nep-ban New Economics Papers
on Banking
Issue of 2023‒04‒24
thirty papers chosen by
Sergio Castellanos-Gamboa, Tecnológico de Monterrey

  1. The changing and growing roles of independent central banks now do require a reconsideration of their mandate By Goodhart, Charles; Lastra, Rosa
  2. Multilateral development banks are key to unlocking low-carbon investments in developing economies By Steven Fries
  3. Big techs and the credit channel of monetary policy By Fiorella De Fiore; Leonardo Gambacorta; Cristina Manea
  4. An axiomatic approach to default risk and model uncertainty in rating systems By Max Nendel; Jan Streicher
  5. Strapped for Cash: The Role of Financial Constraints for Innovating Firms By Esther Ann Bøler; Andreas Moxnes; Karen Helene Ulltveit-Moe
  6. Poverty and socio-financial inclusion in Japan By Ciula, Raffaele
  7. Lessons from outperformance in the Indian financial sector By Ashima Goyal
  8. The March 2023 Bank Interventions in Long-Run Context – Silicon Valley Bank and beyond By Andrew Metrick; Paul Schmelzing
  9. The Effects of a Money-Financed Fiscal Stimulus Under Fiscal Stress By Hao Jin; Junfeng Wang
  10. The need for data products in personal finance. By Edouard Ribes
  11. The Effects of Unconventional Monetary Policy on Stock Markets and Household Incomes in Japan By Karl-Friedrich Israel; Tim Florian Sepp; Nils Sonnenberg
  12. Welfare Cost of Inflation, when Credit Card Transaction Services Are Included among Monetary Services By William Barnett; Sohee Park
  13. The First Practical Guide to Inflation Targeting By Jonung, Lars
  14. Networks and Information in Credit Markets By Gupta, Abhimanyu; Kokas, Sotirios; Michaelides, Alexander; Minetti, Raoul
  15. Optimal Loan Portfolio under Regulatory and Internal Constraints By Makoto Okawara; Akihiko Takahashi
  16. Do firm expectations respond to monetary policy announcements? By Di Pace, Federico; Mangiante, Giacomo; Masolo, Riccardo
  17. Chorus in the cacophony: Dissent and policy communication of India's Monetary Policy Committee By Rounak Sil; Unninarayanan Kurup; Ashima Goyal; Apoorva Singh and Rajendra Paramanik
  18. Dynamic Banking with Non-Maturing Deposits By Urban Jermann; Haotian Xiang
  19. Taxing Financial Transactions : A Mirrleesian Approach By Jean-Charles Rochet; Bruno Biais
  20. Impact of RBI's monetary policy announcements on government bond yields: Evidence from the pandemic By Aeimit Lakdawala; Bhanu Pratap; Rajeswari Sengupta
  21. Who Wil Run Their Bank? By Edwin Weinstein; Gulnur Muradoglu
  22. Shari’ah Governance Quality and Environmental, Social and Governance Performance in Islamic Banks. A Cross-Country Evidence. By Yossra Boudawara; Kaouther Toumi; Amira Wannes; Khaled Hussainey
  23. CCP initial margin models in Europe By Boudiaf, Ismael Alexander; Scheicher, Martin; Vacirca, Francesco
  24. Public money as a store of value, heterogeneous beliefs, and banks: implications of CBDC By Muñoz, Manuel A.; Soons, Oscar
  25. Banking on Snow: Bank Capital, Risk, and Employment By Simon Baumgartner; Alex Stomper; Thomas Schober; Rudolf Winter-Ebmer
  26. Practical Macrofinancial Stability Analysis: A Prototype Semistructural Model By Jaromir Benes; Tomas Motl; David Vavra
  27. Can governments sleep more soundly when holding international reserves? A banking and financial vulnerabilities perspective By Audrey Sallenave; Jean-Pierre Allegret; Tolga Omay
  28. Hegemony or Harmony? A Unified Framework for the International Monetary System By Tao Liu; Dong Lu; Liang Wang
  29. Monetary Policy Shocks and Multi-Scale Positive and Negative Bubbles in an Emerging Country: The Case of India By Oguzhan Cepni; Rangan Gupta; Jacobus Nel; Joshua Nielsen
  30. Public Policies for Financial Inclusion in Latin America and Asia: What Lessons for Developing Countries? By Lahrour Khalid

  1. By: Goodhart, Charles; Lastra, Rosa
    Abstract: In this paper, we analyse why the changing and growing roles of independent Central Banks now do require a reconsideration of their mandate.
    Keywords: accountability; central banking; financial stability; independence; monetary policy
    JEL: M40 J1
    Date: 2023–02–27
  2. By: Steven Fries (Peterson Institute for International Economics)
    Abstract: Over the next three decades, emerging markets and developing economies (EMDEs), and especially middle-income countries, are projected to account for much of the growth in global economic activity and energy use. While a decisive move to low-carbon technologies and energy efficiency would advance both their development goals and a stable climate, the countries have yet to fully tap this opportunity. The multilateral development banks (MDBs) are in a unique position to help lower barriers to low-carbon investments in EMDEs and unlock these sustainable development opportunities. Their differentiating governance, financial and technical capabilities, and financing instruments would enable MDBs to support the necessary business environment and energy reforms and to cofinance low-carbon and energy efficiency investments alongside other investors to reduce and manage risks.
    Date: 2023–04
  3. By: Fiorella De Fiore; Leonardo Gambacorta; Cristina Manea
    Abstract: We document some stylized facts on big tech credit and rationalize them through the lens of a model where big techs facilitate matching on the e-commerce platform and extend loans. The big tech reinforces credit repayment with the threat of exclusion from the platform, while bank credit is secured against collateral. Our model suggests that: (i) a rise in big techs' matching efficiency increases the value for firms of trading on the platform and the availability of big tech credit; (ii) big tech credit mitigates the initial response of output to a monetary shock, while increasing its persistence; (iii) the efficiency gains generated by big techs are limited by the distortionary fees collected from users.
    Keywords: Big Techs, monetary policy, credit frictions
    JEL: E44 E51 E52 G21 G23
    Date: 2023–04
  4. By: Max Nendel; Jan Streicher
    Abstract: In this paper, we deal with an axiomatic approach to default risk. We introduce the notion of a default risk measure, which generalizes the classical probability of default (PD), and allows to incorporate model risk in various forms. We discuss different properties and representations of default risk measures via monetary risk measures, families of related tail risk measures, and Choquet capacities. In a second step, we turn our focus on default risk measures, which are given as worst-case PDs and distorted PDs. The latter are frequently used in order to take into account model risk for the computation of capital requirements through risk-weighted assets (RWAs), as demanded by the Capital Requirement Regulation (CRR). In this context, we discuss the impact of different default risk measures and margins of conservatism on the amount of risk-weighted assets.
    Date: 2023–03
  5. By: Esther Ann Bøler; Andreas Moxnes; Karen Helene Ulltveit-Moe
    Abstract: This paper makes use of a reform that allowed firms to use patents as stand-alone collateral, to estimate the magnitude of collateral constraints and to quantify the aggregate impact of these constraints on misallocation and productivity. Using matched firm-bank data for Norway, we find that bank borrowing increased for firms affected by the reform relative to the control group. We also find an increase in the capital stock, employment and innovation as well as equity funding. We interpret the results through the lens of a model of monopolistic competition with potentially collateral constrained heterogeneous firms. Parameterizing the model using well-identified moments from the reduced form exercise, we find quantitatively large gains in output per worker in the sectors in the economy dominated by constrained (and intangible-intensive) firms. The gains are primarily driven by capital deepening, whereas within-industry misallocation plays a smaller role.
    Keywords: intangible capital, patents, credit constraints, misallocation, productivity
    JEL: D25 G32 L25 L26 O34 O47
    Date: 2023
  6. By: Ciula, Raffaele
    Abstract: Poverty has always been a sensitive issue in Japan, in fact the first official statistics on this phenomenon have been released late in time compared to many developed countries. Similarly, the most important Japanese public assistance scheme is quite narrow, stigmatizing and discretionary, which suggests a cautious attitude towards poverty and the poor. In this regard, the scholars have pointed out some factors associated with poverty, such as income, employment, and education, but the association between financial characteristics of Japanese people and poverty is still under-researched. As financial inclsion has always been an important feature in Japan, and can be an important driver of poverty avoidance, the goal of this article is about inspecting the role of formal and informal financial instruments, including the ability to save, in reducing the likelihood of falling into poverty. Also, it analyzes the role of financial access in decreasing the detrioration of being well-off in Japan, using the World Bank dataset, and employing a logit regression analysis. The main findings of this article show that formal financial instruments, the savings capacity, and tertiary education are important drivers of reducing the probability of falling into poverty. Similarly, education, and financial instruments play a pivotal role in avoiding the movement from being well-off to becoming middle-class in Japan. Therefore, this article suggests that savings, the education system, and financial instruments are still a buffer against poverty in Japan. Further, it points out that probably public interventions which encourage financial inclusion should be strengthened.
    Keywords: Poverty; Savings; Financial Determinants, Education; Capabilities
    JEL: D60
    Date: 2023–03–16
  7. By: Ashima Goyal (Indira Gandhi Institute of Development Research)
    Abstract: We examine predictions and outcomes for the Indian financial sector in the pandemic period to build a case for re-examining our understanding of the sector. This can improve risk perceptions and policy design. Reasons for outperformance include reforms that led to a better balance between discretion from public sector dominance and the excess volatility of market-based systems. This diversity, as well as divergence of the Indian credit cycle from the global credit cycle, was protective given the sustained external risks. It put the Indian financial sector in a position to support the domestic recovery, despite global quantitative tightening. There are lessons from India's more broad-based regulation for the narrow bank-based regulation in advanced economies (AEs), which is increasing global financial fragilities and risks. It is also increasing the share of markets in the AE financial sector so much that diversity is falling. Public sector banks contribute to the diversity of the Indian financial sector. Non-bank financial companies reach the unbanked sectors and improve financial inclusion. Regulatory excesses and absence of liquidity support contributed to persistence of financial stress. Policy lessons are for countries to avoid policy over-reaction, aim for diversity, different types of exposures, uniformity in financial sector regulation, with appropriate balance between discipline and support, in order to reduce risks.
    Keywords: Outperformance, Indian financial sector, Diversity, Credit cycle, Broad-based regulation
    JEL: O16 G15 G18 F36 F42
    Date: 2023–02
  8. By: Andrew Metrick; Paul Schmelzing
    Abstract: U.S. and European banking institutions were hit by a wave of distress in March 2023. Policymakers on both sides of the Atlantic reacted with an array of interventions, some targeting individual institutions, others designed to shore up the banking sector as a whole. This paper contextualizes events using a new long-run database on banking-sector policy interventions over the last eight centuries. On that basis, recent actions have already been unusual in their policy mix and size – in the database, the vast majority of events with the same pattern of interventions ultimately evolved into “systemic” bank-distress episodes.
    JEL: G01
    Date: 2023–03
  9. By: Hao Jin (Beihang University); Junfeng Wang (Xiamen University)
    Abstract: This paper studies the local determinacy requirements and effects of a money-financed fiscal stimulus under fiscal stress in a canonical New Keynesian model. We consider three alternative monetary policies and find that:(1) The money-financed policy adopted in Galí (2020) to keep real debt level unchanged (zero-debt-increase policy, or ZDI) leads to an unsustainable debt path, while introducing a debt growth target restores stability. (2) A debt-targeting money growth rule (DT) generates smaller instantaneous multipliers and larger cumulative multipliers with respect to ZDI. (3) A mixed-targeting money growth rule (MT) that takes both debt and inflation into consideration exaggerates the trade-off between short-run and long-run multipliers. In addition, we show that relative to seiniorage, inflation and changes in the discount factor play more important roles in financing fiscal stimulus. The results above hold with alternative degree of price stickiness, velocity of money and steady state debt level. Moreover, the effectiveness of a money-financed fiscal stimulus increases when the government issues real instead of nominal debt.
    Keywords: Fiscal Stimulus; Fiscal Stress; Seigniorage; Government Debt
    Date: 2023–03
  10. By: Edouard Ribes (CERNA i3 - Centre d'économie industrielle i3 - Mines Paris - PSL (École nationale supérieure des mines de Paris) - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Background context: Current societal challenges around healthcare, education and retirement require households to increasingly leverage personal finance instruments. To meet this trends the lending, insurance and investment industries need to become more efficient and affordable. Specific knowledge gap the work aims to fill: To date, the distribution chains of financial instruments remains costly and inefficient. To transform, the associated industries need to further leverage digital medias to accelerate products distribution and maintenance. Some of the benefits of digitalization have already been capture & depicted in the recent literature sitting at the frontier between personal finance and financial technologies. However the scope of those studies has so far been limited to the distribution of those instruments & there has been little discussion about the opportunities associated to the maintenance of financial contracts, notably through the structuration of data products/ warehouses. This is a gap this article aims to address. Methods used in the study: This paper leverage standard economic modeling techniques and option theory to describe the impact of digital medias and notably data products on the financial instruments brokerage system. It also leverages order of magnitude founds in the literature to perform a high level calibration of those models to one of the Big 5 European financial market, namely the French investment industry. Key findings: The proposed models show 3 stylized facts about data products when applied to the French investment industry. First, such a market can only support two data product suppliers. Second, it comes with a large asymmetry in prices (prices differ by a factor 2 or 4 between actors) and clients profiles between the two data suppliers. Third, the market is not completely efficient as its equilibrium results in about 35\% of the market not being equipped with a data products. Implications: Data products can yield a 10 to 20% productivity increase for independent financial advisors and brokers distributing financial instruments. Those gains will likely be passed in some form to households, thereby increasing the overall efficiency of the financial system and supporting households financial professionalization.
    Keywords: Personal finance, households economics, wealth, technological change, financial services, The proposed models show 3 stylized facts about data
    Date: 2023–03–01
  11. By: Karl-Friedrich Israel (Université Paris 1 Panthéon-Sorbonne - Centre d'Economie de la Sorbonne, Université de la Sarre (Allemagne), Université Catholique de l'Ouest (UCO) Angers); Tim Florian Sepp (Leipzig University); Nils Sonnenberg (Kiel Instute for the World Economy)
    Abstract: In this study, we ingestigate the impact of monetary policy on Japanese household incomes using the Family Income and Expenditure Survey. Our analysis focuses on the savings and income structure of households, and covers the period from Q1 2007 to Q2 2021. We find that households in the highest income brackets have a higher proportion of their savings invested in stocks, while middle and lower income households hold a greater share of their savings in bank deposits. Our hypothesis is that the Bank of Japan's monetary policies have boosted stock markets in particular, leading to disproportionate benefits for high-income households through capital gains and dividends. Using local projections, we first identify a positive, lasting cumulative effect of both conventional and unconventional monetary expansion on Japanese stock markets. We then examine how stock market performance impacts household incomes, and find that the effect is strongest for high-income households, decreases for middle-income households, and disappears for lower-income households. Our results suggest that monetary policy may have contributed to the persistent growth in income inequality in Japan, as measured by metrics such as the Gini coefficient and top-to-bottom income ratios
    Keywords: monetary policy; inequality; Japan; household income
    JEL: D31 D63 E52
    Date: 2023–02
  12. By: William Barnett (Department of Economics, University of Kansas and Center for Financial Stability, New York City); Sohee Park (Department of Economics, Valparaiso University, Valparaiso, IN 46383, USA)
    Abstract: We investigate the welfare cost of anticipated inflation, when the volume of credit card transactions is included in measured monetary service flows. We use the credit-card-augmented Divisia monetary aggregates in a nonlinear dynamic stochastic general equilibrium (DSGE) New Keynesian model and calculate the welfare costs of inflation. The welfare costs of inflation with credit card services included are greater than without them in the New Keynesian DSGE model. Because of the complexity of the model’s dynamical structure, we are not aware of a simple explanation for the increased welfare sensitivity to inflation.
    Keywords: Welfare Cost, Divisia, Credit-Card-Augmented Divisia, Monetary Aggregates, Money Demand, Inflation, nonlinear dynamics.
    JEL: E31 E41 E51 E52
    Date: 2023–04
  13. By: Jonung, Lars (Department of Economics, Lund University)
    Abstract: When Sweden left the gold standard on September 27, 1931, the Swedish government declared that the aim of monetary policy should be to stabilize the domestic purchasing power of the Swedish currency, the krona. With this step, price level targeting officially became for the first time the goal for a central bank. Soon after, the Riksbank (Bank of Sweden) sent a questionnaire to three prominent economics professors, Gustav Cassel, David Davidson and Eli Heckscher, asking for advice about the new monetary situation. In a few weeks, the Riksbank received their replies. <p> This paper presents the three reports, for decades kept as classified documents in the archives of the Riksbank. The reports give an excellent view of the monetary thinking in the early 1930s of the first generation of modern Swedish economists, prior to the outbreak of the world depression of the 1930s and the emergence of the Stockholm School in macroeconomics. The reports are strikingly modern. They deal with the central issues in the present discussion on inflation targeting, such as the choice of price index to target, the proper instrument to use, the importance of creating public credibility for the new monetary rule, potential legal changes to anchor the new standard, and the appropriate central bank response to changes in the exchange rate. In short, the three economists prepared the first practical guide to inflation targeting at the zero rate. <p> The paper also considers the impact of the reports on the policy of the Riksbank. Most strikingly, the Riksbank started to construct and collect a weekly consumer price index to use as a guide for implementing the new policy of price stabilization. This task was carried out by Dag Hammarskjöld under the guidance of Erik Lindahl.
    Keywords: Inflation targeting; price level targeting; Gustav Cassel; David Davidson; Eli Heckscher; Knut Wicksell; Dag Hammarskjöld; Erik Lindahl; the Riksbank; the Great Depression; Sweden
    JEL: B22 B25 D83 E31 E32 E50 F33 N14
    Date: 2023–04–03
  14. By: Gupta, Abhimanyu (University of Essex); Kokas, Sotirios (University of Essex); Michaelides, Alexander (Imperial College London); Minetti, Raoul (Michigan State University, Department of Economics)
    Abstract: A large theoretical literature emphasizes financial networks, but empirical studies remain scarce. We exploit the overlapping bank portfolio structure of US syndicated loans to construct a financial network and characterize its evolution over time. Using techniques from spatial econometrics, we find large spillovers in lending conditions from peers’ decisions during normal times: a standard deviation increase in peer lending rates can increase a bank’s lending rate by 17 basis points. However, these spillovers vanish in a large recession. We rationalize these findings through the lens of a model of syndicate lending, where banks’ reliance on private signals rises during recessions.
    Keywords: Financial networks; spillovers; cost of lending; syndicated loan market
    JEL: C31 G21
    Date: 2023–03–03
  15. By: Makoto Okawara (Graduate School of Economics, The University of Tokyo); Akihiko Takahashi (Graduate School of Economics, The University of Tokyo)
    Abstract: This paper considers an optimization problem for a typical loan portfolio of international banks. In particular, after taking collateral for a loan portfolio into account, we obtain a capital allocation that achieves the maximum profit under Basel regulatory capital and credit market constraints, as well as risk limits against business units and industrial sectors. To the best of our knowledge, the current work derives optimal loan portfolios to analyze the effects of different risk constraints from multiple perspectives more realistically and comprehensively than existing research. As a result, we propose to unify internal risk constraints against the business units and industrial sectors based on economic capital-based credit risk amounts.
    Date: 2023–04
  16. By: Di Pace, Federico (Bank of England); Mangiante, Giacomo (HEC Lausanne); Masolo, Riccardo (Catholic University of the Sacred Heart)
    Abstract: We study whether firms’ expectations react to the Bank of England’s monetary policy announcements by comparing the responses to the Decision Maker Panel survey filed immediately before and after a Monetary Policy Committee meeting. On the one hand, we find that firms’ expectations and uncertainty about their own business for the most part do not respond to high-frequency monetary policy surprises. On the other hand, announced changes in the monetary policy rate induce firms to revise their price expectations, with rate hikes inducing a reduction in price expectations and uncertainty surrounding them.
    Keywords: Central bank communication; firm expectations; high-frequency identification; survey data
    JEL: D84 E52 E58
    Date: 2023–02–10
  17. By: Rounak Sil (KPMG Global Services, India); Unninarayanan Kurup; Ashima Goyal (Indira Gandhi Institute of Development Research); Apoorva Singh and Rajendra Paramanik (Indian Institute of Technology, Patna)
    Abstract: Using minutes of consecutive Monetary Policy Committee (MPC) meetings of the Indian central bank, we have constructed two novel measures of implicit dissent at the individual level as well as across groups. We have used VADER sentiment analysis to arrive at the proposed measures and investigated their influence on anchoring Indian growth and inflation forecasts. Our empirical findings show discordance amongst members increases forecast accuracy. This implies promoting an environment that supports nuanced opinions could improve policy outcomes.
    Keywords: Monetary policy, Dissent, NLP, Supply shock, Linear Regression
    JEL: E52 E58 C22
    Date: 2023–03
  18. By: Urban Jermann; Haotian Xiang
    Abstract: The majority of bank liabilities are deposits typically not withdrawn for extended periods. We propose a dynamic model of banks in which depositors forecast banks’ leverage and default decisions, and withdraw optimally by trading off current against future liquidity needs. Endogenous deposit maturity creates a time-varying dilution problem that has major effects on bank dynamics. Interest rate cuts produce delayed increases in bank risk which are stronger in low rate regimes. Deposit insurance can exacerbate the deposit dilution and amplify the increase in bank risk.
    JEL: E44 G21 G28
    Date: 2023–03
  19. By: Jean-Charles Rochet (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Bruno Biais (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CNRS - Centre National de la Recherche Scientifique)
    Abstract: Taxing financial transactions is often advocated for Pigouvian reasons, when financial speculation is supposed to generate inefficiencies. We adopt instead a Mirrleesian approach, and study the optimal taxation of financial transactions when financial markets are efficient, but the tax system is imperfect, due to asymmetric information. In our model, financial transactions are used by entrepreneurs to hedge shocks on their skills, in line with the New Dynamic Public Finance literature. Entrepreneurs privately observe their skills, but trades in financial markets are publicly observable. The optimal mechanism maximizes a convex combination of utilitarian welfare and Rawlsian criterion, subject to feasibility and incentive constraints. Entrepreneurial projects are subject to liquidity shocks, which can be smoothed by conducting financial transactions. Better skilled entrepreneurs' projects have larger expected profits, but also larger shocks. Trades therefore signal skills, implying it is optimal to tax financial transactions, in addition to capital income and wealth.
    Date: 2023–03–06
  20. By: Aeimit Lakdawala (Wake Forest University); Bhanu Pratap (Reserve Bank of India); Rajeswari Sengupta (Indira Gandhi Institute of Development Research)
    Abstract: We investigate how the bond market responded to the effects of the Reserve Bank of India's (RBI) monetary policy actions undertaken since the start of the pandemic. Our approach involves combining a narrative analysis of the media coverage together with an event-study framework around RBI's monetary policy announcements. We find that the RBI's actions early in the pandemic were helpful in providing an expansionary impulse to the bond market. Specifically, long-term bond interest rates would have been meaningfully higher in the early months of the pandemic if not for the actions undertaken by the RBI. These actions involved unconventional policies providing liquidity support and asset purchases. We find that some of the unconventional monetary policy actions had a substantial signalling channel component where the market perceived the announcement of an unconventional monetary policy action as representing a lower future path for the short-term policy rate. We also find that the RBI's forward guidance was more effective in the pandemic than it had been in the couple of years preceding the pandemic
    Keywords: Monetary Policy, Reserve Bank of India, Unconventional Monetary Policy, Bond Yields, Forward Guidance, Pandemic
    JEL: E44 E52 E58 G10
    Date: 2023–03
  21. By: Edwin Weinstein (The Brondesbury Group); Gulnur Muradoglu (Queen Mary University of London)
    Abstract: This study aims to identify how trust, awareness, household economics and demographic factors affect the nature and the number of people who will run a bank. The sample is drawn from seven countries. The findings focus on relationships that transcend country boundaries. The study is designed with four scenarios defined by presence/absence of deposit insurance and whether the person has their money in a troubled bank or not. The similarity of response across countries to these two key variables is strong. Across countries, under the least favourable conditions in our study, 56% of respondents said they would run their bank. Under the most favourable conditions, 21% of respondents said they would run. These massive differences have real implications for both policy and public communications.
    Keywords: deposit insurance, bank resolution
    JEL: G21 G33
    Date: 2023–02
  22. By: Yossra Boudawara (Université de Sfax - University of Sfax); Kaouther Toumi (LGTO - Laboratoire de Gestion et des Transitions Organisationnelles - UT3 - Université Toulouse III - Paul Sabatier - Université Fédérale Toulouse Midi-Pyrénées); Amira Wannes (Université de Sfax - University of Sfax); Khaled Hussainey (University of Portsmouth)
    Abstract: Purpose: The paper examines the impact of Shari'ah governance quality on environmental, social, and governance (ESG) performance in Islamic banks. Design/methodology: The study's sample consists of 66 Islamic banks from 14 countries over 2015-2019. The research uses the Heckman model, which is a two-stage estimation method to obtain unbiased estimates, as ESG scores are only observable for 17 Islamic banks in the Eikon Refinitiv database at the time of the analysis. Findings: The analysis shows that Shari'ah governance has a beneficial role to achieve ESG performance. It also shows that enhanced profiles of Shari'ah supervisory boards' attributes are more efficient than the operational procedures to promote ESG performance. In addition, the analysis shows that enhanced Shari'ah supervisory boards' attributes strengthen the bank's corporate governance framework while sound-designed procedures increase the bank's social activities by emphasizing their roles to ensure Shari'ah compliance. Finally, the analysis sheds light on the failure of Shari'ah governance to promote environmental performance. Originality: The research complements the governance-banks' ESG performance literature by examining the role of Shari'ah governance. The research also extends the literature on Islamic banks' sustainability by pointing to the Shari'ah governance failure to enhance environmental performance and thus, achieve Maqasid al-Shariah regarding the environment. Practical implications: The research provides policy insights to Islamic banks' stakeholders to promote social and governance performance in the Islamic finance industry through improving Shari'ah governance practices. However, raising environmental awareness is imminent among all actors implicated in the Shari'ah governance processes to help overcome the anthropogenic risks.
    Keywords: ESG Impact, Islamic banking, Sustainability, Governance
    Date: 2023
  23. By: Boudiaf, Ismael Alexander; Scheicher, Martin; Vacirca, Francesco
    Abstract: In this paper we aim to provide a holistic understanding of the Initial Margin (IM) models used by Central Counterparties (CCPs) in Europe. In addition to discussing their relevance in terms of CCP risk management and their importance for the functioning of financial markets, we provide an overview of the main modelling frameworks used, including Standard Portfolio Analysis of Risk (SPAN) and Value at Risk (VaR) models.By leveraging on publicly available data, we provide an up-to-date picture of current modelling practices for specific cleared product classes, as well as various trends in IM modelling practices in Europe. We show how IM model frameworks vary materially, depending on the CCP’s past choices and the products it clears. Despite a propensity to switch to VaR models, idiosyncrasies and differences across CCPs are likely to persist.We conclude by highlighting current and upcoming challenges and risks to CCP IM model frameworks and linking the current status quo with ongoing and upcoming regulatory work at European and international level. JEL Classification: G15, G18, G19, G23, G28, G32
    Keywords: Central Counterparties, initial margin models, model governance and validation., risk management
    Date: 2023–04
  24. By: Muñoz, Manuel A.; Soons, Oscar
    Abstract: The bulk of euro-denominated cash is held for store of value purposes, with such holdings sharply increasing in times of high economic uncertainty. We develop a Diamond and Dy-bvig model with public money as a store of value and heterogeneous beliefs about bank stability that accounts for this evidence. Consumers who are sufficiently pessimistic prefer to hold cash. In our model, the introduction of a central bank digital currency (CBDC) as a store of value that is superior to cash leads to bank disintermediation as some depositors opt for switching to CBDC based on their beliefs. While CBDC partially replaces deposits, long-term lending decreases less than proportionally as remaining depositors are, on aver-age, more optimistic about bank stability and banks re-balance their portfolio accordingly. The appropriate calibration of CBDC design features such as remuneration and quantity limits can mitigate these effects. We study the individual and social welfare implications of introducing CBDC as a store of value. JEL Classification: E41, E58, G11, G21
    Keywords: bank disintermediation, bank stability, cash, central bank digital currency, welfare
    Date: 2023–03
  25. By: Simon Baumgartner (Humboldt University Berlin); Alex Stomper (Humboldt University Berlin); Thomas Schober (NZ Work Research Institute, Auckland University of Technology); Rudolf Winter-Ebmer (Johannes Kepler University Linz)
    Abstract: How does small-firm employment respond to exogenous labour productivity risk? We find that this depends on the capitalization of firms’ local banks. The evidence comes from firms employing workers whose productivity depends on the weather. Weather- induced labour productivity risk reduces this employment, and this 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: 2023–03
  26. By: Jaromir Benes; Tomas Motl; David Vavra
    Abstract: We introduce the mess, the MacroEconomic Stress Scenario builder, as a macroprudential modeling framework for practical application at policymaking institutions. The framework synthesizes the key insights from academic literature on financial cycles, interactions between the real economy and the financial system, and macroprudential policy. It features an explicit description of gross quantities on the financial sector’s balance sheet and explicit concepts of demand and supply on the credit market. The key equations linking the real economy and the financial sector are nonlinear, making it possible to realistically examine the costs and benefits of macroprudential policy. The intended use of the model is for policymaking institutions that need a tool which is theoretically consistent, but also malleable and flexible enough to be able to fit particular features of the economy and financial sector. The framework is already in use by financial stability authorities in several countries. This paper presents the model itself, the principles on which it is built, and use cases in policymaking institutions.
    Date: 2023–03
  27. By: Audrey Sallenave; Jean-Pierre Allegret (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015-2019) - CNRS - Centre National de la Recherche Scientifique); Tolga Omay (Atilim Universitesi)
    Abstract: We use a sample of 40 developing and emerging countries over the period 1995- 2015 to assess the effectiveness of international reserve holding as a crisis mitigator. We test the relevance of the reserve accumulation decreasing returns assumption by estimating the most recent version of the PSTR model. We find that increasing stocks of international reserves allows domestic authorities to mitigate the negative impacts of financial and banking vulnerabilities on GDP growth rates leading to reject the decreasing returns assumption. This evidence is robust to sensitivity checks.
    Keywords: Banking vulnerabilities, Financial vulnerabilities, External shocks, Emerging and developing countries, Panel Smooth Transition Regression model, Reserves accumulation
    Date: 2023–02–16
  28. By: Tao Liu (Central University of Finance and Economics); Dong Lu (Renmin University of China); Liang Wang (University of Hawaii Manoa)
    Abstract: There have been two competing views on the structure of the international monetary system. One sees it as a unipolar system with a dominant currency, such as the U.S. dollar, while the other argues that multiple international currencies can coexist. Aiming to provide a unified theoretical framework to reconcile these two views, we develop a micro-founded monetary model to examine the interactions of two essential roles played by international currencies, the medium of exchange and the store of value, and highlight the importance of abundant safe asset supplies. When the two roles of international currencies reinforce each other, a unipolar equilibrium exists. However, when one currency is unable to serve as sufficient safe assets for international trade transactions, the two roles work against each other. Agents have the incentive to diversify their portfolio and we have a multipolar system. The effects of monetary policy, fiscal policy, and their combinations crucially depend on the total supply of safe assets and the relative importance of the two functions of international currencies. The structure of the international monetary system could be influenced by various policies such as monetary policy, fiscal policy, and financial sanctions. We also discuss welfare under different equilibria and the effect of financial sanctions on the dominant currency in a unipolar world.
    Keywords: International, Money, Multipolar, Safe Assets, Unipolar
    JEL: E42 E52 F33 F40
    Date: 2023–03
  29. By: Oguzhan Cepni (Business School, Department of Economics, Porcelaenshaven 16A, Frederiksberg DK-2000, Denmark); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Jacobus Nel (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Joshua Nielsen (Boulder Investment Technologies, LLC, 1942 Broadway Suite 314C, Boulder, CO, 80302, USA)
    Abstract: First, we employ the Multi-Scale Log-Periodic Power Law Singularity Confidence Indicator (MS-LPPLS-CI) approach to identify both positive and negative bubbles in the short-, medium, and long-term for the Indian stock market. We successfully detect major crashes and rallies during the weekly period from November 2003 to December 2020. Second, we utilize a nonparametric causality-in-quantiles approach to analyze the predictive impact of monetary policy shocks on the six bubble indicators. This econometric framework allows us to circumvent potential misspecification due to nonlinearity and instability, rendering the results of no causal influence derived from a linear framework invalid. The two factors of monetary policy shocks namely, the target and path associated with short- and long-term interest rates, reveal strong evidence of predictability for the six bubble indicators across their entire conditional distributions. We observe relatively stronger impacts for the negative bubble indicators due to the target factor rather than the path factor of monetary policy shocks. Our findings have significant implications for the Reserve Bank of India, as well as for academics and investors.
    Keywords: Multi-Scale Positive and Negative Bubbles, Monetary Policy Shocks, Nonparametric Causality-in-Quantiles Test, India
    JEL: C22 E52 G10
    Date: 2023–03
  30. By: Lahrour Khalid (UH2MC - Université Hassan II [Casablanca])
    Abstract: The banking crises in many developing countries have prompted discussions about necessary reforms in the financial sector. This has led to a resurgence of interventionist public policies that focus on the financial sector and are deployed through interactions with other collective or individual actors. As a result, providing banking services to a wider clientele through financial inclusion as a public good has become a topic of political debate and a public policy agenda (Sodokin Koffi, 2022). This is because excluding people from accessing financial services is not considered a public good in economic terms (Desmarais-Tremblay, 2017; Ülgen, 2020). International opinion is re-examining the need for government intervention in certain economic sectors in the face of the challenges associated with the Millennium Goals. This trend is also reflected in the words of the World Bank, which, while persisting in its support for the neoclassical model of state disengagement and the primacy of the market, is now more inclined to place greater emphasis on a redistributive model that incorporates a social dimension into public policy. This paper looks at interventionist public policies for financial inclusion in two regions, Latin America and Asia, to present the different contributions and limitations of programs and policies for developing access to finance and the use of financial supply by the excluded from formal finance and the vulnerable population in India, Mexico and Peru to focus on the role of public actors and how this translates into financial supply in the face of financial inclusion issues. The methodology used in this paper consists of a literature review of financial inclusion policies and programs in India, Mexico and Peru. The study is based on qualitative and quantitative data available in official reports, academic publications and research conducted by governmental and non-governmental organizations.
    Abstract: Les crises bancaires dans de nombreux pays en développement ont suscité des discussions sur les réformes nécessaires dans le secteur financier. Cela a conduit à une réapparition de politiques publiques interventionnistes qui se concentrent sur le secteur financier et qui se déploient via des interactions avec des acteurs collectifs ou individuels. En conséquence, le fait d'offrir des services bancaires à une clientèle plus large grâce à l'inclusion financière en tant que bien public est devenu un sujet de débat politique et un programme de politique publique (Sodokin Koffi, 2022). Cela est dû au fait qu'exclure des personnes de l'accès aux services financiers n'est pas considéré comme un bien public sur le plan économique (Desmarais-Tremblay, 2017 ; Ülgen, 2020). L'opinion internationale est en train de réexaminer la nécessité d'intervention gouvernementale dans certains secteurs économiques face aux défis liés aux objectifs du millénaire.Cette tendance se reflète également dans les propos de la Banque mondiale, qui, tout en persistants dans son soutien au modèle néoclassique de désengagement de l'État et de primauté du marché, est maintenant plus encline à accorder plus d'importance à un modèle redistributif qui intègre une dimension sociale dans les politiques publiques. Cet article s'intéresse aux politiques publiques interventionnistes en matière d'inclusion financière dans deux régions, l'Amérique latine et l'Asie, il s'agira de présenter des différents apports et limites des programmes et politiques de développement d'accès au financement et l'usage de l'offre financière par les exclus de financement formel et la population vulnérable en Inde, Mexique et Pérou afin de mettre en évidence le rôle des acteurs publics et la façon dont cela se reflète dans l'offre financière en réponse aux défis de l'inclusion financière. La méthodologie utilisée dans cet article consiste en une revue de la littérature sur les politiques et programmes de l'inclusion financière en Inde, au Mexique et au Pérou. Cette étude se base sur des données qualitatives et quantitatives disponibles dans les rapports officiels, les publications universitaires et les recherches menées par des organisations gouvernementales et non gouvernementales.
    Keywords: Public Policy, Financial Inclusion, Financial Exclusion, Microfinance, Poverty, Growth., Politique publique, Inclusion financière, Exclusion financière, Pauvreté, Croissance
    Date: 2023–03–01

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