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on Banking |
| By: | Perry Mehrling (Pardee School of Global Studies at Boston University) |
| Abstract: | Bagehot is difficult for modern economists to read with understanding, for three reasons. He was a classical economist not neoclassical, his orientation was global not national, and, most importantly, his intellectual formation was as a practicing country banker not an academic. This paper adopts all three perspectives, and uses this frame to reinterpret his mature work, both Lombard Street and the unfinished Economic Studies, as the origin of the key currency tradition which continues as a minority view in modern economics. |
| Keywords: | Bagehot Rule, key currency, money view, Lombard Street, Ricardo |
| JEL: | B12 B17 B31 |
| Date: | 2024–01–04 |
| URL: | http://d.repec.org/n?u=RePEc:thk:wpaper:inetwp216&r=ban |
| By: | Goodhart, C. A. E.; Postel-Vinay, Natacha |
| Abstract: | The City of Glasgow Bank failure in 1878, which led to large numbers of shareholders becoming insolvent, generated great public concern about their plight, and led directly to the 1879 Companies Act, which paved the way for the adoption of limited liability for all shareholders. In this paper, we focus on the question of why the opportunity was not taken to distinguish between the appropriate liability for ‘insiders, ’ i.e. those with direct access to information and power over decisions, as contrasted with ‘outsiders.’ We record that such issues were raised and discussed at the time, and we report why proposals for any such graded liability were turned down. We argue that the reasons for rejecting graded liability for insiders were overstated, both then and subsequently. While we believe that the case for such graded liability needs reconsideration, it does remain a complex matter, as discussed in Section 4. |
| Keywords: | corporate governance; limited liability; bank risk-taking; financial regulation; financial crises; senior management regime; banks; banking |
| JEL: | G21 G28 G30 G32 G39 N23 K22 K29 L20 |
| Date: | 2024–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:wpaper:121956&r=ban |
| By: | Fatouh, Mahmoud (Bank of England); Giansante, Simone (Department of Economics, Business and Statistics, University of Palermo); Ongena, Steven (University of Zurich, Swiss Finance Institute, KU Leuven, NTNU Business School and CEPR) |
| Abstract: | We assess the impact of quantitative easing (QE) on the provisioning of liquidity and the pricing in the UK gilt repo market. We compare the behaviour of banks that received reserves injections via QE operations to other similar banks in terms of the amounts lent and pricing. We also investigate whether leverage ratio capital requirements affected the amounts of liquidity supplied by broker-dealers and the spreads they charged. We find that QE interventions can improve liquidity provision, and that their size determines how this is attained. QE can also reduce the cost of borrowing in the repo market unless it was associated with spikes in demand for liquidity. Our findings further indicate that the leverage ratio supports the provision of liquidity during stress, as it prompts banks to become less leveraged. However, the larger capital charge repo transactions attract under the leverage ratio requirement is reflected in their spreads. |
| Keywords: | Monetary policy; quantitative easing; gilt repo market; leverage ratio |
| JEL: | G10 G21 G23 |
| Date: | 2024–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:1055&r=ban |
| By: | Orsola Costantini (United Nations Conference on Trade and Development); Carlo D'Ippoliti (Sapienza University of Rome) |
| Abstract: | Which households are more exposed to financial risk and to what extent is their debt systemically relevant? To provide an answer, we advance a new classification of the population, adapted from Fessler and Schurz (2017), based on the type of wealth families own and their sources of income. Then, we investigate data from eleven waves of the Survey of Consumer Finances (SCF), a triennial survey run by the U.S. Federal Reserve, to explore the association of different debt configurations and motives to get into debt with our class distinctions. Our new approach allows us to assess competing hypotheses about debt and financial vulnerability that have so far been analyzed separately in disconnected strands of literature. The results of our study reinforce and qualify the controversial hypothesis that relative poverty and inequality of income and access to services have been important factors explaining household indebtedness and its relationship with economic growth over time. |
| Keywords: | Household debt, financial fragility, inequality, Veblen, survey of consumer finances |
| JEL: | E21 D14 D31 G51 |
| Date: | 2023–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:thk:wpaper:inetwp215&r=ban |
| By: | Lu, Shun (Nottingham University Business School China, University of Nottingham Ningbo, China); Glushenkova, Marina (Nottingham University Business School China, University of Nottingham Ningbo, China); Huang, Wei (Nottingham University Business School China, University of Nottingham Ningbo, China,); Matthews, Kent (Cardiff Business School) |
| Abstract: | This study explores the impact of relationship banking on the financial constraints and loan conditions of small and medium-sized enterprises (SMEs) in China. Our research contributes to the literature in several ways. First, we examine both the financial costs and loan benefits associated with SME relationship banking, extending the scope of existing literature. Second, our study is unique in its focus on micro-enterprises, rather than large-scale listed companies in China. Lastly, we enhance the quality of the analysis by using direct measures of firms’ spending on bank relationships and their financial constraints, drawn from a recent survey on SMEs in China. Our findings are twofold. On one hand, bank relationship spending significantly reduces financial constraints for SMEs by facilitating access to loans. On the other hand, while this spending enables SMEs to secure more bank credit and longer-term loans, it also results in higher interest rates, increased guarantee requirements, and overall dissatisfaction with loan services. Our research provides new insights into the role of 'guanxi' in China's credit market and its consequences. |
| Keywords: | SME Financing, Relationship Banking, China, Financial Constraints |
| JEL: | G21 L14 O53 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2024/5&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) |
| Abstract: | Talking about money means talking about practices, morals, policies, the banking system, the social system, families, inequalities, poverty, wealth, measure, excess, or lack. However, most often, money is approached as a fixed point around which individuals, societies, banks, or policies move. Inflation jeopardizes this fixity in several ways: the value of saved money decreases or even collapses when the value of goods and services rises. Old price scales are no longer valid: everything increases, but not everything increases at the same speed, so that the relationships between things, between goods, and even between people, are in flux. Two attitudes then coexist: on the one hand, clinging to the old landscape of currency and prices, trying to make sense of what is happening; on the other, attempting to understand the new landscape and navigate with these new rules that have not yet been mastered. |
| Keywords: | inflation, money, justice, monetary landscape |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04272688&r=ban |
| By: | Marie Alder; Nuno Coimbra; Urszula Szczerbowicz |
| Abstract: | Using French firms’ balance sheet data, we show that corporate debt structure plays a significant role in ECB monetary policy transmission. In addition to interest rate policy, we analyse the impact of a novel ECB-induced bond liquidity shock. While both types of policy tightening diminish French firms’ investment, the transmission of conventional monetary policy shocks is stronger for firms with a higher share of bank debt. Conversely, contractionary bond liquidity shocks lower investment more for firms with higher bond shares of total debt. We further investigate the transmission channels and show that bond liquidity tightening reduces French sovereign bond market liquidity and leads to higher bond-bank loan interest rate spreads and lower bond issuance. |
| Keywords: | Monetary Policy Transmission, Corporate Debt Structure, Investment |
| JEL: | E22 E43 E44 E52 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:933&r=ban |
| By: | Lee, King Fuei |
| Abstract: | This study investigates the relationship between monetary policy frameworks and stock market volatilities across countries. Using a novel classification framework by Cobham (2021), we study 84 countries across the world over the period of 1984 to 2017. We find that countries that maintain a fixed exchange rate peg tend to experience higher levels of stock market volatility, while countries adopting flexible inflation-targeting policies tend to exhibit lower levels of stock market volatilities. Additionally, the stock markets of countries operating under monetary policies characterized by unstructured discretion tend to be more volatile, while those operating with well-structured discretion tend to be more stable. Our results also suggest that while the choice of monetary policy framework is an important determinant of stock market volatility, it is not the only factor driving it. As such, policymakers should carefully consider the implications of different monetary policy frameworks when designing monetary policy, and take a holistic approach to financial stability that incorporates a range of factors beyond just monetary policy frameworks. |
| Keywords: | Monetary Policy Frameworks, Stock Market Volatility, Exchange Regimes, Inflation-Targeting |
| JEL: | E42 G10 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119755&r=ban |
| By: | James A. Clouse |
| Abstract: | This paper develops an analytical framework aimed at shedding light on the implications of the evolution of financial market structure for monetary policy implementation and transmission. The basic model builds on that developed in Chen et. al. (2014) which, in turn, draws inspiration from the pioneering work of Tobin (1969) and Gurley and Shaw (1960). The paper focuses, in particular, on the implications of introducing new types of fixed-rate financial assets in the financial system including retail and wholesale central bank digital currency (CBDC), stablecoins issued by narrow nonbanks, and deposits issued by narrow banks. The analysis also provides a crude way of capturing some of the effects of bank capital and liquidity regulation on financial intermediation and monetary policy implementation. Perhaps the most important conclusion is that the introduction of new fixed-rate assets by the Federal Reserve or by other financial intermediaries can have significant effects on equilibrium interest rates and patterns of financial intermediation and may also affect the potency of monetary policy tools. These effects are most pronounced when new financial assets are close substitutes for existing financial assets. |
| Keywords: | Bank Regulation; Financial Innovation; Monetary Policy Implementation; Monetary policy |
| JEL: | E40 E42 E43 E44 E50 E52 |
| Date: | 2024–01–16 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2024-01&r=ban |
| By: | Carlos Madeira |
| Abstract: | Economic theory predicts that borrowers sort themselves in different loan contracts according to their risk and preferences, with some consumers becoming credit constrained and without access to debt. As a middle-income country, Chile has a consumer loan market with many lender types (Banks, Retail Stores, Unions, Other Lenders such as car dealers), providing a perfect setting for testing borrowerlender sorting theory. Using survey data, I show that banks have the borrowers of highest income and education and the lowest unemployment rates, while households with no access to debt have the lowest income and education and the highest unemployment risk. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:1004&r=ban |
| By: | Costas Karfakis (Department of Economics, University of Macedonia); Ioannis Karfakis (Business Discipline, London School of Science and Technology, Memo House, London, England, W3 0XA, UK) |
| Abstract: | This paper examines whether the expanded Quantitative Easing policies of the European Central Bank during the period 2015-2022 have influenced the impact of the Global Financial Cycle (GFC) on the Eurozone’s financial stress. The threshold regression reveals that these policies implementation has reduced the impact of GFC on financial stress in the post-2015 period, and thus contributed to lower systemic risk. The impulse responses of the quantile regression show that a global risk aversion shock does not have persistent effects on the financial stress distribution, and thus the GFC would not “set the tone†of Eurozone’s financial conditions. |
| Keywords: | Quantitative easing; financial stress, global financial cycle, systemic risk; balance sheet; threshold regression; quantile regression analysis |
| JEL: | E52 E58 G15 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:mcd:mcddps:2024_01&r=ban |
| By: | Juan Aparicio; Miguel A. Duran; Ana Lozano-Vivas; Jesus T. Pastor |
| Abstract: | Previous work suggests that the charter value hypothesis is theoretically grounded and empirically supported, but not universally. Accordingly, this paper aims to perform an analysis of the relations between charter value, risk taking, and supervision, taking into account the relations' complexity. Specifically, using the CAMELS rating system as a general framework for supervision, we study how charter value relates to risk and supervision by means of classification and regression tree analysis. The sample covers the period 2005-2016 and consists of listed banks in countries that were members of the Eurozone when it came into existence, along with Greece. To evaluate the crisis consequences, we also separately analyze four subperiods and countries that required financial aid from third parties and those that did not so, along with large and small banks. Our results reflect the complexity of the relations between charter value, supervision, and risk. Indeed, supervision and charter value seem aligned regarding only some types of risk |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.12274&r=ban |
| By: | Becker, Annette (European Commission); Di Girolamo, Francesca (European Commission); Rho, Caterina (European Commission) |
| Abstract: | Biodiversity loss can have direct economic impacts, as it limits the availability of natural resources and increases costs across various industries. When firms face significant risks due to biodiversity loss, their creditworthiness may be compromised. This raises concerns for lending institutions that have provided credit to these companies, potentially leading to stricter lending conditions for borrowers. This paper analyzes how these risks spread from the real economy to the syndicated loans market in the European Union and United Kingdom. Firstly, we construct a country-level indicator of biodiversity exposure for EU lenders. Our findings show that the exposure of EU banks to biodiversity varies across countries, depending on the level of exposure of borrowing firms and the loan volumes. Secondly, using data on syndicated loans from 2017 to 2022, we observe a positive and significant correlation between loan pricing and the level of biodiversity exposure of the borrower. These findings suggest that creditors are increasingly incorporating nature-related investor information into their financing decisions, allowing them to diversify and pool risks. On the other hand, debtors cannot fully detach themselves from their dependence on natural capital and can only shift their business models in the long run. |
| Keywords: | Nature-related risk, Natural capital, Biodiversity, Financial sector, Banks, Debt financing, Syndi- cated loans, Loan pricing, Premium, International spillovers, Risk transmission, Borrower diversification, EU |
| JEL: | C55 G21 Q51 Q57 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:jrs:wpaper:202311&r=ban |
| By: | Samuel Vandak; Geoffrey Goodell |
| Abstract: | The landscape of payment methods in retail is a complex and evolving area. Vendors are motivated to conduct an appropriate analysis to decide what payment methods to accept out of a vast range of options. Many factors are included in this decision process, some qualitative and some quantitative. The following research project investigates vendors' acceptance of cards and cash from various viewpoints, all chosen to represent a novel perspective, including the barriers and preferences for each and correlations with external demographic factors. We observe that lower interchange fees, limited in this instance by the regulatory framework, play a crucial role in facilitating merchants' acceptance of card payments. The regulatory constraints on interchange fees create a favorable cost structure for merchants, making card payment adoption financially feasible. However, additional factors like technological readiness and consumer preferences might also play a significant role in their decision-making process. We also note that aggregate Merchant Service Providers (MSPs) have positively impacted the payment landscape by offering more competitive fee rates, particularly beneficial for small merchants and entrepreneurs. However, associated risks, such as account freezes or abrupt terminations, pose challenges and often lack transparency. Last, the quantitative analysis of the relationship between demographic variables and acceptance of payment types is presented. This analysis combines the current landscape of payment acceptance in the UK with data from the most recent census from 2021. We show that the unemployment rates shape card and cash acceptance, age affects contactless preference, and work-from-home impacts credit card preference. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.07682&r=ban |
| By: | Acosta-Smith, Jonathan (Organisation for Economic Co‑operation and Development (OECD)); Barunik, Jozef (Institute of Economic Studies, Charles University); Gerba, Eddie (Bank of England); Katsoulis, Petros (Bank of England) |
| Abstract: | At the onset of the Covid‑19 crisis, several regulatory authorities issued a recommendation or request to banks to restrict their dividend and share buyback distributions. The purpose of this action was to increase banks’ resilience by not distributing retained earnings, and help them support the real economy given their unique role in doing so. These restrictions reflected the singular circumstances brought by Covid‑19. We evaluate the impact of these restrictions on banks’ resilience, lending and investors’ required rate of return. First, using a difference‑in‑differences analysis on an international sample of European banks, we find that restricted banks increased their available Common Equity Tier 1 (CET1) capital and resilience in every quarter while the restrictions were fully in place, before gradually reducing it once they were partly lifted. Second, using a data set on the universe of UK small and medium‑sized enterprise (SME) loans issued by nine UK banking groups, we find that restricted banks increased their lending volumes on smaller non‑government guaranteed loans throughout the implementation period. Third, using the international sample of European banks, we find that the restrictions increased shareholders’ required rate of return throughout the implementation period, with the impact on the required rate of return on capital partially offset by lower debtholders’ required rate of return. The results indicate that distribution restrictions can be an effective crisis tool to increase banks’ resilience and lending capacity. |
| Keywords: | Distribution restrictions; Covid-19; required rate of return; lending; pass-through |
| JEL: | C32 G21 G28 G35 |
| Date: | 2024–11–24 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:1053&r=ban |
| By: | Jorge Abad (Banco de España); Galo Nuño (Bank for International Settlements); Carlos Thomas (Banco de España) |
| Abstract: | We analyse the impact of introducing a central bank-issued digital currency (CBDC) on the operational framework of monetary policy and the macroeconomy as a whole. To this end, we develop a New Keynesian model with heterogeneous banks, a frictional interbank market, a central bank with deposit and lending facilities, and household preferences for different liquid assets. The model is calibrated to replicate the main monetary and financial aggregates in the euro area. Our analysis predicts that CBDC adoption implies a roughly equivalent reduction in banks’ deposit funding. However, this ‘deposit crunch’ has a rather small effect on bank lending to the real economy, and hence on aggregate investment and GDP. This result reflects the parallel impact of a CBDC on a central bank’s operational framework. For relatively moderate CBDC adoption levels, the reduction in deposits is absorbed by an almost one-to-one fall in reserves at the central bank, implying a transition from a ‘floor’ system – with ample reserves – to a ‘corridor’ system. For larger CBDC adoption, the loss of bank deposits is compensated by increased recourse to central bank credit, as the corridor system gives way to a ‘ceiling’ system with scarce reserves. |
| Keywords: | central bank digital currency (CBDC), interbank market, search and matching frictions, excess reserves |
| JEL: | E42 E44 E52 G21 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2404&r=ban |
| By: | Marco Molteni (Geneva Graduate Institute and University of Oxford) |
| Abstract: | This paper employs quantitative and qualitative methods to examine the link between overbanking, banking competition, and financial distress during the interwar period in Europe, focusing on Italy as a case study. Econometric analysis on bank balance sheet data and a systematic review of contemporary printed sources show that banks experiencing distress had opened many branches and were operating in areas with harsher competition. Poor managerial choices had led banks to face higher operational costs, pushing them towards more remunerative but riskier activities. The 1920s saw a profound transformation of the Italian banking system, with extensive branch expansion and cut-throat competition for deposits. This work argues that such changes in the banking system’s structure made it more fragile, exposing it more to the negative effects of the international crisis following the New York Stock Exchange crash in 1929. Available evidence on other European countries suggests that Italy was not an isolated case. The study contributes to the literature on banking crises during the Great Depression and on the relationship between banking competition and financial stability. |
| Keywords: | overbanking, banking competition, banking crises, Great Depression, branch banking, Italy, interwar period |
| JEL: | N14 N24 G01 G21 G32 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:workqs:qse_51&r=ban |
| By: | Moloney, Kitty (Central Bank of Ireland); O'Gorman, Paraic (Central Bank of Ireland); O’Sullivan, Max (Central Bank of Ireland); Reddan, Paul (Central Bank of Ireland) |
| Abstract: | In this Note we focus on non-banks lending to small and medium-sized enterprises (SMEs). Understanding how non-bank lenders (NBLs) to SMEs fund themselves and the interconnections they have with other entities helps us to assess the lenders’ resilience and how their activities may impact the real economy. We find they have significant interconnections with European banks and other international financial entities, as well as with European parent non-financial companies (NFCs). We also present an activity-based taxonomy of NBLs to SMEs containing three main categories. Asset Finance Providers mainly receive funding through their (European) parent companies. Specialist Property and General Lenders rely on a mix of market-based sources of funding and the banking sector, and often borrow through variable rate loans. We suggest that Specialist Property Lenders are the most important category from a financial stability perspective as they are lending to a systemically important sector of the Irish economy, are specialist lenders (increasing concentration risk) and appear to be more sensitive to current financial conditions. |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:fsnote:11/fs/23&r=ban |
| By: | Gianstefani, Ilaria (Central Bank of Ireland); Metadjer, Naoise (Central Bank of Ireland); Moloney, Kitty (Central Bank of Ireland) |
| Abstract: | The significant growth in the investment fund sector coupled with recent increases in interest rates pose questions regarding the sector’s vulnerability to shocks and its potential for amplifying systemic risk. In this Note we assess the sensitivity of cohorts of bond funds to a large one-off increase in interest rates by developing a tool to measure the impact on funds’ net asset value (NAV). The results split by fund cohorts, show thatlosses increase with weighted average maturity of assets and with the proportion of fixed coupon bonds (Government and Emerging Market Bond Funds experiencing the largest losses). These losses have the potential to trigger larger than usual outflows, particularly for underperforming investment funds within cohorts. This Note highlights existing balance sheet and redemption vulnerabilities - such as relatively high leverage in Mixed Corporate Bond Funds – which may affect the resilience of cohorts beyond what is modelled in this Note. We also apply the ESMA stress test to assess the joint impact of an interest rate and a credit shock and find somewhat similar results. The tool developed here has been incorporated into our ongoing financial stability Risk Assessments, which inform both policy and supervision. |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:fsnote:10/fs/23&r=ban |
| By: | Carl White |
| Abstract: | Risk in its various forms and how it is evaluated was a prominent theme at a fall gathering of academics, bankers and regulators. A blog post summarizes some key findings presented. |
| Keywords: | community banking; risk |
| Date: | 2024–01–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:l00001:97718&r=ban |
| By: | ISHII Yurika |
| Abstract: | Financial institutions and other entities find it beneficial to exchange customer identities and criminal risk data to enhance the effectiveness of money laundering and anti-terrorism regulations. Therefore, the Financial Action Task Force (FATF) recommends sharing relevant information among private companies. Additionally, some countries and operators are exploring the consolidation of information and utilization of artificial intelligence and other technologies to identify suspicious transactions. However, implementing cross-border regulations requires robust international collaboration. Unilaterally imposing mandatory information sharing on operators could conflict with national privacy, human rights norms, and data protection laws. This study delves into how various countries are addressing these challenges in the current context and analyzes the implications for international legal frameworks. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:24010&r=ban |
| By: | Thibaut Gentil; Sébastien Ray; Oana Toader |
| Abstract: | In a context of volatile interest rates, the impact of monetary policy decisions on banks’ net interest income is a key question for financial stability, since changes in profitability may affect their capacity to absorb losses and to accumulate capital through retained earnings. This paper presents an ALM-like model developed to project the evolution of the aggregate balance sheet and the interest income and expense of a banking sector under various scenarios. Based on balance sheet structure data, the model simulates the expiration of maturing instruments and the progressive accumulation of new issuances. Using conservation laws valid at the aggregate level, the model provides a consistent accounting-based framework, where bank reserve holdings depend on central bank actions, and the volume of customer deposits results from net payments between the banking sector and the rest of the economy. A combination of financial data sources makes it possible to build a simplified balance sheet of the aggregate euro area banking sector, on which the model can be run. Its total net interest income turns out to be, on the whole, positively sensitive to changes in interest rates. The model can also quantify sensitivities to other factors, such as central bank operations on securities or changes in the cost structure of customer deposits. Back-testing results on 2016–23 confirm the model’s ability to account for observed interest margins. |
| Keywords: | Interest Rates, Banking Sector, Net Interest Income, Monetary Policies, Asset-liability, Projection Model |
| JEL: | G21 E43 E44 E47 E58 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:931&r=ban |
| By: | John C. Driscoll; Jessica N. Flagg; Bradley Katcher; Kamila Sommer |
| Abstract: | In the early stages of the pandemic, income support and forbearance programs led consumer loan delinquency rates to fall to near-record lows for borrowers across the credit score distribution. Since the second half of 2021, however, delinquency rates have risen, and by 2023:Q3, overall rates for auto and credit card loans had risen above their pre-pandemic levels. |
| Date: | 2024–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2024-01-12&r=ban |
| By: | TSURUTA Daisuke |
| Abstract: | We investigate what types of small businesses use bank loans during crisis periods, focusing on the global financial crisis (GFC) and the economic crisis caused by the coronavirus pandemic (COVID-19 crisis). Using comprehensive data on small businesses in Japan, we obtain the following results. First, during these two crisis periods, small businesses with low cash flow, high credit risk, and low sales growth borrowed more from banks. Second, these firms borrowed more during the COVID-19 crisis than during the GFC. Furthermore, ex post profitability of these firms was lower during the COVID-19 crisis, which was special in that vulnerable firms borrowed more from banks. Third, the increases in probability of default were not large during the early stages of the COVID-19 crisis but were economically significant in 2021. These results imply that massive financial support during the COVID-19 crisis delayed firm defaults. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:24007&r=ban |
| By: | Ojo, Marianne |
| Abstract: | On the 20th December 2023, the Financial Stability Board published revised policy recommendations to address structural vulnerabilities from liquidity mismatch in open ended funds (OEFs). Main points which were highlighted in relation to new recommendations include the following: - Revised FSB recommendations and IOSCO Guidance on Anti Dilution Liquidity Management Tools (LMTs), which are aimed at achieving significant strengthening of liquidity management by open ended funds (OEFs), compared to current practices. Despite Basel III’s efforts to address capital and liquidity requirements, will the risks linked to regulatory arbitrage increase as a result of Basel III’s more stringent capital and liquidity rules? Apart from Basel III reforms which are geared toward greater facilitation of financial stability on a macroprudential basis, further efforts and initiatives aimed at mitigating systemic risks, hence fostering financial stability, have been promulgated through the establishment of the De Larosiere Group, the ESRB, and a working group comprising of “international standard setters and authorities responsible for the translation of G20 commitments into standards.” This paper aims to investigate the impact of Basel III on shadow banking and its facilitation of regulatory arbitrage as well as consider the response of various jurisdictions and standard setting bodies to aims and initiatives aimed at improving their macroprudential frameworks. Furthermore, it will also aim to illustrate why immense work is still required at European level as regards efforts to address systemic risks on a macroprudential basis. This being the case in spite of significant efforts and steps that have been taken to address the macroprudential framework. In so doing, the paper will also attempt to address how coordination within the macroprudential framework as well as between microprudential and macroprudential supervision could be enhanced. |
| Keywords: | Macroprudential arrangements; financial stability; interest rates; liquidity management tools; open ended funds |
| JEL: | E43 E60 G2 G20 G28 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119894&r=ban |
| By: | André Lapidus (PHARE - Philosophie, Histoire et Analyse des Représentations Économiques - UP1 - Université Paris 1 Panthéon-Sorbonne); Pierre Januard |
| Abstract: | Throughout the Middle Ages, the charging of interest on monetary loans, as well as the sale of sacraments, were generally considered to be special types of sins: respectively, usury and simony. The repeated condemnations of these acts suggests to the contemporary reader that they could be viewed as prefigurations of contested commodities. Relying on Thomas Aquinas's works written in the second half of the 13th century, it is shown in this chapter that money and sacraments were indeed viewed as exchanged, though, in a sense, as traded for no price. The result is the existence, in the framework of exchange, of various situations which might be ranked according to increasing commodification: first, an absolute non-commodification for the money loan, whose price is zero due to the prohibition of the payment of interest to the lender due to the loan itself, although an indemnity can be paid for other reasons and, from an economic viewpoint, appears as a counterpart for the opportunity cost of the loan. Then, two ways of expressing a kind of commodification in dealing with the sacraments: a lexical commodification in which sacraments do have a "price", as Aquinas mentioned, but one that is out of reach on this earth; and a partial operational commodification, again for sacraments (especially for the Eucharist through mass offerings), in which something like an exchange for sacraments takes place, not at an impossible price but according to a kind of tariff which allows the priest to live. |
| Keywords: | Thomas Aquinas, Simony, Usury, Money loans, Sacraments, Just price, Commodification |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04396111&r=ban |
| By: | Brausewetter, Lars; Ludolph, Melina |
| Abstract: | We study the impact of stricter and more harmonized banking regulation along the income distribution using household survey data for 25 EU countries. Exploiting country-level heterogeneity in the implementation of European Banking Union directives allows us to control for confounders and identify effects. Our results show that these regulatory reforms aimed at increasing financial system resilience affected households heterogeneously. More stringent regulation reduces income growth for low-income households due to employment exits. Yet it tends to increase growth rates at the top of the distribution both for employee and self-employed income. |
| Keywords: | distributional effects, EU-SILC microdata, financial regulation, income inequality |
| JEL: | D31 G21 G28 G50 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:281193&r=ban |
| By: | Drott, Constantin; Goldbach, Stefan; Nitsch, Volker |
| Abstract: | This paper examines the effect of financial sanctions at the most disaggregated level possible, individual bank accounts. Using data from the Eurosystem’s real-time gross settlement system TARGET2, we provide empirical evidence that sanctions imposed by the European Union on Russian banks following Russia’s aggression against Ukraine in 2014 and 2022 have sizably reduced financial transactions with sanctioned Russian bank accounts, both along the extensive and intensive margins. Among the various sanction measures taken, exclusion from SWIFT, a global provider of secure financial messaging services, turns out to have the largest effects. |
| Date: | 2024–01–18 |
| URL: | http://d.repec.org/n?u=RePEc:dar:wpaper:142468&r=ban |
| By: | F. Bolivar; Miguel A. Duran; A. Lozano-Vivas |
| Abstract: | This paper analyzes the relation between bank profit performance and business models. Using a machine learning-based approach, we propose a methodological strategy in which balance sheet components' contributions to profitability are the identification instruments of business models. We apply this strategy to the European Union banking system from 1997 to 2021. Our main findings indicate that the standard retail-oriented business model is the profile that performs best in terms of profitability, whereas adopting a non-specialized business profile is a strategic decision that leads to poor profitability. Additionally, our findings suggest that the effect of high capital ratios on profitability depends on the business profile. The contributions of business models to profitability decreased during the Great Recession. Although the situation showed signs of improvement afterward, the European Union banking system's ability to yield returns is still problematic in the post-crisis period, even for the best-performing group. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.12334&r=ban |
| By: | Tetiana Yukhymenko (National Bank of Ukraine); Oleh Sorochan (National Bank of Ukraine) |
| Abstract: | The study explores the impact of central bank communications on a range of macro-financial indicators. Specifically, we examine whether information posted on the National Bank of Ukraine (NBU) website influences foreign exchange (FX) markets and the inflation expectations of experts. Our main results suggest that the NBU's statements and press releases on monetary policy issues matter. For instance, we find that exchange rate movements and volatility are negatively correlated with the volumes of publications of the NBU on its official website. However, this effect is noticeably bigger for volatility than for exchange rate changes. The impact of communication on FX developments is the strongest a week after the news release, and it persists further. Furthermore, inflation expectations of financial experts, though indifferent to all NBU updates, turn out to be sensitive to monetary policy announcements. The letter reduces the level of expectations and interest rates. |
| Keywords: | central bank communications ; monetary policy ; FX market ; text analysis |
| JEL: | E58 E71 C55 |
| Date: | 2024–02–05 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp01-2024&r=ban |
| By: | Wayne Passmore; Roger Sparks |
| Abstract: | This paper analyzes a model of the mortgage market, considering scenarios with and without government-sponsored mortgage securitization. Conventional wisdom says that securitization, by fostering diversification and creating a “safe†asset in the form of mortgage-backed security (MBS), will reduce risk and enhance liquidity, thereby mitigating financial crises. We construct a strategic-game framework to model the interaction between the securitizer and banks. In this framework, the securitizer initiates the process by setting the MBS contract terms, which includes the guaranteed rate and the criterion that qualifies a mortgage for securitization. The bank then selects which qualifying mortgages to exchange for the MBS. Our investigation leads to a key result: government-sponsored securitization, somewhat counterintuitively, is more likely to exacerbate the severity and frequency of financial crises. |
| Keywords: | Financial Crises; Government Sponsored; Mortgage Market; Mortgage-backed securities (MBS); Securitization |
| Date: | 2024–01–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2024-02&r=ban |
| By: | Colonnello, Stefano; Koetter, Michael; Sclip, Alex; Wagner, Konstantin |
| Abstract: | We show that around one third of executive directors on the boards of national supervisory authorities (NSA) in European banking have an employment history in the financial industry. The appointment of executives without a finance background associates with negative valuation effects. Appointments of former bankers, in turn, spark positive stock market reactions. This 'proximity premium' of supervised banks is a more likely driver of positive valuation effects than superior financial expertise or intrinsic skills of former executives from the financial industry. Prior to the inception of the European Single Supervisory Mechanism, the presence of former financial industry executives on the board of NSA associates with lower regulatory capital and faster growth of banks, pointing to a more lenient supervisory style. |
| Keywords: | banking supervision, conflicts of interest, revolving door |
| JEL: | G14 G21 G28 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:281191&r=ban |
| By: | Ms. Edda R Karlsdóttir; Rachid Awad; Ender Emre; Alessandro Gullo; Aldona Jociene; Mr. Constant Verkoren |
| Abstract: | This note intends to provide advice to bank supervision and resolution authorities and policymakers seeking to deal with opaque bank ownership or significant overhang of related-party exposures. |
| Keywords: | bank Ownership structures; bank Ownership transparency; IMF Library; bank owner; related-party transaction; Basel Core Principles; Anti-money laundering and combating the financing of terrorism (AML/CFT); Bank resolution; State-owned banks; Global |
| Date: | 2024–01–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imftnm:2024/002&r=ban |
| By: | Christopher Henry; Doina Rusu; Matthew Shimoda |
| Abstract: | We present results from the 2022 Methods-of-Payment Survey, including updated payment shares based on a three-day shopping diary. We highlight long-term trends in cash holdings, management and use observed across results from previous surveys in 2009, 2013 and 2017. We also review recent trends relating to the COVID-19 pandemic using data from 2020 and 2021. We assess various factors associated with long-term trends in cash use. |
| Keywords: | Bank notes; Coronavirus disease (COVID-19); Digital currencies and fintech; Financial services |
| JEL: | D83 E41 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:24-01&r=ban |
| By: | Rashad Ahmed; Iñaki Aldasoro; Chanelle Duley |
| Abstract: | We provide a global games framework to study how the promise of par convertibility by various types of stablecoins breaks down. Public information disclosure has an ambiguous effect on run risk: greater transparency can lead to increased (reduced) run risk for sufficiently low (high) stablecoin holders' priors about reserve quality or transaction costs of conversion to fiat. If the distribution of reserve assets is fat-tailed (i.e. reserves are volatile), par convertibility is resilient to small shocks but fails with large negative public shocks, even for high initial reserve values. We find empirical support for the testable implications of the model. |
| Keywords: | stablecoins, crypto, global games, bank runs |
| JEL: | C70 D83 D84 E42 G01 G20 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1164&r=ban |
| By: | Alessandro Fedele (Free University of Bozen-Bolzano, Italy); Mirco Tonin (Free University of Bozen-Bolzano, Italy); Matteo Valerio (Free University of Bozen-Bolzano, Italy) |
| Abstract: | Using administrative data on phishing attacks targeting almost 150, 000 Italian- and German-speaking customers of an Italian bank in 2022-23, we investigate how individual characteristics are associated to the likelihood of victimization. We find that younger customers and Italian speakers are more likely to be victims of phishing, while we find no differences in terms of gender or size of the place of residence. |
| Keywords: | Phishing attacks; Administrative data; Victims’ characteristics. |
| JEL: | L86 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:bzn:wpaper:bemps103&r=ban |
| By: | Clodomiro Ferreira (Banco de España); José Miguel Leiva (BBVA Research); Galo Nuño (Banco de España); Álvaro Ortiz (BBVA Research); Tomasa Rodrigo (BBVA Research); Sirenia Vazquez (BBVA Research) |
| Abstract: | We identify and study analytically three key channels that shape how inflation affects wealth inequality: (i) the traditional wealth (or Fisher) channel through which inflation redistributes from lenders to borrowers; (ii) an income channel through which inflation reduces the real value of sticky wages and benefits; and (iii) a relative consumption channel through which heterogeneous increases in the prices of different goods affect people differently depending on their consumption baskets. We then quantify these channels during the 2021 inflation surge in Spain using detailed, high-frequency customer-level data from one of the main commercial banks. The unexpected nature of the inflation shock and its perception as temporary in this period in particular closely fit the assumptions behind our theoretical decomposition. Results show that the wealth and income channels are an order of magnitude larger than the consumption channel. Middle-aged individuals were, in net terms, largely unaffected by inflation, while the elderly suffered the most. We find similar results when using representative surveys on households’ wealth, income, and consumption. |
| Keywords: | uneven inflation, net nominal positions, nominal wage rigidities |
| JEL: | G51 D31 E31 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2403&r=ban |
| By: | Yoosoon Chang; Fabio Gómez-Rodríguez; Christian Matthes |
| Abstract: | We investigate the influence of the U.S. government’s spending and taxation decisions, along with the monetary policy choices made by the Federal Reserve, on the dynamics of the nominal yield curve. Aggregate government spending moves the long end of the yield curve, whereas monetary policy and changes in taxation move the short end of the yield curve on impact. Disentangling different types of government spending, we find that only government consumption exerts a discernible influence on the short end of the yield curve. The effects are generally transient and disappear after one year. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:bny:wpaper:0128&r=ban |
| By: | Galstyan, Vahagn (Central Bank of Ireland) |
| Abstract: | This paper presents an empirical framework and analysis of the interactions among inflation, wages, employment, and output in the euro area. Results identify price shocks and demand shocks as the primary exogenous factors explaining historical variance. The wage gap emerges as a key determinant of wage dynamics in the aftermath of a price shock. In contrast, the output gap becomes dominant following demand shocks. The real wage gap acts as a corrective mechanism, ensuring that prices and wages in particular align with the broader economic landscape. Forecasts for the period starting 2023Q3 emphasise the enduring significance of the real wage gap, projecting its ongoing impact on nominal wages in tight labour markets. As for inflation expectations, the estimates emphasise their stickiness. In this context, the significant and persistent price shock that has occurred suggests a gradual decline in expectations, potentially leading to an extended period of elevated inflation. |
| Keywords: | Inflation, Wages, Central Banking. |
| JEL: | E00 E12 E30 E31 E32 E37 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:11/rt/23&r=ban |
| By: | Robert C. M. Beyer; Ms. Ruo Chen; Florian Misch; Claire Li; Ezgi O. Ozturk; Mr. Lev Ratnovski |
| Abstract: | The extent to which changes in monetary policy rates lead to changes in loan and deposit rates for households and firms, referred to as ‘pass-through’, is an important ingredient of monetary policy transmission to output and prices. Using data on seven different bank interest rates in 30 European countries, different approaches, and the full sample as well as a subsample of euro area countries, we show that a) the pass-through in the post-pandemic hiking cycle has been heterogenous across countries and types of interest rates; b) the pass-through has generally been weaker and slower, except for rates of non-financial corporation loans and time deposits in euro area countries; c) differences in pass-through over time and across countries for most deposit rates are correlated with financial sector concentration, liquidity, and loan opportunities, and d) the effects of pass-through to outstanding mortgage rates on monetary transmission on prices and output are heterogenous across countries. |
| Keywords: | Monetary Policy Transmission; Monetary Policy Pass-Through |
| Date: | 2024–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2024/009&r=ban |