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on Banking |
| By: | Batiz-Lazo, Bernardo; Maixe-Altes, J Carles; Peon, David |
| Abstract: | We explore the potential of different behavioral drivers for people to use cash when presented with digital payment alternatives in retail transactions. Behavioral finance traits in our study include the otherwise neglected emotional drivers. We conducted an online survey targeting university educated adults in sub-Saharan African countries, a continent characterized by lower levels of banking penetration, intensive use of cash, and increased popularity of mobile money accounts to reduce financial exclusion. We obtain robust evidence that the affect heuristic is the only relevant behavioral trait determining the use of cash and of payments with credit cards, while there is no evidence of behavioral drivers influencing the overall decision to use of electronic payments. However, in specific payment contexts cognitive traits, such as mental accounting, fungibility bias, and habit, do mediate in determining the choice of payment method. We found robust evidence that a higher value of our personal income proxy is associated with a reduction in the intention to use electronic payments. All results are robust to alternative econometric specifications: multinomial logistic, ordered logistic, and logit regressions. Our research provides a clear policy message, namely for authorities to promote a variety of payment alternatives, including cash, and ensure they are available in retail transactions. |
| Keywords: | FinTech, Cash, Digital Payments, Behavioral Finance (Affect Heuristic), Africa (Ghana, Kenya, Nigeria, South Africa). |
| JEL: | E4 E5 G1 G2 L8 O3 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:117984&r=ban |
| By: | Goodhart, Charles A.E.; Tsomocos, Dimitrios P.; Wang, Xuan |
| Abstract: | The financial intermediation wedge of the banking sector used to co-move positively with the federal funds rate, but the post-GFC era saw a disconnect between them. We develop a flexible price dynamic general equilibrium with banks’ liquidity creation to offer an explanation. In a corridor system, the financial wedge and policy rate are shown to co-move, and the pass-through of monetary policy onto both inflation and output obtains. However, the post-GFC floor system obviates the need for the financial wedge to cover the cost of obtaining reserves, so the wedge and the policy rate indeed disconnect in equilibrium; furthermore, we show that the disconnect obstructs monetary expansions from generating inflation. In this environment, tightening bank capital requirement leads to disinflationary pressure. Money-financed fiscal expansions that subsidise non-bank sectors’ borrowing costs improve output and reduce default risks but increase inflation. The model uses banks’ liquidity creation via credit extension to provide a rationale for both the pre-pandemic disinflation and the post-pandemic inflation. The results hold both on the dynamic paths and in the steady state, and the role of money enlarges the Taylor rule determinacy region. |
| Keywords: | corporate default; financial intermediation wedge; inside money deposits; liquidity creation; long-run non-neutrality; money-financing; reserve management |
| JEL: | F3 G3 J1 |
| Date: | 2023–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:119771&r=ban |
| By: | Owen F. Humpage |
| Abstract: | The creation of the Federal Reserve System ultimately stemmed from fundamental changes in the banking industry that heightened the risks associated with shifts in the public’s liquidity preferences and that created an atmosphere of distrust between the small, traditional, country banks and the large, transforming, Wall Street banks. The severity of the Panic of 1907 became the proximate factor in the Federal Reserve’s formation. The panic, which the New York Clearing House’s slow, discriminative, and insufficient response characterized, gave credence to concerns of growing financial risks and invigorated calls for reform. The Federal Reserve’s unique structure reflects compromises reached in attempts to dampen the risks in the banking industry while easing the distrust and fears of dominance among its various stakeholders. |
| Keywords: | Inelastic/Elastic Currency; New York Clearing House; Reserve pyramiding; Panic of 1907; Aldrich Plan; Federal Reserve Act; Reserve Bank Organization Committee |
| JEL: | E58 N20 |
| Date: | 2023–08–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:96515&r=ban |
| By: | Willem THORBECKE |
| Abstract: | Inflation in 2021 and 2022 grew much faster than the Federal Reserve expected. The Fed downplayed inflation in 2021 and then increased the federal funds rate by 500 basis points between March 2022 and May 2023. This paper investigates how this unprecedented tightening impacted the stock market. To do so it estimates a fully specified multi-factor model that measures the exposure of 53 assets to Bauer and Swanson (2022) monetary policy surprises over the 1988 to 2019 period. It then uses the monetary policy betas to gauge investors’ beliefs about monetary policy between 2020 and 2023. The results indicate that changing perceptions about monetary policy multiplied uncertainty and stock market volatility. |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:23054&r=ban |
| By: | Urban, Jörg |
| Abstract: | Credit and business cycles play an important role in economic research, especially for central banks and supervisors. We reexamine a dynamic model proposed by Kiyotaki and Moore (1997) of an economy with an endogenous credit limit. They claim that a small temporary shock generates large and persistent deviations from the steady state due to a positive feedback loop and the endogenous credit constraint. We mathematically show that contrary to common belief the model does not show amplification and persistence is visible only for a few parameter settings. Kiyotaki and Moore have linearized the model in deviations of landholdings and found that these deviations from the equilibrium are large. This is mathematically inconsistent, because any higher order term would then be more important, rendering any finite-order Taylor expansion invalid. Further, we show that spillover effects in an economy with two distinct sectors are small. The strong amplification present in the original results, which supposedly is due to the large inter-temporal or dynamic multiplier effect, is spurious. The dynamic multiplier effect is of similar size than the static effect and in all cases numerically small. |
| Keywords: | Amplification, credit constraints, credit cycles, dynamic economies, Taylor expansion |
| JEL: | E32 E37 E51 E52 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:kitwps:162&r=ban |
| By: | Kwamivi Gomado |
| Abstract: | The current context of the COVID-19 pandemic has exposed the most vulnerable socio-economic groups to greater financial risk and thus could lead to exacerbating income inequality. The crisis creates an opportunity to demand further structural and systemic reforms for redistributive justice. Our paper explores the distributional consequences of financial liberalization reforms implemented over the past four decades in 64 emerging and low-income countries. |
| Keywords: | Reforms, Financial liberalization, Income inequality, Business cycles |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp-2023-88&r=ban |
| By: | Christopher Gerling; Stefan Lessmann |
| Abstract: | In response to growing FinTech competition and the need for improved operational efficiency, this research focuses on understanding the potential of advanced document analytics, particularly using multimodal models, in banking processes. We perform a comprehensive analysis of the diverse banking document landscape, highlighting the opportunities for efficiency gains through automation and advanced analytics techniques in the customer business. Building on the rapidly evolving field of natural language processing (NLP), we illustrate the potential of models such as LayoutXLM, a cross-lingual, multimodal, pre-trained model, for analyzing diverse documents in the banking sector. This model performs a text token classification on German company register extracts with an overall F1 score performance of around 80\%. Our empirical evidence confirms the critical role of layout information in improving model performance and further underscores the benefits of integrating image information. Interestingly, our study shows that over 75% F1 score can be achieved with only 30% of the training data, demonstrating the efficiency of LayoutXLM. Through addressing state-of-the-art document analysis frameworks, our study aims to enhance process efficiency and demonstrate the real-world applicability and benefits of multimodal models within banking. |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2307.11845&r=ban |
| By: | Joshi, Seema; Surana, Divya |
| Abstract: | Voluminous literature has been dedicated to the finance-growth nexus. The banking industry in India is indeed on a high growth trajectory because of rising disposable incomes, increasing consumerism, easier access to credit and boost in investor confidence due to the recent structural reforms. It is the recent performance of the State Bank of India (SBI) bank and the reverse merger of Housing Development Finance corporation (HDFC) Ltd. with its subsidiary, i.e., HDFC Bank, which motivated us to carry out an analysis of the robustness of the leading two banks in India in the public and private sectors, viz. SBI and HDFC Bank (premerger scenario) using the CAMEL framework and that too for a longer period of time, i.e., ten years (2013-2022). The study shows that despite being the largest public sector bank of India, the State Bank of India continued to underperform in terms of various CAMEL ratios when compared to HDFC Bank. The key policy lesson for SBI is that it has to focus more on its performance/profitability by diversifying its borrowers and improving its asset quality by regulating its NPAs efficiently vis-à-vis that of HDFC Bank, as this has wider implications for the financial and economic stability of the country. |
| Keywords: | Finance-growth nexus, The banking industry in India, public sector bank of India CAMEL framework |
| JEL: | G2 |
| Date: | 2023–07–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:118104&r=ban |
| By: | Rawa, Grzegorz |
| Abstract: | Progressive climate change triggers off phenomena that threaten agricultural production. Crop insurance makes it possible to mitigate their effects, but only a small percentage of crops in Poland is insured. Previous research into the determinants of farmers̕ participation in the production insurance system has mainly used the logit regression method. This paper presents the results of a study using a structural equation model (SEM) estimated for a sample of 600 farms in the FADN observation field, which aimed to identify factors influencing farmers’ purchase of production insurance. This research approach made it possible to describe the phenomenon in a way that has been little recognized so far, complementing the decision-making model under consideration with latent variables that could not be considered by the methods used so far. Based on the literature research, three unobservable variables were identified: willingness to purchase insurance, risk aversion and risk perception, and farming intensity, and then quantified using observable variables. The results show a directly proportional relationship between willingness to purchase insurance and risk aversion and risk perception and inversely proportional relationship with farming intensity. |
| Keywords: | Agricultural and Food Policy, Agricultural Finance, Risk and Uncertainty |
| Date: | 2023–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iafepa:337447&r=ban |
| By: | Sakina Anzar Basha (Financia Business School); Ezzedine Ghlamallah (CERGAM - Centre d'Études et de Recherche en Gestion d'Aix-Marseille - AMU - Aix Marseille Université - UTLN - Université de Toulon) |
| Abstract: | The objective of this research is to determine the conditions for implementing Islamic banking in France. To do so, we analyze the respective performance efficiency of the two Islamic and conventional modes as well as the common and specific challenges faced by the Islamic banking sector. Finally, this research presents the legal and fiscal adjustments necessary for its development in France as well as the appropriate risk management methods. |
| Abstract: | L'objectif de cette recherche est de déterminer les conditions de mise en œuvre de la banque islamique en France. Pour cela, nous analysons l'efficacité de la performance respective des deux modes islamique et conventionnel, ainsi que les défis communs et spécifiques auquel le secteur bancaire islamique est confronté. Enfin, cette recherche présente les ajustements juridiques et fiscaux nécessaires à son développement en France, ainsi que les méthodes de gestion des risques appropriées. |
| Keywords: | Finance Islamique, Banque Islamique, Finance d’entreprise, Marchés de capitaux islamiques |
| Date: | 2023–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04140771&r=ban |
| By: | Comola, Margherita (Paris School of Economics); Prina, Silvia (Northeastern University) |
| Abstract: | This paper studies how formal financial access affects network-based financial arrangements. We use a field experiment that granted access to a savings account to a random subset of households in 19 Nepalese villages. Exploiting a unique panel dataset that follows all bilateral informal financial transactions before and after the intervention, we show that households that were offered access to an account increased their loans and total transfers to others, independent of the treatment status of the receiver. The increase seemed to be driven by treatment households with more assets and greater financial inclusion at baseline. |
| Keywords: | financial access, savings, networks, financial arrangements |
| JEL: | C93 D14 G21 O16 O17 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp16303&r=ban |
| By: | John Krainer; Pascal Paul |
| Abstract: | We study the transmission of monetary policy through bank securities portfolios for the United States using granular supervisory data on bank securities, hedging positions, and corporate credit. We find that banks that experienced larger market value losses on their securities during the monetary tightening cycle in 2022 extended relatively less credit to firms. Such a spillover effect was stronger for (i) available-for sale securities, (ii) unhedged securities, (iii) low-capitalized banks, and (iv) banks that have to include unrealized gains and losses on their available-for-sale securities in their regulatory capital. Our findings provide evidence for a forceful transmission channel of monetary policy that is shaped by the regulatory framework of the banking system. |
| Keywords: | banks; firms; securities; monetary policy |
| JEL: | E32 E43 E44 E51 E52 E60 G21 G32 |
| Date: | 2023–07–26 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:96512&r=ban |
| By: | Aubaidillah Doloh (IIUM Institute of Islamic Banking and Finance, International Islamic University Malaysia Author-2-Name: Nur Harena Redzuan Author-2-Workplace-Name: IIUM Institute of Islamic Banking and Finance, International Islamic University 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 - The objectives of the study are to assess the level of students' knowledge of Islamic finance and examine their financial behavior (FB), financial stress (FS), and financial well-being (FWB). Methodology – The study applies a quantitative research method with primary data collection using a non-probability convenience sampling technique. The questionnaires were distributed to 155 students, including undergraduate and postgraduate students. Findings and Novelty – The study concludes that only the financial well-being hypothesis was supported, meaning that financial well-being influences the level of Islamic financial literacy (IFL). The study contributes to the various stakeholders. For the government authority, this study can be a reliable benchmark for the level of Islamic financial literacy among university students. For the university authority, this study helps the university assess students' Islamic financial literacy level. For the Islamic financial industry, it tells what needs to be improved by the community members. Moreover, this study contributes to the existing literature on Islamic financial literacy. The study also recommends future research to study other variables related to Islamic financial literacy and include a wider sample from different universities. Type of Paper - Empirical" |
| Keywords: | Islamic financial literacy; financial behaviors; financial stress; financial well-being |
| JEL: | I22 M29 O16 |
| Date: | 2023–07–30 |
| URL: | http://d.repec.org/n?u=RePEc:gtr:gatrjs:jfbr211&r=ban |
| By: | Robert C. M. Beyer; Rupa Duttagupta; Alexandra Fotiou; Ms. Keiko Honjo; Mr. Mark A Horton; Zoltan Jakab; Vina Nguyen; Mr. Rafael A Portillo; Jesper Lindé; Mrs. Nujin Suphaphiphat; Mr. Li Zeng |
| Abstract: | This paper employs two established macroeconomic models to show that fiscal policy in the euro area can help monetary policy in reducing inflation. Specifically, a fiscal consolidation of 1 percent of GDP for two years and 0.5 percent in the third year across the euro area would ease the policy interest rate by 30-50 basis points relative to the baseline scenario, while lowering inflation. It would also put the public debt-to-GDP ratio on a downward path, with the output costs reversing after the second year. Additionally, a stronger fiscal contribution to the policy mix could mitigate financial fragmentation risks. In the current context of elevated inflation in all euro area economies, the findings suggest two key takeaways: first, synchronized fiscal and monetary policies offer gains even when monetary policy is unconstrained and, second, sharing the burden of lowering inflation through fiscal consolidation among euro area members is beneficial for union-wide inflation reduction, improving debt sustainability and inducing a lower policy rate path. |
| Keywords: | Policy mix; monetary policy; fiscal policy; policy coordination |
| Date: | 2023–07–21 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/149&r=ban |
| By: | Ferrando, Annalisa; Grazzini, Caterina Forti |
| Abstract: | We provide new evidence on how ECB’s monetary policy decisions affect firms’ bank loan expectations in the euro area. We use firm-level data derived from the ECB Survey on the Access to Finance of Enterprises for the period 2009 to 2022 and identify the impact of monetary policy by comparing the responses of firms interviewed shortly before and after monetary policy shocks. Our results are as follows. First, we find that firms’ bank loan expectations react to monetary policy, with a contractionary shock leading to a downward revision of expectations. Second, we show that firms’ response depends on the size and the sign of the shock, with only large and contractionary shocks having a significant negative effect on expectations. Third, we observe that the different components of central bank communication (i.e. the pure monetary policy shock and the central bank information shock) have different impacts on firms’ beliefs. Fourth, we find that conventional and unconventional QE shocks have opposite effects on expectations, with the impact of QE policies mainly being driven by the central bank information component of the related announcements. Finally, we document that the response to monetary policy differs along firms’ structural characteristics. JEL Classification: C83, D22, D84, E58 |
| Keywords: | firms’ expectations, monetary policy, survey data |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232838&r=ban |
| By: | Jeanne Lazarus (CSO - Centre de sociologie des organisations (Sciences Po, CNRS) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique) |
| Keywords: | Inflation, poverty |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04160049&r=ban |
| By: | Cars Hommes; Julien Pinter; Isabelle Salle |
| Abstract: | We conduct an information-provision experiment within a large-scale household survey on public finance in France, The Netherlands and Italy. We elicit prior opinions via open-ended questions and introduce a measure of macroeconomic policy literacy. A central bank (CB) educational blogpost explaining the mechanics of CB money preceded by a short video clip on public finance can persistently induce less support for monetary-financed proposals and more for fiscal discipline and CB independence, no matter the respondents’ level of policy literacy. However, prior beliefs matter and contradictory information may be polarizing. Additional analysis of our data shows that information affects the respondents’ views by shifting their inflation and tax expectations associated to these policies. |
| Keywords: | large-scale household survey, information-provision experiment, RCT, central bank communication, expectations |
| JEL: | E70 E60 E62 E58 G53 H31 C83 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10574&r=ban |
| By: | van Breemen, Vivian M.; Schwarz, Claudia; Vink, Dennis |
| Abstract: | We empirically investigated the impact of regulatory risk retention methods on credit ratings and pricing at issuance using a sample of European securitization tranches issued in the period 2011-2021. European regulation is based on the assumption that all risk retention methods homogenously align incentives and interests between originators and investors. We investigated the impact of these methods on the pricing of securitization tranches and found that investors adjust the risk premium at issuance for tranches based on different risk retention methods. We also found that credit ratings (discrepancy) differed depending on the risk retention method used. Finally, we gained a deeper insight into the risk retention methods chosen over time and concluded that originators take deal complexity and capital relief characteristics into consideration when selecting a specific method. JEL Classification: G12, G21, G24, G28 |
| Keywords: | credit ratings, primary issuance spread, risk retention rule |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232837&r=ban |
| By: | Ghita Hidare (Université Mohammed 5 RABAT) |
| Abstract: | Technological change had a major impact on all sectors of activity, including banking, which is considered a pioneer in the adoption of new technologies. Over the past decade, the banking sector has always been at the forefront of technological development.Today, the digitalization of banking services is booming. Moroccan banks are increasingly focusing on technological solutions to deliver a better customer experience to banking customers. Mobile payment, being one of the most recent tools, remains, if not unrecognizable, rarely used, despite the many advantages it offers in terms of convenience, speed and security. The aim of our paper is to determine the factors that can influence this fact, through a presentation of the state of the art, in particular the concept of innovation, being a continuous process that aims to introduce new ideas, technologies, products or services, by relating the different theories and models of its adoption. Our main motivation lies in understanding the banking consumer's behavior towards mobile payment, as much as the modern solution proposed by Moroccan banks. Through this article, and by going through a set of theoretical models of innovation adoption, mobile payment in our case, we will deduce a conceptual model including factors that may possibly influence the use or intention to use the mobile payment tool by banking consumers and thus determine their implications. In future work, the hypotheses deduced will be tested using the structural equation method. |
| Abstract: | L'évolution technologique a eu un impact majeur sur les différents secteurs d'activité, notamment le secteur bancaire considéré comme pionnier en matière d'adoption des nouvelles technologies. Depuis une décennie, le domaine bancaire a toujours été en avance en matière de développement technologique. De nos jours, la digitalisation des services bancaires est en plein essor. Les banques marocaines se focalisent de plus en plus sur les solutions technologiques pour offrir une meilleure expérience client aux consommateurs bancaires. Le paiement mobile, étant un des outils les plus récents, demeure si ce n'est méconnaissable, peu utilisé, malgré les nombreux avantages qu'il propose en termes de praticité, rapidité et sécurité. L'objectif de notre papier est de déterminer les facteurs pouvant influencer ce fait, à travers une présentation d'un état de l'art, notamment du concept de l'innovation, étant un processus continu qui vise à introduire de nouvelles idées, technologies, produits ou services, en relatant les différentes théories et les différents modèles de son adoption. Notre motivation principale réside dans la compréhension du comportement du consommateur bancaire face au paiement mobile, autant que solution moderne proposée par les banques marocaines. À travers ce présent article, et en passant par un ensemble de modèles théoriques de l'adoption de l'innovation, dans notre cas, le paiement mobile, nous déduirons un modèle conceptuel comportant les facteurs pouvant éventuellement influencer l'utilisation ou l'intention d'utiliser l'outil du paiement mobile par les consommateurs bancaires et ainsi de déterminer leurs implications. Dans un futur travail, les hypothèses déduites seront testées à travers l'utilisation de la méthode des équations structurelles. |
| Keywords: | Innovation, theories, adoption, bank, innovation, théories, banque |
| Date: | 2023–06–23 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04148948&r=ban |
| By: | David Beers; Obiageri Ndukwe; Karim McDaniels; Alex Charron |
| Abstract: | The BoC–BoE database of sovereign debt defaults, published and updated annually by the Bank of Canada and the Bank of England, provides comprehensive estimates of stocks of government obligations in default. The 2023 edition includes a new section about the characteristics of sovereign defaults and provides new visuals showing regional debt in default. |
| Keywords: | Debt management; Development economics; Financial stability; International financial markets |
| JEL: | F F34 G G15 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:23-10&r=ban |
| By: | Francesco D'Ercole (LUM University); Alexander F. Wagner (University of Zurich ; Swiss Finance Institute; CEPR; and ECGI) |
| Abstract: | In prior financial and economic crises such as the Global Financial Crisis and COVID-19, environmentally responsible stocks performed well or at least neutrally. Were they also resilient as another banking crisis began unfolding with the collapse of Silicon Valley Bank (SVB) and Signature Bank? Or did they suffer because of the important role that these and other regional banks play for the clean tech sector? We find that stocks with more opportunities in the transition to a low-carbon economy performed worse in the 2023 crisis. Investors favored firms with low debt. Overall, the market appears to anticipate that the (regional) banking sector stress will curtail climate tech development. |
| Keywords: | Bank failure, Clean tech, ESG, Event study, Financial crisis, Silicon Valley Bank |
| JEL: | G12 G30 Q57 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2358&r=ban |
| By: | Orame, Andrea; Ramcharan, Rodney; Robatto, Roberto |
| Abstract: | We study whether regulation that relies on historical cost accounting (HCA) rather than mark-to-market accounting (MMA) to insulate banks’ net worth from financial market volatility affects the transmission of quantitative easing (QE) through the bank lending channel. Using detailed supervisory data from Italian banks and taking advantage of a change in accounting rules, we find that HCA makes banks significantly less responsive to QE than MMA. Hence, while HCA can insulate banks’ balance sheets during periods of distress, it also weakens the effectiveness of unconventional monetary policy in reducing firms’ credit constraints through the bank lending channel. JEL Classification: G28, E52, M48 |
| Keywords: | bank lending channel, historical cost accounting, regulatory capital, sovereign default premia, unconventional monetary policy |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:2023144&r=ban |
| By: | Michelle W. Bowman |
| Date: | 2023–08–07 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgsq:96526&r=ban |
| By: | Mikhail V. Sokolov |
| Abstract: | The national legislation of some countries prohibits lending money at a usurious interest rate. Most countries restrict the effective (rather than nominal) interest rate, which includes all commissions and fees that may come with a loan. In this case, the restriction is vague for loans whose cash flow steams have no internal rate of return. In this note, we show how to extend this restriction to all loans. We prove that there is a unique such extension consistent with a set of natural axioms. |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2307.08861&r=ban |
| By: | Kurada T S S Satyanarayana; Addada Narasimha Rao |
| Abstract: | Among the various factors affecting the firms positioning and performance in modern day markets, capital structure of the firm has its own way of expressing itself as a crucial one. With the rapid changes in technology, firms are being pushed onto a paradigm that is burdening the capital management process. Hence the study of capital structure changes gives the investors an insight into firm's behavior and intrinsic goals. These changes will vary for firms in different sectors. This work considers the banking sector, which has a unique capital structure for the given regulations of its operations in India. The capital structure behavioral changes in a few public sector banks are studied in this paper. A theoretical framework has been developed from the popular capital structure theories and hypotheses are derived from them accordingly. The main idea is to validate different theories with real time performance of the select banks from 2011 to 2022. Using statistical techniques like regression and correlation, tested hypotheses have resulted in establishing the relation between debt component and financial performance variables of the select banks which are helping in understanding the theories in practice. |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2307.14049&r=ban |
| By: | Chavleishvili, Sulkhan; Kremer, Manfred; Lund-Thomsen, Frederik |
| Abstract: | We propose a novel empirical approach to inform monetary policymakers about the potential effects of policy action when facing trade-offs between financial and macroeconomic stability. We estimate a quantile vector autoregression (QVAR) for the euro area covering the real economy, monetary policy and measures of ex ante and ex post systemic risk representing financial stability. Policy implications are derived from scenario analyses where the associated costs and benefits are functions of the projected paths of the potentially asymmetric distributions of inflation and economic growth, allowing us to take a risk management perspective. One exercise considers the intertemporal financial stability trade-off in the context of the global financial crisis, where we find ex post evidence in favour of monetary policy leaning against the financial cycle. Another exercise considers the short-term financial stability trade-off when deciding the appropriate speed of monetary policy tightening to combat inflationary pressures in a fragile financial environment. JEL Classification: C32, E37, E44, E52, G01 |
| Keywords: | growth-at-risk, Policy trade-offs, quantile regression, systemic risk |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232833&r=ban |
| By: | Christopher Henry; Walter Engert; Alexandra Sutton-Lalani; Sebastian Hernandez; Darcey McVanel; Kim Huynh |
| Abstract: | We discuss the payment habits of Canadians both in the current payment environment and in a hypothetical cashless environment. We also consider whether a central bank digital currency (CBDC) would address unmet payment needs in a cashless society. Most adult Canadians do not experience gaps in their access to a range of payment methods, and this would probably continue to be the case in a cashless environment. Some people could, however, face difficulties making payments if merchants no longer generally accepted cash as a method of payment. For a payment-oriented CBDC to successfully address unmet payment needs, the main consumer groups—who already have access to a range of payment options—would have to widely adopt the CBDC and use it at scale. This is necessary to encourage widespread merchant acceptance of CBDC, which would, in turn, encourage further consumer adoption and use. However, most consumers face few payment gaps or frictions and therefore might have relatively weak incentives to adopt and—especially—to use CBDC at scale. If that were the case, widespread merchant acceptance also would be unlikely. This suggests that addressing unmet payment needs for a minority of consumers by issuing a CBDC could be challenging under the conditions explored in this paper. The minority of consumers with unmet payment needs will only be able to benefit from a CBDC if the majority of consumers experience material benefits and therefore drive its use. |
| Keywords: | Bank notes; Central bank research; Digital currencies and fintech; Financial services |
| JEL: | C C9 E E4 O O54 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:23-15&r=ban |
| By: | David Beers; Obiageri Ndukwe; Karim McDaniels; Alex Charron |
| Abstract: | Until recently, few efforts were made to systematically measure and aggregate the nominal value of the different types of sovereign government debt in default. To help fill this gap, the Bank of Canada (BoC), in partnership with the Bank of England (BoE), developed a comprehensive database of sovereign defaults in 2014. The database is posted on the Bank of Canada’s website and updated annually. The BoC–BoE database draws on datasets published by various public and private sector sources. It combines elements of these, together with new information, to develop comprehensive estimates of stocks of government obligations in default. These include bonds and other marketable securities, bank loans and official loans, valued in US dollars, for the years 1960 to 2022 on both a country-by-country and a global basis. In addition, we include country and global data on estimated stocks of domestic arrears—late payments by governments—also valued in US dollars. For most countries, data are from 2000 to 2022. Regular updates of the BoC–BoE database help researchers analyze the economic and financial effects of individual sovereign defaults and, importantly, the impact on global financial stability of episodes involving multiple sovereign defaults. |
| Keywords: | Debt management; Development economics; Financial stability; International financial markets |
| JEL: | F F34 G G15 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocatr:124&r=ban |
| By: | Roberto M. Billi; Jordi Galí; Anton Nakov |
| Abstract: | We study the optimal monetary policy problem in a New Keynesian economy with a zero lower bound (ZLB) on the nominal interest rate, when the steady state natural rate (r*) becomes permanently negative. We show that the optimal policy aims to approach gradually a new steady state with positive average inflation. Around that steady state, the optimal policy implies well defined (second-best) paths for inflation and output in response to shocks to the natural rate. Under plausible calibrations, the optimal policy implies that the nominal rate remains at its ZLB most of the time. Despite the latter feature, the central bank can implement the optimal outcome as a unique equilibrium by means of an appropriate nonlinear interest rate rule. In order to establish that result, we derive sufficient conditions for local determinacy in a general model with endogenous regime switches. |
| JEL: | E32 E5 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31508&r=ban |
| By: | Lucian Briciu; Stefan Hohberger; Luca Onorante; Beatrice Pataracchia; Marco Ratto; Lukas Vogel |
| Abstract: | This paper investigates two important elements of the ECB’s 2021 monetary policy strategy review in an estimated structural open-economy macro model of the euro area: (a) explicit symmetry of the 2% inflation target, which can be expected to lower the risk of hitting the effective lower bound (ELB) on short-term interest rates by raising average inflation towards the target, and (b) commitment to forceful or persistent monetary accommodation in a low interest rate environment, here interpreted as low-for-longer response in the recovery from the ELB. We simulate the model with draws from the estimated distribution of shocks. Both elements increase average inflation and reduce the average output gap. Stabilisation gains are modest in quantitative terms, however, for the given illustrative policy rules, and they are more pronounced when the economy operates at the ELB. Important in the current context, the low-for-longer policy in the model does not jeopardise inflation stabilisation in the event of (inflationary) negative supply shocks at the exit from the ELB. With private sector ‘myopia’ instead of fully rational expectations, the low-for-longer rule still yields stabilisation gains at the ELB, but they shrink in quantitative terms. |
| JEL: | E30 E52 E58 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:193&r=ban |
| By: | Katie Baker; Logan Casey; Marco Del Negro; Aidan Gleich; Ramya Nallamotu |
| Abstract: | The debate about the natural rate of interest, or r*, sometimes overlooks the point that there is an entire term structure of r* measures, with short-run estimates capturing current economic conditions and long-run estimates capturing more secular factors. The whole term structure of r* matters for policy: shorter run measures are relevant for gauging how restrictive or expansionary current policy is, while longer run measures are relevant when assessing terminal rates. This two-post series covers the evolution of both in the aftermath of the pandemic, with today’s post focusing especially on long-run measures and tomorrow’s post on short-run r*. |
| Keywords: | r*; r-star; post-pandemic; Dynamic Stochastic General Equilibrium (DSGE) models |
| JEL: | E4 E5 |
| Date: | 2023–08–09 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:96542&r=ban |
| By: | Viral V. Acharya; Lea Borchert; Maximilian Jager; Sascha Steffen |
| Abstract: | We analyze the determinants and the long-run consequences of government interventions in the eurozone banking sector during the 2008/09 financial crisis. Using a novel and comprehensive dataset, we document that fiscally constrained governments “kicked the can down the road” by providing banks with guarantees instead of full-fledged recapitalizations. We adopt an econometric approach that addresses the endogeneity associated with governmental bailout decisions in identifying their consequences. We find that forbearance caused undercapitalized banks to shift their assets from loans to risky sovereign debt and engage in zombie lending, resulting in weaker credit supply, elevated risk in the banking sector, and, eventually, greater reliance on liquidity support from the European Central Bank. |
| Keywords: | forbearance; evergreening; zombie lending; sovereign debt crisis; bank recapitalization; fiscal constraints; political economy |
| JEL: | E44 G21 G28 G32 G34 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_446&r=ban |
| By: | Weber, Michael (University of Chicago); Candia, Bernardo (University of California, Berkeley); Coibion, Olivier (University of Texas at Austin); Gorodnichenko, Yuriy (University of California, Berkeley) |
| Abstract: | Using repeated large-scale surveys of U.S. households, we study the cryptocurrency investment decisions and motives of households relative to other financial assets. Cryptocurrency holders tend to be young, white, male and more libertarian relative to non-crypto holders. They expect much higher rates of returns for crypto and perceive it as relatively safer than do other households. They also view it as a better hedge against inflation. For those holding cryptocurrencies, changes in Bitcoin prices translate into their purchases of durable goods. Finally, exogenously-provided information about historical returns of cryptocurrencies leads individuals to increase their desired crypto holdings and makes them more likely to actually purchase cryptocurrency subsequently. We compare these views and behaviors to those of households toward other financial assets and argue that cryptocurrency is unique in many of these respects. |
| Keywords: | cryptocurrency, household finance, surveys |
| JEL: | E4 G5 D8 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp16335&r=ban |