|
on Banking |
| By: | Gan-Ochir Doojav (Bank of Mongolia); Munkhbayar Gantumur (Bank of Mongolia) |
| Abstract: | This study investigates the causal effects of the banking sector cleanup on lending conditions. To overcome the banking crisis consequences of 2014–2016, the National Bank of Ukraine changed its regulation approach to strict intolerance towards financially weak and opaque banks and launched the development of the macroprudential regulation concept. As a result, a significant number of banks, accounting for approximately one-third of pre-crisis banking assets, were declared insolvent or withdrawn from the market for other reasons. We analyze bank-firm-loan level data merged with information from borrowers' financial statements. Examining a significant set of loan, bank, and borrower characteristics, we cannot conclude that lending conditions have definitely tightened since the cleanup of the banking sector. On the one hand, banks reduce large exposures in response to stricter regulatory requirements, primarily for lending to related parties, thereby decreasing the loan amount on average. On the other hand, loan interest rates decline due to monetary policy easing. As the risks for banks gradually decreased over time, interest spreads also narrowed, which was reflected in lower loan prices. At the same time, banks deteriorate lending conditions for loss-making firms- loan size significantly decreases compared to the whole sample of firms, and interest rates rise. Furthermore, bank requirements for financial performance of corporates become more stringent and generally do not ease to pre-policy levels over time. Finally, the results suggest that the crucial factors for corporate borrowers to receive a loan from a new bank after their bank closure are firm profitability at the time of a new match and loans quality in closed banks. |
| Keywords: | Banking sector cleanup; Bank liquidations; lending conditions |
| JEL: | C21 C41 G21 G28 |
| Date: | 2023–04–10 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp06-2023&r=ban |
| By: | Manish Gupta (Nottingham University Business School); Danny McGowan (University of Birmingham); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)) |
| Abstract: | We study how the introduction of a law protecting consumer data privacy affects the cost of credit in the US mortgage market. Our estimates reveal that the California Consumer Protection Act increases loan spreads charged by banks by 8 basis points but that it has no effect on the fixed origination costs charged to borrowers. In contrast, nonbanks do not charge more, possibly because they often resell to government-sponsored enterprises thereby minimizing their compliance costs. Banks also reduce their supply of credit more in lower-income areas, consistent with more informationally intense data collection practices there potentially exposing them to larger legal costs. In sum, our findings suggest that banks pass the CCPA compliance costs to borrowers through higher interest rates and reduce their legal exposure by curtailing credit where more data need to be collected. |
| Keywords: | Consumer Data Privacy, Shadow Banks, Mortgages, Regulatory Costs |
| JEL: | D12 G21 G23 G28 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2325&r=ban |
| By: | Matthew S. Jaremski; Gary Richardson; Angela Vossmeyer |
| Abstract: | A nationwide banking panic forced President Franklin Roosevelt to declare a nationwide banking holiday immediately after his inauguration in March 1933. The government reopened sound banks sequentially, with some resuming operations sooner and others later. Within three weeks, 11, 000 of the nation’s 18, 000+ banks had reopened. Another 3, 000 reopened over the next three months. A comprehensive bank-level database reveals the public responded to signals sent by regulators’ actions. Rapidly reopened banks received more deposits than banks that reopened only a few weeks later. The stigma of late reopening lasted through the decade. While these signals and stigmas shifted substantial resources from stigmatized to lauded banks and from counties whose banks on average reopened slowly to counties whose banks reopened rapidly, the shifts in resources among institutions had no measurable impact on the rate at which the localities recovered. This result raises questions concerning the conventional wisdom regarding intervening in a banking system amidst a systemic crisis. |
| JEL: | E5 G21 N22 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31088&r=ban |
| By: | Axelle Arquié |
| Abstract: | In this paper, we introduce a new mechanism into a banking model featuring distressed sale of assets (fire sales). As in reality, depositors choose between the liquid deposits of banks and the illiquid assets of funds from which early withdrawals are not possible. Our model reflects that dynamics, showing that two inefficiencies arise due to a pecuniary externality. The first inefficiency is well-known: banks do not keep enough liquidity buffers. The second inefficiency is that depositors do not invest the optimal amount into institutions that can be subject to runs (banks) relative to institutions that are preserved from runs (such as pension funds). To investigate whether there is too much deposits in banks or in pension funds, the direction of the inefficiency is studied numerically. Simulations show that the banking sector can be too big relative to pension funds, and that liquidity ratios -aimed at making banks less riskycan decrease welfare by increasing incentives to deposit into banks. |
| Keywords: | Fire Sales;Liquidity ratios;Bank Run;Saving Allocation |
| JEL: | E44 G01 G18 G21 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2023-09&r=ban |
| By: | Juraj Falath (National Bank of Slovakia); Alena Kissova (National Bank of Slovakia); Adriana Lojschova (National Bank of Slovakia) |
| Abstract: | We investigate the impact of the TLTRO III operations introduced by the European Central Bank in 2020 on the bank lending activity of Slovak banks, using unique bank-level data on the program. We deploy a difference-in-difference approach on monthly data covering the time period from January 2012 o December 2021with 34 banks included in the analysis. Our findings suggest that the credit easing measures had a positive effect on bank lending to non- inancial corporations and negative effect on lending rates, even when controlling for possible confounding factors. We also explore other possible uses of TLTRO III liquidity by banks besides increased lending. Although inconclusive, there is some evidence of banks improving their profitability via holding cheap liquidity in their deposit accounts and to a lesser extent via increasing their holdings of debt securities. |
| JEL: | E43 E44 E51 E52 E58 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:svk:wpaper:1093&r=ban |
| By: | Theo Cotrim Martins; Rafael Schiozer; Fernando de Menezes Linardi |
| Abstract: | Using unique administrative data on firm-to-firm payments and bank-to-firm lending, we investigate how lending to a firm is affected by same-bank lending to the firm’s customers and suppliers. We show that bank lending increases when the same bank also lends to the firm’s customers or suppliers. Additionally, we find that the revelation of negative information about the creditworthiness of a firm’s major customer causes an increase in the cost and a reduction in the duration of the loans provided to the firm. These results suggest that lending to firms connected through the supply chain conveys valuable information to banks. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:577&r=ban |
| By: | Feinstein, Zachary; Hałaj, Grzegorz |
| Abstract: | Interconnectedness is an inherent feature of the modern financial system. While it con-tributes to efficiency of financial services, it also creates structural vulnerabilities: pernicious shock transmission and amplification impacting banks’ capitalization. This has recently been seen during the Global Financial Crisis. Post-crisis reforms addressed many of the causes of this event, but contagion effects may not be fully eliminated. One reason for this may be related to financial institutions’ incentives and strategic behaviours. We propose a model to study contagion effects in a banking system capturing network effects of direct exposures and indirect effects of market behaviour that may impact asset valuation. By doing so, we can embed a well-established fire-sale channel into our model. Unlike in related literature, we relax the assumption that there is an exogenous pecking order of how banks would sell their assets. Instead, banks act rationally in our model; they optimally construct a portfolio subject to budget constraints so as to raise cash to satisfy creditors (interbank and external). We assume that the guiding principle for banks is to maximize risk-adjusted returns gener-ated by their balance sheets. We parameterize the theoretical model with publicly available data for a representative sample of European banks; this allows us to run simulations of bank valuations and asset prices under a set of stress scenarios. JEL Classification: C62, C63, G11, G21 |
| Keywords: | fire sales, interbank contagion, optimal portfolio, systemic risk |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232806&r=ban |
| By: | Andrej Sokol; Michael Kumhof; Marco Pinchetti; Phurichai Rungcharoenkitkul |
| Abstract: | We study the consequences for business cycles and welfare of introducing an interest-bearing retail CBDC, competing with bank deposits as medium of exchange, into an estimated 2-country DSGE environment. According to our estimates, financial shocks account for around half of the variance of aggregate demand and inflation, and for the bulk of the variance of financial variables. CBDC issuance of 30% of GDP increases output and welfare by around 6% and 2%, respectively. An aggressive Taylor rule for the interest rate on reserves achieves welfare gains of 0.57% of steady state consumption, an optimized CBDC interest rate rule that responds to a credit gap achieves additional welfare gains of 0.44%, and further gains of 0.57% if accompanied by automatic fiscal stabilizers. A CBDC quantity rule, a response to an inflation gap, CBDC as generalized retail access to reserves, and especially a cash-like zero-interest CBDC, yield significantly smaller gains. CBDC policies can substantially reduce the volatilities of domestic and cross- border banking flows and of the exchange rate. Optimal policy requires a steady state quantity of CBDC of around 40% of annual GDP. |
| Keywords: | central bank digital currencies, monetary policy, bank deposits, bank loans, monetary frictions, money demand, money supply, credit creation |
| JEL: | E41 E42 E43 E44 E52 E58 F41 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1086&r=ban |
| By: | Lucas A. Mariani; Jose Renato Haas Ornelas; Bernardo Ricca |
| Abstract: | We investigate how the presence of physical bank branches moderates financial technology diffusion. Our identification strategy uses services suspensions caused by criminal groups that perform hit-and-run raids and explode branch facilities, rendering them inoperable for a couple of months. We show that the shock depletes the cash inventory of branches, but the stock of credit and deposits remain unaffected. We then provide evidence that customers increase their usage of noncash payments after the event. More specifically, we focus on a new instant payment technology called Pix and show that, after robbery events, Pix usage and the number of users increase in the affected municipalities. We find that these effects are mediated by the number of alternative branches to access cash. Interestingly, we find Pix usage spillover effects beyond cash substitution. First, the number of Pix transactions and users increases when either the payer or the payee is in a municipality that was not affected by the robbery. Second, we show that the population affected by such robberies start to perform Pix transactions and use other financial services at digital financial institutions, indicating that cash dependence can be an impediment to their expansion. Our results shed light on the determinants of technology adoption and the consequences of the transition in the banking industry from a physical branch-based model to an increasing reliance on digital services. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:576&r=ban |
| By: | Michael Kumhof; Marco Pinchetti; Phurichai Rungcharoenkitkul; Andrej Sokol |
| Abstract: | We study the consequences for business cycles and welfare of introducing an interest-bearing retail CBDC, competing with bank deposits as medium of exchange, into an estimated 2-country DSGE environment. According to our estimates, financial shocks account for around half of the variance of aggregate demand and inflation, and for the bulk of the variance of financial variables. CBDC issuance of 30% of GDP increases output and welfare by around 6% and 2%, respectively. An aggressive Taylor rule for the interest rate on reserves achieves welfare gains of 0.57% of steady state consumption, an optimized CBDC interest rate rule that responds to a credit gap achieves additional welfare gains of 0.44%, and further gains of 0.57% if accompanied by automatic fiscal stabilizers. A CBDC quantity rule, a response to an inflation gap, CBDC as generalized retail access to reserves, and especially a cash-like zero-interest CBDC, yield significantly smaller gains. CBDC policies can substantially reduce the volatilities of domestic and cross- border banking flows and of the exchange rate. Optimal policy requires a steady state quantity of CBDC of around 40% of annual GDP. |
| Keywords: | Central bank digital currencies; Monetary policy; Bank deposits; Bank loans; Monetary frictions; Money demand; Money supply; Credit creation |
| JEL: | E41 E42 E43 E44 E52 E58 F41 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:pui:dpaper:205&r=ban |
| By: | Carola Conces Binder; Rodrigo Sekkel |
| Abstract: | Central banks’ forecasts are important monetary policy inputs and tools for central bank communication. We survey the literature on forecasting at the Federal Reserve, European Central Bank, Bank of England and Bank of Canada, focusing especially on recent developments. After describing these central banks’ forecasting frameworks, we discuss the literature on central bank forecast evaluation and new tests of unbiasedness and efficiency. We also discuss evidence of central banks’ informational advantage over private sector forecasters—which appears to have weakened over time—and how central bank forecasts may affect private sector expectations even in the absence of an informational advantage. We discuss how the Great Recession led central banks to evaluate their forecasting frameworks and how the COVID-19 pandemic has further challenged central bank forecasting. Finally, we consider directions for future research. |
| Keywords: | Monetary policy |
| JEL: | E47 E58 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:23-18&r=ban |
| By: | Breckenfelder, Johannes; Hoerova, Marie |
| Abstract: | Are central bank tools effective in reaching non-banks with no access to the lender-of-last-resort facilities? Using runs on mutual funds in March 2020 as a laboratory, we show that, following the announcement of large-scale purchases, funds with higher ex ante shares of assets eligible for central bank purchases saw their performance improve by 3.6 percentage points and outflows decrease by 61% relative to otherwise similar funds. Following central bank liquidity provision to banks, the growth rate of repo lending to funds by banks more exposed to the system-wide liquidity crisis was up to five times higher compared to other banks. JEL Classification: E58, G01, G10, G21, G23 |
| Keywords: | asset purchases, COVID-19 liquidity crisis, Investment funds, lender of last resort, market maker of last resort |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232805&r=ban |
| By: | Natee Amornsiripanitch |
| Abstract: | As the U.S. population ages and lifespans increase, it is important to understand how aging affects an individual’s ability to access credit. Older homeowners tend to have more financial resources and better credit scores than their younger counterparts, so one would expect that they could borrow more easily. But is that true? This brief, which is based on a recent paper, is the first of a two-part series that looks at the relationship between age and mortgage outcomes. This initial brief uses confidential Home Mortgage Disclosure Act (HMDA) data to study the relationship between age and the probability of being denied a mortgage application. The second brief will examine the relationship between age and the interest rate charged on mortgages. The discussion proceeds as follows. The first section briefly outlines the extent to which a borrower’s age can legally be considered in credit decisions. The second section describes the data, which focus on rate-and-term refinance mortgages for single applicants, and the methodology, which relates the probability of rejection to age and a host of control variables. The third section presents the results, which show that rejection rates rise consistently with age. And the magnitude is large; applications for the three oldest age groups are 1-3 percentage points more likely to be rejected than those of younger applicants. These numbers equal or exceed the marginal rejection rates for Black and Hispanic applicants. The fourth section offers some possible reasons for this relationship: the underwriters frequently cite “insufficient collateral, †but the underlying issue may be mortality risk, which is tightly associated with prepayment, default, and recovery risks. The final section concludes that while the relationship between age and rejection is large and robust, it does not necessarily indicate that lenders are violating fair lending legislation. First, the regulations allow lenders to consider borrower’s age under some circumstances. Second, although the equation controls for many observable characteristics, the results should be viewed as an association between age and rejection – not a causal relationship. Third, mortality risk has real economic implications for lenders for which they might require additional collateral. Regardless of the reason, however, it is important for older individuals to know that they are more likely to be denied credit. |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:crr:issbrf:ib2023-04&r=ban |
| By: | Biliana Alexandrova Kabadjova; Anton Badev; Saulo Benchimol Bastos; Evangelos Benos; Freddy Cepeda- Lopéz; James Chapman; Martin Diehl; Ioana Duca-Radu; Rodney Garratt; Ronald Heijmans; Anneke Kosse; Antoine Martin; Thomas Nellen; Thomas Nilsson; Jan Paulick; Andrei Pustelnikov; Antoine Francisco Rivadeneyra; Mario Rubem do Coutto Bastos; Sara Testi |
| Abstract: | We study intraday liquidity usage and its determinants using a unique cross-country data set on large-value payments. We document that the amount of intraday liquidity that financial institutions around the world use each day equals, on average, 15% of their total daily payment values or 2.8% of their countries' GDP. We then define and calculate system-level measures of liquidity efficiency and inequality in liquidity provision. We show that these measures vary systematically with the degree of payment coordination among payment system participants, the quantity and opportunity cost of central bank reserves and institutional characteristics, such as incentives for early payment submission and liquidity saving mechanism (LSM) design. Our results are consistent with the notion that payment system participants behave strategically and manage intraday liquidity actively. Participants also appear to condition their payment behaviour on specific LSM characteristics, which may weaken some of the LSMs' intended effects. |
| Keywords: | large-value payment systems, liquidity, LSM, financial markets |
| JEL: | C5 E42 E58 G21 N2 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1089&r=ban |
| By: | Karl-Friedrich Israel (UP1 - Université Paris 1 Panthéon-Sorbonne, Saarland University [Saarbrücken], UCO - Université Catholique de l'Ouest); Tim Florian Sepp (Universität Leipzig [Leipzig]); Nils Sonnenberg (Kiel Institute for the World Economy - Kiel Institute for the World Economy) |
| Abstract: | In this study, we investigate 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 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-04024219&r=ban |
| By: | Carola Frydman; Chenzi Xu |
| Abstract: | This paper surveys the recent empirical literature on historical banking crises, defined as events taking place before 1980. Advances in data collection and identification have provided new insights into the causes and consequences of crises both immediately and over the long run. We highlight three overarching threads that emerge from the literature: first, leverage in the financial system is a systematic precursor to crises; second, crises have negative effects on the real economy; and third, government interventions can ameliorate these effects. Contrasting historical episodes reveals that the process of crisis formation and evolution does vary significantly across time and space. Thus, we also highlight specific institutions, regulations and historical contexts that give rise to these divergent experiences. We conclude by identifying important gaps in the literature and discussing avenues for future research. |
| JEL: | E44 E58 G01 G21 N10 N20 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31092&r=ban |
| By: | Sommarat Chantarat; Chayanee Chawanote; Lathaporn Ratanavararak; Chonnakan Rittinon; Boontida Sa-ngimnet; Narongrit Adultananusak |
| Abstract: | This paper aims to explore drivers and dynamics of Thai agricultural households’ vicious cycle of debt, currently impeding their development prospects. We use unique combination of nationwide representative survey of 720 households and longitudinal administrative and financial account data from the farmer registration, the Bank of Agriculture and Agricultural Cooperatives (BAAC) and the National Credit Bureau (NCB) to reflect households’ financial problems from the lens of monthly income and expenditure flows, their financial attitudes and use of financial services from all sources to smooth consumption and debt dynamics and repayment behavior. The paper also tries to renew our understanding since Siamwalla et al. (1990) on the economic problems in Thai rural financial market and attempts to identify adverse impacts of debt moratorium policies, which are among the country’s most extensive policies aiming to help Thai agricultural households. The unique granularity and coverage of our data allow us to provide better understanding of the dynamics of problems and the heterogenous patterns across households – necessary to shed some lights for the redesign of rural financial system and sustainable farmers’ debt policies. |
| Keywords: | Agricultural households; Financial behavior; Household debt; Household debt; Policies; Rural financial market; Thailand |
| JEL: | D82 G20 G28 O12 O16 Q12 Q14 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:pui:dpaper:204&r=ban |
| By: | Sarah Miller; Patrick Sabourin |
| Abstract: | Inflation expectations play a vital role in determining inflation. Central bankers need to understand their intricacies and the information they can reveal. We look at the consistency of consumers’ answers to questions on inflation expectations in the Bank of Canada’s Canadian Survey of Consumer Expectations. We analyze factors that may explain consistencies among individuals and overall. We also compare the inflation forecasts of consumers with consistent responses with those of professional forecasters and consumers with varying responses. |
| Keywords: | Central bank research; Inflation and prices |
| JEL: | E31 D84 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:23-7&r=ban |
| By: | Alberto Martin; Sergio Mayordomo; Victoria Vanasco |
| Abstract: | Many countries implemented large-scale programs to guarantee private credit in response to the outbreak of COVID-19. Yet the role of banks in allocating guarantees - and thus in shaping their effects - is not well understood. We study this role in an economy where entrepreneurial effort is crucial for efficiency but it is not contractible, giving rise to a debt overhang problem. In such an environment, credit guarantees increase efficiency to the extent that they allow firms to reduce their repayment obligations. We show that banks follow a pecking order when allocating guarantees, prioritizing riskier, highly indebted, firms, from whom they can extract more surplus. The competitive equilibrium is constrained inefficient: all else equal, the planner would tilt the allocation of guarantees towards more productive, safer firms, and would fully pass-through the benefits of guarantees to firms in the form of lower repayments. We confirm the model's main predictions on the universe of all credit guarantees granted in Spain following the outbreak of COVID. |
| Keywords: | Credit guarantees, debt overhang, liquidations. |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1862&r=ban |
| By: | Acosta-Smith, Jonathan (Bank of England); Guin, Benjamin (Bank of England); Salgado-Moreno, Mauricio (Bank of England); Vo, Quynh-Anh (Bank of England) |
| Abstract: | Climate-related disclosures reduce information asymmetries between firms and investors and help transition to a net zero economy. However, disclosure practices might differ across firms. We explore the determinants of firm disclosures by creating a unique, firm-level panel data set on climate-related disclosures of UK financial institutions. To that end, we apply Natural Language Processing techniques with Machine Learning classifiers on unique textual data which we hand-collected from their published reports. We document differences in disclosure levels across financial institutions with different sizes and over time. We show that climate‑related policy communications in the form of regulatory guidance on future mandatory disclosures is associated with a catch-up by firms previously disclosing less. |
| Keywords: | Climate-related disclosures; market discipline; Task Force on Climate-Related Financial Disclosures (TCFD) and Natural Language Processing (NLP). |
| JEL: | C40 C80 G20 |
| Date: | 2023–03–10 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:1017&r=ban |
| By: | Luintel, Kul B (Cardiff Business School); Li, GuangJie (Cardiff Business School); Khan, Mosahid |
| Abstract: | A growing body of post-global financial crisis (2007–2008) literature documents several undesirable effects of enlarged financial sectors. One of these effects is the ‘growth cost’ of excessive finance, which reports that the finance–growth relationship is non-monotonic, and that a credit threshold of above 100% of GDP costs economic growth. Since most industrialized countries exceed this threshold by a large margin (reaching as high as 200% in some cases), the policy implications of these findings can hardly be overstated. Moreover, if a tipping point in the finance–growth relationship could be established beyond reasonable doubt then this would be a pathbreaking finding. Extensive, rigorous, and widely replicative empirical evidence—gathered through a unified approach across wide-ranging analytical trajectories—could serve as the ‘burden of evidence’ and minimize the odds of false positives. We offer such scrutiny regarding three propositions of finance–growth nexus: (i) the inverted U-shaped relationship, (ii) the relevance of financial development for growth, and (iii) the ‘vanishing effects.’ We analyze fourteen measures of financial development across twenty-two panels—two global datasets and a further twenty country panels based on distinct geographic, economic, and the relative financial development characteristics. The ‘burden of evidence’ from more than 7, 000 well-structured cross-sectional and panel estimates fails to show any robust support to any of these three propositions. We document several other bizarre findings, viz., that the advanced economies need to scale back their relative levels of financial development to those of Eastern Europe to avoid the growth costs associated with overdeveloped financial systems. Surprisingly, the burden of evidence does not support even the widely reported results that financial development is significant under log-linear specifications. This study is unique in cross checking a set of well-accepted empirical results against the ‘burden of evidence’, and it certainly contests the mainstream cross-country literature. However, this does not disprove the potential role of finance for growth. Alternative approaches that analyze finance and growth at more disaggregated levels by linking sectoral and/or firmlevel production initiatives to their sources of finance may be more effective in unraveling the finance-growth nexus. |
| Keywords: | Finance and growth, non-monotonicity, credit threshold, generalized methods of moments. |
| JEL: | E44 G2 O11 O16 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2023/8&r=ban |
| By: | Mustansar, Talreja |
| Abstract: | An increasing trend of development in the financial system, with the use of information technology and the modernization of products and services, has led to financial innovation being considered one of the most important topics in the research community. The paper discusses the role of financial innovation and its importance in the modern financial system. We have proxied financial innovation in three dimensions, namely Fintech infrastructure, Fintech number of transactions, and Fintech amount of transactions; and we have tested the impact of these financial innovation variables, along with some control variables, on the profitability of the banking system. The study uses time series data from 2008 Q1 to 2021 Q4 and the ARDL Bounds test for analysis purposes. Using the ARDL model, a few proxies (LATM, ADVTODEP, COSTTOINC, NETNPLTONETLOAN, POSTRAM) of financial innovation demonstrate a positive and significant relationship in long run implying that financial innovation has an effect on the profitability of the financial sector in long run. |
| Date: | 2023–03–14 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:8wy95&r=ban |
| By: | Purva Khera (International Monetary Fund); Ratna Sahay (International Monetary Fund); Sumiko Ogawa (International Monetary Fund); Mahima Vasishth (University of California); Ratna Sahay (International Monetary Fund) |
| Abstract: | While digital financial services have made access to finance easier, faster, and less costly, helping to broaden digital financial inclusion, its impact on gender gaps varies across countries. Moreover, women leaders in the fintech industry, although growing, remain scarce. This paper explores the interaction between ‘women’ and ‘fintech’ by examining: (i) the role of women leaders on firm-level performance in the fintech industry; and (ii) the determinants of gender gaps in the usage of digital services to better understand the crosscountry differences. Results indicate that greater gender diversity in the executive board is associated with better performance of fintech firms. With regard to determinants of the gender gaps in the usage of digital financial services, we find that higher financial and digital literacy of women is associated with lower gender gaps in digital financial inclusion, and that socio-cultural factors also play a key role. |
| Keywords: | Firm performance, Women leaders, Digital financial inclusion, Financial literacy, Digital literacy |
| JEL: | J16 L25 G53 |
| Date: | 2023–03–02 |
| URL: | http://d.repec.org/n?u=RePEc:nca:ncaerw:146&r=ban |
| By: | Petar, Radanliev |
| Abstract: | The results of this study show that cybersecurity standards are not designed in close cooperation between the two major western blocks - US and EU. In addition, while the US is still leading in this area, the security standards for cryptocurrencies, internet-of-things, and blockchain technologies have not evolved as fast as the technologies have. The key finding from this study is that although the crypto market has grown into a multi-trillion industry, the crypto market has also lost over 70% since its peak, causing significant financial loss for individuals and cooperation’s. Despite this significant impact to individuals and society, cybersecurity standards and financial governance regulations are still in their infancy. |
| Keywords: | Cyber Risk Assessment; Cloud Cybersecurity Standards; Financial Governance, DeFi, NIST; ISO27001; IoT; Blockchain Technologies, Metaverse, Cryptocurrencies. |
| JEL: | A3 F3 F38 F5 F55 F6 G2 G21 G23 G28 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:116885&r=ban |
| By: | Bell, Jennifer (Bank of England); Battisti, Giuliana (Warwick Business School); Guin, Benjamin (Bank of England) |
| Abstract: | Shocks to energy prices can have a direct impact on homeowners’ disposable income, affecting their ability to pay their mortgage. Properties’ energy efficiency can provide some protection against the transition risk of rising energy costs. Anecdotally, lenders appear to be increasingly differentiating mortgage interest rates based on energy efficiency. But did lenders account for it before relevant regulatory interventions came in? We estimate standard mortgage pricing models using a unique data set of 1.8 million mortgages originated in the United Kingdom pre-2018. We find no evidence of lenders charging higher rates on riskier mortgages against energy-inefficient properties. Overall, our findings do not provide conclusive evidence that lenders took energy efficiency into account when setting interest rates prior to regulatory interventions. |
| Keywords: | Mortgage pricing; energy efficiency; climate change; transition risk |
| JEL: | G21 Q40 |
| Date: | 2023–03–03 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:1016&r=ban |
| By: | Nik Hadiyan Binti Nik Azman (Universiti Sains Malaysia, Malaysia Author-2-Name: Zhang Chengzhuo Author-2-Workplace-Name: Universiti Sains Malaysia, Malaysia Author-3-Name: Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:) |
| Abstract: | " Objective - Due to information asymmetry, banks cannot know all the information about a company during the financing process. Compared to large firms, start-ups face more difficulties in obtaining debt financing. In order to investigate how the game between start-ups and banks maximizes the benefits of debt financing, this study is based on the game process between start-ups and banks in complete and incomplete information markets. Methodology/Technique - The model assumes deterministic and relatively simple financial decisions, and game theory provides a way to gain insight into the mechanistic phenomenon of debt financing for start-ups by allowing for the inclusion of asymmetric information and strategic interactions in the analysis. Finding - The game process of debt financing for start-ups is studied from a game theoretical perspective to reveal the optimal decisions of both parties in the game process under the influence of information asymmetries, i.e., the basic laws governing the operation of debt financing for start-ups and the important criteria and procedures to ensure that debt financing works correctly. Novelty - The study shows that high-quality start-ups are more likely to receive bank loans than low-quality firms that are willing to pay high-interest rates. Type of Paper - Empirical" |
| Keywords: | Asymmetric Information theory; Game Theory; Debt Financing; Startup. |
| JEL: | C7 C72 |
| Date: | 2023–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:gtr:gatrjs:gjbssr631&r=ban |
| By: | Michl, Thomas R. (Department of Economics, Colgate University) |
| Abstract: | This paper presents an alternative foundation to the standard quadratic loss function characterizing central bank inflation policy. The alternative treats high employment as a social benefit. In recognition of the inherent asymmetry of the output gap, two self-imposed constraints provide guardrails that rule out excess unemployment and opportunistic reflation. The loss function includes a novel reverse discounting mechanism that penalizes the bank for more sustained inflation gaps that could undermine confidence and reduce inflation expectations anchoring. Anchoring shapes the way the bank manages inflation expectations. In the absence of anchoring the shadow price of expectations is equal to the sacrifice ratio but in the presence of anchoring the shadow price drops to zero reflecting the policy flexibility anchoring affords the central bank. The central bank’s optimal policy differs dramatically from the standard Taylor Rule recommendation in choosing policy plans with higher employment, in its willingness to overshoot inflation targets, and in avoiding excess unemployment, all while observing the discipline needed for successful inflation targeting. |
| JEL: | E31 |
| Date: | 2023–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:cgt:wpaper:2023-01&r=ban |
| By: | Marco Ceccarelli (Maastricht University - Department of Finance); Christoph Herpfer (Emory University - Goizueta Business School); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)) |
| Abstract: | Using data from the US syndicated loan market, we find women to be underrepresented among senior commercial bankers. This gap persists due to unequal promotion rates for men and women at the same institution in the same year, and cannot be explained by different individual or managerial performance. The gap is influenced more by individuals than by institutions, with senior bankers showing assortative matching when changing jobs, and perpetuating the gender gap from their previous workplace. Our findings suggest that the gender gap may be partially attributable to women taking on more family care responsibilities. Hard credentials or female leadership at the top of banks do not alleviate the gender gap, but targeted gender discrimination lawsuits and female leadership on the local level result in increased promotion of women. |
| JEL: | D22 G21 G32 J01 J71 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2323&r=ban |
| By: | David Wu; Sebastian Jaimungal |
| Abstract: | The objectives of option hedging/trading extend beyond mere protection against downside risks, with a desire to seek gains also driving agent's strategies. In this study, we showcase the potential of robust risk-aware reinforcement learning (RL) in mitigating the risks associated with path-dependent financial derivatives. We accomplish this by leveraging the Jaimungal, Pesenti, Wang, Tatsat (2022) and their policy gradient approach, which optimises robust risk-aware performance criteria. We specifically apply this methodology to the hedging of barrier options, and highlight how the optimal hedging strategy undergoes distortions as the agent moves from being risk-averse to risk-seeking. As well as how the agent robustifies their strategy. We further investigate the performance of the hedge when the data generating process (DGP) varies from the training DGP, and demonstrate that the robust strategies outperform the non-robust ones. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2303.15216&r=ban |
| By: | Cyril Bénézet (LaMME - Laboratoire de Mathématiques et Modélisation d'Evry - UEVE - Université d'Évry-Val-d'Essonne - ENSIIE - Université Paris-Saclay - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, ENSIIE - Ecole Nationale Supérieure d'Informatique pour l'Industrie et l'Entreprise); Stéphane Crépey (LPSM (UMR_8001) - Laboratoire de Probabilités, Statistique et Modélisation - SU - Sorbonne Université - CNRS - Centre National de la Recherche Scientifique - UPCité - Université Paris Cité, UPCité - Université Paris Cité); Dounia Essaket (LPSM (UMR_8001) - Laboratoire de Probabilités, Statistique et Modélisation - SU - Sorbonne Université - CNRS - Centre National de la Recherche Scientifique - UPCité - Université Paris Cité, UPCité - Université Paris Cité) |
| Abstract: | Darwinian model risk is the risk of mis-price-and-hedge biased toward short-to-medium systematic profits of a trader, which are only the compensator of long term losses becoming apparent under extreme scenarios where the bad model of the trader no longer calibrates to the market. The alpha leakages that characterize Darwinian model risk are undetectable by the usual market risk tools such as value-at-risk, expected shortfall, or stressed value-at-risk. Darwinian model risk can only be seen by simulating the hedging behavior of a bad model within a good model. In this paper we extend to callable assets the notion of hedging valuation adjustment introduced in previous work for quantifying and handling such risk. The mathematics of Darwinian model risk for callable assets are illustrated by exact numerics on a stylized callable range accrual example. Accounting for the wrong hedges and exercise decisions, the magnitude of the hedging valuation adjustment can be several times larger than the mere difference, customarily used in banks as a reserve against model risk, between the trader's price of a callable asset and its fair valuation. |
| Keywords: | Financial derivatives pricing and hedging, Callable asset, Model risk, Model calibration, Hedging Valuation Adjustment (HVA) |
| Date: | 2023–04–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-04057045&r=ban |
| By: | Lin Chen; Stephanie Houle |
| Abstract: | We generate high-frequency and up-to-date indicators to monitor news media coverage of supply (raw, intermediate and final goods) and labour shortages in Canada. We use natural language processing to construct two news-based indicators and time-varying topic narratives to track Canadian media coverage of these shortages from 2000 to 2022. This makes our indicators an insightful alternative monitoring tool for policy. Notably, our indicators track well with monthly price indexes and measures from the Bank of Canada’s Business Outlook Survey, and they are highly correlated with commonly tracked indicators of supply constraint. Moreover, the news-based indicators reflect the attention of the public on pressing issues. |
| Keywords: | Coronavirus disease (COVID-19); Econometric and statistical methods; Monetary policy and uncertainty; Recent economic and financial developments |
| JEL: | C55 C82 E37 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:23-8&r=ban |
| By: | Ismael Choinière-Crèvecoeur; Pierre-Carl Michaud |
| Abstract: | Few retirees use reverse mortgages. In this paper, we investigate how financial literacy and prior knowledge of the product influence take-up by conducting a stated-preference experiment. We exogenously manipulate characteristics of reverse mortgages to tease out how consumers value them and investigate differences by financial literacy and prior knowledge of reverse mortgages. We find that those with higher financial knowledge are more likely to know about reverse mortgages, not more likely to purchase them at any cost but are more sensitive to the interest rate and the insurance value of these products in terms of the non-negative equity guarantee. Peu de retraités ont recours aux prêts hypothécaires inversés. Dans cet article, nous étudions l'influence de la littératie financière et de la connaissance préalable du produit sur son utilisation en menant une expérience de préférences déclarées. Nous manipulons de manière exogène les caractéristiques des prêts hypothécaires inversés afin de déterminer la valeur que leur accordent les consommateurs et d'étudier les différences en fonction de la littératie financière et de la connaissance préalable des prêts hypothécaires inversés. Nous constatons que les personnes ayant de meilleures connaissances financières sont plus susceptibles de connaître les prêts hypothécaires inversés; qu'elles ne sont pas plus susceptibles de les acheter à tout prix; mais qu'elles sont plus sensibles au taux d'intérêt et à la valeur d'assurance de ces produits en termes de garantie de valeur nette réelle non négative. |
| Keywords: | reverse mortgages, savings, retirement planning, insurance, hypothèques inversées, épargne, planification de la retraite, assurance |
| JEL: | G53 G21 R21 |
| Date: | 2023–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2023s-06&r=ban |
| By: | Alba Carlos; Cuadra Gabriel; Ibarra Raúl |
| Abstract: | This paper analyzes the effects of the extraordinary measures implemented by the Bank of Mexico during the COVID-19 pandemic on financial conditions. For this purpose, we estimate a factor-augmented vector autoregressive (FAVAR) model for the period 2001-2021. Based on this model, we construct a financial conditions index, estimate the response of this indicator and its components from a shock to the outstanding amount of these measures, and conduct a counterfactual exercise to further analyze the effect of the aforementioned measures. The results indicate that the extraordinary measures seem to have contributed to improve financial conditions. In particular, we find that if these measures had not been implemented, the sovereign risk premium, the 10-year government bond yield, the slope of the yield curve, the long and short-term yield spreads between Mexico and USA, the exchange rate and its volatility would have been higher. In turn, the Mexican stock market index would have been lower. |
| Keywords: | Financial Conditions;Central Bank Policies;Factor-Augmented VAR |
| JEL: | C32 E58 G01 E44 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2023-03&r=ban |
| By: | Maximilian Tschuchnig; Petra Tschuchnig; Cornelia Ferner; Michael Gadermayr |
| Abstract: | Inflation is a major determinant for allocation decisions and its forecast is a fundamental aim of governments and central banks. However, forecasting inflation is not a trivial task, as its prediction relies on low frequency, highly fluctuating data with unclear explanatory variables. While classical models show some possibility of predicting inflation, reliably beating the random walk benchmark remains difficult. Recently, (deep) neural networks have shown impressive results in a multitude of applications, increasingly setting the new state-of-the-art. This paper investigates the potential of the transformer deep neural network architecture to forecast different inflation rates. The results are compared to a study on classical time series and machine learning models. We show that our adapted transformer, on average, outperforms the baseline in 6 out of 16 experiments, showing best scores in two out of four investigated inflation rates. Our results demonstrate that a transformer based neural network can outperform classical regression and machine learning models in certain inflation rates and forecasting horizons. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2303.15364&r=ban |
| By: | Djihad, Tria; Harun, Mukaramah; Alam, Md. Mahmudul (Universiti Utara Malaysia) |
| Abstract: | National governments and their development partners have considered microcredit as a strategic tool for vulnerable populations. Easy access to finance increases the client's ability to invest and allows clients to use resources to change their behaviour, increase their business opportunities and create employment. This paper aims to review studies that focused on microcredit and employment issues affecting beneficiaries, including gender-based employment creation and the informal sector. Through a systematic search of electronic databases and keywords to identify relevant studies, 40 core articles are identified for the period 1998-2021. The results indicate the significant impacts of microcredit on women's employment creation and business revenue of microenterprises in the informal sector. Moreover, a few studies set out to integrate gender employment creation and the informal sector with reference to microcredit. A framework is proposed to address the relationship between employment structure and microcredit. Finally, this study recommends developing a financial social accounting matrix and run empirical analysis on macro modelling such as input-output or general equilibrium modelling. Doing so will help obtain better understanding of how microcredit participation is associated with employment creation in different sectors and different types of household groups. |
| Date: | 2022–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:ux4b6&r=ban |
| By: | Andrew G. Biggs; Anqi Chen; Alicia H. Munnell |
| Abstract: | The question is how the COVID-19 pandemic affected the finances of vulnerable households, as well as those with more resources. On one hand, the shut-down of the economy resulted in salary cuts and job losses. On the other hand, many households received substantial government relief – through stimulus payments and unemployment benefits – and booming housing and equity markets accompanied the rapid economic rebound. Household consumption could also have gone up or down over this topsy turvy period. This brief, which is based on a recent paper, examines how COVID affected the balance sheets of U.S. households, as measured both by subjective self assessments and by objective measures of net wealth.1 It is only a first look at the issue as the period examined goes from December 2019-December 2021. The discussion proceeds as follows. The first section describes the financial support provided by the government during the pandemic. The second section discusses the data and methodology used to measure both the change in perceived well-being and changes in actual net worth. The third section presents the results, which include the reported use and perceived effects of the stimulus payments, as well as an assessment of how all of the relevant economic factors affected actual household balance sheets. The final section concludes that high-wealth households gained an enormous amount from the run-up of housing and equity prices during the period we examine; the stimulus payments and market gains helped boost the balance sheets of middle-wealth households; and the stimulus payments allowed lowwealth households to break even – a stark difference from the Great Recession. |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:crr:issbrf:ib2023-05&r=ban |
| By: | Andrea Barbon (University of St. Gallen; Swiss Finance Institute); Angelo Ranaldo (University of St. Gallen; Swiss Finance Institute) |
| Abstract: | By investigating nonfungible tokens (NFTs), we provide the first systematic study of retail investor behavior through asset bubbles. Given that NFTs are recorded in public blockchains, we are able to track investor behavior over time, leading to the identification of numerous price run-ups and crashes. Our study reveals that agent-level variables, such as investor sophistication, heterogeneity, and wash trading, in addition to aggregate variables, such as volatility, price acceleration, and turnover, significantly predict bubble formation and price crashes. We find that sophisticated investors consistently outperform others and exhibit characteristics consistent with superior information and skills, supporting the narrative surrounding asset pricing bubbles. |
| Keywords: | Financial Bubbles, Nonfungible Tokens, Agent-level, Blockchain |
| JEL: | G14 G12 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2320&r=ban |
| By: | Shijie Wu; Ozan Irsoy; Steven Lu; Vadim Dabravolski; Mark Dredze; Sebastian Gehrmann; Prabhanjan Kambadur; David Rosenberg; Gideon Mann |
| Abstract: | The use of NLP in the realm of financial technology is broad and complex, with applications ranging from sentiment analysis and named entity recognition to question answering. Large Language Models (LLMs) have been shown to be effective on a variety of tasks; however, no LLM specialized for the financial domain has been reported in literature. In this work, we present BloombergGPT, a 50 billion parameter language model that is trained on a wide range of financial data. We construct a 363 billion token dataset based on Bloomberg's extensive data sources, perhaps the largest domain-specific dataset yet, augmented with 345 billion tokens from general purpose datasets. We validate BloombergGPT on standard LLM benchmarks, open financial benchmarks, and a suite of internal benchmarks that most accurately reflect our intended usage. Our mixed dataset training leads to a model that outperforms existing models on financial tasks by significant margins without sacrificing performance on general LLM benchmarks. Additionally, we explain our modeling choices, training process, and evaluation methodology. As a next step, we plan to release training logs (Chronicles) detailing our experience in training BloombergGPT. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2303.17564&r=ban |
| By: | Aydin Yakut, Dilan (Central Bank of Ireland) |
| Abstract: | Larger and more sustained energy and commodity price shocks as a result of the war in Ukraine are contributing to higher headline inflation in the euro area (EA), when compared with the US. Underneath the headline numbers, trend inflation – something monetary policy-makers pay close attention to in order to get a sense of persistence in inflation dynamics – is still lower in the EA, mainly due to lower services inflation. However, this gap in trend inflation is gradually closing and even slightly reversed recently when owneroccupied housing services costs are excluded from US inflation. |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:ecolet:2/el/23&r=ban |
| By: | Nigel Adams; Adriano Augusto; Michael Davern; Marcello La Rosa |
| Abstract: | As the first phase in the Business Process Management (BPM) lifecycle, process identification addresses the problem of identifying which processes to prioritize for improvement. Process selection plays a critical role in this phase, but it is a step with known pitfalls. Decision makers rely frequently on subjective criteria, and their knowledge of the alternative processes put forward for selection is often inconsistent. This leads to poor quality decision-making and wastes resources. In recent years, a rejection of a one-size-fits-all approach to BPM in favor of a more context-aware approach has gained significant academic attention. In this study, the role of context in the process selection step is considered. The context is qualitative, subjective, sensitive to decision-making bias and politically charged. We applied a design-science approach and engaged industry decision makers through a combination of research methods to assess how different configurations of process inputs influence and ultimately improve the quality of the process selection step. The study highlights the impact of framing effects on context and provides five guidelines to improve effectiveness. |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2304.05033&r=ban |