of uncertainty, significance and evidence. We use e-values and e-processes to construct a model-free backtesting procedure for ES using a concept of universal e-statistics, which can be naturally generalized to many other risk measures and statistical quantities. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2209.00991&r= |
| By: | Nidhi Aggarwal (Indian Institute of Management, Udaipur); Manish K. Singh (Indian Institute of Technology, Roorkee); Susan Thomas (O. P. Jindal Business School and XKDR Forum) |
| Abstract: | The timeliness of the credit rating of a firm has been frequently called into question over the previous two decades. This paper examines whether changes in credit ratings can be updated more frequently than at the frequency of updates in the accounting data. The paper finds that, when market equity prices of firms are readily available, changes in high frequency measures such as the Distance to Default, along with low frequency firm characteristics such as ownership structure and accounting data, can provide a more timely update on the probability of credit ratings downgrades. |
| JEL: | G21 G24 G32 |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:anf:wpaper:14&r= |
| By: | Byron Botha (Codera Analytics); Rulof Burger (Department of Economics, University of Stellenbosch, Stellenbosch, 7601, South Africa.); Kevin Kotze (School of Economics, University of Cape Town); Neil Rankin (Predictive Insights, 3 Meson Street, Techno Park, Stellenbosch, 7600, South Africa.); Daan Steenkamp (Codera Analytics and Research Fellow, Department of Economics, Stellenbosch University.) |
| Abstract: | We investigate whether the use of statistical learning techniques and big data can enhance the accuracy of inflation forecasts. We make use of a large dataset for the disaggregated prices of consumption goods and services, which we partially reconstruct, and a large suite of different statistical learning and traditional time series models. We find that the statistical learning models are able to compete with most benchmarks over medium to longer horizons, despite the fact that we only have a relatively small sample of available data, but are usually inferior over shorter horizons. Our findings suggest that this result may be attributed to the ability of these models to make use of relevant information, when it is available, and may be particularly useful during periods of crisis, when deviations from the steady state are more persistent. We find that the accuracy of the central bank's near-term inflation forecasts compare favourably with those of other models, while the inclusion of off-model information, such as electricity tariff adjustments and other sources of within-month data, provides these models with a competitive advantage. Lastly, we also investigate the relative performance of the different models as we experienced the effects of the pandemic. |
| JEL: | C10 C11 C52 C55 E31 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ctn:dpaper:2022-03&r= |
| By: | Jarod Coulter; Roberto Duncan; Enrique Martinez-Garcia |
| Abstract: | One major outcome of the Federal Reserve’s 2019–20 framework review was the adoption of a Flexible Average Inflation Targeting (FAIT) strategy in August 2020. Using synthetic control methods, we document that U.S. inflation rose post-FAIT considerably more than predicted had the strategy not changed (an average of 1.18 percentage points during 2020:M8-2022:M2). To explore the extent to which targeting average inflation delayed the Fed’s response and contributed to post-FAIT inflation, we adopt a version of the open-economy New Keynesian model in Martínez-García (2021) and document the economic consequences of adopting alternative measures of average inflation as policy objectives. We document three additional major findings using this general equilibrium setup: First, depending on how far back and how much weight is assigned to past inflation misses, the policy outcomes under FAIT are similar to those under the pre-FAIT regime. Secondly, we find that the implementation of FAIT can have large effects over short periods of time as it tends to delay action. However, over longer periods of time—such as the 1984:Q1-2019:Q4 pre-FAIT period—its effects wash out and appear negligible. Finally, we find that different average inflation measures explain an average of 0.5 percentage points per quarter of the post-FAIT inflation surge, indicating that targeting average inflation by itself can only explain part of the inflation spike since August 2020. |
| Keywords: | Open-Economy New Keynesian Model; Monetary Policy; Flexible Average Inflation Targeting; Survey Expectations |
| JEL: | F41 F42 F47 E52 E58 E65 |
| Date: | 2022–07–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:94541&r= |
| By: | Criscione, Teodoro; Guterman, Eve; Avanzo, Sowuelu; Linares, Julio |
| Abstract: | This paper briefly introduces models and basic design principles of community currency systems from economic and network analytical perspectives. Policymakers, grassroots organizations, and activists can find in this paper the necessary analytical and practical tools to start and enhance their own community currency projects. |
| Keywords: | community currency systems,complementary currency systems,basic income,monetary innovation,economic network analysis,circulation analysis,currency analysis,currency systems |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fribis:042022&r= |
| By: | Mario Teijeiro |
| Abstract: | When the Covid started, the Federal Reserve reduced interest rates to zero and increased the money supply unprecedentedly. It was a reckless policy whose consequences have been inflation of 7% in 2021, of 9.1% in the 12 months to June 2022 and it reached an annualized rate of 13% in the first half of 2022. The purpose of this note is to discuss how inflation could evolve after past mistakes and under current policies. It starts by discussing the magnitude of the monetary shock, the monetary imbalances that remain after the recent inflation run off and finally, a discussion on the chances for success in bringing inflation back to the 2% target. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:cem:doctra:837&r= |
| By: | Piekalnitis, Boris |
| Abstract: | Das Privatkundengeschäft der Banken wird seit einigen Jahren einerseits von einem veränderten Kundenverhalten im Rahmen der fortschreitenden Digitalisierung geprägt. Andererseits nimmt die Bedeutung der Finanzberatung der Banken angesichts der aktuellen und künftigen finanziellen Problemstellungen der Kunden zu, z.B. im Bereich der privaten Altersvorsorge. Testberatungen zeigen jedoch immer wieder Mängel in der Qualität der Bankberatung. Es stellt sich somit die Frage, wie Kunden sich heute - im digitalen Zeitalter - die Qualität der Finanzberatung wünschen und welche digitalen oder auch analogen Kontaktpunkte sie in der Customer Journey der Finanzberatung mit der Bank nutzen. Im theoretischen Teil der Arbeit wird ein Qualitätsmodell für die digitale Finanzberatung entworfen. Dabei wird der Begriff der Finanzberatung ganzheitlich definiert im Sinne einer privaten Finanzplanung. Zur Erarbeitung der Qualitätskomponenten der ganzheitlichen digitalen Finanzberatung werden gesetzliche Normen beschrieben, DIN-Normen zur Finanzanalyse geprüft, standesrechtliche Regelungen herangezogen und es werden die Komponenten der privaten Finanzplanung analysiert. Im Abschnitt zur digitalen Finanzberatung werden entsprechende Online-Angebote von FinTech-Unternehmen und Selbstberatungsprogramme (Robo-Advisors) anhand der Komponenten der privaten Finanzplanung auf ein ganzheitliches Beratungsangebot hin geprüft. Des Weiteren werden digitale Kommunikationsmedien und ihre mögliche Anwendung im Rahmen der digitalen Finanzberatung beschrieben. Die Qualitätskomponenten und die Kontaktpunkte werden daraufhin zusammengeführt zu einem Qualitätsmodell, anhand dessen eine Muster-Customer-Journey für die ganzheitliche digitale Finanzberatung abgebildet wird. Im empirischen Teil der Arbeit werden das erarbeitete Qualitätsmodell und die Kontaktpunkte der Customer-Journey in einer Feldstudie mit Bankmitarbeitern und Bankkunden überprüft. In einer Vorstudie wurden die relevanten Kontaktpunkte erhoben. Die Vorstudie brachte ein klares Votum für die hybride Beratung, in der Kunden sowohl digitale als auch analoge Kontaktpunkte nutzen. So wurde in der Hauptstudie vom hybrid agierenden Kunden ausgegangen. Um die persönliche Einstellung der Befragten zu den Qualitätskomponenten und den Kontaktpunkten zu erheben, wurde das Kano-Modell der Kundenzufriedenheit herangezogen und um Detailfragen zu den einzelnen Qualitätskomponenten sowie den Kontaktpunkten ergänzt. Die Ergebnisse der Befragung werden in nach Altersgruppen der Kunden differenzierten Qualitäts- und Kontaktpunktmatrizen für die ganzheitliche digitale Finanzberatung zusammengefasst. Sie sollen zeigen, auf welche Qualitätskomponenten und Kontaktpunkte die jeweilige Altersgruppe der Kunden Wert legt und damit einen Beitrag dazu leisten, das Angebot der ganzheitlichen digitalen Finanzberatung zielgruppengenauer steuern zu können. |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:dar:wpaper:133915&r= |
| By: | James J. Choi |
| Abstract: | I survey the advice given by the fifty most popular personal finance books and compare it to the prescriptions of normative academic economic models. Popular advice frequently departs from normative principles derived from economic theory, which should motivate new hypotheses about why households make the financial choices they do, as well as what financial choices households should make. Popular advice is sometimes driven by fallacies, but it tries to take into account the limited willpower individuals have to stick to a financial plan, and its recommended actions are often easily computable by ordinary individuals. I cover advice on savings rates, the advisability of being a wealthy hand-to-mouth consumer, asset allocation, non-mortgage debt management, simultaneous holding of high-interest debt and low-interest savings, and mortgage choices. |
| JEL: | D14 D15 G11 G4 G5 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30395&r= |
| By: | Barrera, Carlos |
| Abstract: | The paper proposes a method for simultaneously estimating the treatment effects of a change in a policy variable on a numerable set of interrelated outcome variables (different moments from the same probability density function). Firstly, it defines a non-Gaussian probability density function as the outcome variable. Secondly, it uses a functional regression to explain the density in terms of a set of scalar variables. From both the observed and the fitted probability density functions, two sets of interrelated moments are then obtained by simulation. Finally, a set of difference-in-difference estimators can be defined from the available pairs of moments in the sample. A stylized application provides a 29-moment characterization of the direct treatment effects of the Peruvian Central Bank’s forecasts on two sequences of Peruvian firms’ probability densities of expectations (for inflation −π− and real growth −g−) during 2004-2015. |
| Keywords: | C15, C30, E37, E47, E58, G14. |
| JEL: | C15 C30 E37 E47 E58 G14 |
| Date: | 2022–08–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:114258&r= |