|
on Banking |
|
Issue of 2022‒10‒31
thirty-two papers chosen by Sergio Castellanos-Gamboa, , Pontificia Universidad Javeriana |
| By: | Kyle Dempsey; Miguel Faria-e-Castro |
| Abstract: | Banks' loan pricing decisions reflect the fact that borrowers tend to have long-lasting relationships with lenders. Therefore, pricing decisions have an inherently dynamic component: high interest rates may yield higher static profits per loan, but in the long run they erode a banks' customer base and reduce future profitability. We study this tradeoff using a dynamic banking model which embeds lending relationships using deep habits (“customer capital”) and costs of adjusting loan portfolio composition. High customer capital raises the level and decreases the interest rate elasticity of loan demand. When faced with an adverse shock to net worth, banks with high customer capital recapitalize quickly by charging high interest rates and eroding customer capital in the short term, while banks with low customer capital face persistent financial distress. Using Call Report data to measure the franchise value of banks' loan portfolios, we find that this effect has strong implications for how individual banks and the financial sector as a whole recover from shocks. |
| Keywords: | banks; Customer Capital; relationship lending; interest rates; financial crises |
| JEL: | E4 G2 |
| Date: | 2022–09–23 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:94821&r= |
| By: | Silva, Thiago; Souza, Sérgio; Guerra, Solange; Tabak, Benjamin |
| Abstract: | The literature measures a bank's market power using aggregated data at the bank level. However, market power may be exercised in a decentralized way by each bank branch and for specific banking products. This article proposes a novel methodology for estimating a bank's market power at the branch level in each locality and for each banking product. We find significant heterogeneity in banks' market power by locality and product, even within the same bank. Our results suggest that aggregate measures of bank market power may be misleading and distorted. Accurate quantification of market power requires fine-grained measures, which are essential for enhancing financial regulation and competition. |
| Keywords: | market power, Lerner index, competition, credit market, COVID-19 |
| JEL: | C51 G20 G21 L11 |
| Date: | 2022–09–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:114766&r= |
| By: | F Boissay (BIS - Bank for International Settlements); F Collard (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); J Galí (Pompeu Fabra University, Departament de Traducció i Ciències del Llenguatge); C Manea (Bundesbank - Bundesbank) |
| Abstract: | We study whether a central bank should deviate from its objective of price stability to promote financial stability. We tackle this question within a textbook New Keynesian model augmented with capital accumulation and microfounded endogenous financial crises. We compare several interest rate rules, under which the central bank responds more or less forcefully to inflation and aggregate output. Our main findings are threefold. First, monetary policy affects the probability of a crisis both in the short run (through aggregate demand) and in the medium run (through savings and capital accumulation). Second, a central bank can both reduce the probability of a crisis and increase welfare by departing from strict inflation targeting and responding systematically to fluctuations in output. Third, financial crises may occur after a long period of unexpectedly loose monetary policy as the central bank abruptly reverses course. |
| Keywords: | Financial crisis,Monetary policy |
| Date: | 2022–08–29 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03763108&r= |
| By: | Simona Malovana; Martin Hodula; Zuzana Gric; Josef Bajzik |
| Abstract: | The ever-increasing use of borrower-based measures such as loan-to-value, debt-to-income, and debt service-to-income limits has created a demand to better understand the transmission and effectiveness of such policy. In this paper, we collect more than 700 estimates from 34 studies on the effect of borrower-based measures on bank loan provision. A birds-eye view of our dataset points to significant fragmentation of the literature in terms of the estimated coefficients. On average, the introduction or tightening of borrower-based measures reduces annual credit growth by 1.6 pp. Using a battery of empirical tests, we verify the presence of a strong publication bias, especially against positive and statistically non-significant estimates. The bias-corrected coefficient is about half the size of the uncorrected mean of the collected estimates but remains safely negative. Further, we explore the context in which researchers obtain such estimates and we find that differences in the literature are best explained by model specification, estimation method, and underlying data characteristics. |
| Keywords: | Bayesian model averaging, borrower-based measures, macroprudential policy, meta-analysis, publication bias |
| JEL: | C83 E58 G21 G28 G51 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2022/8&r= |
| By: | Dávila, Eduardo; Walther, Ansgar |
| Abstract: | This paper studies optimal second-best corrective regulation, when some agents/activities cannot be perfectly regulated. We show that policy elasticities and Pigouvian wedges are sufficient statistics to characterize the marginal welfare impact of regulatory policies in a large class of environments. We show that a subset of policy elasticities, leakage elasticities, determine optimal second-best policy, and characterize the marginal value of relaxing regulatory constraints. We apply our results to scenarios with unregulated agents/activities, uniform regulation across agents/activities, and costly regulation. We illustrate our results in applications to financial regulation with environmental externalities, shadow banking, behavioral distortions, asset substitution, and fire sales. JEL Classification: H23, Q58, G28, D62 |
| Keywords: | corrective regulation, environmental externalities, financial regulation, leakage elasticities, Pigouvian taxation, policy elasticities, regulatory arbitrage, second-best policy |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:2022139&r= |
| By: | ALI K.A. Mousa ("Department of Accounting and Taxation, College of Business, University Utara Malaysia, Malaysia" Author-2-Name: Nor Laili Hassan Author-2-Workplace-Name: Department of Accounting and Taxation, College of Business, University Utara Malaysia, Malaysia Author-3-Name: Kashan Pirzada Author-3-Workplace-Name: Department of Accounting and Taxation, College of Business, University Utara Malaysia, 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 - The highly concentrated ownership structure, lack of quality information, and weak regulatory environments caused imbalances in the movement of cash flows and thereby put the liquidity levels of Gulf Cooperation Council (GCC) banks on a downward trend. This prompted policymakers in the GCC region to modify their Corporate Governance (C.G.) codes to boost the financial position of the GCC banking industry as liquidity providers and minimize systemic risk. Therefore, the purpose of this study is to conceptually investigate the relationship between board governance attributes and liquidity creation in the GCC banking sector. Methodology – The methodology employed in this study is a review of prior research on bank governance mechanisms and liquidity creation to gather perspective and establish a prediction about the association between board attributes and liquidity creation in the GCC banking industry. Findings – The study concludes that there is a positive correlation between the analyzed board governance features and the creation of liquidity based on several theories gleaned from a review of prior research. Novelty – The study evaluates bank liquidity creation and how board attributes influence it. Type of Paper - Review" |
| Keywords: | Liquidity Creation, Corporate Governance, Agency Theory, Board Attributes, GCC. |
| JEL: | M41 M49 |
| Date: | 2022–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:gtr:gatrjs:jfbr204&r= |
| By: | Eerola, Essi; Lyytikäinen, Teemu; Ramboer, Sander |
| Abstract: | This paper examines the impact of a limit on loan-to-value (LTV) ratios implemented in Finland in 2016. Focusing on households that buy an apartment for the first time, we evaluate how the regulation influenced household leverage and the decision to become a homeowner. Through bunching analysis, the reform is estimated to have reduced transitions into homeownership by 17% among borrowers potentially affected by the reform. This corresponds to an 8% reduction in the total amount of first-time apartment buyers. The reduction in transitions to homeownership is found to be driven by households with below median income, suggesting that the regulation may have important consequences for the distribution of wealth. An additional 8% of potentially affected households reduced their LTV ratios to below the limit. Differences-in-differences analysis, comparing those expected to have LTV ratios above the limit to those below the limit, indicates that the reduction in mortgage debt was accompanied by an increase in other debt. |
| Keywords: | macroprudential policy, mortgage regulation, loan-to-value ratio, household leverage, homeownership, housing demand, Local public finance and provision of public services, Social security, taxation and inequality, G28, G51, R21, R28, fi=Asuntopolitiikka|sv=Bostadspolitik|en=Housing policy|, |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:fer:wpaper:148&r= |
| By: | You Suk Kim; Donghoon Lee; Tess C. Scharlemann; James Vickery |
| Abstract: | We study how intermediaries—mortgage servicers—shaped the implementation of mortgage forbearance during the COVID-19 pandemic and use servicer-level variation to trace out the causal effect of forbearance on borrowers. Forbearance provision varied widely across servicers. Small servicers and nonbanks, especially nonbanks with small liquidity buffers, facilitated fewer forbearances and saw a higher incidence of forbearance-related complaints. Easier access to forbearance substantially increased mortgage nonpayment but also reduced delinquencies outside of forbearance. Part of the liquidity from forbearance was used to reduce credit card debt, but most was saved or used for nondurable consumption. |
| Keywords: | mortgage; forbearance; liquidity; nonbanks; CARES Act; Coronavirus Aid Relief and Economic Security (CARES) Act; COVID 19 |
| JEL: | G21 G23 G28 |
| Date: | 2022–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:94910&r= |
| By: | Mariusz Kapuściński (Narodowy Bank Polski) |
| Abstract: | In this study I analyse the effects of the transition to higher actual regulatory capital ratios due to the tightening of capital regulations in Poland. In contrast to earlier studies for this economy, as a measure of capital regulations I directly use minimum regulatory capital ratios. I focus on the impact on bank lending and GDP. I apply Bayesian panel vector autoregressive models to bank-level data. I find that the tightening of capital regulations lowers bank lending and GDP for at least one out of two analysed minimum regulatory capital ratios. This implies that capital regulations are an effective prudential policy tool in Poland. I also illustrate, as the starting point for the choice of a research design, the threats of not distinguishing capital regulation shocks from capital shocks. Finally, I attempt to identify non-linearities in the effects of changes in capital regulations. |
| Keywords: | capital regulations, bank lending, Bayesian panel vector autoregressive models, panel data, macroprudential policy |
| JEL: | E69 E51 G21 C33 C11 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:350&r= |
| By: | Eule, Joachim; Kastelein, Wieger; Sala, Edoardo |
| Abstract: | In this paper we show that allowing deposit guarantee schemes (DGSs) the option of supporting asset and liability transfers in the event of a bank’s insolvency provides important economic benefits. However, only 11 EU Member States have so far included such “alternative measures” in their DGSs’ toolkits. The number of Member States where alternative measures have been actively used is even more limited. Based on our findings, we argue that giving deposit guarantee schemes in the EU the option of using alternative measures would improve the efficiency and effectiveness of the EU banking crisis management framework. It would speed up the handling of smaller banks’ failures while reducing upfront outlays and final costs for deposit guarantee schemes. It would improve the protection of deposits, thereby safeguarding depositor confidence and overall financial stability. It would also allow access to finance to be better preserved and enhance the level playing field for banks and depositors in the EU. We also argue that, apart from the availability of the option in law, the least cost test and the creditor hierarchy determine the de facto availability and potential magnitude of alternative measures. Currently, however, both the least cost test and the creditor hierarchy limit the possibility of supporting asset and liability transfers and may therefore need to be reformed in order for economically efficient results to be achieved. JEL Classification: G01, G21, G28 |
| Keywords: | Banking union, deposit guarantee schemes, depositor protection, EU bank crisis management framework, transfers of assets and liabilities |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2022308&r= |
| By: | Sebastian Infante; Phillip J. Monin; Lubomir Petrasek; Mary Tian |
| Abstract: | In this note, we examine how changes in the yield curve slope affect the provision of credit and intermediation services by non-bank financial institutions (NBFIs), including broker-dealers and hedge funds. Although these NBFIs typically do not lend directly to the non-financial sector, they indirectly support the flow of credit by investing in debt securities and extending financing to investors who own such securities. |
| Date: | 2022–10–11 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2022-10-11&r= |
| By: | Catherine Huang; Adam Copeland; Kailey Kraft |
| Abstract: | As a result of the global financial crisis (GFC), the Federal Reserve switched from a regime of scarce reserves to one of abundant reserves. In this post, we explore how banks’ day-to-day management of reserve balances with respect to payment flows changed with this regime switch. We find that bank behavior did not change on average; under both regimes, banks increased their opening balances when they expected higher outgoing payments and, similarly, decreased these balances with expected higher incoming payments. There are substantial differences across banks, however. At the introduction of the abundant-reserves regime, small domestic banks no longer adjusted balances alongside changes in outgoing payments. |
| Keywords: | quantitative easing (QE); liquidity; reserves; payments; Federal Reserve; banks |
| JEL: | E52 |
| Date: | 2022–10–12 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:94906&r= |
| By: | Marta Gómez-Puig (Department of Economics and Riskcenter, Universitat de Barcelona. 08034 Barcelona, Spain.); Mary Pieterse-Bloem (Section Finance in Business Economics, Erasmus School of Economics, 3062 PA, Rotterdam, and Rabobank**, 3521 CB, Utrecht, the Netherlands. Phone: +316-5136 5132.); Simón Sosvilla-Rivero (Complutense Institute for Economic Analysis, Universidad Complutense de Madrid. 28223 Madrid, Spain.) |
| Abstract: | We examine the dynamic interconnection between sovereign credit and liquidity risks in ten euro area countries at the 5-year maturity with high-frequency data from MTS over the period January 2008-December 2018 using the extension of the TVP-VAR connectedness approach of Antonakakis et al. (2020). Our results indicate that for most periods net connectedness is from credit risk to liquidity risk, but this indicator is time-dependent, detecting some episodes where it goes from liquidity risk to credit risk. We set up an event study and find that the latter episodes can be related to several unconventional monetary policy measures of the ECB. Then, we examine the drivers of the connectedness indicator by means of a Probit model. Our results suggest that monetary policy shocks and economic policy uncertainty increase the probability of risk transmission from liquidity to credit, while global funding liquidity, tensions in financial markets and surprises in inflation and GDP are factors that reduce such probability. |
| Keywords: | Liquidity risk, Credit risk, Eurozone sovereign bonds, MTS bond market, Dynamic connectedness, Time-varying parameters. JEL classification: C22, C53, G12, G14, G15. |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:202217&r= |
| By: | Pavelkova, Andrea |
| Abstract: | The aim of central bank communication is to provide information on monetary policy and the economic outlook in a timely manner to the public. While research on central bank communication and specifically the European Central Bank’s press conference has shown that it has the potential to move markets, in-depth textual analysis of key communication tools creates room for further analysis. Focusing on the press conferences of the ECB, this paper employs structural topic modelling (STM) and finds that topics within the introductory statement and the Q&A are significantly different, with a nearly equal split of topics unique to both parts. The split of topics suggests that the Q&A does not only provide clarification of what has been said in the introductory statement, but also allows journalists to enquire about the discussion within the Governing Council as well as the ECB’s stance on broader economic issues. JEL Classification: E50, E52, E58 |
| Keywords: | central bank communication, ECB press conference, natural language processing, structural topic model, text analysis |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222742&r= |
| By: | Daniela Balutel; Walter Engert; Christopher Henry; Kim Huynh; Marcel Voia |
| Abstract: | This report studies the dynamics of Bitcoin awareness and ownership from 2016 to 2021, using the Bank of Canada’s Bitcoin Omnibus Surveys (BTCOS). In 2021, Canadians’ awareness of Bitcoin remained stable at about 90%, while ownership increased to 13% from the 5% observed in 2018-2020. Canadian Bitcoin owners in 2021 were more likely to be male, aged 18 to 34 years old, with a university degree or high income. They largely see Bitcoin as an investment. A new question added to the 2021 BTCOS helps us understand the influx of investors to the Bitcoin market. Responses to this question show that roughly half of current Bitcoin owners invested during the COVID-19 pandemic (2020-2021). These recent owners differ in several ways from long-term owners. Finally, we document the broader economic context of the increase in Bitcoin ownership: widespread increases in savings and wealth by Canadian households during the pandemic, coupled with financial technology (Fintech) companies providing accessible and user-friendly platforms for buying Bitcoin. |
| Keywords: | Bank notes; Digital currencies and fintech; Econometric and statistical methods |
| JEL: | E4 C12 O51 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:22-44&r= |
| By: | Peter J. Simmons; Nongnuch Tantisantiwong |
| Abstract: | This paper fills the gap in the literature by introducing an efficient, incentive compatible audit policy that can minimise the social loss created by the audit cost while maximising social welfare. We apply this within a loan auditing context, but the method is also applicable to any accounting and tax audit context. We explain why the loan contract design for finance of projects varies between different situations. Each project outcome is random and private information of its individual owner, but reported outcomes can be audited at a cost. Our framework simultaneously determines incentive compatible auditing policies, interest rates and default probabilities to yield an efficient contract design. We show how the socially best loan audit policy and repayments depend on the degrees of information asymmetry and risk correlation between projects, the number of agents in the agreement and the agents’ perception of loan default. |
| Keywords: | Optimal contract, Incentive compatible audit policy, Heterogeneous and correlated risk, Welfare, Loan auditing |
| JEL: | D81 D82 G21 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:22/07&r= |
| By: | Valeria Stefanelli; Francesco Manta; Pierluigi Toma |
| Abstract: | Digitalization in many economic sectors drove the financial system to adapt to new paradigms of technological transformation. Moreover, the extant regulatory framework forced the financial system to reconsider its business models and its relationship with the market. Such reasons generated also in the banking sector a new model of competition within the ecosystem never seen before in this sector. The new ecosystem of banks and financial institutions lacks a common framework that not only synthesizes the development lines of open innovation in the banking sector, but also regarding the planification of strategic choices and organisation within the new ecosystems. The present study aims to inquire the strategic positioning of European banks toward their digital transformation strategies, by analysing the decision-making processes that occurred between 2015 and 2019. A qualitative analysis on partnerships and the adoption of Application Programming Interfaces (APIs) development in support of new service models was carried out. Results have relevant policy implications for regulators, linked to the business evolution and the risks of outsourcing, and managerial implications for the followers, specifically on the plan of service integration to diversify and boost their activities in the segment of customer relationship management and care, providing a better user experience. |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2210.01109&r= |
| By: | Zamora-Pérez, Alejandro; Coschignano, Eliana; Barreiro, Lorena |
| Abstract: | Central banks have been discussing the introduction of a retail central bank digital currency (rCBDC) for some time. However, potential obstacles to its adoption by consumers and retailers remain largely unexplored in the academic and policy literature. This paper surveys the key elements involved in the adoption of any new means of payment and discusses failed and ongoing initiatives with public digital money. It concludes that ensuring the desired level of adoption of rCBDCs may impose significant constraints on central bank design choices and policy goals. In fact, in some settings, central banks may find themselves on the horns of a dilemma in seeking to balance the needs to (i) preserve the central bank’s hierarchy of policy goals, (ii) increase the chances of adoption and use of rCBDCs by consumers and retailers, and (iii) avoid any adverse economic effects. JEL Classification: E42, E58, D12 |
| Keywords: | central bank digital currency, demand for money, means of payment |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2022307&r= |
| By: | Alona Shmygel (National Bank of Ukraine) |
| Abstract: | In this article, we developed a reliable method to detect house price bubbles using data for the largest Ukrainian cities. Further, we identified the thresholds, the breach of which is signaling that house price growth may be problematic as a bubble may be forming. In this paper, house price bubbles are detected with the help of two general approaches: ratio calculation and regression analysis. These general approaches are subdivided into two each. We calculated the Price-to-Rent and Price-to-Income ratios that can identify a possible over- or undervaluation of house prices for Ukrainian cities under the scope of this investigation. Then, we performed the regression analysis by building individual multifactor models for different cities and by running a pooled OLS regression for the panel data. According to the results, the only pronounced and prolonged period of house price bubbles is the one that coincides in time with the Global Financial Crisis – from late 2005 to early 2009. The bubble signals, produced by these methods are, on average, simultaneous and are in accordance with economic sense. A tool for measuring fundamental house prices and an indicator of bubble on housing markets will be used to monitor the systemic risks stemming from the real estate market. Thus, it will help the National Bank of Ukraine maintain financial stability. |
| Keywords: | House price bubbles, Fundamental house prices, Mortgage lending, Systemic risk, Regression analysis |
| JEL: | C31 C33 E30 G21 |
| Date: | 2022–10–12 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp22-2022&r= |
| By: | Ferreira,Francisco H. G. |
| Abstract: | This paper assesses the evolution of thinking, analysis, and discourse about inequality in theWorld Bank and the International Monetary Fund since their inception in 1944, on the basis of bibliometric analysis, areading of the literature, and personal experience. Whereas the Fund was largely unconcerned with economic inequalityuntil the 2000s but has shown a rapidly growing interest since then, the Bank’s approach has been characterized byebbs and flows, with five phases being apparent. The degree of interest in inequality in the two institutions appears tobe largely determined by the prevailing intellectual profile of the topic in academic research, particularly ineconomics, and by ideological shifts in major shareholder countries, propagated downward internally by seniormanagement. Data availability, albeit partly endogenous, also plays a role. Looking ahead, World Bank andInternational Monetary Fund researchers continue to have an important role to play, despite a much more crowded field ininequality research. The paper suggests that this role involves holding firm to an emphasis on inequality “at thebottom” and highlighting four themes that may deserve special attention. |
| Date: | 2022–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:10149&r= |
| By: | Mary C. Daly |
| Abstract: | Presentation at Boise State University, Boise, Idaho, September 29, 2022, by Mary C. Daly, President and Chief Executive Officer, Federal Reserve Bank of San Francisco. |
| Keywords: | dual mandate; jobs; price stability |
| Date: | 2022–09–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfsp:94862&r= |
| By: | Gara Afonso; Gabriele La Spada; John C. Williams |
| Abstract: | Over the past fifteen years, reserves in the banking system have grown from tens of billions of dollars to several trillion dollars. This extraordinary rise poses a natural question: Are the rates paid in the market for reserves still sensitive to changes in the quantity of reserves when aggregate reserve holdings are so large? In today’s post, we answer this question by estimating the slope of the reserve demand curve from 2010 to 2022, when reserves ranged from $1 trillion to $4 trillion. |
| Keywords: | reserve demand; federal funds; ample reserves; monetary policy |
| JEL: | E52 |
| Date: | 2022–10–05 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:94887&r= |
| By: | Rojas Alvarado,Luis Diego; Vegh,Carlos; Vuletin,Guillermo Javier |
| Abstract: | This paper analyzes the macroeconomic effects of macroprudential policy—in the form of legalreserve requirements—in three Latin American countries (Argentina, Brazil, and Uruguay). To correctly identifyinnovations in changes in legal reserve requirements, a narrative approach—based on contemporaneous reports from theIMF and central banks in the spirit of Romer and Romer (2010)—is developed in which each change is classified intoendogenous or exogenous to the business cycle. This distinction is critical in understanding the macroeconomiceffects of reserve requirements. In particular, while output falls in response to exogenous increases in legal reserverequirements, it is not affected when using all changes and relying on traditional time-identifying strategies. Thisbias reflects the practical relevance of the misidentification of endogenous countercyclical changes inreserve requirements. The empirical frontier is also pushed along two important dimensions. First, in measuring legalreserve requirements, both the different types of legal reserve requirements in terms of maturity and currency ofdenomination as well as the structure of deposits are taken in account. Second, since in practice reserve requirementpolicy is tightly linked to monetary policy, the study jointly analyze the macroeconomic effects of changes incentral bank interest rates. To properly identify exogenous central bank interest rate shocks, the Romer and Romer(2004) strategy is used. |
| Date: | 2022–08–24 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:10145&r= |
| By: | Joseph E. Gagnon (Peterson Institute for International Economics); Madi Sarsenbayev (Peterson Institute for International Economics) |
| Abstract: | For about 25 years before the COVID-19 pandemic, inflation was very low and stable in most advanced economies. A little noticed dark side of this impressive achievement is that unemployment rates were almost always higher than needed to keep inflation low. This widespread and persistent policy error arose because of a major flaw in standard macroeconomic models--the use of a linear Phillips curve. This flaw would have been far less costly if central banks had not chosen such a low target for inflation. This paper thus adds to the arguments in favor of a moderately higher inflation target. Even without a higher target, central banks need to use a broader range of economic models and should verify their estimates of the natural rate of unemployment by running the economy hot from time to time in order to see nascent inflationary pressure before throttling back. |
| Keywords: | Nonlinear Phillips curve, equilibrium rate of unemployment (U*), equilibrium real rate of interest (R*), inflation target, downward wage and price rigidity |
| JEL: | E24 E31 E52 E58 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:iie:wpaper:wp22-17&r= |
| By: | O'Brien, Patrick K.; Palma, Nuno |
| Abstract: | From its foundation as a private corporation in 1694, the Bank of England extended large amounts of credit to support the British private economy and to support an increasingly centralised British state. The Bank helped the British state reach a position of geopolitical and economic hegemony in the international economic order. In this paper, we deploy recalibrated financial data to analyse an evolving trajectory of connections between the British economy, the state, and the Bank of England. We show how these connections contributed to form an effective and efficient fiscal–naval state and promote the development of a system of financial intermediation for the economy. This symbiotic relationship became stronger after 1793. The evidence that we consider here shows that although the Bank was nominally a private institution and profits were paid to its shareholders, it was playing a public role well before Bagehot's doctrine. |
| Keywords: | Bank of England; national defence; state-building institutions |
| JEL: | N0 |
| Date: | 2022–09–02 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:116868&r= |
| By: | Maxime Biehler; Mohamed Guermazi; C\'elim Starck |
| Abstract: | This article sets forth a review of knowledge distillation techniques with a focus on their applicability to retail banking contexts. Predictive machine learning algorithms used in banking environments, especially in risk and control functions, are generally subject to regulatory and technical constraints limiting their complexity. Knowledge distillation gives the opportunity to improve the performances of simple models without burdening their application, using the results of other - generally more complex and better-performing - models. Parsing recent advances in this field, we highlight three main approaches: Soft Targets, Sample Selection and Data Augmentation. We assess the relevance of a subset of such techniques by applying them to open source datasets, before putting them to the test on the use cases of BPCE, a major French institution in the retail banking sector. As such, we demonstrate the potential of knowledge distillation to improve the performance of these models without altering their form and simplicity. |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2209.15496&r= |
| By: | Laurent Faivre; Pierre Sarrut |
| Abstract: | Après une année 2020 marquée par un ralentissement mesuré de l’activité sous l’effet du confinement, le marché de l’immobilier résidentiel français a enregistré un rebond significatif en 2021 dans un contexte de très faibles taux d’intérêt : - entre le quatrième trimestre 2020 (T4-2020) et le T4-2021, l’indice INSEE des prix dans l’ancien a continué de progresser de 7,2 % en métropole, avec toutefois des divergences marquées entre la Province (+9 %) et l’Île-de-France (+2,7 %) tandis que les prix ont reculé à Paris (-1,6 % ; Graphique 1) ; - le nombre de transactions annuelles a atteint un nouveau pic à 1 178 000, soit une hausse de 15 % par rapport à 2020 et de 10,4 % par rapport à 2019 (Graphique 2) ; - la hausse des taux de marché ne s’est pas encore répercutée sur les taux des crédits à l’habitat, qui ont continué de baisser en 2021 pour atteindre un plus bas historique en décembre (1,06 % en moyenne) et ne remontent que très légèrement début 2022 (1,16 % en avril 2022 ; Graphique 3) ; - la production annuelle de crédits à l’habitat s’est élevée à 273,7 milliards d’euros en 2021, soit une hausse de 8,5 % par rapport à 2020 et de 11 % par rapport à 2019 (Graphique 5). Hors rachats et renégociations, la production de nouveaux crédits atteint même un plus haut historique de 224,8 milliards en 2021, tandis que la part des rachats et renégociations a reculé de 5,7 points à 17,9 % (Graphique 6). Dans le même temps, les encours de crédits à l’habitat ont enregistré une croissance de 6,8 % sur l’année (Graphique 7), tandis que les autres crédits aux particuliers n’ont progressé que de 1,1 %. |
| Keywords: | crédits à l’habitat des particuliers, prêt moyen, durée moyenne, loan to value, taux d’effort, encours douteux et provisions, coût du risque |
| JEL: | G21 R21 R31 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:analys:137&r= |
| By: | Pierre Harguindeguy; Emmanuel Point; Louise Tupinier |
| Abstract: | Ce numéro d’« Analyses et Synthèses » s’appuie sur l’exploitation des données remises par les cinq principaux groupes bancaires français1 dans le cadre de l’enquête de l’Autorité de contrôle prudentiel et de résolution. Après la crise sanitaire, les marchés mondiaux de l’immobilier commercial ont marqué un net rebond en 2021, le montant annuel des investissements atteignant son plus haut niveau des dix dernières années. La situation apparaît en revanche plus contrastée en France où les montants investis ont été légèrement plus faibles qu’en 2020. Dans ce contexte, la production de concours aux professionnels de l’immobilier par les banques françaises a pourtant été dynamique, enregistrant une hausse annuelle de 13,4 % à 86,8 milliards d’euros tandis que leurs engagements ont progressé de 9,3 % pour atteindre 250,5 milliards. Si l’exposition des banques françaises à cette classe de risques s’est accrue, la majorité des indicateurs de risque reflètent à ce stade une bonne qualité des portefeuilles : le taux d’expositions douteuses et dépréciées brutes a par exemple continué de diminuer pour atteindre 2,07 % fin 2021 (-0,5 point de pourcentage par rapport à fin 2020) ; le taux de créances restructurées in bonis a toutefois nettement augmenté (+36 points de base à 1,34 %) et les opérations affichant un taux de pré-commercialisation nul ont atteint leur plus haut niveau depuis 2015. L’évolution du contexte macroéconomique, marqué par la hausse des taux d’intérêt et de l’inflation, notamment des coûts de construction, ainsi que les modifications structurelles accélérées par la crise sanitaire touchant le secteur de l’immobilier de bureaux (développement du télétravail) ou des surfaces commerciales (développement du commerce électronique) pourraient cependant se traduire par une montée des risques de crédit à court et moyen termes. |
| Keywords: | professionnels de l’immobilier |
| JEL: | G21 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:analys:138&r= |
| By: | Sriram Darbha |
| Abstract: | A variety of technology designs could support retail central bank digital currency (CBDC) systems. We develop five archetypes of CBDC systems, outline their characteristics and discuss their trade-offs. This work serves as a framework to analyze and compare different designs, independent of vendor, platform and implementation. |
| Keywords: | Central bank research; Digital currencies and fintech |
| JEL: | E E4 E42 E5 E51 O O3 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:22-14&r= |
| By: | Di Martino Paolo (Department of Economics, Social Studies, Applied Mathematics and Statistics (ESOMAS), University of Torino, Italy;); Bagliano Fabio (Department of Economics, Social Studies, Applied Mathematics and Statistics (ESOMAS) and Collegio Carlo Alberto, University of Torino, Italy;) |
| Abstract: | Based on a new series and applying econometric techniques, this paper investigates the discount rate policy implemented by the main Italian bank of issue of the time, the Banca d'Italia. We focus on two interrelated aspects of the problem. Firstly, anchoring our analysis to the Bank's annual reports, we enquiry into the general determinants of its discount rate variations. Secondly, we study the reaction of the Italian rate to exogenous changes in leading international official rates. We show that discount rate variations responded to short-term fluctuations of official rates in the UK and France but, simultaneously, to deviations from long-term equilibrium relations involving two pairs of variables. On the one hand, a relationship between the Italian discount rate and the French open market rate; on the other hand, a link between the Bank's reserve ratio and its exposure to the national credit market. We also show that reactions to variations in foreign official rates were of a very limited magnitude. This ``sterilisation" policy came with little repercussions in terms of exchange rate fluctuations or loss of international reserves, somehow in contrast with the results of the recent literature. |
| Keywords: | Bank of Italy, Discount Rate Policy, International Gold Standard, Sterilization |
| JEL: | N13 N23 E58 F33 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:tur:wpapnw:077&r= |
| By: | Maria Demertzis; Catarina Martins; Nicola Viegi |
| Abstract: | Bank of England MPC celebrates 25 years and we use this occasion to compare its decision-making process to that of the ECB |
| Date: | 2022–07 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polbrf:node_8103&r= |
| By: | Maxim Bichuch; Zachary Feinstein |
| Abstract: | Within this work we consider an axiomatic framework for Automated Market Makers (AMMs). By imposing reasonable axioms on the underlying utility function, we are able to characterize the properties of the swap size of the assets and of the resulting pricing oracle. We have analyzed many existing AMMs and shown that the vast majority of them satisfy our axioms. We have also considered the question of fees and divergence loss. In doing so, we have proposed a new fee structure so as to make the AMM indifferent to transaction splitting. Finally, we have proposed a novel AMM that has nice analytical properties and provides a large range over which there is no divergence loss. |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2210.01227&r= |