|
on Banking |
| By: | Sepp, Tim Florian; Israel, Karl-Friedrich; Treitz, Benjamin; Hartl, Tom |
| Abstract: | This paper examines the heterogeneous effects of the ECB's monetary policies on the resilience of the German banking system between 1999 to 2022. We distinguish between the main bank types in Germany: Large Banks, Regional Banks, Sparkassen, Landesbanken and Credit Unions. We proxy bank-type resilience by a zscore measure. We use structural monetary policy shocks relying on high-frequency identification methods. Unconventional monetary policy shocks are decomposed into three parts: timing shocks, forward guidance, and quantitative easing. We estimate the resilience of German bank types in response to expansionary monetary policy shocks by producing impulse response functions through local projections. Conventional monetary easing is associated with weakened resilience for all bank types. Unconventional monetary policies have heterogeneous effects on German bank types. Shocks to short-term interest rate expectations (i.e. timing shocks) are associated with increasing resilience of Large Banks, Regional Banks and Landesbanken, but with decreasing resilience of the others. Forward guidance only has a positive impact on the resilience of Sparkassen. Large-scale asset purchases through quantitative easing tend to the increase resilience of Large Banks and Sparkassen, but decrease the resilience of Regional Banks, Credit Unions and Landesbanken, in both, the short and long run. |
| Keywords: | Resilience, Financial Stability, Monetary Policy, Unconventional Monetary Policy, Banking System, Germany |
| JEL: | E42 E52 G21 M41 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:leiwps:289620&r=ban |
| By: | Caccia, Enea; Tapking, Jens; Vlassopoulos, Thomas |
| Abstract: | This paper discusses the impact that a retail central bank digital currency (CBDC) could have on the implementation of monetary policy. Monetary policy implementation could be affected if the introduction of the retail CBDC changes the volume of commercial bank deposits held by customers, which would, in turn, affect central bank reserves. While it is often assumed that customer deposits would decrease if a CBDC was introduced, we provide arguments why this is by no means clear cut and deposits could even increase. If bank deposits do decrease, banks would need to draw on, and therefore reduce, their central bank reserve holdings. Moreover, uncertainty as to the timing and extent of any conversions of deposits into CBDC might prompt banks to scale up their demand for central bank reserves in order to hold larger precautionary buffers. Consequently, central banks might need to adjust their reserve supply and other features of their monetary policy implementation, depending, for example, on whether they use a floor or a corridor system for monetary policy implementation. In the specific case of the digital euro, the features already envisaged for its design would make it possible to minimise the risk of negative consequences for monetary policy implementation. JEL Classification: E41, E42, E43, E52, E58, G21 |
| Keywords: | central bank digital currency, central bank reserves, monetary policy implementation |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2024345&r=ban |
| By: | Gaffney, Edward (Central Bank of Ireland); Lyons, Paul (Central Bank of Ireland) |
| Abstract: | This Note examines the non-mortgage consumer credit market in Ireland, which represents just over one-tenth of all household creditin Ireland. Consumer credit has trended upwards since 2016, within a context of overall deleveraging in the household sector. Consumer credit is characterised by smaller amounts, more diverse purposes and a broader range of lenders than the mortgage market. While banks continue to have a large share of outstanding consumer credit, credit unions, collectively, are the main lender for personal loan products. A large, stable share of lending also originates from other non-bank financial intermediaries. Consumer debt servicing costs have not increased significantly since the ECB started to raise interest rates in July 2022. Additionally, the pass through of interest rate increases to new consumer loan rates has been more muted in Ireland than elsewhere in the euro area. Furthermore, overall non-performing consumer loans at banks and credit unions remain near recent historical lows despite a slight increase observed in new early arrears cases. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:fsnote:1/fs/24&r=ban |
| By: | Issam Samiri |
| Abstract: | I propose a general equilibrium model with endogenous defaults and a banking sector operating under a Value-at-Risk constraint. Analytical examination reveals that (a) the Value-at-Risk rule introduces a risk premium on bank lending, (b) this risk premium fluctuates with the business cycle, amplifying the impact of real shocks, and (c) bank leverage also fluctuates with real shocks, but its cyclical behaviour depends on the shocks' effects on default expectations, credit demand, and the bank's balance sheet. Assuming TFP shocks as the sole exogenous source of fluctuation, the model quantitatively replicates realistic fluctuations in banks' leverage, equity, lending, and credit spreads. |
| Keywords: | RBC, Value-at-Risk, bank leverage, Credit Spreads, Financial Frictions |
| JEL: | E13 E32 E44 G21 G32 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:555&r=ban |
| By: | Srichander Ramaswamy (The South East Asian Central Banks (SEACEN) Research and Training Centre) |
| Abstract: | The view that cryptocurrencies can be a substitute for fiat currencies in an interconnected and digitised world appears to be gaining some traction. Such views are reinforced by the high fee banks charge on cross-border money transfers and for certain other financial services. The belief that cryptocurrencies will define the future of money is entrenched among millennials, and this belief has been driving up the demand for cryptocurrencies. Stablecoins in this ecosystem has taken on the role of the unit of account for crypto assets and is instrumental in providing liquidity as well as in facilitating trading of crypto assets. To play this role, stablecoins are being extensively used as collateral in crypto transactions with trading platforms holding such collateral in omnibus accounts. The global regulatory community is taking note of this and has expressed concerns that as the market for stablecoins and cryptocurrencies grow, potential risks to the broader financial system from runs on stablecoins can be damaging. This paper reviews these developments and provides some suggestions for policy drawing on the regulatory debates and initiatives from standard setters to address the risks identified. |
| Keywords: | Central banks, collateral, cryptocurrencies, financial stability, regulation, stablecoins |
| JEL: | E42 E58 G21 G23 G28 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:sea:wpaper:wp54&r=ban |
| By: | Scott, David (Central Bank of Ireland); Pratap Singh, Anuj (Central Bank of Ireland) |
| Abstract: | Mortgage switching, and the choice of contract type, can have important implications for borrower resilience to interest rate movements. In this Note, we focus on switching in the Irish mortgage market in the run-up to (August 2018-June 2022) and early phase of the European Central Bank’s (ECB) contractionary monetary policy from July to December 2022. Using the Central Credit Register (CCR), we find that mortgage switching had been steadily increasing in the period of falling interest rates since 2018 but grew particularly quickly during the early months of the ECB’s monetary policy tightening cycle. The increase in switching was primarily to and from fixed-rate contracts, and remained strong even as the immediate short-term monetary gains from switching were reducing, signifying borrower’s forward-looking choices in seeking to avoid future increases in monthly repayments. We also find that non-banks were particularly important in leading interest rates downwards from 2019 to 2022, a trend which reversed abruptly once ECB policy rates rose. In terms of borrowers’ financial outcomes, we find interest rate gains from mortgage switching of up to 1.3 pp, equating to annual savings worth €2, 000 on average. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:fsnote:2/fs/24&r=ban |
| By: | Ubeda, Fernando; Mendez, Alvaro; Forcadell, Francisco Javier |
| Abstract: | Trust in banking plays a significant role in promoting financial inclusion. Multinational banks (MNBs) have the potential to enhance trust by adopting sustainable banking practices. We investigate the impact of MNBs' adoption of ESG (Environmental, Social and Governance) practices on trust in banking in 38 developing countries. Using an instrumental variable approach and control function estimation, our findings indicate that sustainable practices by commercial MNBs are positively and significantly associated with increased trust in banking. The results remain consistent across different samples, lending robustness to our findings. By demonstrating the importance of sustainable banking in fostering trust, this study contributes to the limited literature on trust in banking in the global South. |
| JEL: | F3 G3 |
| Date: | 2024–03–21 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:122554&r=ban |
| By: | Natalia Fischl-Lanzoni; Martin Hiti; Nathan Kaplan; Asani Sarkar |
| Abstract: | We examine how investors’ perception of bank balance sheet risk evolved before and during the March-April 2023 bank run. To do so, we estimate the covariance (“beta”) of bank excess stock returns with returns on factors constructed from long-short portfolios sorted on shares of uninsured deposits and unrealized losses on securities. We find that the market’s perception of bank risk shifted in both the time series and the cross-section. From January 2022 to February 2023, both factor betas were mostly insignificant, but after the bank run started, they became positive and significant for all banks on average. However, in the cross-section, only the factor betas of banks put on downgrade watch on March 13 were significant, consistent with our finding that this announcement was informative. When additional banks were downgraded in April, their factor betas also became significant, even though we find the April announcements to be noninformative for these banks. We suggest that investors with limited attention focused on the banks included in the April announcements to update their priors on balance sheet risk. |
| Keywords: | bank run; information sensitivity; limited attention; balance sheet beta; uninsured deposits; unrealized losses |
| JEL: | G01 G12 G14 G21 |
| Date: | 2024–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:98045&r=ban |
| By: | Marco Cipriani; Daniel Fricke; Stefan Greppmair; Gabriele La Spada; Karol Paludkiewicz |
| Abstract: | As shown in a past Liberty Street Economics post, in the United States, the yields of money market fund (MMF) shares respond to changes in monetary policy rates much more than the rates of bank deposits; in other words, the MMF beta is much higher than the deposit beta. Consistent with this, the size of the U.S. MMF industry fluctuates over the interest rate cycle, expanding during times of monetary policy tightening. In this post, we show that the relationship between the policy rates of the European Central Bank (ECB) and the size of European MMFs investing in euro-denominated securities is also positive—as long as policy rates are positive; after the ECB introduced negative policy rates in 2015, that relationship broke down, as MMFs received large inflows during this period. |
| Keywords: | monetary policy; euro-denominated money market funds; Pass-through |
| JEL: | G23 E4 E5 |
| Date: | 2024–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:98056&r=ban |
| By: | António Afonso; M. Carmen Blanco-Arana |
| Abstract: | Financial inclusion is a key factor for economic growth in most developing countries. This paper examines the relationship between financial inclusion and Gross Domestic Product (GDP) per capita in the Least Developed Countries (LDCs) using panel data for the period 1990-2021. The empirical evidence suggests that financial inclusion is indeed related to economic growth in the LDCs. We consider different dimensions of financial inclusion: usability (% of bank credit to bank deposits), accessibility (commercial bank branches), concentration (% of concentration of banks) and availability (depositors with commercial banks) to determine which has a greater effect on economic growth in the countries analyzed. Therefore, we assess which dimensions of financial inclusion are a better tool to improve the economic situation in the poorest countries in the world. While we conclude that all dimensions of financial inclusion have a positive effect on economic growth, in the expected direction, we find that not all dimensions affect economic growth similarly. The dimensions ‘accessibility’ and ‘concentration’ are robustly associated with economic growth, while ‘usability’ and ‘availability’ produce a significant but relatively lesser effect in the LDCs. |
| Keywords: | Financial inclusion; GDP per capita; Panel data; LDCs |
| JEL: | O47 C33 F30 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp03162024&r=ban |
| By: | Anass Mezine (FSJES AIN SEBAA, Hassan II University –Casablanca) |
| Abstract: | Abstract The specificities of participative banks expose them, not only to traditional credit, market and operational risks, but also to risks of a unique nature. Although their mode of operation is not based on interest rate, several studies have demonstrated that participative banks are susceptible to fluctuations in market interest rates. The balance sheet structure, customer behavior, the absence of a refinancing market specific to participative banks and the shortage of sharia-compliant hedging instruments, increase their exposure to interest rate risk and make its management more complex. The objective of this paper is to provide answers to the problematic of exposure of participative banks to interest rate risk. To do this, we will adopt a theoretical approach based on a literature review, allowing on the one hand, to study the extent to which Moroccan participative banks may be impacted by changes in market reference rates, on the basis of the experience of participative banks operating in countries with a dual banking system and an underdeveloped or nonexistent Islamic financial market. Furthermore, we will illustrate the various practices and techniques developed to manage this risk. We intend to initially investigate this issue, its potential effects, and the various measurement and management techniques that can be employed to mitigate it. And subsequently, to present the best management practices that Moroccan participative banks, considering their specificities, can implement with the aim of addressing their exposure to such risk. Our study states that Moroccan participative banks are exposed to an extrinsic interest rate risk due to their operational environment. Despite their exposure, they lack the same flexibility as conventional banks when it comes to managing the potential impact on their financial situation. The recommendations provided in this paper focus notably on innovation and financial engineering in Sharia-compliant hedging financial instruments, the implementation of a reserve policy for risk management, and financial market education. |
| Abstract: | Résumé Les spécificités des banques participatives les exposent, en plus des risques classiques de crédit, marché et opérationnel, à des risques de nature unique. Bien que leur mode de fonctionnement est excepte du taux d'intérêt, plusieurs études réalisées ont démontré que les banques participatives se trouvent exposées aux fluctuations des taux d'intérêt du marché. La structure bilancielle, le comportement de la clientèle, l'absence d'un marché de refinancement propre aux banques participatives et la pénurie des instruments de couverture conformes à la charia, favorisent davantage leur exposition au risque de taux d'intérêt et rendent sa gestion plus complexe. L'objectif du présent article est d'apporter des éléments de réponse à la problématique de l'exposition des banques participatives au risque de taux d'intérêt. Pour ce faire, nous utilisons une approche théorique basée sur une revue de littérature, permettant d'une part, d'étudier dans quelles mesures les banques participatives marocaines pourront être impactées par les variations des taux de référence du marché, en se basant sur l'expérience des banques participatives exerçant dans des pays caractérisés par un écosystème dual et un marché financier islamique sous développé ou inexistant. Et d'autre part, de présenter les diverses pratiques et techniques développées pour gérer ce risque. Nous nous proposons d'étudier, dans un premier temps, cette problématique, ses effets potentiels et les différentes techniques de mesure et de gestion pouvant être utilisées pour en faire face. Et de présenter, par la suite, les bonnes pratiques de gestion que les banques participatives marocaines, tenant compte leurs spécificités, peuvent mettre en place dans l'objectif d'atténuer leur exposition audit risque. Notre étude affirme que les banques participatives Marocaines se voient exposées à un risque de taux d'intérêt extrinsèque suite notamment à l'environnement dans lequel elles exercent. Toutefois, elles n'ont pas la même souplesse que les banques conventionnelles pour gérer ses répercussions potentielles sur leur situation financière. Les recommandations apportées dans cet article portent notamment sur l'innovation et l'ingénierie financière en matière des instruments financiers de couverture conformes à la charia, la mise en place d'une politique de réserve pour la gestion du risque ainsi que l'éducation financière du marché. |
| Keywords: | Participative banks, interest rate risk, sensitivity, duration, ALM, Banques Participatives, Risque de taux d'intérêt, Sensibilité, Duration |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04507593&r=ban |
| By: | Fulvia Fringuellotti; Saketh Prazad |
| Abstract: | Following the Silicon Valley Bank collapse, the stock prices of U.S banks fell amid concerns about the exposure of the banking sector to interest rate risk. Thus, between March 8 and March 15, 2023, the S&P 500 Bank index dropped 12.8 percent relative to S&P 500 returns (see right panel of the chart below). The stock prices of insurance companies tumbled as well, with the S&P 500 Insurance index losing 6.4 percent relative to S&P 500 returns over the same time interval (see the center panel below). Yet, insurance companies’ direct exposure to the three failed banks (Silicon Valley Bank, Silvergate, and Signature Bank) through debt and equity was modest. In this post, we examine the possible factors behind the reaction of insurance investors to the failure of Silicon Valley Bank. |
| Keywords: | insurance companies; stock returns; Silicon Valley Bank (SVB) |
| JEL: | G2 |
| Date: | 2024–04–10 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:98050&r=ban |
| By: | Luca Fornaro; Christoph Grosse-Steffen |
| Abstract: | We provide a theory of financial fragmentation in monetary unions. Our key insight is that currency unions may experience of symmetry: that is episodes in which identical countries react differently when exposed to the same shock. During these events part of the union suffers a capital flight, while the rest acts as a safe haven and receives inflows. The central bank then faces a difficult trade-off between containing unemploymnet in capital-flight countries, and inflationary pressures in safe-haven ones. By counteracting private capital flows with public ones, unconventional monetary interventions mitigate the impact of financial fragmentation on employment and inflation, thus helping the central bank to fulfill its price stability mandate. |
| Keywords: | Monetary unions, euro area, fragmentation, optimal monetary policy in openeconomies, Capital flows, fiscal crises, unconventional monetary policies, inflation, endogenous breaking of symmetry, Optimum |
| JEL: | E31 E52 F32 F41 F42 F45 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1437&r=ban |
| By: | Nocciola, Luca; Zamora-Pérez, Alejandro |
| Abstract: | We shed light on the demand for a central bank digital currency (CBDC) as a means of payment, based on survey payment data. We provide a quantitative framework to assess transactional demand for CBDC at the point of sale, accommodating a wide range of design choices. We develop a structural model of payment means adoption and usage and estimate CBDC demand based on individuals’ preferences for payment method attributes. We disentangle the friction potentially associated to CBDC adoption, assessing two of its potential drivers: information frictions and gradual diffusion of digital payment methods. We find that modelling adoption is key to understanding CBDC demand. Finally, we show that optimal CBDC design, information campaigns, and network effects can substantially boost demand. JEL Classification: E41, E42, E47 |
| Keywords: | CBDC, money demand, payments, Random utility, structural model |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20242926&r=ban |
| By: | Christensen, Jens H. E. (Federal Reserve Bank of San Francisco,); Zhang, Xin (Research Department, Central Bank of Sweden) |
| Abstract: | We assess the impact of large-scale asset purchases, commonly known as quantitative easing (QE), conducted by Sveriges Riksbank and the European Central Bank (ECB) on bond risk premia in the Swedish government bond market. Using a novel arbitrage-free dynamic term structure model of nominal and real bond prices that accounts for bond- specific safety premia, we find that Sveriges Riksbank's bond purchases raised inflation and short-rate expectations, lowered nominal and real term premia and inflation risk premia, and increased nominal bond safety premia, suggestive of signaling, portfolio rebalance, and safe asset scarcity effects. Furthermore, we document spillover effects of ECB's QE programs on Swedish bond markets that are similar to the Swedish QE effects only after controlling for exchange rate fluctuations, highlighting the importance of exchange rate dynamics in the transmission of QE spillover effects. |
| Keywords: | term structure modeling; nancial market frictions; safety premium; unconventional monetary policy |
| JEL: | C32 E43 E52 E58 F41 F42 G12 |
| Date: | 2024–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0434&r=ban |
| By: | van Leuvensteijn, Michiel; Huljak, Ivan; de Bondt, Gabe |
| Abstract: | This paper extends Boone (2008) by introducing a competition measure at the individual firm level rather than for an entire market segment. It is based on the elasticity between profits and efficiency and called marginal relative profitability (MRP). Its intuition is that when a small change in efficiency derived from marginal costs can cause a large change in profits, a firm exercises pressure on its peers and gains profits. The MRP is embedded in the theoretical framework of Boone and measures competition vis-à-vis other market participants. We apply this extended Boone indicator to individual bank-level competition in the loan market in the four largest euro area countries and Austria. The MRP distribution is skewed to the left and many banks have a MRP below one, indicating that those banks have little incentive to enhance their efficiency to increase their profits. The MRP approach is shown to be a powerful tool to test the efficient-structure, structure-conduct performance, and ‘quiet life’ hypotheses and to detect comparatively weak non-competitive banks. Our new measure of firm-level competition enriches and complements other competition measures and provides a promising starting point for future market power analyses. JEL Classification: D4, L16, G21 |
| Keywords: | banks, competition, firm level |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20242925&r=ban |
| By: | Cecilia R. Caglio; Adam Copeland |
| Abstract: | A classic question for U.S. financial firms is whether to organize themselves as entities that are affiliated with a bank-holding company (BHC). This affiliation brings benefits, such as access to liquidity from other affiliated entities, as well as costs, particularly a larger regulatory burden. This post highlights the results from a recent Staff Report that sheds light on this tradeoff. This work uses confidential data on the population of broker-dealers to study the benefits of being affiliated with a BHC, with a focus on the global financial crisis (GFC). The analysis reveals that affiliation with a BHC makes broker-dealers more resilient to the aggregate liquidity shocks that prevailed during the GFC. This results in these broker-dealers being more willing to hold riskier securities on their balance sheet relative to broker-dealers that are not affiliated with a BHC. |
| Keywords: | broker-dealers; shadow banking; liquidity risk; repo market |
| JEL: | G2 G21 G23 |
| Date: | 2024–04–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:98032&r=ban |
| By: | Hassan Afrouzi; Marina Halac; Kenneth S. Rogoff; Pierre Yared |
| Abstract: | We present a simple long-run aggregate demand and supply framework for evaluating long-run inflation. The framework illustrates how exogenous economic and political economy factors generate central bank pressures that can impact long-run inflation as well as transitions between steady states. We use the analysis to provide a fresh perspective on the forces that drove global inflation downward over the past four decades. We argue that for inflation to remain low and stable in the future, political economy factors, such as strengthened central bank independence or more credible public debt policy, would need to offset the global economic pressures now pushing average long-run inflation upwards. |
| JEL: | E5 E6 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32308&r=ban |
| By: | Junliang Luo; Stefan Kitzler; Pietro Saggese |
| Abstract: | We explore the adoption of graph representation learning (GRL) algorithms to investigate similarities across services offered by Decentralized Finance (DeFi) protocols. Following existing literature, we use Ethereum transaction data to identify the DeFi building blocks. These are sets of protocol-specific smart contracts that are utilized in combination within single transactions and encapsulate the logic to conduct specific financial services such as swapping or lending cryptoassets. We propose a method to categorize these blocks into clusters based on their smart contract attributes and the graph structure of their smart contract calls. We employ GRL to create embedding vectors from building blocks and agglomerative models for clustering them. To evaluate whether they are effectively grouped in clusters of similar functionalities, we associate them with eight financial functionality categories and use this information as the target label. We find that in the best-case scenario purity reaches .888. We use additional information to associate the building blocks with protocol-specific target labels, obtaining comparable purity (.864) but higher V-Measure (.571); we discuss plausible explanations for this difference. In summary, this method helps categorize existing financial products offered by DeFi protocols, and can effectively automatize the detection of similar DeFi services, especially within protocols. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.00034&r=ban |
| By: | McIndoe-Calder, Tara (Central Bank of Ireland) |
| Abstract: | The 2020 Household Finance and Consumption Survey (HFCS) marked the first time that survey data from Irish households was supplemented with administrative data from the Central Bank’s Central Credit Register (CCR). Using household level data from the panel component of the survey, weighted to the full population in 2018, we develop a simple approach for estimating measurement error and applying it, find at least one third of households hold “revealed debt” worth almost 13 per cent of the value of total debt outstanding in 2020. Revealed debt is debt which was previously not reported in the HFCS but has come to light with the inclusion of the CCR. In doing so, we show that incorporating the CCR into the HFCS has helped to correct for under-reporting and improved the overall quality of liabilities data in the survey. Controlling for demographic and income characteristics, we find that households with more complex balance sheets are more likely to hold revealed debt. The results suggest that incorporating administrative data into surveys can help alleviate issues surrounding recall bias and other human errors that may generate initial misreporting. |
| Keywords: | household finance, debt, borrowing, balance sheet, economic measurement, surveys, admin data. |
| JEL: | G51 D1 D0 G0 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:2/rt/24&r=ban |
| By: | Fix, Blair |
| Abstract: | When it comes to Bitcoin, there’s one thing that almost everyone agrees on: the network sucks up a tremendous amount of energy. But from there, disagreement is the rule. For critics, Bitcoin’s thirst for energy is self-evidently bad — the equivalent of pouring gasoline in a hole and setting it on fire. But for Bitcoin advocates, the network’s energy gluttony is the necessary price of having a secure digital currency. When judging Bitcoin’s energy demands, the advocates continue, keep in mind that mainstream finance is itself no model of efficiency. Here, I think the advocates have a point. If you want to argue that Bitcoin is an energy hog, you’ve got to do more than just point at its energy budget and say ‘bad’. You’ve got to show that this budget is worse than mainstream finance. On this comparison front, there seems to be a vacuum of good information. For their part, crypto promoters are happy to show that Bitcoin uses less energy than the global banking system. But this result is as unsurprising as it is meaningless. Compared to Bitcoin, global finance operates on a vastly larger scale. So of course it uses more energy. To be meaningful, any comparison between Bitcoin and mainstream finance must account for the different scales of the two systems. So instead of looking at energy alone, we need to look at energy intensity — the energy per unit of circulating currency. That’s what I’ll do here. In this post, I compare the energy intensity of Bitcoin to the energy intensity of mainstream US finance. Which system comes out on top? The results may surprise you. |
| Keywords: | bitcoin, energy, finance, money |
| JEL: | P1 Q4 E4 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:289512&r=ban |
| By: | Fumiko Hayashi; Aditi Routh |
| Abstract: | Cryptocurrency owners without sufficient financial literacy and risk tolerance may be financially vulnerable, as the cryptocurrency market is highly volatile and lacks consumer protections. Our study divides cryptocurrency owners into three groups based on their purpose for holding cryptocurrencies—for investment only (investors), for transactions only (transactors), and for a mix of investment and transactions (mix users)—and examines how each group correlates with financial literacy and risk tolerance compared to consumers who do not own cryptocurrencies (nonowners). Using the 2022 Survey of Household Economics and Decisionmaking, we find that investors and mix users are significantly or moderately more financially literate and risk tolerant than nonowners, but transactors are less financially literate and slightly more risk tolerant than nonowners. We also find that the three groups of cryptocurrency owners vary by demographic and financial characteristics. Our findings highlight that transactors could be particularly financially vulnerable in the absence of consumer protections in the cryptocurrency market. |
| Keywords: | cryptocurrency; financial literacy; risk |
| JEL: | D14 D91 E42 |
| Date: | 2024–03–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:98055&r=ban |
| By: | Tersoo David Iorngurum (Charles University, Prague, Czech Republic) |
| Abstract: | The interest rate pass-through represents a vital transmission mechanism between the financial sector and the real economy. Nonetheless, the empirical literature offers no consensus regarding the direction and extent of asymmetry in this pass-through. In this paper, I systematically review the empirical literature using various contemporary meta-analytic techniques to test for publication bias and establish consensus for the conflicting study outcomes. I find evidence of publication bias. Beyond publication bias, the magnitude of the reported pass-through declines relative to the simple literature average, but substantial asymmetry remains. Precisely, bank lending rates appear to be a lot more responsive to increases than decreases in monetary policy interest rates. Furthermore, I identify the factors responsible for diverse study outcomes. These include study characteristics, asymmetry, and macrofinancial variables. Concerning study characteristics, results differ due to differences in data frequency, data source, the researched period, study quality, author affiliation, and estimation context. Concerning macrofinancial factors, results differ due to differences in openness to foreign direct investment inflows, openness to trade, the inflationary environment, and economic development status. The pass-through is particularly strong in countries more open to foreign direct investment inflows and developed economies but relatively weak for countries more open to import trade and countries with a high inflationary environment. Finally, I model the interest rate pass-through based on the best practices in the literature. On average, the short-run pass-through to bank lending rates is about 49.7% for a policy rate hike and about 29.7% for a policy rate cut. On the other hand, the long-run pass-throughs are about 69.6% and 46.6%, respectively. |
| Keywords: | Interest rate pass-through, asymmetry, meta-analysis |
| JEL: | E43 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2024_17&r=ban |
| By: | Ali Dogdu; Murad Kayacan |
| Abstract: | In this study, we aimed to examine the effect of VAT revenues and Deposit Interest Rates on Inflation in Turkey between 1985-2022. Within the framework of econometric analysis of the obtained data, the analysis was carried out using ADF unit root test, Johansen Co-Integration Test, Error Terms and VECM (Vector Error Correction Model) models. According to the analysis results, it was understood that the data were stationary at the I(I) level, it was determined that there was a cointegrated relationship between them in the long term, and by estimating the error term, causality findings were determined within the framework of VECM analysis. According to the causality results of the Wald Test; causality is found from Deposit Interest Rate to VAT and Inflation, and from Inflation to VAT and Deposit Interest Rate (bidirectional), while causality is also found from VAT to Inflation and Deposit Interest Rates. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.03989&r=ban |
| By: | Ruth A. Judson |
| Abstract: | In principle, physical currency should be disappearing: payments are increasingly electronic, with new technologies emerging rapidly, and governments increasingly restrict large-denomination notes as a way to reduce crime and tax evasion. Nonetheless, demand for U.S. banknotes continues to grow, and consistently increases at times of crisis both within and outside the United States because dollar banknotes remain a desirable store of value and medium of exchange when local currency or bank deposits are inferior. Most recently, the COVID crisis resulted in historic increases in currency demand. After allowing for the effect of crises, U.S. banknote demand appears to be driven by the usual factors determining money demand, with no discernible downward trend. In this work, I review developments in demand for U.S. currency over the past few decades with a focus on developments since early 2020. In addition, I revisit the question of international demand: I present the raw data available for measuring international banknote flows and updates on indirect methods of estimating the stock of currency held abroad. These methods continue to indicate that a large share of U.S. currency is held abroad, especially in the $100 denomination. As shown earlier (Judson 2012, 2017), once a country or region begins using dollars, subsequent crises result in additional inflows: the dominant sources of international demand over recent decades are the countries and regions that were already heavy dollar users in the early to mid-1990s. While international demand for U.S. currency eased during the early 2000s as financial conditions improved, the abrupt return to strong international demand that began with the collapse of Lehman Brothers in 2008 has not slowed and reached new heights over 2020 and 2021. In contrast, however, the growth rate of demand for smaller denominations is slowing, perhaps indicating the first signs of declining domestic cash demand. |
| Keywords: | Currency; Banknotes; Dollarization; Crisis |
| JEL: | C82 E40 E49 |
| Date: | 2024–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1387&r=ban |
| By: | Katalin Varga; Tibor Szendrei |
| Abstract: | Tracking the build-up of financial vulnerabilities is a key component of financial stability policy. Due to the complexity of the financial system, this task is daunting, and there have been several proposals on how to manage this goal. One way to do this is by the creation of indices that act as a signal for the policy maker. While factor modelling in finance and economics has a rich history, most of the applications tend to focus on stationary factors. Nevertheless, financial stress (and in particular tail events) can exhibit a high degree of inertia. This paper advocates moving away from the stationary paradigm and instead proposes non-stationary factor models as measures of financial stress. Key advantage of a non-stationary factor model is that while some popular measures of financial stress describe the variance-covariance structure of the financial stress indicators, the new index can capture the tails of the distribution. To showcase this, we use the obtained factors as variables in a growth-at-risk exercise. This paper offers an overview of how to construct non-stationary dynamic factors of financial stress using the UK financial market as an example. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.01451&r=ban |
| By: | Javier Mancilla; Andr\'e Sequeira; Iraitz Montalb\'an; Tomas Tagliani; Francisco Llaneza; Claudio Beiza |
| Abstract: | Quantum Kernels are projected to provide early-stage usefulness for quantum machine learning. However, highly sophisticated classical models are hard to surpass without losing interpretability, particularly when vast datasets can be exploited. Nonetheless, classical models struggle once data is scarce and skewed. Quantum feature spaces are projected to find better links between data features and the target class to be predicted even in such challenging scenarios and most importantly, enhanced generalization capabilities. In this work, we propose a novel approach called Systemic Quantum Score (SQS) and provide preliminary results indicating potential advantage over purely classical models in a production grade use case for the Finance sector. SQS shows in our specific study an increased capacity to extract patterns out of fewer data points as well as improved performance over data-hungry algorithms such as XGBoost, providing advantage in a competitive market as it is the FinTech and Neobank regime. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.00015&r=ban |
| By: | Frantisek Brazdik; Tatiana Keseliova; Karel Musil; Radek Snobl; Jan Solc; Stanislav Tvrz; Jan Zacek |
| Abstract: | We investigate inflation expectations and their measures in the context of the 2022 inflation surge in the Czech Republic. Using data and econometric analyses, we explore how inflation expectations are formed and how they may affect inflation developments. To capture the overall trend of inflation expectations in the Czech economy, we develop a Common Inflation Expectations index. Additionally, we extend the CNB's g3+ core projection model by incorporating endogenous expectation premiums that reflect elevated inflation expectations. Utilizing the Common Inflation Expectations index and the modified model, we construct a simulation that provides policy-relevant outcomes when addressing high inflation. By presenting the simulation, we emphasize the importance and relevance of our research for practical policymaking. |
| Keywords: | Forecasting, inflation, inflation expectations, inflation expectations index, structural modelling |
| JEL: | C32 C50 E31 E37 E50 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2024/3&r=ban |