nep-ban New Economics Papers
on Banking
Issue of 2022‒11‒07
twenty-six papers chosen by
Sergio Castellanos-Gamboa, , Pontificia Universidad Javeriana

  1. The impact of fintech lending on credit access for U.S. small businesses By Giulio Cornelli; Jon Frost; Leonardo Gambacorta; Julapa Jagtiani
  2. Examining Macroprudential Policy through a Microprudential Lens By Wilmar Cabrera; Santiago Gamba; Camilo Gómez; Mauricio Villamizar-Villegas
  3. Politicians, bankers and the Great Depression: The Spanish banking crisis of 1931 By Jorge-Sotelo, Enrique
  4. Decentralised finance and cryptocurrency activity in Africa By Ozili, Peterson K
  5. Trade Acceptances, Financial Reform, and the Culture of Commercial Credit, 1915-1920 By Myles, Jamieson
  6. The Real Effects of Debt Covenants: Evidence from Australia By Kim Nguyen
  7. A Survey: Credit Sentiment Score Prediction By A. N. M. Sajedul Alam; Junaid Bin Kibria; Arnob Kumar Dey; Zawad Alam; Shifat Zaman; Motahar Mahtab; Mohammed Julfikar Ali Mahbub; Annajiat Alim Rasel
  8. Trade Conflicts and Credit Supply Spillovers : Evidence From The Nobel Peace Prize Trade Shock By Cao, Jin; Dinger, Valeriya; Juelsrud, Ragnar E.; Liaudinskas, Karolis
  9. Green finance research around the world: a review of literature By Ozili, Peterson Kitakogelu
  10. Financial Sector Development in Brunei Darussalam: Depth, Access, and Efficiency: A Comparative Analysis By Biswa Nath Bhattacharyay; Madhurima Bhattacharyay
  11. It’s not time to make a change: sovereign fragility and the corporate credit risk By Fornari, Fabio; Zaghini, Andrea
  12. The State as Financier of Last Resort By Mr. Raphael A Espinoza; Mr. Gee Hee Hong; Mrs. Sandra V Lizarazo Ruiz; Jason Harris; Bryn Battersby; Amanda Sayegh; Mr. Paolo Mauro
  13. A recursive method for computing moments of Hawkes intensities: application to the potential approach of credit risk By Ketelbuters, John-John; Hainaut, Donatien
  14. LOLR policies, banks' borrowing capacities and funding structures By Corradin, Stefano; Sundaresan, Suresh
  15. Les acteurs numériques de la finance : un pas vers la rentabilité ? By Laurent Clerc; Pierre Harguindeguy; Stefano Ungaro; Timothée Dufour
  16. Prepaid Cards: A Case Study of Japan, the United States and the European Union By Hiroaki Kuwahara; Kazuaki Hara
  17. Non-maturing deposits modelling in a Ornstein-Uhlenbeck framework By Marina Marena; Andrea Romeo; Patrizia Semeraro
  18. A Horse Race of Monetary Policy Regimes: An Experimental Investigation By Olena Kostyshyna; Luba Petersen; Jing Yang
  19. Floods and Loan Reallocation: New evidence By OGURA Yoshiaki; NGUYEN Duc Giang; NGUYEN Thu Ha
  20. Drivers and Spillover Effects of Inflation: the United States, the Euro Area, and the United Kingdom By Stephen G. Hall; George S. Tavlas; Yongli Wang
  21. How do banks manage liquidity? Evidence from the ECB’s tiering experiment By Baldo, Luca; Heider, Florian; Hoffmann, Peter; Sigaux, Jean-David; Vergote, Olivier
  22. The Effect of Economic Incentives, Financial Technology, and Financial Literacy on Millennials' Financial Planning during Covid 19 By Karina Harjanto
  23. Greening capital requirements By Dafermos, Yannis; van Lerven, Frank; Nikolaidi, Maria
  24. Consumer savings behaviour at low and negative interest rates By Felici, Marco; Kenny, Geoff; Friz, Roberta
  25. A Back-of-the-Envelope Analysis of House Prices: Czech Republic, 2013-2021 By Roman Sustek
  26. Sudden Yield Reversals and Financial Intermediation in Emerging Markets By Miguel Sarmiento

  1. By: Giulio Cornelli; Jon Frost; Leonardo Gambacorta; Julapa Jagtiani
    Abstract: Small business lending (SBL) plays an important role in funding productive investment and fostering local economic growth. Recently, nonbank lenders have gained market share in the SBL market in the United States, especially relative to community banks. Among nonbanks, fintech lenders have become particularly active, leveraging alternative data for their own internal credit scoring. We use proprietary loan-level data from two fintech SBL platforms (Funding Circle and LendingClub) to explore the characteristics of loans originated pre-pandemic (2016-2019). Our results show that fintech SBL platforms lent more in zip codes with higher unemployment rates and higher business bankruptcy filings. Moreover, fintech platforms' internal credit scores were able to predict future loan performance more accurately than the traditional approach to credit scoring, particularly in areas with high unemployment. Using Y-14M loan-level bank data, we also compare fintech SBL with traditional bank business cards in terms of credit access and interest rates. Overall, fintech lenders have a potential to create a more inclusive financial system, allowing small businesses that were less likely to receive credit through traditional lenders to access credit and to do so at lower cost.
    Keywords: fintech credit, peer-to-peer (P2P) lending, marketplace lending, small business lending (SBL), Funding Circle, LendingClub, alternative data, credit access, credit scoring.
    JEL: G18 G21 G28 L21
    Date: 2022–09
  2. By: Wilmar Cabrera; Santiago Gamba; Camilo Gómez; Mauricio Villamizar-Villegas
    Abstract: In this paper, we examine the financial and real effects of macroprudential policies with a new identifying strategy that exploits borrower-specific provisioning levels for each bank. Locally, we compare similar firms just below and above regulatory thresholds established in Colombia during 2008–2018 for the corporate credit portfolio. Our results indicate that the scheme induces banks to increase the provisioning cost of downgraded loans. This implies that, for loans with similar risk but with a discontinuously lower rating, banks offer a lower amount of credit, demand higher quality guarantees, and impose a higher level of provision coverage through the loan-loss given default. To illustrate, a 1 percentage point (pp) increase in the provision-to-credit ratio leads to a reduction in credit growth of up to 15pp and lowers the probability of receiving new credit by up to 11pp. When mapping our results to the real sector, we find that downgraded firms are constrained in their investment decisions and experience a contraction in liabilities, equity, and total assets. **** RESUMEN: Este documento estudia los efectos financieros y reales de la política macroprudencial asociada con el nivel de gasto en provisiones por deudor que debe realizar el sector bancario en Colombia. Por consiguiente, se estudia la cartera de créditos comerciales durante el periodo 2008-2018 y se compara localmente aquellas empresas que se aproximan por arriba y por debajo a los umbrales regulatorios relacionados con el cálculo del gasto en provisiones. Los resultados indican que el esquema de provisiones induce a los bancos a incrementar su gasto en provisiones dirigido a las firmas que presentan una reducción en su calificación. Lo anterior implica que, para créditos con un perfil de riesgo similar, pero con un cambio discontinuo en su calificación, los bancos otorgan un menor monto de crédito, demandan garantías de mejor calidad e imponen una mayor cobertura por provisiones por medio de la medida de pérdida ante incumplimiento. En particular, un aumento de un punto porcentual (pp) en la razón de provisiones a crédito conlleva a una reducción de hasta 15 pp en la tasa de crecimiento del crédito y reduce la probabilidad de acceder a un nuevo crédito en hasta 11 pp. Por su parte, el análisis que vincula estos resultados con las principales variables de desempe˜ño de las firmas sugiere que las firmas que exhiben una reducción en su calificación son posteriormente restringidas en sus decisiones de inversión y experimentan una contracción en sus pasivos, patrimonio y activos.
    Keywords: Loan provisions, Macroprudential policies, Credit registry, Corporate registry, Panel regression discontinuity, Provisiones, Políticas macroprudenciales, Registros crediticios, Registros corporativos, Regresión discontinua de panel
    JEL: G18 G21 G28
    Date: 2022–10
  3. By: Jorge-Sotelo, Enrique
    Abstract: This paper contributes to the literature on moral hazard, lending of last resort and the political origins of banking crises. Drawing on newly accessed quantitative and qualitative archival sources the paper documents how a bank - Banco de Cataluña - formed a coalition with the Dictatorship of Primo de Rivera (1923-30) in order to depart from the framework of "constructive ambiguity" that characterized central bank lending of last resort in Spain. As a result, the bank developed a uniquely risky portfolio and incurred in insider lending to internationally exposed firms at the onset of the Great Depression. The fall of the Dictatorship and democratic transition, the collapse of international trade, and global deflation during 1929-31 made fragilities emerge causing the bank to fail.
    Keywords: moral hazard,lender of last resort,Great Depression
    JEL: N24 E58 G01
    Date: 2022
  4. By: Ozili, Peterson K
    Abstract: This paper presents a discussion of decentralized finance in Africa. It presents some statistics and data on decentralized finance in Africa. Thereafter, the potential benefits, challenges and regulatory issues associated with decentralized finance in Africa are discussed. Recently, there has been an increase in the use of cryptocurrency, decentralized finance applications (dApps) and decentralized financial services (DeFi) in several countries. These innovations facilitate the delivery of financial services using smart contracts. Decentralized finance (DeFi) encompasses all financial services that are built on public blockchains, based on open protocols and removes intermediaries from the financial intermediation process. There is significant cryptocurrency activity in Africa while decentralized finance (DeFi) is relatively new and unpopular in the African continent. There is low interest in decentralized finance in Africa. The benefit of DeFi to African countries include increased liquidity for small and medium scale enterprises (SMEs), new opportunities to raise additional capital to fund capital-intensive activities, it will usher in an era of smart contracts that are negotiated bilaterally without needing an intermediary, it will encourage peer-to-peer trade between economic agents in several African countries, it will enhance the efficiency of the Pan-African Payment Settlement System (PAPSS), and encourage more trade between individuals and corporations under the African Continental Free Trade Agreement (AfCFTA), amongst others.
    Keywords: Decentralized finance, Cryptocurrencies, DeFi, dApps, AfCFTA, Bitcoin, blockchain, central bank digital currency crypto technologies, Africa, smart contracts.
    JEL: G21 G23 O31
    Date: 2022–09
  5. By: Myles, Jamieson
    Abstract: In her seminal work on insider lending, Naomi Lamoreaux describes the shift to impersonal lending in late nineteenth century New England. Although orthodox banking theory prescribed investing in “real bills”, they were in short supply, so reformers focused instead on establishing new objective lending criteria. This article examines the nationwide campaign by financial reformers in the 1910s to do what banking reformers in New England had not: convince businesses across the U.S. to abandon prevailing commercial credit practices and adopt “trade acceptances”—the quintessential real bill—in their stead. To financial reformers, the Federal Reserve System offered an institutional means of reducing distributors’ dependence on mercantile credit and incentivizing banks to invest in real bills. Once underway, campaigners argued that trade acceptances would foster good business practices and stabilize the financial system and relied on trade associations and the federal government to disseminate this message. Some businesses obliged, but many opposed trade acceptances, casting them as contrary to the American culture of credit. The campaign did not eradicate established credit practices or supplant the promissory note and failed to incentivize non-member state banks to become Fed members. Instead, its significance lay in industrial finance companies’ use of trade acceptances as collateral to secure financing for the distribution and mass consumption of consumer durables. <p>
    Keywords: Impersonal lending, Bills of exchange, Money market, Culture of credit, Federal Reserve System.
    JEL: N00 N22 N72
    Date: 2022
  6. By: Kim Nguyen (Reserve Bank of Australia)
    Abstract: I study how the use and structure of debt covenants affect real business activity and pass-through of monetary policy using a newly constructed dataset of corporate debt covenants in Australia. I find that exposure to debt covenants disciplines firms' investment and staff expenses even in the absence of covenant breaches. In addition, covenants with interest coverage limits appear to amplify the transmission of monetary policy shocks while other types of covenants appear to mitigate transmission. As such, the shift from interest coverage limits to other types of covenants that appears to have occurred since the late 2000s may have lowered the responsiveness of investment to monetary policy, and in turn accounted for some of the surprising weakness in non-mining investment over the past decade.
    Keywords: debt covenants; financing friction; investment; employment; monetary policy
    JEL: G1 E2 E5
    Date: 2022–10
  7. By: A. N. M. Sajedul Alam; Junaid Bin Kibria; Arnob Kumar Dey; Zawad Alam; Shifat Zaman; Motahar Mahtab; Mohammed Julfikar Ali Mahbub; Annajiat Alim Rasel
    Abstract: Manual approvals are still used by banks and other NGOs to approve loans. It takes time and is prone to mistakes because it is controlled by a bank employee. Several fields of machine learning mining technologies have been utilized to enhance various areas of credit rating forecast. A major goal of this research is to look at current sentiment analysis techniques that are being used to generate creditworthiness.
    Date: 2022–09
  8. By: Cao, Jin; Dinger, Valeriya; Juelsrud, Ragnar E.; Liaudinskas, Karolis
    Abstract: In this paper, we examine how a trade conflict’s impact on the real economy can be amplified by financial intermediaries. After the Norwegian Nobel Peace Prize Committee awarded the 2010 Nobel Peace Prize to Chinese dissident Liu Xiaobo, China in practice banned imports of Norwegian salmon. The ban was an unexpected trade shock to the Norwegian salmon industry. Using bank balance sheet and credit register data, we trace how this trade shock affected the lending behavior of banks highly exposed to the salmon industry when the shock occurred. We find that, in the years following the trade shock, highly exposed banks cut back lending to non-salmon firms and households by 3-6 percent more than other banks. Furthermore, we find that the reduction in lending was not driven by the erosion of bank capital, but rather by the shift in expectations about the performance of loans to salmon producers, which drove highly exposed banks to increase their loan loss provisions and reduce risk-taking.
    JEL: F14 G21
    Date: 2022–10–21
  9. By: Ozili, Peterson Kitakogelu
    Abstract: This paper reviews the existing research on green finance. It identifies the important themes in the green finance literature, particularly, the strategies to increase green financing; efforts to make green investment profitable; promoting green financing using technology and policy, the role of regulators and financial institutions in the green finance agenda, and the challenges of green financing. Several cross-country observations about the challenges of green finance and solutions to green finance issues are documented. The findings show that green finance has the potential to make a significant difference in the environment, society and for climate change mitigation, but many challenges abound such as the lack of awareness about green finance, inconsistent definitions of green finance, lack of policy coordination for green financing, inconsistent policies, and lack of profitable incentives to investors and financial institutions who are willing to invest in climate change mitigation.
    Keywords: literature review, green finance, green investment, climate change, sustainable finance, green bonds, green banks, sustainable development goals, climate finance, environment, green loan, climate change mitigation. Paris Agreement, COP26.
    JEL: G21 G23 Q52 Q56
    Date: 2022
  10. By: Biswa Nath Bhattacharyay; Madhurima Bhattacharyay
    Abstract: Financial sector development plays an important role in promoting economic growth and welfare of the citizen of a country. On the other hand, financial sector instability or vulnerability, can adversely affect the economic growth and cause major disruptions in the country. This paper examines the financial sector development of Brunei Darussalam in terms of depth, access and efficiency during 2014-2018 based on 24 indicators. This paper starts with the examination of the role of the financial sector in the economic development and financial sector stability and reviews the major literature in this area. A discussion on the policies and strategies for the financial sector development and its regulator, Brunei Darussalam Central Bank (BDCB) and the structure of the financial sector of Brunei Darussalam are presented. Lastly, the paper discusses the major prospects and challenges faced by the banking sector as well as the recommendations. The analysis of the aforementioned indicators shows that the performance of Brunei Darussalam in terms of access to banks and financial inclusion had been, on an average, significantly better than its most peers among Association of Southeast Asian Nations (ASEAN) and Gulf Cooperation Council (GCC) countries. In terms of depth and intermediation, the country, however, remained lower throughout the study period compared to its most ASEAN and GCC countries. The efficiency of banking sector, on an average, remained at a moderate level with most indicators lower compared to several ASEAN and GCC peers. There is a scope for further financial sector development through enhancing depth and efficiency of the banking sector and the development of efficient bond and stock markets. This could bring significant benefits for Brunei Darussalam including enhanced growth.
    Keywords: banking and financial sector development and indicators, economic growth, financial stability, financial depth, access and efficiency, Brunei Darussalam, ASEAN and GCC countries, fintech companies
    JEL: G20 D53 O16 E44 G21 G32
    Date: 2022
  11. By: Fornari, Fabio; Zaghini, Andrea
    Abstract: Relying on a perspective borrowed from monetary policy announcements and introducing an econometric twist in the traditional event study analysis, we document the existence of an "event risk transfer", namely a significant credit risk transmission from the sovereign to the corporate sector after a sovereign rating downgrade. We find that after the delivery of the downgrade, corporate CDS spreads rise by 36% per annum and there is a widespread contagion across countries, in particular among those which were most exposed to the sovereign debt crisis. This effect exists on top of the standard relation between sovereign and corporate credit risk. JEL Classification: C21, G12, G14
    Keywords: credit default swaps, credit rating, sovereign risk spillover
    Date: 2022–10
  12. By: Mr. Raphael A Espinoza; Mr. Gee Hee Hong; Mrs. Sandra V Lizarazo Ruiz; Jason Harris; Bryn Battersby; Amanda Sayegh; Mr. Paolo Mauro
    Abstract: During the COVID-19 pandemic and global financial crisis, governments swiftly served as financiers of last resort through large financial support measures (FSMs) such as loan and guarantee programs and equity injections in firms. This Staff Discussion Note argues that such FSMs prevented bankruptcies and attenuated the recession by increasing firms’ liquidity, reducing risk premiums, and boosting confidence. But FSMs also carry large and long-lasting fiscal costs and risks. The note presents recommendations for managing the legacies of the COVID-19 programs and preparing for future crises. Ideally, FSMs should be assessed and included in budget plans, though a balance needs to be struck between speed and scrutiny.
    Keywords: Fiscal policy; Below the line; Equity injections; Government guarantees; Government loans; Bailout; Fiscal risks; Public sector balance sheet
    Date: 2022–10–13
  13. By: Ketelbuters, John-John (Université catholique de Louvain, LIDAM/ISBA, Belgium); Hainaut, Donatien (Université catholique de Louvain, LIDAM/ISBA, Belgium)
    Abstract: This paper explores an alternative to the structural models and reduced models in credit risk. The approach we use is called the potential approach. In the context of credit risk, it consists in assuming that the survival probability of a company is equal to the ratio of the expected value of a supermartingale divided by its initial value. This approach, that was previously used for modelling the term structure of interest rates, is extended by the use of a self-exciting processess that is time-changed by the inverse of an alpha-stable subordinator. We derive a new recursive method that allows to compute all the moments of a self-exciting process intensity. We show that this method can be used to approximate the survival probabilities in the potential aproach. More specifically, we prove that the approximation converges and we provide a bound on the numerical error. Finally, we calibrate the model and show that it allows to properly fit survival probability curves that are highly convex.
    Date: 2022–08–29
  14. By: Corradin, Stefano; Sundaresan, Suresh
    Abstract: We investigate banks' benefits and costs of having access to LOLR. Integrating novel data sets we estimate the borrowing capacities of euro area banks at the ECB. Controlling for ratings, we find that banks with more fragile funding are likely to borrow more from the ECB during the great financial and euro area sovereign debt crises. We develop a dynamic model of a bank and calibrate it to our empirical estimates. A bank with access to LOLR has higher equity value and makes larger investments in new loans, but it is more leveraged, pays more dividends and issues less equity. JEL Classification: G2, E5, E58
    Keywords: borrowing capacity, collateral, haircut, liquidity, LOLR
    Date: 2022–10
  15. By: Laurent Clerc; Pierre Harguindeguy; Stefano Ungaro; Timothée Dufour
    Abstract: Cette troisième étude de l’Autorité de contrôle prudentiel et de résolution (ACPR) consacrée aux acteurs et intermédiaires financiers proposant des services en ligne ou accessibles via des transactions 100 % mobiles vise à caractériser leurs modèles d’affaires et à évaluer leur rentabilité en lien avec leurs stratégies commerciales. Elle permet également de mieux comprendre le positionnement de ces acteurs dans le marché de l’intermédiation bancaire et financière, la nature de leurs relations avec les banques traditionnelles et, ainsi, le degré de transformation du paysage bancaire en France.
    Keywords: banque, concurrence bancaire, nouveaux intermédiaires numériques, numérisation, innovation, Fintech, plateformes numériques Fintech, digital platform
    JEL: G18 G21 G28
    Date: 2022
  16. By: Hiroaki Kuwahara (Deposit Insurance Corporation of Japan); Kazuaki Hara (Deposit Insurance Corporation of Japan)
    Abstract: Prepaid cards have a relatively long history compared to other Fintech products. Over the last half a century, prepaid cards have been issued as telephone cards, cards substituting for subway tickets, etc. Prepaid cards may broadly cover cards through which value is stored, and for which the holder has paid the issuer in advance. While this concept of prepaid cards is broader than IADI's definition of e-money, it is essential to note that respective jurisdictions/regions may have their own definitions, scope and/or concepts of e-money and/or prepaid cards. The objective of this brief is to present a case study in Japan on prepaid payment instruments stipulated in the Payment Services Act. The brief also looks into prepaid-type payment instruments issued under the legal frameworks of the U.S. and the EU. Prepaid cards have evolved together with their legal frameworks in the respective jurisdictions/regions. Differences among jurisdictions/regions are observed not only in their legal frameworks for prepaid cards, but also in the scope and concepts, similarities to deposits, impacts on depositors, functions and risks of issuing institutions, and other relevant elements concerning prepaid cards. It can be said that there is no single approach that could be applied universally for supervision and protection of prepaid cards, nor for the appropriate relationships with deposit insurance. Respective jurisdictions/regions have been developing their own approaches as appropriate in accordance with their legal frameworks and other relevant elements, including social needs. It is considered essential that a one-size-fits-all approach is not taken in considering measures for supervising and protecting prepaid cards and their appropriate relationships with deposit insurance. With all of the variations in the treatment of prepaid cards, one should begin by understanding the legal frameworks in the respective jurisdiction/regions, including their development stages and historical backgrounds, and then carefully analyse and sort out relevant elements of prepaid cards. It may also be useful to apply this approach in assessing new Fintech products that may be developed in the future.
    Keywords: deposit insurance, bank resolution
    JEL: G21 G33
    Date: 2022–10
  17. By: Marina Marena; Andrea Romeo; Patrizia Semeraro
    Abstract: This paper builds a multivariate L\'evy-driven Ornstein-Uhlenbeck process for the management of non-maturing deposits, that are a major source of funding for banks. The contribution of the paper is both theoretical and operational. On the theoretical side, the novelty of this model is to include three independent sources of randomness in a L\'evy framework: market interest rates, deposit rates and deposit volumes. The choice of a L\'evy background driving process allows us to model rare but severe events. On the operational side, we propose a procedure to include severe volume outflows with positive probability in future scenarios simulation, explaining its implementation with an illustrative example using Italian banking sector data.
    Date: 2022–09
  18. By: Olena Kostyshyna; Luba Petersen; Jing Yang
    Abstract: We provide a comprehensive assessment of leading monetary policy frameworks away from and at the ELB. Inflation targeting, dual mandate, average inflation targeting under 4- and 10-period horizons, price level targeting, and nominal GDP level targeting are evaluated in a laboratory setting. Contrary to theoretical prediction with full information rational expectations, participants exhibit backward-looking expectations and, consequently, rate-targeting mandates outperform level targeting. More history dependence worsens macroeconomic stability. Inflation expectations are managed better when mandates are framed in terms of inflation rates than price levels. Central bank communication significantly improves the performance of price level targeting.
    JEL: C92 E52 E70
    Date: 2022–10
  19. By: OGURA Yoshiaki; NGUYEN Duc Giang; NGUYEN Thu Ha
    Abstract: We examine the impact of severe floods on bank loans, trade credit, investment, and employment using corporate-level panel data of small businesses and bank-level panel data, matched with municipality-level flood damage information. We find that bank loans increase for firms located in a flood area but reduce for physically damaged firms. The former increases the investment for tangible assets after a flood while the latter reduces it. The latter firms increase their dependence on trade credits than bank loans. From the bank-level panel data, we do not document any significant impact of floods on total loans and bank financial soundness. These results imply that loans and resources are reallocated from physically damaged firms to other firms located in nearby safer places, facing recovery demand and fewer competitors.
    Date: 2022–09
  20. By: Stephen G. Hall (Leicester University, Bank of Greece, and Pretoria University); George S. Tavlas (Bank of Greece and the Hoover Institution, Stanford University); Yongli Wang (University of Birmingham)
    Abstract: We investigate the drivers of the recent inflation in three currency areas: the United States, the euro area, and the United Kingdom. To do so, we use a VAR set-up to examine the nature of the shocks that underpinned the recent inflation. We apply two methods to calculate shocks -- the standard Cholesky decomposition and a new method that captures more realistic shocks by solving the VAR backwards. We also use spatial modelling to investigate cross-country inflation spillovers. We find the inflationary shocks in the United States are transmitted to the euro area and the United Kingdom in a powerful and consistent way. The euro area transmits inflation to the other regions but to a lesser extent, while the inflation in the United Kingdom has little effect on the other two regions.
    Keywords: Inflation, VAR analysis, impulse responses, spatial spillovers
    JEL: C52 C53
    Date: 2022–10
  21. By: Baldo, Luca; Heider, Florian; Hoffmann, Peter; Sigaux, Jean-David; Vergote, Olivier
    Abstract: We study how banks manage their liquidity among the various assets at their disposal. We exploit the introduction of the ECB’s two-tier system which heterogeneously reduced the cost of additional reserves holdings. We find that the treated banks increase reserve holdings by borrowing on the interbank market, decreasing lending to affiliates of the same group, and selling marketable securities. We also find that banks have a preference for a stable portfolio composition of liquid assets over time. Our results imply that frictions in one market for liquidity can spill over to several markets. JEL Classification: G21, G11, E52
    Keywords: bank liquidity, central bank reserves, government bonds, monetary policy implementation, money markets
    Date: 2022–09
  22. By: Karina Harjanto (Universitas Multimedia Nusantara, Gading Serpong, 15810, Tangerang, Indonesia Author-2-Name: Maria Stefani Osesoga Author-2-Workplace-Name: Universitas Multimedia Nusantara, Gading Serpong, 15810, Tangerang, Indonesia Author-3-Name: Elisa Tjhoa Author-3-Workplace-Name: Universitas Multimedia Nusantara, Gading Serpong, 15810, Tangerang, Indonesia Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: " Objective - This study aims to obtain empirical evidence of the effect of economic incentives, financial technology, and financial literacy on financial planning. Methodology – The data used in this study came from a questionnaire with 113 millennial respondents who live throughout Indonesia. Questionnaires were distributed in 2020 to understand millennial financial planning and the factors influencing it during the Covid-19 pandemic. Findings – This research found that economic incentives did not affect financial planning, while financial literacy and financial planning had a positive and significant effect on financial planning. Novelty – This study is among the first to learn the effect of the Covid-19 pandemic on millennials' finance. Type of Paper - Empirical"
    Keywords: Economic Incentive, Financial Literacy, Financial Planning, Financial Technology, Millennials
    JEL: D01 D14
    Date: 2022–09–30
  23. By: Dafermos, Yannis; van Lerven, Frank; Nikolaidi, Maria
    Abstract: Capital requirements play a central role in financial regulation and have significant implications for financial stability and credit allocation. However, in their existing form, they fail to capture environment-related financial risks and act as a barrier to the transition to an environmentally sustainable economy. This paper considers how capital requirements can become green and explores how green differentiated capital requirements (GDCRs) can be incorporated into financial regulation frameworks.
    JEL: F3 G3
    Date: 2022–10–07
  24. By: Felici, Marco; Kenny, Geoff; Friz, Roberta
    Abstract: We study interest rates transmission to savings at low and negative rates. Exploiting cohorts of consumers from a data-rich multi-country survey, we show how the strength of interest rate transmission to savings varies with the level of nominal interest rates. This response is positive when interest rates are high but declines steadily at lower levels. At very low levels, there is evidence that the savings response may even reverse sign. Such a “savings’ reversal” is consistent with the behavioural evidence on money illusion as well as with a negative signalling effect from policy announcements in a liquidity trap and may weaken the direct stimulatory effects from very low and negative rates. Consistent with this, the reversal appears to be causally related to central bank information shocks and concentrated among older consumers and consumers with lower educational attainment. JEL Classification: D12, D84, E21, E31, E52
    Keywords: consumer survey, euro area, liquidity trap, nominal interest rates, savings
    Date: 2022–09
  25. By: Roman Sustek
    Abstract: A simple practical method for quantitative analysis of house prices is proposed. Similar to consumer theory, housing demand is decomposed into changes in income and a relative price. The latter includes implicit costs of mortgage finance, determined by monetary policy and future disposable income growth and inflation expectations. The method is applied to the 63% increase in real house prices in Czechia, 2013-2021. The income effect accounts for 32% of the increase, implicit mortgage costs for another 20%. Most of the latter hinges on income growth expectations, reflecting the robust 2013-2020 economic recovery. Going forward, the paper explores hypothetical scenarios in light of the recent increase in mortgage rates to 5.33%. As an example, at long-term inflation expectations of 6%, a dire scenario of zero expected future growth in real disposable income leads to a decline in real house prices of 13%. However, if real income growth expectations remained unchanged from the boom period of 2013-2020, the increase in mortgage rates, at inflation expectations of 6%, would lead to only a modest drop in house prices. Across the various scenarios, the risks for house prices are nonetheless skewed downwards.
    Keywords: House prices; decomposition; affordability; mortgage costs; monetary policy;
    JEL: E52 G21 G59 R21
    Date: 2022–10
  26. By: Miguel Sarmiento
    Abstract: Banks in emerging market economies rely on cross-border interbank lending to financing firms in the real sector. By matching cross-border bank-to-bank loan level data with domestic bank-to-firm loan level data, and firm-level data, this paper shows that sudden yield reversal observed during the 2013 Fed taper tantrum resulted in a substantial contraction of cross-border interbank lending in emerging markets that significantly reduced the supply of domestic corporate credit and increased the corporate loan rates. Results show that firms with an ex-ante high concentration of credit granted by exposed banks in the cross-border interbank market exhibited low bank credit and substantial real effects, including a decline in imports and exports. The results further indicate that cross-border intra-group lending and domestic unsecured interbank funding contribute to smoothing the effects of sudden yield reversals on the financial intermediation. Overall, the results are consistent with the notion that banks’ exposition in international credit markets contributes to global financial conditions’ transmission to the economy. ****RESUMEN: Los bancos en las economías de mercados emergentes dependen de los préstamos interbancarios transfronterizos para financiar empresas en el sector real. Usando datos a nivel de préstamos transfronterizos entre bancos, datos a nivel de préstamos domésticos de bancos a firmas y datos a nivel de firma, este documento muestra que la reversión repentina de rendimientos observadas durante el Fed Taper Tantrum de 2013 generó una contracción sustancial del crédito interbancario transfronterizo en los mercados emergentes que resultó en una significativa reducción de la oferta doméstica de crédito corporativo y en mayores tasas de los préstamos. Los resultados muestran que las firmas con una alta concentración de crédito otorgado por los bancos más expuestos en el mercado de préstamos interbancarios transfronterizos exhibieron bajo crédito bancario y efectos reales sustanciales, incluyendo una disminución de las importaciones y exportaciones. Los resultados indican además que los préstamos transfronterizos intra-grupo y el fondeo interbancario doméstico contribuyen a suavizar los efectos de las reversiones repentinas de rendimientos sobre la intermediación financiera. En general, estos resultados son consistentes con la noción de que la exposición de los bancos en los mercados internacionales de crédito contribuye a la transmisión de las condiciones financieras globales en la economía.
    Keywords: Sudden Yield Reversals, Cross-Border Interbank Lending, Financial Intermediation, Lending Relationships, Emerging Markets, Reversiones repentinas de rendimientos, Intermediación financiera, Mercados Emergentes, Crédito interbancario transfronterizo, Relaciones bancarias
    JEL: E43 E58 L14 G12 G21
    Date: 2022–10

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