|
on Banking |
| By: | Harald Uhlig |
| Abstract: | I discuss private and central-bank-issued digital currencies, summarizing my prior research. I argue that prices of private digital currencies such as bitcoin follow random walks or, more generally, risk-adjusted martingales. For central bank digital currencies, I argue that they enhance the “CBDC trilemma” facing a central bank: out of the three objectives, price stability, efficiency, and monetary trust, it can achieve at most two. |
| JEL: | E31 E42 E44 E52 G12 G21 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32159&r=ban |
| By: | Martin F. Hellwig (Max Planck Institute for Research on Collective Goods, Bonn) |
| Abstract: | The paper analyses the role of national central banks (NCBs) in the governance of the European System of Central Banks (ESCB). NCBs are the owners of the European Central Bank (ECB), and their governors dominate the ECB’s Governing Council, but in monetary policy operations, NCBs are subordinated to the ECB. The dominance of NCB governors has materially affected Governing Council decisions on relations between NCBs and the ECB, allowing the NCBs to maintain some of their erstwhile glory, sometimes in contradiction to the primary law. Examples involve the monetary funding of investments declared as non-monetary, violations of Treaty provisions for the allocation of income from monetary policy operations, and accounting rules that obfuscate the boundary between ECB-subordinate and independent activities of NCBs. The net effect of these developments is to enlarge the domain of NCB activities. |
| Keywords: | European Monetary Union, European System of Central Banks, Governance of the Eurosystem, ANFA, ELA, PSPP, Central-Bank Accounting and Balance Sheets |
| JEL: | E50 E58 F53 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2024_07&r=ban |
| By: | Stefan Jacewitz; Jonathan Pogach; Haluk Unal; Chengjun Wu |
| Abstract: | In this paper, we present empirical evidence of the regulatory dialectic in the prime institutional money market fund (PI-MMF) industry. The “regulatory dialectic”, developed by Kane (1977, 1981), describes how banks and regulators react to each other. For decades, a cap on commercial deposit interest rates fueled dramatic growth in bank-sponsored PI-MMFs as a form of shadow banking. During the growth period, banks with more commercial deposits were more likely to enter the PI-MMF industry in an effort to keep their commercial customers in affiliated subsidiaries. However, the 2008 crisis and subsequent regulatory changes halted the rapid growth of PI-MMFs. In the post-crisis regulatory regime, bank-sponsored funds were more likely to exit the industry than nonbank-sponsored funds. Simultaneously, the industry shifted from PI-MMFs to government institutional MMFs as substitute products. We conjecture that the collapse of the PI-MMF can lead further to the emergence of substitute products, such as stablecoins as part of the continuing dialectical process. |
| Keywords: | bank; bank holding company; bank run; financial crisis; liquidity risk; money market funds; systemic financial risk; too big to fail |
| JEL: | G2 G21 G23 G28 H12 H81 |
| Date: | 2024–02–05 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:97778&r=ban |
| By: | Jean Flemming; Ruth A. Judson |
| Abstract: | Technological advances in recent decades have brought about a wave of private-sector innovation in payments and have led central banks to explore a variety of improvements to their payment systems, including the possibility of issuing a central bank digital currency (CBDC). Survey evidence from the Bank for International Settlements (BIS) shows that over 90% of central banks are exploring CBDCs (Kosse & Mattei, 2022). The Federal Reserve is also exploring the implications of, and options for, introducing a CBDC. |
| Date: | 2024–02–16 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2024-02-16&r=ban |
| By: | Koefer, Franziska; Bokkens, Amber; Preziuso, Massimo; Ehrenhard, Michel |
| Abstract: | This paper investigates strategies of European microfinance institutions (MFIs) and inclusive FinTech organisations to address financial and digital illiteracy among vulnerable customers. It reveals that both MFIs and FinTech organisations focus on personalised financial education, training and coaching but adopt distinct strategies in their approach.The study highlights the crucial role of support teams in enhancing literacy and recommends a balance between digitalisation and human interaction, alongside advocating for governmental and EU educational initiatives. This is the third paper resulting from a research project on 'Strengthening Financial Inclusion through Digitalisation' (SFIDE), initiated by EIF's Research & Market Analysis division. The project is funded by the EIB Institute under the EIB-University Sponsorship Programme (EIBURS). It aims to investigate the potential of technological and financial innovation to increase the efficiency of the inclusive finance sector, through the identification and promotion of best practices. |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eifwps:283601&r=ban |
| By: | Ozili, Peterson K |
| Abstract: | This study investigates the impact of terrorism on financial inclusion that is achieved through ATM penetration and bank branch expansion. Eight countries that are the most terrorized countries in the world were analysed using the panel fixed effect regression model and the generalized linear model. The results provide evidence that terrorism reduces the level of financial inclusion in countries experiencing terrorism, but the presence of strong legal institutions, accountability governance institutions and political stability governance institutions mitigate the adverse effect of terrorism on financial inclusion. |
| Keywords: | Terrorism, financial inclusion, access to finance, institutions, commercial bank branchs, ATM. |
| JEL: | G00 G21 I30 I31 I38 I39 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120154&r=ban |
| By: | Sepp, Tim Florian; Israel, Karl-Friedrich; Treitz, Benjamin; Hartl, Tom |
| Abstract: | The resilience of the German banking system is studied on the semiaggregated level from 1968 to 2022. We distinguish between Large Banks, Regional Banks, Landesbanken, Sparkassen and Credit Unions and study their z-scores as a measure of resilience in response to the monetary policy stances of the Bundesbank and the ECB, respectively. We estimate two-way fixed effects panel regression models for both periods separately. The results suggest that monetary policy was more effective in enhancing resilience during the period of a national currency controlled by the Deutsche Bundesbank. The effect across bank types is much more heterogeneous after the inception of the ECB. In particular, decreasing resilience of Large Banks is associated with expansionary (un)conventional monetary policy in recent years. |
| Keywords: | Resilience, Monetary Policy, Banking, Financial Stability, Germany, Deutsche Bundesbank, ECB, Credit Union, Sparkasse |
| JEL: | E42 E52 G21 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:leiwps:283608&r=ban |
| By: | Mamoun Alaoui (UH2MC - Université Hassan II [Casablanca]) |
| Abstract: | This article aims to analyze and study the fluctuation of the key rate and inflation on the Moroccan banking sector during the period between June 2022 and July 2023. In addition, the study of the impact of the fluctuation of the policy rate and inflation on outstanding bank loans, bank deposits and on the effectiveness of the policy rate in lowering the inflation rate and consequently, their impact on the Moroccan banking sector. In order to achieve greater objectivity and scientific clarity in the analysis and processing of data relating to our subject, I have mainly used a static method and a dynamic method to verify our assertions arising from the main problem and to confirm or refute our hypotheses. The result allows us to conclude that the relationship between the fluctuation of the key interest rate and inflation on the Moroccan banking sector is significant, since with the increase in inflation and the key interest rate, we can see that outstanding loans decreased immediately afterwards. Key words: Policy rate, inflation, bank deposits, outstanding bank loans, Moroccan banking sector. |
| Abstract: | Cet article vise à analyser et étudier la fluctuation du taux directeur et de l'inflation sur le secteur bancaire Marocain pendant la durée entre Juin 2022 et Juillet 2023. En outre, l'étude de l'impact de la fluctuation du taux directeur et de l'inflation sur l'encours des crédits bancaire, des dépôts bancaires et sur l'efficacité du taux directeur dans la baisse du taux d'inflation et par conséquent leurs impact sur le secteur bancaire Marocain. Afin d'atteindre une plus grande objectivité et une clarté scientifique dans l'analyse et le traitement des données relatives à notre sujet, nous avons utilisé principalement une méthode statique et une méthode dynamique pour vérifier nos affirmations qui découlent de la problématique principale et confirmer ou infirmer nos hypothèses. Le résultat nous permet de conclure que la relation entre la fluctuation du taux directeur et de l'inflation sur le secteur bancaire Marocain est significative car avec l'augmentation de l'inflation et du taux directeur on constate que les encours de crédits ont connu une diminution juste après. Mots clés : Taux directeur, inflation, dépôts bancaires, encours des crédits bancaire, secteur bancaire Marocain. |
| Keywords: | Taux directeur, inflation, dépôts bancaires, encours des crédits bancaire, secteur bancaire Marocain |
| Date: | 2024–02–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04456595&r=ban |
| By: | Hüser, Anne-Caroline; Lepore, Caterina; Veraart, Luitgard A. M. |
| Abstract: | We examine how the repo market operates during liquidity stress by applying network analysis to novel transaction-level data of the overnight gilt repo market including the COVID-19 crisis. We find that during this crisis the repo network becomes more connected, with most institutions relying on previously used counterparties. There are however important changes in the repo volumes and spreads during the stress relative to normal times. There is a significant increase in volumes traded with the central counterparties (CCPs) sector. At the same time non-banks, except hedge funds, decrease borrowing and face higher spreads in the bilateral segment. Overall, this evidence reflects a preference for dealers and banks to transact in the centrally cleared rather than the bilateral segment. Our results can inform the policy debate around the behaviour of banks and non-banks in recent liquidity stress and on widening participation in CCPs by non-banks. |
| Keywords: | repo market; liquidity risk; financial networks; non-banks; Covid-19; coronavirus |
| JEL: | G10 G33 |
| Date: | 2024–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:121347&r=ban |
| By: | Barrie, Mohamed Samba |
| Abstract: | This research paper presents the results of a text mining analysis conducted on the quarterly monetary policy statements published by the Bank of Sierra Leone. This study examines the effectiveness and readability of monetary policy communication by the Bank of Sierra Leone. The research focuses on evaluating the clarity and simplicity of the Bank's communication efforts from 2019Q1 to 2023Q1. Utilizing techniques such as word cloud extraction, keyword density analysis, and text readability metrics assessment, we analyzed 17 quarterly monetary policy statements, our corpus consist of 43 pages of text data. The findings reveal insights into the prominent themes, and linguistic characteristics embedded within the Bank's monetary policy statements. Through an examination of keyword frequency and thematic trends, the research shows that the Bank of Sierra Leone's monetary policy statements place emphasis on inflation management, economic growth, and consideration of exogenous factors affecting monetary policy implementation, with language and structure varying across quarters. Moreover, the analysis suggests that understanding these statements typically requires a college-level education, posing accessibility challenges for a significant portion of Sierra Leone’s population. The policy implications drawn from this analysis accentuate the importance of stakeholder engagement, transparency, adoption of digital outreach tools, local language communication, continuous monitoring and evaluation of the Bank’s communication strategy. This research contributes empirical evidence on monetary policy communication in Sierra Leone, offering insights for policymakers on how best to improve its communication strategies to financial market participants and the general public. |
| Keywords: | Text mining, monetary policy, communication, Bank of Sierra Leone, Effectiveness, Readability, Clarity, Comprehensibility |
| JEL: | E52 E58 G14 G28 C88 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:283289&r=ban |
| By: | Ozili, Peterson K |
| Abstract: | This paper presents a discussion about the causes and consequences of the 2023 banking crisis in the United States. Using discourse analysis, the paper show that the 2023 banking crisis was the worst crisis in the US and Europe since the 2007-2008 global financial crisis. This banking crisis was caused by aggressive interest rate hikes by the US Federal Reserve. The increase in interest rates led to huge losses on the portfolio of government bonds held by US banks. The losses led to fears of bank collapse and triggered unprecedented deposit outflows which led to funding and liquidity problems for some banks and the eventual collapse of four banks – Silicon Valley Bank, Signature Bank, First Republic Bank and Credit Suisse. This crisis showed that the increase in interest rates can unmask hidden vulnerabilities in the banking system |
| Keywords: | Banking crisis, interest rates, Silicon Valley Bank, regional banks, financial crisis, United States, Europe. |
| JEL: | G00 G01 G21 G28 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120153&r=ban |
| By: | Loretta J. Mester |
| Abstract: | To conclude, a resilient financial system plays an important role in ensuring a strong economy. After the global financial crisis, steps were taken to shore up the resilience of the banking system. Systemically important banking institutions have higher capital and liquidity buffers and better risk-management systems than they did. The sound banking system was able to lend important support to households and businesses throughout the pandemic. But the financial system is dynamic, with new products, business models, and technologies being introduced, and the economic environment can change rapidly. Last year’s bank stress underscores the importance of not becoming complacent. We need to look holistically at the regulations, our methods of supervision, and our lender of last resort function to address the vulnerabilities that were revealed. This holistic approach should consider the interactions among various regulations, leaning toward simplification when possible. Recalibration should be informed by careful cost-benefit analyses. Identifying and addressing weaknesses will improve the underlying resilience of the financial system, so that we can continue to rely on it to provide its important services across the business and financial cycles and limit the need for government interventions. |
| Keywords: | Financial Resilience; Monetary policy; Financial supervision and regulation; Banking system; Silicon Valley Bank (SVB) |
| Date: | 2024–02–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcsp:97883&r=ban |
| By: | Sahab Zandi; Kamesh Korangi; Mar\'ia \'Oskarsd\'ottir; Christophe Mues; Cristi\'an Bravo |
| Abstract: | Whereas traditional credit scoring tends to employ only individual borrower- or loan-level predictors, it has been acknowledged for some time that connections between borrowers may result in default risk propagating over a network. In this paper, we present a model for credit risk assessment leveraging a dynamic multilayer network built from a Graph Neural Network and a Recurrent Neural Network, each layer reflecting a different source of network connection. We test our methodology in a behavioural credit scoring context using a dataset provided by U.S. mortgage financier Freddie Mac, in which different types of connections arise from the geographical location of the borrower and their choice of mortgage provider. The proposed model considers both types of connections and the evolution of these connections over time. We enhance the model by using a custom attention mechanism that weights the different time snapshots according to their importance. After testing multiple configurations, a model with GAT, LSTM, and the attention mechanism provides the best results. Empirical results demonstrate that, when it comes to predicting probability of default for the borrowers, our proposed model brings both better results and novel insights for the analysis of the importance of connections and timestamps, compared to traditional methods. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2402.00299&r=ban |
| By: | Solanko, Laura |
| Abstract: | Russia does not release information on the numbers of mobilized and recruited men or casualties of war in Ukraine. In this small note, I propose to use information from regional banking data as a proxy for analyzing the regional incidence of Russian mobilization. Some regions have seen rapid increases in household bank deposits not easily attributable to regional macroeconomic or institutional factors. Such regions coincide with the regions with proportionally large numbers of mobilized soldiers. It is plausible that the high salaries and hefty payments promised to contract soldiers, mobilized reservists and their families in the event of serious injury or death show up as spikes in regional bank deposits. |
| Keywords: | Russia, regions, mobilization, war casualties, bank deposits |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bofitb:283620&r=ban |
| By: | Nathan Foley-Fisher; Gary Gorton; Stéphane Verani |
| Abstract: | The equity and debt prices of large nonbank firms contain information about the future state of the banking system. In this sense, banks are informationally central. The amount of this information varies over time and over equity and debt. During a financial crisis banks are, by definition of a crisis, at risk of failure. Debt prices became about 50 percent more informative than equity prices about the future state of the banking system during the financial crisis of 2007-2009. This was partly due to investors' fears that banks might not be able to refinance the firms' debt. |
| Keywords: | Price informativeness; Asset pricing; Banking system; Financial crises |
| JEL: | D82 E44 G14 |
| Date: | 2024–02–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2024-06&r=ban |
| By: | Marc Schmitt |
| Abstract: | This paper explores the integration of Explainable Automated Machine Learning (AutoML) in the realm of financial engineering, specifically focusing on its application in credit decision-making. The rapid evolution of Artificial Intelligence (AI) in finance has necessitated a balance between sophisticated algorithmic decision-making and the need for transparency in these systems. The focus is on how AutoML can streamline the development of robust machine learning models for credit scoring, while Explainable AI (XAI) methods, particularly SHapley Additive exPlanations (SHAP), provide insights into the models' decision-making processes. This study demonstrates how the combination of AutoML and XAI not only enhances the efficiency and accuracy of credit decisions but also fosters trust and collaboration between humans and AI systems. The findings underscore the potential of explainable AutoML in improving the transparency and accountability of AI-driven financial decisions, aligning with regulatory requirements and ethical considerations. |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2402.03806&r=ban |
| By: | Raphaël Chiappini (BSE - Bordeaux Sciences Economiques - UB - Université de Bordeaux - CNRS - Centre National de la Recherche Scientifique); Bertrand Groslambert; Olivier Bruno (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur) |
| Abstract: | The current method of calculating nominal bank output in the national accounts has significant shortcomings. Discussions to remedy this have been ongoing for several years. We propose a new method that addresses the flaws of the current approach of the System of National Accounts. We implement a simple model-free method that removes the 'pure' credit risk premium from the production of banks while keeping the liquidity provision as part of the total nominal bank output. Using both local projections and autoregressive distributed lag models, we show that our method produces nominal bank output estimates that are consistent with the evolution of the economic activity and that remain always positive including during periods of financial stress. This method satisfies the four conditions set by the Inter-Secretariat Working Group on National Accounts. Furthermore, our method reveals that the nominal banking output of the eurozone is overestimated by approximately 40% over the period 2003–2017. |
| Keywords: | Bank output, Liquidity premium, Risk premium, ARDL, Local projections |
| Date: | 2024–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04452785&r=ban |
| By: | Hasan, Amena; Dowla, Asif-Ud; Tarannum, Ramisa |
| Abstract: | This research paper examines the impact of financial inclusion on the economic growth of developing nations, with a focus on Bangladesh. It reviews existing literature and develops hypotheses related to savings, capital mobilization, entrepreneurship, poverty alleviation, financial stability, and formalization of the economy. The paper presents a conceptual framework illustrating the pathways between financial inclusion and economic growth indicators. Data analysis shows a positive correlation between financial inclusion and GDP growth, as well as a link to poverty reduction. The paper concludes with policy implications for promoting financial inclusion in Bangladesh. |
| Keywords: | Financial inclusion, economic growth, Bangladesh, poverty alleviation, financial stability |
| JEL: | D8 E4 H3 M2 |
| Date: | 2024–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120213&r=ban |
| By: | Schnorpfeil, Philip; Weber, Michael; Hackethal, Andreas |
| Abstract: | We study the redistributive effects of surprise inflation combining administrative bank data with an information provision experiment during an episode of historic inflation. On average, households are well-informed about prevailing inflation and are concerned about its impact on their wealth; yet, while many households know about inflation eroding nominal assets, most are unaware of nominal-debt erosion. Once they receive information on the debt-erosion channel, households view nominal debt more positively and increase estimates of their own real net wealth. These changes causally affect actual consumption and hypothetical debt decisions. Our findings suggest that real wealth mediates the sensitivity of consumption to inflation once households are aware of the wealth effects of inflation JEL Classification: D12, D14, D83, D84, E21, E31, E52 |
| Keywords: | Consumption, Inflation Beliefs, Information Treatment, Monetary Policy |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20242904&r=ban |
| By: | Davidson, Sharada Nia; Moccero, Diego Nicolas |
| Abstract: | When capital in the banking system becomes depleted, the degree to which financial intermediation and the macroeconomy are adversely affected is likely to depend on the financial and macroeconomic environment. However, existing studies either assume that the effects of bank capital shocks are linear or ignore feedback effects and the impact on the macroeconomy. Using data on the largest euro area countries and Bayesian Panel Threshold VARs, we investigate the importance of different factors in amplifying shocks in banks’ vulnerability to capital depletion. Our results demonstrate that nonlinearities matter. When the banking sector is already vulnerable to large capital losses, it is more difficult for banks to accommodate a depletion in capital and lending and economic activity contract more severely. Similarly, low interest rates, which are typically associated with low bank margins and profitability, also lead to a larger decline in lending. De-risking is also more pronounced in these cases. The state of the business cycle, though, does not influence the propagation of shocks to the same extent. We conclude that financial factors play a larger role than the macroeconomic environment in heightening shocks to banks’ vulnerability to capital depletion. JEL Classification: C11, C33, E58, G21 |
| Keywords: | bank balance sheet, bank capital vulnerability, hierarchical prior, long run marginal expected shortfall, macroeconomic adjustment, panel threshold var |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20242912&r=ban |
| By: | Chrysanthopoulou Xakousti; Mylonidis Nikolaos; Sidiropoulos Moise |
| Abstract: | This paper studies the stability properties of inflation-targeting interest rate rules in an economy with regulatory capital requirements. We derive the conditions for rational expectations equilibrium determinacy in a sticky-price model augmented with the cost channel of monetary policy transmission. We find that when tightening Basel II-type capital regulations, strict inflation targeting leads to significant expansions in regions of determinacy. This result is attributed to the supply side of credit markets, and especially to the procyclical nature of bank leverage and the restricted interest rate pass-through. However, when banks maintain capital ratios beyond the required thresholds, strict inflation targeting suffers from considerable shrinking regions of determinacy. Moreover, excessive bank capital holdings may give rise to self-fulfilling business cycles. The availability of countercyclical capital buffers, as proposed by Basel III, and/or a flexible inflation targeting regime offer an antidote to these problems. |
| Keywords: | Equilibrium determinacy; Inflation targeting; Monetary policy; Regulatory capital requirements. |
| JEL: | E44 E52 E58 G28 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2024-06&r=ban |
| By: | Kristian Blickle; Zhiguo He; Jing Huang; Cecilia Parlatore |
| Abstract: | We study specialized lending in a credit market competition model with private information. Two banks, equipped with similar data processing systems, possess “general” signals regarding the borrower's quality. However, the specialized bank gains an additional advantage through further interactions with the borrower, allowing it to access “specialized” signals. In equilibrium, both lenders use general signals to screen loan applications, and the specialized lender prices the loan based on its specialized signal conditional on making a loan. This private-information-based pricing helps deliver the empirical regularity that loans made by specialized lenders have lower rates (i.e., lower winning bids) and better ex-post performance (i.e., lower non-performing loans). We show the robustness of our equilibrium characterization under a generalized information structure, endogenize the specialized lending through information acquisition, and discuss its various economic implications. |
| JEL: | D43 D44 D82 G21 G23 L10 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32155&r=ban |
| By: | Ozili, Peterson K |
| Abstract: | This chapter examines the role of embedded finance in increasing financial inclusion. The author shows that embedded finance increases financial inclusion by changing the way banked adults, unbanked adults and SMEs interact with financial services. Embedded finance provides greater access to finance for underserved adults and businesses and generates revenue for embedded finance service providers and banks, thereby presenting a win-win opportunity for both the users and providers of embedded financial services. |
| Keywords: | Financial inclusion, embedded finance, embedded payments, unbanked adults, poverty. |
| JEL: | I30 I31 I38 I39 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120155&r=ban |
| By: | Mark S. Carey; Christopher Healy |
| Abstract: | Some observers have argued that the short selling of bank stock contributes to bank runs and bank failures. Previously, no evidence has been available. We find no evidence that more short selling of bank stock is associated with materially larger outflows of bank deposits. We believe this means that proposals to restrict the short selling of bank stock should be supported by other arguments. |
| Keywords: | short-selling; bank runs; bank deposits |
| JEL: | G21 G12 G01 G18 |
| Date: | 2024–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:97870&r=ban |
| By: | Camilla Lupiani |
| Abstract: | In view of the persistent zero lower bound, which has dominated the European financial landscape since December 2012, the European Central Bank (ECB) has implemented unconventional monetary policies. However, the effects of these unconventional policies have not been fully captured by the traditional reference rates, which have remained anchored at values close to or below the zero lower bound. In order to assess the impact of these measures in more detail, the concept of "shadow rates" was introduced. These shadow rates, often based on financial indicators, provide a more comprehensive view of the overall macroeconomic situation. The present study aims to compare the predictive accuracy of a Taylor rule based on shadow rates with that based on the reference rate, the €str, in an out-of-sample period. The results of this analysis highlight that a Taylor rule based on shadow rates offers a more accurate representation of the stance of the monetary policy, and is even used by monetary analysts to form expectations, especially when the central bank does not provide clear guidance. This study suggests that incorporating the shadow rate into the Taylor rule could provide valuable insights for guiding monetary policy and get a deeper understanding of the macroeconomic landscape. |
| Keywords: | central bank, ECB, interest rate, shadow rate, GMM, efficiency, zero lower bound, effective lower bound |
| JEL: | E02 E43 E52 E58 F01 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp24218&r=ban |
| By: | Higgins, Brian E. |
| Abstract: | This paper studies how mortgage borrowers and house prices react to a tightening of mortgage limits following a policy change in Ireland in 2015. The policy introduced limits to the loan-to-income and loan-to-value ratios of new mortgages issued. In response to a tightening borrowing constraint, borrowers can choose to purchase a cheaper house or to reduce the leverage (LTV) of the mortgage. Using a difference-in-difference methodology, I find that groups of (poorer) borrowers, who were more likely to be above the loan-to-income threshold before the policy, responded primarily by buying cheaper houses after the policy change. On the other hand, groups of (richer) borrowers, who were more likely to be above the loan-to-value threshold, responded primarily by reducing the LTV of the mortgage. Borrowers who purchase cheaper houses could be buying smaller houses or the same size houses at a lower equilibrium price. To test for changes in equilibrium prices, I compare prices across postcodes and find that houses prices fell after the policy change in postcodes where a higher fraction of borrowers were above the loan-to-income threshold before the policy. JEL Classification: G21, E21, E44, E58, R21, R30 |
| Keywords: | household leverage, house prices, macroprudential regulation, residential housing markets |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20242909&r=ban |
| By: | Grill, Michael; Popescu, Alexandra; Rancoita, Elena |
| Abstract: | Climate-related risks are due to increase in coming years and can pose serious threats to financial stability. This paper, by means of a DSGE model including heterogeneous firms and banks, financial frictions and prudential regulation, first shows the need of climate-related capital requirements in the existing prudential framework. Indeed, we find that without specific climate prudential policies, transition risk can generate excessive risk-taking by banks, which in turn increases the volatility of lending and output. We further show that relying on microprudential regulation alone would not be enough to account for the systemic dimension of transition risk. Implementing macroprudential policies in addition to microprudential regulation, leads to a Pareto improvement. JEL Classification: D58, E58, E61, Q54 |
| Keywords: | prudential regulation, transition risk, financial frictions |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20242910&r=ban |
| By: | Shigenori SHIRATSUKA (Faculty of Economics, Keio University) |
| Abstract: | The current monetary policy framework of the Bank of Japan (BOJ) is the Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control (YCC). The YCC framework targets two interest rates with different maturity: the overnight policy interest rate at ?0.1 percent and the longer-term 10-year Japanese Government Bond (JGB) yields at zero percent. It appears to work effectively in stabilizing interest rates from short- to long-term at low levels. This paper addresses the question of what the BOJ fs YCC policy does through the lens of the yield curve dynamics in the JGB market and the overnight index swap (OIS) market, with due consideration of practical details of the BOJ fs JGB market operations. Empirical evidence shows two points. First, the BOJ fs JGB market interventions amplify the fluctuations of the overall yield curves, in contrast to its policy purpose of fostering the smooth formation of a mild upwardsloping shape of the JGB yield curve. Second, the BOJ fs outright JGB purchases in highstress times are seemingly aggressive but actually reactive to counter the market pressure on the YCC cap. These findings indicate that the YCC policy is carried out to sustain the YCC policy framework without producing effective easing effects but with significant side effects. |
| Keywords: | Unconventional Monetary Policy, Yield Curve Control, Nelson-Siegel Model, OIS-JGB Spread |
| JEL: | E43 E52 E58 G12 |
| Date: | 2024–02–05 |
| URL: | http://d.repec.org/n?u=RePEc:keo:dpaper:2024-002&r=ban |
| By: | Jost, Thomas; Mink, Reimund |
| Abstract: | The Eurosystem and the Deutsche Bundesbank will incur substantial losses in 2023 that are likely to persist for several years. Due to the massive purchases of securities in the last 10 years, especially of government bonds, the banks' excess reserves have risen sharply. The resulting high interest payments to the banks since the turnaround in monetary policy, with little income for the large-scale securities holdings, led to massive criticism. The banks were said to be making "unfair" profits as a result, while the fiscal authorities had to forego the previously customary transfers of central bank profits. Populist demands to limit bank profits by, for example, drastically increasing the minimum reserve ratios in the Eurosystem to reduce excess reserves are creating new severe problems and are neither justified nor helpful. Ultimately, the EU member states have benefited for a very long time from historically low interest rates because of the Eurosystem's extraordinary loose monetary policy and must now bear the flip side consequences of the massive expansion of central bank balance sheets during the necessary period of monetary policy normalisation. |
| Abstract: | Das Eurosystem und die Deutsche Bundesbank werden im Jahr 2023 und wahrscheinlich auch in den kommenden Jahren beträchtliche Verluste einfahren. Durch die massiven Wertpapierkäufe der letzten zehn Jahre, insbesondere von Staatsanleihen, sind die Überschussreserven der Banken stark gestiegen. Die daraus resultierenden hohen Zinszahlungen an die Banken seit der Wende in der Geldpolitik, bei zugleich geringer Verzinsung der hohen Wertpapierbestände, führten zu massiver Kritik. Die Banken machten dadurch "unfaire" Gewinne, während der Fiskus auf die bisher üblichen Abführungen von Zentralbankgewinnen verzichten musste. Populistische Forderungen, die Gewinne der Banken zu begrenzen, indem z.B. die Mindestreservesätze im Eurosystem drastisch erhöht werden, um die Überschussreserven zu reduzieren, schaffen neue Probleme und sind weder sachlich gerechtfertigt noch hilfreich. Schließlich haben die EWU-Staaten aufgrund der ultra-expansiven Geldpolitik des Eurosystems sehr lange in beispielloser Weise von historisch niedrigen Zinsen profitiert und müssen nun die fiskalischen Folgen der massiven Ausweitung der Zentralbankbilanzen in der Phase der notwendigen geldpolitischen Normalisierung tragen. |
| Keywords: | Central Bank Losses, Eurosystem, Quantitative Easing, Minimum Reserves, Monetary Policy |
| JEL: | E50 E58 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:imfswp:283623&r=ban |
| By: | Angeloni, Ignazio |
| Abstract: | In its first ten years (2014-2023), the banking union was successful in its prudential agenda but failed spectacularly in its underlying objective: establishing a single banking market in the euro area. This goal is now more important than ever, and easier to attain than at any time in the last decade. To make progress, crossborder banks should receive a specific treatment within general banking union legislation. Suggestions are made on how to make such regulatory carve-out effective and legally sound. |
| Keywords: | Banking Union, Single Banking Market, Euro Area |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewh:283622&r=ban |
| By: | Ozili, Peterson Kitakogelu |
| Abstract: | The chapter analyzes the implication of central bank digital currency (CBDC) issuance for financial stability and monetary policy. It was shown that widespread central bank digital currency adoption and usage may accelerate bank deposit to CBDC migration which could elevate liquidity risk in the banking sector, increase interest rate, reduce bank loan supply, lower bank profit, increase the likelihood of bank panic, and transmit financial stability risks to the financial system. Also, issuing a central bank digital currency can strengthen monetary policy transmission if there is effective coordination between the monetary policy rate and the central bank digital currency deposit rate. If done properly, changes in the central bank digital currency deposit rate will affect households and businesses and compel commercial banks to respond by adjusting their deposit rates too, thereby enhancing the interest rate channel of monetary policy. |
| Keywords: | CBDC, interest rate, central bank digital currency, financial system, banks monetary policy, financial stability |
| JEL: | E42 E51 E52 G21 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120146&r=ban |
| By: | Kenneth P. Brevoort |
| Abstract: | Concerns have lingered since the 2007 subprime crisis that government housing policies promote risky mortgage lending. The first peer-reviewed evidence of a causal effect was published by the Review of Financial Studies in a paper (Saadi, 2020) linking the crisis to changes in the Community Reinvestment Act (CRA) in 1995. A review of that paper, however, shows that it misrepresents the policy changes as having taken effect in mid-1998, 2.5 years after they were implemented. When the correct timing is used, a similar analysis yields no evidence of a relationship between CRA and riskier mortgage lending. Instead, the results are shown to reflect an unrelated confounding event, the first collapse of the U.S. subprime mortgage market following Russia's debt default in August 1998. |
| Keywords: | Community Reinvestment Act (CRA), House prices; Mortgage lending; Subprime crisis |
| JEL: | G21 G28 R38 |
| Date: | 2024–02–06 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2024-09&r=ban |
| By: | Damane, Moeti; Ho, Sin-Yu |
| Abstract: | The study explores the link between financial inclusion and financial stability in 37 Sub-Saharan African countries. Results of our panel data analysis show that financial inclusion positively impacts financial stability, especially in low-income countries with low levels of financial stability. Additionally, prior improvements in financial stability were found to have positive effects on present levels of financial stability. The study recommends policymakers to enhance cooperation, target excluded communities for financial inclusion, improve financial literacy, and cross-fertilize skills. |
| Keywords: | Sub-Saharan Africa; Financial Inclusion; Financial Stability; Dynamic Common Correlated Effects; Quantile Regression |
| JEL: | G0 G2 G21 G28 |
| Date: | 2024–02–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120238&r=ban |
| By: | Thomas Wangi |
| Abstract: | The accumulation of excess reserves in the banking system of PNG may have undesired implications on the effectiveness of monetary policy transmission. Hence, this paper employs a structural VAR model to measure the flow-on effects of positive shocks to excess reserves and the lending rate on private sector loans, the exchange rate, the CPI and real GDP using quarterly time-series data from March 2001 to December 2020. The study uses quarterly data since high frequency data for some variables are not available. The shocks are measured by the orthogonalized innovations to the monetary policy variables. The impulse response results show that the lending rate and excess reserves shocks have unanticipated effects on the exchange rate and the CPI in the short run. Similarly, in the long run, the response of GDP to the shocks is not consistent with monetary theory. Furthermore, the variance decomposition results indicate that excess reserves account for minimal components of the shocks to all variables in the short horizon. The historical decomposition results suggest that the excess reserves shock contributes weakly to the fluctuations of the CPI and GDP over the sample period. The findings determine that excess reserves reduce the effectiveness of monetary policy transmission mechanism in PNG. The study suggests that in order to promote an effective monetary policy transmission, the central bank should consider improving the monetary policy framework and modernizing the financial market system. |
| Keywords: | excess reserves, monetary policy transmission, structural VAR |
| JEL: | C5 E52 G21 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2024-16&r=ban |