nep-ban New Economics Papers
on Banking
Issue of 2023‒01‒02
thirty-six papers chosen by
Sergio Castellanos-Gamboa, , Pontificia Universidad Javeriana

  1. Depositor Market Discipline: New Evidence from Selling Failed Banks By Philip Molyneux; Vineet Upreti; Tim Zhou
  2. Pricing Conflict Risk: Evidence from Sovereign Bonds By Jonah M. Rexer; Ethan B. Kapstein; Andres F. Rivera
  3. What drives bank lending policy? The evidence from bank lending survey for Poland By Ewa Wróbel
  4. How Can We Learn from Borrowers’ Online Behaviors? The Signal Effect of Borrowers’ Platform Involvement on Their Credit Risk By Tang, Xinyin; Feng, Chong; Zhu, Jianping; He, Minna
  5. The US Banks’ Balance Sheet Transmission Channel of Oil Price Shocks By Paolo Gelain; Marco Lorusso
  6. Is there a "retail challenge" to banks' resolvability? What do we know about the holders of bail-inable securities in the Banking Union? By Farina, Tatiana; Krahnen, Jan Pieter; Mecatti, Irene; Pelizzon, Loriana; Schlegel, Jonas; Tröger, Tobias
  7. Euro area inflation and a new measure of core inflation By Claudio Morana
  8. Influencing public trust in central banks: Identifying who is open to new information By Bernd Hayo; Pierre-Guillaume Méon
  9. Monitoring complex financial instruments in banks' balance sheets By Bischof, Jannis; Haselmann, Rainer; Tröger, Tobias
  10. Policy preference at central banks: Quantifying monetary policy signals using keyword topic models By Diaf, Sami
  11. Perception of the Balance of Payments and Monetary Policy in the Late 1960s: Focusing on the Bank of Japan's Viewpoint before and after the Monetary Policy Shift By Hidekatsu Kamio; Yasuko Morita
  12. Counterparty choice, maturity shifts and market freezes: lessons from the e-MID interbank market By Saroyan, Susanna
  13. The rebalancing channel of QE: New evidence at the security level in the euro area By Tom Hudepohl
  14. National Culture and the Demand for Physical Money During the First Year of the COVID-19 Pandemic By Radoslaw Kotkowski
  15. Fiscal, Environmental, and Bank Regulation Policies in a Small Open Economy for the Green Transition By Patrick Gruning
  16. The pass-through of the monetary policy rate into lending rates in Mexico By Alessandro Maravalle; Alberto González Pandiella
  17. Financial Stocks and Flows in the Time of Covid-19 By Stephen Millard; Nicholas Jackson
  18. Banking on Snow: Bank Capital, Risk, and Employment By Baumgartner, Simon; Stomper, Alex; Schober, Thomas; Winter-Ebmer, Rudolf
  19. Real interest rates, bank borrowing, and fragility By Ahnert, Toni; Anand, Kartik; König, Philipp Johann
  20. Introduction of the composite indicator of cyclical systemic risk in Croatia: possibilities and limitations By Tihana Škrinjarić
  21. Mieux comprendre le niveau dâadoption des cryptoactifs au Québec By Thierry Warin; Nathalie de Marcellis-Warin; Robert Normand
  22. The pandemic, cash and retail payment behaviour: insights from the future of payments database By Raphael Auer; Giulio Cornelli; Jon Frost
  23. The Banco de Portugal balance sheet expansion during the last two decades: a monetary policy perspective By Joana Sousa-Leite; Diana Correia; Cristina Coutinho; Carmen Camacho
  24. The Term Funding Facility: Has It Encouraged Business Lending? By Sharon Lai; Kevin Lane; Laura Nunn
  25. An Analysis of Financial Conglomerate Resilience: A Perspective on bancassurance in France By Cyril Pouvelle.
  27. Interest Rates and the Spatial Polarization of Housing Markets By Francisco Amaral; Martin Dohmen; Sebastian Kohl; Moritz Schularick
  28. Monetary policy in a two-country model with behavioral expectations By Michał Brzoza-Brzezina; Paweł Galiński; Krzysztof Makarski
  29. Managing bank liquidity hoarding during uncertain times: The role of board gender diversity By Davydov, Denis; Garanina, Tatiana; Weill, Laurent
  30. Evolution of Chinese lending to Sri Lanka since the mid-2000s: Separating myth from reality By Moramudali, Umesh; Panduwawala, Thilina
  31. Home Mortgage Lending by Race and Income in a Time of Low Interest Rates: Examples from Select Counties in Kentucky, Ohio, and Pennsylvania from 2018 through 2021 By Matthew Klesta
  32. Monetary Policy, Labor Force Participation, and Wage Rigidity By Hiroyuki Kubota; Ichiro Muto; Mototsugu Shintani
  33. COVID-19 and the Health of Banking Sector in Japan and South Korea: A Comparative Study By Barai, Munim Kumar
  34. Attitude towards financial planning of Italian households By Marianna Brunetti; Rocco Ciciretti; Nadia Linciano; Monica Gentile; Paola Soccorso
  35. Does Bank Monitoring Affect Loan Repayment? By Nicola Branzoli; Fulvia Fringuellotti
  36. Can Everyone Tap Into the Housing Piggy Bank? Racial Disparities in Access to Home Equity By James Conklin; Kristopher S. Gerardi; Lauren Lambie-Hanson

  1. By: Philip Molyneux (Bangor Business School, Bangor University); Vineet Upreti (School of Management, Swansea University); Tim Zhou (School of Management, Swansea University)
    Abstract: This paper studies depositor behavior following the acquisition of failed banks by healthy banks in FDIC-supervised transactions. Using a US bank branch-based dataset spanning 2007 to 2014 we find that failed bank depositors discipline acquiring banks post-resolution. This appears to be related to features of the acquiring banks’ asset quality and loan composition, but it may also be linked to irrational desciplinary behavior or post acquisition integration issues. We also find some evidence that depositor market discipline may have an impact on the competitive fetaures of local banking markets post resolution.
    Keywords: FDIC, Banks, Resolution, Market Discipline, Depositors
    JEL: G21 G28
    Date: 2022–12–12
  2. By: Jonah M. Rexer (Princeton University); Ethan B. Kapstein (Princeton University); Andres F. Rivera (Universidad Javeriana-Cali)
    Abstract: What do sovereign bond investors know about the risks and costs of violent conflict? Do they rationally incorporate available information, or are they overly-optimistic – or pessimistic – about the economic effects of political violence? To answer these questions, we estimate event-studies using daily sovereign bond trading prices and information on violent armed conflicts over the past two decades. We show that bond prices fall by an average of 0.7 points after the onset of state-involved conflict. Using reduced-form parameters, we calibrate a bond pricing model which implies both under-reaction and investor learning: the share of the shock that is priced in rises from 14% initially to 75% after 15 days. Consistent with the model, effects are larger where priors are optimistic because of recent peacefulness. Prices also respond more to severe outbreaks of violence near the capital city, and to center-seeking conflicts where rebels threaten the state. The magnitudes of these heterogeneous responses imply accurate beliefs about the process of conflict damages. The results suggest that bondholders have a nuanced understanding of the underlying political and spatial dimensions of conflict.
    Keywords: sovereign debt, bonds, conflict, behavioral finance
    JEL: C63 G12 P34 H63 H87
    Date: 2022–11
  3. By: Ewa Wróbel (Narodowy Bank Polski)
    Abstract: Based on aggregate data from the lending survey for Poland and using a series of structural vector autoregressive models, we show that credit market sentiments, bank capital position and quality of banks’ balance sheets are the most important drivers of bank lending standards, terms and conditions for the corporate sector. Also, we demonstrate that albeit with some delay, monetary policy shocks affect bank lending policy and additionally have some bearing on credit market sentiments, quality of bank balance sheets and competition. Innovations to the business sector activity and to demand for credit play a minor role for bank lending policy.
    Keywords: bank credit, lending standards, terms and conditions, structural vector autoregressive model
    JEL: E44 E51 G21
    Date: 2022
  4. By: Tang, Xinyin; Feng, Chong; Zhu, Jianping; He, Minna
    Abstract: A growing number of borrowers are applying for digital credit through Internet platforms due to the integration of digital credit services the Internet. However, further empirical evidence is needed to explore how a borrower’s platform behaviors affect its credit risk. As such, our study uses signaling theory as the theoretical foundation to explore the overall effects of a borrower's platform involvement intensity on its credit risk based on a large consumer credit application dataset. The main finding shows the increase in a borrower’s involvement intensity reduces its likelihood of defaulting. We attribute it to the platform's belief that borrowers with high involvement intensity have the higher value to the platform. In addition, we examine how a borrower's involvement intensity is moderated by several factors, such as the stability of its platform involvement intensity and its credit history. Due to the importance of digital credit services in microfinance, we have provided useful implications for achieving win-win outcomes in the credit market for the stakeholders.
    Date: 2022–12–01
  5. By: Paolo Gelain; Marco Lorusso
    Abstract: We document the existence of a quantitative relevant banks' balance-sheet transmission channel of oil price shocks by estimating a dynamic stochastic general equilibrium model with banking and oil sectors. The associated amplification mechanism implies that those shocks explain a non-negligible share of US GDP growth fluctuations, up to 17 percent, instead of 6 percent absent the banking sector. Also, they mitigated the severity of the Great Recession’s trough. GDP growth would have been 2.48 percentage points more negative in 2008Q4 without the beneficial effect of low oil prices. The estimate without the banking sector is only 1.30 percentage points.
    Keywords: oil price shocks; DSGE models; financial frictions
    JEL: E32 E44 Q35 Q43
    Date: 2022–11–15
  6. By: Farina, Tatiana; Krahnen, Jan Pieter; Mecatti, Irene; Pelizzon, Loriana; Schlegel, Jonas; Tröger, Tobias
    Abstract: To ensure the credibility of market discipline induced by bail-in, neither retail investors nor peer banks should appear prominently among the investor base of banks' loss absorbing capital. Empirical evidence on bank-level data provided by the German Federal Financial Supervisory Authority raises a few red flags. Our list of policy recommendations encompasses disclosure policy, data sharing among supervisors, information transparency on holdings of bail-inable debt for all stakeholders, threshold values, and a well-defined upper limit for any bail-in activity. This document was provided by the Economic Governance Support Unit at the request of the ECON Committee.
    Keywords: Banking Union,Bailin,Retail Challenge
    Date: 2022
  7. By: Claudio Morana
    Abstract: This paper introduces a new decomposition of euro area headline inflation into core, cyclical and residual components. Our new core inflation measure, the structural core inflation rate, bears the interpretation of expected headline inflation, conditional to medium to long-term demand and supply-side developments. It shows smoothness and trending properties, economic content, and forecasting ability for headline inflation and other available core inflation measures routinely used at the ECB for internal or external communication. Hence, it carries additional helpful information for policy-making decisions. Concerning recent developments, all the inflation components contributed to its post-pandemic upsurge. Since mid-2021, core inflation has been on a downward trend, landing at about 3% in 2022. Cyclical and residual inflation -associated with idiosyncratic supply chains, energy markets, and geopolitical tensions- are currently the major threats to price stability. While some cyclical stabilization is ongoing, a stagflation scenario cum weakening overall financial conditions might be lurking ahead. A pressing issue for ECB monetary policy will be to face -mostly supply-side- inflationary pressure without triggering a financial crisis.
    Keywords: headline in‡ation, core in‡ation, Russia'’s war in Ukraine, COVID-19 pandemic, sovereign debt crisis, subprime financial crisis, dot-com bubble, euro area, ECB monetary policy, trend-cycle decomposition
    JEL: C22 C38 E32 F44 G01
    Date: 2022–12
  8. By: Bernd Hayo (Philipps-Universitaet Marburg); Pierre-Guillaume Méon (Université libre de Bruxelles (U.L.B.))
    Abstract: Using a randomized controlled trial in a 2018 survey of a representative sample of the German population, we study whether providing information about the European Central Bank’s (ECB) inflation record in comparison to its inflation target affects people’s trust in the central bank. In the treatment, administered to half of the roughly 2000 respondents, a graph of the annual inflation rate in the euro area from 1999 to 2017 and the ECB’s 2% inflation target was shown to respondents. We find that the treatment has, on average, no significant effect on the level of trust respondents have in the ECB or on the distribution of survey answers. However, the treatment increases trust in the ECB among respondents who report no preference for any political party. Within this group, the effect is strongest among those who reported biased beliefs about the inflation rate but knew that price stability is the ECB’s objective and those who reported a low level of subjective and objective knowledge about monetary policy.
    Keywords: Central bank trust, European Central Bank, Central bank communication, Monetary policy, Germany, Household survey, RCT.
    JEL: E52 E58 Z1
    Date: 2022
  9. By: Bischof, Jannis; Haselmann, Rainer; Tröger, Tobias
    Abstract: European banks have substantial investments in assets that are measured without directly observable market prices (mark-tomodel). Financial disclosures of these value estimates lack standardization and are hard to compare across banks. These comparability concerns are concentrated in large European banks that extensively rely on level 3 estimates with the most unobservable inputs. Although the relevant balance sheet positions only represent a small fraction of these large banks' total assets (2.9%), their value equals a significant fraction of core equity tier 1 (48.9%). Incorrect valuations thus have a potential to impact financial stability. 85% of these bank assets are under direct ECB supervision. Prudential regulation requires value adjustments that are apt to shield capital against valuation risk. Yet, stringent enforcement is critical for achieving this objective. This document was provided by the Economic Governance Support Unit at the request of the ECON Committee.
    Keywords: Bank's Balance Sheets,Complex Financial Instruments
    Date: 2022
  10. By: Diaf, Sami
    Abstract: This work analyzes central banking information flow and proposes a novel strategy to estimate individual-level policy preferences, toward monetary policy objectives, by quantifying the narratives within its different communication channels for the case of the United States. While most of the literature related to central banking corpora used unsupervised topic models to quantify narrative signals, we propose a semi-supervised, keyword-based approach built upon groups of words linked to monetary objectives in order to have a coherent, dynamic estimation of topic prevalence, whose scores could determine individual policy preferences for inflation and unemployment rates. The corpus of Federal Reserve governors' speeches (1996-2020) identified three non-keyword topics matching financial stability, financial innovation and the banking regulation, whose dynamics follow the Chairman's tenure, considered as informative policy signals toward financial markets. Governors' preferences toward monetary policy objectives were better estimated using FOMC transcripts (1994-2016) whose narratives strictly match monetary policy practices and help ranking members on a partisanship scale, with a spectrum linked to the members' educational background. Though released with a five-year delay, the FOMC transcripts, as a proxy of internal communicaton, offer a better picture of the partisanship prevailing within monetary policy committees in the United States, that cannot be learned from Governors' addresses, but remain unable to capture non-conventional, but not less important topics.
    Date: 2022
  11. By: Hidekatsu Kamio (Hidekatsu Kamio: Deputy Director, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:; Yasuko Morita (Yasuko Morita: Formerly Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan)
    Abstract: In the latter half of the 1960s, Japan's trade balance broke away from its traditional pattern of worsening during economic upturns. The decision to tighten monetary policy, implemented in September 1969, was made in the midst of a continuing balance of payments surplus, unlike previous tightenings aimed at improving the positions in the balance of payments. Previous studies have assessed that this tightening further increased the balance of payments surplus and led to the Nixon Shock. They have pointed out the delay in policy makers' recognition of the fundamental changes in balance of payments trends and the need to change the exchange rate. Focusing on the perspective of the Bank of Japan ( hereafter BOJ) before and after this monetary tightening, this paper examines how the BOJ came to recognize trends in the balance of payments and the policy challenges of being a "surplus country," based on contemporaneous sources. In mid-1969, Japan was "for the first time in her history, experiencing the problems of surplus countries." During this period, the policy of restraining the growth of foreign exchange reserves had begun. However, foreign countries demanded more aggressive removal of import restrictions and the liberalization of capital exports on the premise that surpluses would be established. Domestically, this was perceived as the pursuit of responsibility of a surplus country. The BOJ tightened monetary policy with this responsibility in mind. At that time, the core of the responsibility of surplus countries for Japan was " getting out of the restrictive system," especially import liberalization and capital export liberalization. In this sense, the BOJ's awareness of the policy response at this point was not necessarily out of step with international standards.
    Keywords: Balance of payment, Monetary policy, Responsibility of a surplus country
    JEL: F68 N45
    Date: 2022–11
  12. By: Saroyan, Susanna
    Abstract: We explore the impact of relationship lending on the interbank debt maturity structure of banks using data from the e-MID market covering both pre- and post-Lehman periods. We study the term structure and maturity shortening of interbank lending as an indicator of risk in times of stress. We identify bank-level and pair-level variables which are shown to contain information about the behaviour of lending relations during times of stress. Using a two-part fractional response model we show that durable liquidity relationships increase the probability of contracting term loans, but do not prevent maturity shortening during periods of acute stress. Finally, we find that lenders with concentrated short-term interbank liability structure tend to reduce their own long term lending, which confirms the roll-over risk viewpoint of term interbank market freeze. Our findings are relevant for the modeling of interbank networks under stress and the design of forward looking stress tests for the banking system.
    Keywords: Interbank markets; liquidity; market freeze; maturity shift; relationship lending; roll-over risk; interbank networks; network dynamics; counterparty risk
    JEL: E44 E58 G01 G21 G28 C25
    Date: 2022–11
  13. By: Tom Hudepohl
    Abstract: This paper examines portfolio rebalancing at the security level during the ECB’s Asset Purchase Programme (APP). Search for yield via portfolio rebalancing is one of the possible channels through which Quantitative Easing (QE) may affect real economic activity. This paper shows that during QE, European investors significantly increased their relative holdings of debt denominated in emerging market currencies. In addition, a significant rebalancing has taken place within the euro area, as investors increased their relative holdings of debt issued by vulnerable European countries. This increase has been driven by investors located in peripheral countries, while investors in other countries were net sellers. QE thus has a heterogeneous impact on security holdings across euro area countries and sectors. These findings are relevant for policymakers to assess the (side-)effects of QE and the potential impact of monetary tightening.
    Keywords: Portfolio rebalancing; Quantitative Easing, Asset purchases; Unconventional monetary policy;Heterogeneity
    JEL: E52 E58 G10 G11 G15
    Date: 2022–12
  14. By: Radoslaw Kotkowski (Nicolaus Copernicus University in Toruń)
    Abstract: There was a significant increase in the demand for physical money during the COVID-19 pandemic. This stood in stark contrast to the decline in demand witnessed during previous pandemics. However, the change was not uniform and varied significantly between countries. By employing the “national culture” framework to identify the drivers of this variation, this study found that uncertainty avoidance, as well as social norms regarding gratification, played a major role. This suggests that some central banks should hold larger cash reserves to mitigate the risk of uncertainty and that the national culture framework may prove useful in researching the international differences in past, present, and future money demand.
    Keywords: COVID-19 pandemic; money demand; currency in circulation; national culture; uncertainty avoidance
    JEL: E41 E51 I12
    Date: 2022
  15. By: Patrick Gruning (Latvijas Banka)
    Abstract: This study develops a small open economy dynamic stochastic general equilibrium model with green and brown intermediate goods, banks subject to capital requirements, and public investment. The domestic economy might face domestic or foreign carbon taxes and an emissions cap. The model is used to analyze which environmental, fiscal, and bank regulation policies are effective facilitators of the domestic economy’s green transition and the costs involved. Among the policies that can generate an exogenously imposed and fixed emissions reduction, most costly is the exogenous world brown energy price increase, followed by the emissions cap reduction, while the introduction of domestic carbon taxes does not change GDP in the long run. The reason for this stark difference is that domestic carbon taxes and emissions cap violation penalties are used to stimulate public green investment. However, only domestic carbon tax revenues are substantial as brown entrepreneurs do not violate theemissions cap in equilibrium. Bank regulation policies and other fiscal policies are not capable of generating large emissions reductions. During the green transition induced by domestic carbon taxes, the first years of the transition are characterized by a run on brown energy in anticipation of higher prices in the future.
    Keywords: small open economy, climate transition risk, energy, environmental policy, bank regulation, public investment
    JEL: E30 F41 G28 H23 H41 Q50
    Date: 2022–12–01
  16. By: Alessandro Maravalle; Alberto González Pandiella
    Abstract: This paper estimates the pass-through of monetary policy rates into five lending rates in Mexico using auto regressive distributed lags models (ARDLs) and taking into account several financial market characteristics. Results show that the pass-through of monetary policy into the average short-term lending rate is full and fast, as it takes around 3 months to be fully transmitted. However, the pass-through is heterogeneous across credit markets, being especially weak in the mortgage and automotive credit markets. A higher market concentration in the credit sector is associated with a higher level of the corresponding lending rate. Other financial market characteristics, such as the measure of bank profitability and the ratio of capital to bank assets, are also found to affect the long-run level of one or more lending rates. Higher competition in credit markets and reducing asymmetric information would improve the transmission of monetary policy and contribute to reduce the level of lending rates.
    Keywords: bank lending rates, interest rate pass-through, monetary policy, transmission mechanism
    JEL: E4 E52 G21
    Date: 2022–12–08
  17. By: Stephen Millard; Nicholas Jackson
    Abstract: In this paper we examine the economic effects of the Covid-19 shock in the United Kingdom and the various policy responses that were put in place. We do this through the lens of a 'stock-flow consistent' model in which financial flows between the various sectors, and the effects of these flows on the stocks of financial assets and liabilities, are carefully tracked. We find that the lockdown, imposed in response to the Covid-19 outbreak, led to large falls in consumption, investment, output and employment together with a rise in inflation. The increase in non-performing loans associated with the lockdown led to a fall in bank capital, which, in turn, led to rises in bank lending rates, as banks sought to bring their capital back to target, and falls in bank lending. We find that the Job Retention Scheme went some way to maintaining employment through the lockdown; the increases in government spending and the additional Quantitative Easing carried out by the Bank of England (to the extent this led to a fall in bond rates) helped support consumption, investment and output; the Coronavirus Business Interruption Loan Scheme and the Coronavirus Large Business Interruption Loan Scheme, by underwriting a proportion of the non-performing loans, greatly reduced the rise in bank lending rates; and that the cut in the Bank rate also helped keep lending rates lower than they would have been otherwise.
    Keywords: Sectoral balances, Covid-19, flow of funds, macroeconomic modelling
    JEL: E12 E21 E22 E25 E37
    Date: 2022–11
  18. By: Baumgartner, Simon (Humboldt University Berlin, Germany); Stomper, Alex (Humboldt University Berlin, Germany); Schober, Thomas (Auckland University of Technology, New Zealand); Winter-Ebmer, Rudolf (Johannes Kepler University Linz, Austria)
    Abstract: How does small-firm employment respond to exogenous labor productivity risk? We find that this depends on the capitalization of firms’ local banks. The evidence comes from firms offering (quasi-) fixed employment to workers whose productivity depends on the weather. Weather risk reduces this employment, and the effect is stronger in regions where the regional banks have less equity capital. Bank capitalization also proxies for the extent to which the regional banks’ borrowers can obtain liquidity when the regions are hit by weather shocks. We argue that, as liquidity providers, well-capitalized banks support economic adaptation to climate change.
    Date: 2022–12
  19. By: Ahnert, Toni; Anand, Kartik; König, Philipp Johann
    Abstract: How do real interest rates affect financial fragility? We study this issue in a model in which bank borrowing is subject to rollover risk. A bank’s optimal borrowing trades off the benefit from investing additional funds into profitable assets with the cost of greater risk of a run by bank creditors. Changes in the interest rate affect the price and amount of borrowing, both of which influence bank fragility in opposite directions. Thus, the marginal impact of changes to the interest rate on bank fragility depends on the level of the interest rate. Finally, we derive testable implications that may guide future empirical work. JEL Classification: G01, G21, G28
    Keywords: bank borrowing, fragility, funding liquidity risk channel, global games, real interest rates, rollover risk
    Date: 2022–12
  20. By: Tihana Škrinjarić (Hrvatska narodna banka, Hrvatska)
    Abstract: Macroprudential policy has the important task of monitoring the accumulation of cyclical systemic risks, using a wide range of indicators. Decisions on the use of instruments that seek to mitigate the pro-cyclicality of the system should be made according to properly defined and stable indicators that signal future trends in the cycle itself. In its Recommendation, the European Systemic Risk Board considers several important categories of indicators for monitoring cyclical risks. Since the credit gap, the main indicator of cyclical risks, has shown numerous shortcomings in practice over the years, composite indicators have been developed in the literature. As there has been no such composite indicator in Croatia so far, this research considers several popular approaches to constructing composite indicators of cyclical risks for Croatia. As there are several different approaches currently available, this research considers their characteristics, advantages and shortcomings, with special reference to Croatian data. Comparing the composite financial cycle indicator, the cyclogram, the systemic cyclical risk indicator, as well as additional possibilities of data aggregation in terms of principal component analysis and the overheating index, the results indicate that the issue of defining an adequate indicator for Croatia is a demanding task. This is due to the short time series, the absence of characteristics of other types of crises that are available for other countries, the instability of certain variables relevant for monitoring cyclical risks, complexity of communication with the public, etc. Finally, based on the discussion, the best indicator is chosen, and the possibilities of calibrating the countercyclical capital buffer are considered. This paper provides an overview of different approaches, with a special focus on a comparison of them, which has not been dealt with in the literature. It provides proposals for improving individual indicators and analyses the possibility of calibrating the countercyclical capital buffer.
    Keywords: systemic risk, macroprudential policy, countercyclical capital buffer, composite indicators, cyclical risks
    JEL: C14 C32 E32
    Date: 2022–11–29
  21. By: Thierry Warin; Nathalie de Marcellis-Warin; Robert Normand
    Abstract: → Summary of results Cryptoassets are growing exponentially within the global economy. Crypto-currencies represent the main component of cryptoassets, the best known of which is Bitcoin. Cryptoactives share many of the features of cryptocurrencies but there is usually a second layer of functionality such as smart contracts. Crypto asset technology certainly presents new opportunities but also risks. In this context, it is important for a regulator to better understand the level of adoption of cryptocurrencies by the population in order to guide information campaigns and warning messages. In this exploratory research project several data acquisition methods were used. A review of surveys from different organizations on the level of knowledge and profile of cryptoasset users in several countries was conducted. For Quebec, specific questions on cryptocurrency knowledge and adoption were added to the 2021 and 2022 CIRANO Barometer surveys that poll the Quebec population on societal issues. To refine the analysis, a sample of investors who own or have owned crypto-currencies, who are members of crypto-currency discussion groups were surveyed. Finally, an algorithmic review showed very clearly an increase in the number of academic publications on the subject, especially associated with the technology. In addition, the topic of cryptocurrencies has been increasingly covered by the mainstream media, which has generated attention and awareness among the population and especially on social networks. Analysis of Twitter conversations showed that the number of tweets, which was stable until December 2020, increased significantly and focused on the change in the price of cryptocurrencies and often with recommendations to buy and sell. → Synthèse des résultats Les cryptoactifs se développent de façon exponentielle au sein de l’économie mondiale. Les cryptomonnaies représentent la principale composante des cryptoactifs dont la plus connue est le Bitcoin. Les cryptoactifs partagent bon nombre des caractéristiques des cryptomonnaies mais il y a généralement une deuxième couche de fonctionnalités comme les contrats intelligents. La technologie liée aux cryptoactifs présente certes de nouvelles opportunités mais également des risques. Dans ce contexte, il est important, pour un régulateur de mieux comprendre le niveau d’adoption des cryptomonnaies de la population afin d’orienter les campagnes d’information et les messages de mise en garde. Dans ce projet de recherche exploratoire plusieurs méthodes d’acquisition de données ont été utilisées. Une revue des enquêtes de différentes organisations sur le niveau de connaissance et le profil des utilisateurs de cryptoactifs dans plusieurs pays a été mené. Pour le Québec, des questions spécifiques sur la connaissance et l’adoption des cryptomonnaies ont été ajoutées aux enquêtes 2021 et 2022 du Baromètre CIRANO qui sonde la population du Québec sur des enjeux de société. Afin d’affiner l’analyse, un échantillon d’investisseurs possédant ou ayant possédé des cryptomonnaies, membres de groupes de discussion sur les cryptomonnaies a été sondé. Enfin, une revue algorithmique a montré très nettement une augmentation du nombre de publications académiques sur le sujet, notamment associées à la technologie. De plus, le sujet des cryptomonnaies a été de plus en plus couvert par les médias grand public, ce qui a suscité l'attention et la sensibilisation de la population et notamment sur les réseaux sociaux. L’analyse des conversations sur Twitter a montré que le nombre de gazouillis, qui était stable jusqu’en décembre 2020, a augmenté de façon importante et a porté sur la variation du prix des cryptomonnaies et souvent avec des recommandations d’achat et de vente.
    Keywords: Cryptoassets; cryptocurrencies,Bitcoin,Ethereum,financial literacy,blockchain,questionnaire survey,algorithmic review,social networks, Cryptoactifs,cryptomonnaies,Bitcoin,Ethereum,littératie financière,chaîne de blocs,enquête par questionnaire,revue algorithmique,réseaux sociaux
    Date: 2022–12–02
  22. By: Raphael Auer; Giulio Cornelli; Jon Frost
    Abstract: The Covid-19 pandemic has been a shock to retail payment behaviour. How have the changes differed across countries? What do they imply for the future of cash and digital payments? We assemble a new "Future of Payments" database on retail payment behaviour for up to 95 countries over September 2019 to June 2022. We compare this with measures of the severity of the Covid-19 pandemic, using variation in the timing of waves of cases, changes in mobility and lockdown measures across countries. We find that card-not-present payments, payment app downloads and the volume of cash in circulation all rose in weeks of more stringent lockdowns. Changes were less pronounced in countries with higher mobile penetration. However, recent data suggest that some effects reversed once lockdowns were eased, and mobility rebounded.
    Keywords: retail payments, cash, Covid-19 pandemic, digital innovation.
    JEL: E42 I18 O32 O33
    Date: 2022–12
  23. By: Joana Sousa-Leite; Diana Correia; Cristina Coutinho; Carmen Camacho
    Abstract: This paper analyses the evolution dynamics of the Banco de Portugal balance sheet since the beginning of the Stage III of the EMU. Following the global financial crisis, the evolution of the Banco de Portugal balance sheet was initially driven by an increase in liabilities, namely in intra-Eurosystem liabilities related to TARGET and current accounts, reflecting the liquidity provided through monetary policy refinancing operations, which was either deposited in the central bank or transferred to euro area banks outside of Portugal. Since 2015, broader monetary policy decisions regarding the asset side of the balance sheet were designed to support economic growth and bring inflation back to the 2% target. Between 1999 and 2021, the Banco de Portugal balance sheet expansion was mostly driven by the asset purchase programmes and significant increases in central bank funding to banks and in intra-Eurosystem claims, the latter aggregate being explained by the inflow of banknotes related to the tourism activity in Portugal.
    JEL: E41 E44 E51 E52 E58
    Date: 2022
  24. By: Sharon Lai (Reserve Bank of Australia); Kevin Lane (Reserve Bank of Australia); Laura Nunn (Reserve Bank of Australia)
    Abstract: The Reserve Bank of Australia's Term Funding Facility (TFF) was announced in March 2020 as part of a package of policy measures to support the Australian economy. It achieved a key objective of providing banks with three-year low-cost funding and was available for drawdown until 30 June 2021. This paper examines the effectiveness of the TFF in increasing the supply of credit to businesses, which was another one of the objectives of the program. Using bank-level data and a difference-in-differences approach, we find no statistically significant evidence that the TFF increased credit supply to businesses. However, our confidence intervals are wide and there are significant identification challenges involved in disentangling the effects of the TFF from the effects of pandemic-related disruptions and other policy interventions on credit supply and demand. Nonetheless, the TFF provided an assured source of funding at a time of considerable stress in the financial system and lowered banks' funding costs, and any effects on business lending via these channels may not be fully reflected in our results.
    Keywords: term funding; banks; business lending; event study
    JEL: E52 E58 G20
    Date: 2022–12
  25. By: Cyril Pouvelle.
    Abstract: The objective of the paper is to shed light on the effects of financial conglomerate membership on banks' profitability, risk-taking, default risk and intragroup funding resilience. To that end, we estimate models of the entities' Return on Assets (ROA), the standard deviation of the ROA, the Z-score, a measure of banks' default risk, and intragroup funding standard deviation, using quarterly supervisory data available at the ACPR on a solo basis for French banks. We find that the financial conglomerate membership has a dampening effect on the volatility of the ROA and of intragroup funding growth, an effect that is even stronger in periods of financial stress. Moreover, financial conglomerate membership is found to reduce banks' default risk as it has a positive effect on a bank's Z-score overall. By contrast, no significant effect is shown on the ROA. By and large, these results invalidate the moral hazard assumption associated with financial conglomerates but rather highlight financial solidarity mechanisms within conglomerates. <p> L'objectif de ce papier est de mettre en lumière les effets pour une entité de l'appartenance à un conglomérat financier en matière de rentabilité, de prise de risque, de risque de défaut et résilience du financement intragroupe. À cette fin, nous estimons plusieurs modèles du rendement des actifs (ROA), de l'écart-type du ROA, du Z-score, une mesure du risque de défaut d'une entreprise, et de l'écart-type de la croissance du financement intragroupe, en utilisant les données de supervision disponibles à l'ACPR sur base sociale pour les banques françaises, afin de comparer les entités appartenant à un conglomérat financier par rapport à celles des autres banques. Nos résultats indiquent que la participation à un conglomérat financier a un effet stabilisateur sur la volatilité du ROA et la croissance du financement intragroupe et que cet effet est même plus fort en période de stress financier. Par ailleurs, la participation à un conglomérat financier réduit le risque de défaut des banques car elle a un effet positif sur leur Z-score. En revanche, aucun effet significatif n'est trouvé sur le niveau du ROA. Au total, ces résultats invalident l'hypothèse d'aléa moral associée à l'appartenance à un conglomérat financier mais illustrent au contraire les bénéfices de l'appartenance à un conglomérat du fait des mécanismes de solidaritéfinancière intra-groupe.
    Keywords: Banks, Financial Policy and Risk Management, Financial Stability; Banques, politique financière et gestion des risques, stabilité financière
    JEL: G21 G32
    Date: 2022
  26. By: Le, Anh Hoang (Ho Chi Minh University of Banking); , Le Nguyen Hoai Thi; Huong, Luong Tran Hoang; , La Phu Hao; Nga, Nguyen Thi Thuy
    Abstract: The client experience has been improved by the recent growth of digital banking services (PwC, 2018). Finding the variables that influence how customers experience this service is the issue that now interests researchers and commercial banks. This study focuses on identifying the factors impacting consumers' experiences with digital banking services at Vietnamese commercial banks in an effort to provide a solution to the aforementioned problem. This study is also the first to combine interaction estimation through a structural equation modeling (SEM), and machine learning techniques through an artificial neural network (ANN) model to create a predictive model of customer experience on digital banking services in Vietnamese commercial banks. The SEM model estimation results indicate that perceived convenience, functional quality, and service quality, brand awareness, safety perception, and usability are the elements influencing the customer's experience utilizing digital banking services. In order to improve the customer experience of digital banking services at Vietnamese commercial banks, the study has developed a customer experience forecasting model and provided some managerial implications.
    Date: 2022–11–13
  27. By: Francisco Amaral (Macro Finance Lab, University of Bonn); Martin Dohmen (Macro Finance Lab, University of Bonn); Sebastian Kohl (Free University Berlin); Moritz Schularick (University of Bonn and Sciences Po Paris)
    Abstract: Rising within-country differences in house values are a much debated trend in the U.S. and internationally. Using new long-run regional data for 15 advanced economies, we first show that standard explanations linking growing price dispersion to rent dispersion are contradicted by an important stylized fact: rent dispersion has increased far less than price dispersion. We then propose a new explanation: a uniform decline in real risk-free interest rates can have heterogeneous spatial effects on house values. Falling real safe rates disproportionately push up prices in large agglomerations where initial rent-price ratios are low, leading to housing market polarization on the national level.
    Keywords: House prices, regional housing markets, spatial polarization
    JEL: G10 G12 G15 R30
    Date: 2022–11
  28. By: Michał Brzoza-Brzezina (Narodowy Bank Polski); Paweł Galiński (Narodowy Bank Polski); Krzysztof Makarski (Narodowy Bank Polski)
    Abstract: We study the working of monetary policy in an estimated two-country model with behavioral expectations(BE). We first show that the data favors this setting compared with the standard rational expectations assumption. Then we document several findings related to monetary policy in the open-economy framework. First, under BE the Taylor principle depends on the size of the economy - determinacy regions are larger for the small country. Second, both in the small and large economies, monetary policy is less powerful when agents are behavioral. Third, the sacrifice ratio faced by the central bank increases with agents becoming more behavioral (more in the small country). Fourth, BE help to partly solve the puzzles of excess foreign currency returns (UIP puzzle) and of international monetary independence.
    Keywords: behavioral agents, monetary policy, open-economy model
    JEL: E30 E43 E52 E70
    Date: 2022
  29. By: Davydov, Denis; Garanina, Tatiana; Weill, Laurent
    Abstract: This paper examines the effect of executive board gender diversity on the relationship between economic policy uncertainty (EPU) and bank liquidity hoarding (LH). We focus on the Russian banking sector, which, relative to most of the world, has a high share of women on bank executive boards. Using the news-based EPU index developed by Baker, Bloom, and Davis (2016) and LH measures proposed by Berger, Guedhami, Kim, and Li (2022), we exploit a unique dataset from the Russian banking sector. While higher economic policy uncertainty tends to increase liquidity hoarding, we find this effect diminishes as gender diversity of the board increases. We attribute this finding to the moderating influence of gender diversity on stability and overreaction in decision-making. Additionally, we find that the channel through which board gender diversity affects the impact of economic policy uncertainty on liquidity hoarding takes place via the hoarding of liquid assets. Our findings are robust to the use of alternative measures for economic policy uncertainty and gender diversity. As women are still significantly under-represented on bank boards in most countries, these results argue for policies to promote gender diversity of bank boards as a means of limiting detrimental effects of economic policy uncertainty.
    Keywords: liquidity hoarding,bank boards,gender diversity,economic policy uncertainty
    JEL: G18 G21 G34 P26
    Date: 2022
  30. By: Moramudali, Umesh; Panduwawala, Thilina
    Abstract: China is Sri Lanka's largest bilateral creditor and has a significant role to play within the sovereign debt restructuring process that the crisis- stricken island nation is currently going through. This working paper provides a deep dive into China's lending to Sri Lanka over the last two decades and situates China within the overall changes in Sri Lanka's public external debt profile through its middle-income transition. Chinese lending to Sri Lanka has evolved through five distinct phases since 2000, expanding from bilateral lending to export credit and eventually balance of payments support through China Development Bank term loans since 2018 which became an alternative to raising eurobonds. The fifth phase is focused on Sri Lanka's historic sovereign default, and debt restructuring negotiations, which could define not only the future of Chinese lending to Sri Lanka but also to other BRI countries going through debt distress, including those in Africa. The ongoing debt restructuring process is not the first time Sri Lanka's government has asked for a loan restructuring from China Eximbank. In 2014, the then government proposed to restructure all Chinese loans obtained for the Hambantota Port project and create a joint venture with two Chinese SOEs to further develop the port terminals. While an election ended the earlier negotiations, the 99-year lease of the port in 2017 was a measure to address severe balance of payments issues, which the earlier plan had not tackled. The lease proceeds helped improve foreign currency reserves and there was no debt-to-equity swap nor an asset seizure, contrary to popular narrative. We found no deliberately 'hidden debt' in China's lending to Sri Lanka's public sector. Publicly available data from a number of Sri Lanka's public institutions provided full visibility for the US$ 7.4 billion in Chinese debt outstanding at end-2021. Chinese lending was then 19.6 percent of public external debt, much higher than the often-quoted 10-15 percent figures. A significant portion of Chinese debt has been recorded under state-owned enterprises, not the central government, but all of the Chinese debt was reported to the World Bank's International Debt Statistics. The nuances involved in ensuring full visibility of this debt show that public discourse, whether driven by media or academia, needs to take into account the complexities involved in how public debt is classified and reported in a country. At the same time, governments should ensure that public debt reporting is as simple, clear, and widely available as possible to facilitate open conversation.
    Date: 2022
  31. By: Matthew Klesta
    Abstract: Signed into law in 1975 by President Ford, the Home Mortgage Disclosure Act (HMDA) requires most financial institutions to disclose information on their mortgage lending. Annually, this information creates a publicly accessible data set that includes millions of records and covers about 90 percent of mortgage lending in the United States (Gerardi, Willen, and Zhang, 2020). More information on HMDA can be found in this summary: What is HMDA and why is it important? Several years ago, the Cleveland Fed examined data for seven large urban counties in the Fourth District.1 At that time, we looked at how these counties performed post-Great Recession. In this report, we revisit those seven counties and examine how they performed during the COVID-19 pandemic and in an environment of record-low interest rates. This report is an analysis of HMDA data from 2018 through 2021 in seven counties: Allegheny, Pennsylvania (Pittsburgh); Cuyahoga, Ohio (Cleveland); Fayette, Kentucky (Lexington); Franklin, Ohio (Columbus); Hamilton, Ohio (Cincinnati); Lucas, Ohio (Toledo); and Montgomery, Ohio (Dayton). It focuses on several aspects of mortgage lending categorized by borrower race and income.
    Keywords: Home Mortgage Disclosure Act; diversity; Covid-19
    Date: 2022–11–29
  32. By: Hiroyuki Kubota (University of California, Los Angeles (E-mail:; Ichiro Muto (Associate Director-General, Institute for Monetary and Economic Studies (currently, General Manager, Aomori Branch), Bank of Japan (E-mail:; Mototsugu Shintani (The University of Tokyo (E-mail:
    Abstract: To understand the role of monetary policy in determining the labor force participation rate, we present empirical evidence for Japan and the US. The data suggests that labor force participation declines in Japan but increases in the US in response to a monetary tightening. To inspect the mechanism, we develop and estimate a New Keynesian model of endogenous labor force participation decisions incorporating wage rigidity. We find that the opposite response of labor force participation can be attributed to a difference in the degree of wage rigidity. Counterfactual analysis based on the estimated models shows that the large-scale monetary easing in recent years helped boost the labor force participation rate in Japan, while its effect was almost neutral in the US.
    Keywords: Labor force participation, Monetary policy, Unemployment, Wage rigidity
    JEL: E24 E32 E52 E58
    Date: 2022–11
  33. By: Barai, Munim Kumar (Ritsumeikan Asia Pacific University)
    Abstract: 1. The economies of Japan and South Korea are dominated by banks. 2. This study aims to identify and assess the health of domestic banks in Japan and South Korea for the Covid-19 ex-ante and interim periods. 3. Japanese banks are divided into four clusters, i.e., City Banks, Regional Banks I, Regional Banks II, and Trust Banks. 4. Throughout the timeframe of our investigation, the BOJ and BOK de-ployed monetary policy measures to influence bank conditions. 5. Figures show that the total assets of Japanese banks increased continu-ously, albeit at varied rates, from 2010 to 2019, never falling below 2 per-cent. The increase in bank loan amounts, from ¥8 trillion in 2012 to ¥543.9 trillion in 2021, explains some of the banks’ asset expansion. 6. Japanese banks had relatively low net earnings against their assets in terms of productivity, resulting in a poor return on assets (ROA). 7. Japanese banks’ ordinary profits peaked at 7.39 percent in 2014 and have steadily declined. However, the operational profit data from 2015 to 2020 has formed a U-shaped curve, indicating recent improvement. At the same time, banks' net incomes were significantly lower than their op-erating profits. 8. The efficiency of Japanese banks has remained low for a long time. From 2011 to 2021, none of the Japanese bank clusters met even the less strict efficiency standard of 60%. Even though Covid-19 might the-oretically cut operational expenses, Japanese banks’ overall efficiency ra-tio in 2021 was 83.9 percent. We are constrained by the Korean banks’ operational efficiency data. However, available data for 2020, the year of the COVID-19 outbreak, shows that most of them maintained an effi-ciency ratio of 60% or less. 9. Since 2012, Japanese banks have reduced the percentage of non-performing loans to total loans. Between 2012 and 2020, however, the ratio fell from 2.4 to 1.1 percent. Due to Covid-19, the NPL ratio went marginally up to 1.2 percent in 2021. At the same time, Korean banks had significantly lower NPL ratios than Japanese banks. All banks’ total NPL was 0.25 percent of their loans in 2020. 10. Despite their differences, the study revealed that Korean domestic banks could sustain better health indicators than their Japanese counterparts for much of the study period. Banks in Japan are trying to maintain bet-ter financial health with the ultra-low interest rates imposed by the QE-2 monetary policy. During Covid-19, the profitability and efficiency of the sector have been adversely affected.
    Keywords: Banks; Japan; South Korea; portfolio; productivity; operating efficiency; Covid-19
    JEL: E44 E58 G21 G28
    Date: 2022–12–06
  34. By: Marianna Brunetti; Rocco Ciciretti; Nadia Linciano; Monica Gentile; Paola Soccorso
    Abstract: Employing structured financial planning to manage personal finances on is associ-ated with higher levels of financial well-being and increased ability to react to shocks. There-fore, it is important to understand the factors associated with the propensity to plan and what it is that promotes financial planning. Our empirical evidence for a sample of Italian households shows a poor inclination for financial planning. CONSOB Survey data on the fi-nancial investments made by of Italian household (or FIIH) are used to estimate a probit model which shows a positive association between financial planning and financial knowledge, and the relevance of personal traits such as financial anxiety and financial self-efficacy, financial control (control over savings, spending and indebtedness) and financial conditions. The findings provide useful insights for financial decision-makers in the context of financial education initiatives and client-intermediary relationship aimed at promoting appropriate attitudes and choices towards managing money.
    Keywords: financial planning, budgeting, household finance, financial control, financial self-efficacy, financial literacy, financial knowledge
    JEL: D14 G51 G53 C21 C51
    Date: 2022–11
  35. By: Nicola Branzoli; Fulvia Fringuellotti
    Abstract: Banks monitor borrowers after originating loans to reduce moral hazard and prevent loan losses. While monitoring represents an important activity of bank business, evidence on its effect on loan repayment is scant. In this post, which is based on our recent paper, we shed light on whether bank monitoring fosters loan repayment and to what extent it does so.
    Keywords: bank monitoring; nonperforming loans; tax policy; financial intermediation; banks
    JEL: G2 G3
    Date: 2022–12–02
  36. By: James Conklin; Kristopher S. Gerardi; Lauren Lambie-Hanson
    Abstract: An oft-touted benefit of homeownership is the ability to build and access equity, and in recent years the amount of “tappable” home equity held by US homeowners has reached historic levels. But more than one-quarter of recent applications for mortgage equity withdrawal (MEW) loan products were denied. Black and Hispanic homeowners’ applications were denied at even higher rates: 44 percent and 32 percent, respectively. These racial disparities in denials are larger than those associated with purchase and rate/term refinance mortgage applications. Controlling for loan and borrower characteristics commonly used in the underwriting process significantly reduces the MEW disparities, with the Black-White denial rate gap falling by approximately 83 percent, and the Hispanic-White gap falling by 73 percent. In other words, seemingly race-neutral underwriting criteria in the MEW product space explain large differences in the extent to which minority homeowners can access their home equity.
    Keywords: housing wealth; mortgage; home equity; racial disparities
    JEL: G21 G51 J15
    Date: 2022–11–22

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