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on Banking |
| By: | Lambert, Claudia; Meller, Barbara; Pancaro, Cosimo; Pellicani, Antonella; Radulova, Petya; Soons, Oscar; van der Kraaij, Anton |
| Abstract: | A digital euro would provide the general public with an additional means of payment in the form of risk-free central bank money in digital form that is universally accepted for digital payments across the euro area. A digital euro would offer a wide range of financial stability benefits, including safeguarding the role of public money and strengthening the strategic autonomy and monetary sovereignty of the euro area in the digital era. It would be designed to have no material impact on financial stability or the transmission of monetary policy. This paper shows the usefulness of digital euro safeguards, such as holding limits, that would limit the impact of the introduction of a digital euro on banks’ liquidity and on their reliance on central bank funding. To this end, it assesses how banks might respond to the introduction of a digital euro while seeking to maximise profitability and manage their risks for a range of holding limit scenarios. The results of the simulated impact on key liquidity metrics show that, with safeguards in place and on aggregate, the liquidity metrics of euro area banks would decline but remain well above regulatory minimums. In addition, the central bank funding ratios of euro area banks would not increase materially on aggregate and would remain contained overall. JEL Classification: E42, E58, G21 |
| Keywords: | bank intermediation, CBDC, digital euro, financial stability risks |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2024346&r=ban |
| By: | Beverly Hirtle; Anna Kovner |
| Abstract: | In March of 2023, the U.S. banking industry experienced a period of significant turmoil involving runs on several banks and heightened concerns about contagion. While many factors contributed to these events—including poor risk management, lapses in firm governance, outsized exposures to interest rate risk, and unrecognized vulnerabilities from interconnected depositor bases, the role of bank supervisors came under particular scrutiny. Questions were raised about why supervisors did not intervene more forcefully before problems arose. In response, supervisory agencies, including the Federal Reserve and Federal Deposit Insurance Corporation, commissioned reviews that examined how supervisors’ actions might have contributed to, or mitigated, the failures. The reviews highlighted the important role that bank supervisors can play in fostering a stable banking system. In this post, we draw on our recent paper providing a critical review and summary of the empirical and theoretical literature on bank supervision to highlight what that literature tells us about the impact of supervision on supervised banks, on the banking industry and on the broader economy. |
| Keywords: | bank supervision; banking; bank regulation |
| JEL: | G21 G28 |
| Date: | 2024–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:98099&r=ban |
| By: | Long, Jamie (Bank of England); Fisher, Paul (Senior Research Fellow, King’s Business School, King’s College London, Data Analytics for Finance and Macro Research Centre) |
| Abstract: | Central banks retain a portion of their net profits as reserves and distribute the remainder to their finance ministry, typically in the form of a dividend. Few central banks have a reciprocal arrangement in place for covering financial losses with a transfer of capital. This paper reports the findings of a survey of central bank profit distribution and recapitalisation arrangements across 70 jurisdictions and examines the range of features present, such as revaluation accounts and requirements for capital injections. The findings help establish the importance of a robust framework for managing central bank profit distribution and recapitalisation. The presence of such a framework should allow central banks to retain more of profits and access external resources when capital is low, and to function as an income generating asset for the government when capital is high, therefore ensuring both an appropriate use of public funds and the presence of a credible and financially independent central bank that stands ready to act when needed. |
| Keywords: | Central bank balance sheet; central bank profit distribution; central bank recapitalisation; monetary policy; financial stability |
| JEL: | E52 E58 |
| Date: | 2024–04–05 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:1069&r=ban |
| By: | Sharjil M. Haque; Simon Mayer; Teng Wang |
| Abstract: | We show how private equity (PE) buyouts fuel loan sales and non-bank participation in the U.S. syndicated loan market. Combining loan-level data from the Shared National Credit register with buyout deals from Pitchbook, we find that PE-backed loans feature lower bank monitoring, lower loan shares retained by the lead bank, and more loan sales to non-bank financial intermediaries. For PE-backed loans, the sponsor's reputation and the strength of its relationship with the lead bank further reduce the lead bank's retained share and monitoring. Our results suggest that PE sponsor engagement substitutes for bank monitoring, allowing banks to retain less skin-in-the game in the loans they originate and to sell greater loan shares to non-banks. |
| Keywords: | Syndicated Loans; Private Equity; LBO; Bank Monitoring; CLO; Securitization; Loan Sales |
| JEL: | G00 G10 G30 G32 G33 |
| Date: | 2024–03–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2024-15&r=ban |
| By: | Andre Guettler; Mahvish Naeem; Lars Norden; Bernardus F Nazar Van Doornik |
| Abstract: | We investigate whether pre-publication revisions of bank financial statements contain forward-looking information about bank risk. Using 7.4 million observations of monthly financial reports from all banks in Brazil during 2007-2019, we show that 78% of all revisions occur before the publication of these statements. The frequency, missing of reporting deadlines, and severity of revisions are positively related to future bank risk. Using machine learning techniques, we provide evidence on mechanisms through which revisions affect bank risk. Our findings suggest that private information about pre-publication revisions is useful for supervisors to monitor banks. |
| Keywords: | banks, bank performance, regulatory reporting quality, regulatory oversight, machine learning |
| JEL: | G21 G28 M41 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1177&r=ban |
| By: | Tendai Gwatidzo; Witness Simbanegavi |
| Abstract: | Using survey data from the World Banks Global Findex Database and a pseudo panel we investigate two pertinent issues pertaining to financial inclusion in South Africa. First, we consider the factors driving the likelihood of accessing financial services in South Africa. Second, we investigate the impact of banking sector competition on financial inclusion in South Africa essentially testing the information and market power hypotheses. Household head characteristics such as age, education and income are found to positively influence the likelihood of being financially included. Considering the relationship between financial inclusion and banking sector competition, evidence supports the information hypothesis rather than the market power hypothesis. That is, lower bank competition facilitates the formation of longer-lasting relationships between banks and their clients, which incentivises banks to invest in information generation and monitoring in previously unserved markets, thereby expanding financial inclusion. |
| Date: | 2024–04–16 |
| URL: | http://d.repec.org/n?u=RePEc:rbz:wpaper:11061&r=ban |
| By: | Serena Merrino; Ilias Chondrogiannis |
| Abstract: | We examine the effect of post-2010 banking regulation in South Africa on financial stability, macroeconomic variables and bank performance. We focus on risk spillovers and increased network and tail connectedness between banks, using a sample of nine listed South African banks in 20082023. The implementation of Basel III regulation, particularly capital adequacy ratios, has reduced connectedness-related risks but there is weak evidence of an effect of regulation on bank performance. |
| Date: | 2024–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:rbz:wpaper:11060&r=ban |
| By: | Harrison, Richard (Bank of England) |
| Abstract: | This paper studies optimal monetary policy in a New Keynesian model with portfolio frictions that create a role for the central bank balance sheet as a policy instrument. Central bank purchases of long‑term government debt (‘quantitative easing’) reduce average portfolio returns, thereby increasing aggregate demand and inflation. Optimal time‑consistent policy prescribes large and rapid asset purchases when the policy rate hits the zero bound. Optimal balance sheet reduction (‘quantitative tightening’) is more gradual. A central bank that pursues a flexible inflation target can achieve similar welfare to optimal policy if quantitative tightening is calibrated appropriately. |
| Keywords: | Quantitative easing; quantitative tightening; optimal monetary policy; zero lower bound |
| JEL: | E52 E58 |
| Date: | 2024–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:1063&r=ban |
| By: | Anya V. Kleymenova; Lori Leu; Cindy M. Vojtech |
| Abstract: | In 2022, the Federal Reserve began its latest monetary tightening cycle. Increases in interest rates are generally favorable for commercial bank net interest income (interest income minus interest expense). This relationship holds because many loan types have adjustable rates, and banks do not pass through all interest rate increases to depositors. |
| Date: | 2024–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2024-04-12-1&r=ban |
| By: | Mr. Adrian Alter; Bashar Hlayhel; Thomas Kroen; Thomas Piontek |
| Abstract: | This paper assesses the state and resilience of corporate and banking sectors in the Middle East and North Africa (MENA) in a “higher-for-longer” interest rate environment using granular micro data to conduct the first cross-country corporate and banking sector stress tests for the MENA region. The results suggest that corporate sector debt at risk may increase sizably from 12 to 30 percent of total corporate debt. Banking systems would be broadly resilient in an adverse scenario featuring higher interest rates, corporate sector stress, and rising liquidity pressures with Tier-1 capital ratios declining by 2.3 percentage points in the Gulf Cooperation Council (GCC) countries and 4.0 percentage points in non-GCC MENA countries. In the cross-section of banks, there are pockets of vulnerabilities as banks with higher ex-ante vulnerabilities and state-owned banks suffer greater losses. While manageable, the capital losses in the adverse scenario could limit lending and adversely impact growth. |
| Keywords: | Bank capital; stress testing; financial stability; zombie credit |
| Date: | 2024–04–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2024/080&r=ban |
| By: | Bandera, Nicolò (Bank of England); Stevens, Jacob (University of St Andrews) |
| Abstract: | We study the macroeconomic implications of non-bank financial institutions (NBFIs) in the context of the 2022 UK gilt crisis and estimate the monetary policy spillovers of financial stability interventions. We make three contributions. First, we develop the first DSGE model featuring liability driven investment (LDI) and pension funds. This novel framework in which LDI activity amplifies the movements in gilt prices allows us to replicate the UK gilt crisis, demonstrating a crucial mechanism through which NBFIs can amplify financial and economic distress. Second, we quantitatively estimate the monetary policy spillovers of the Bank of England financial stability asset purchases. We find that the asset purchases were successful in offsetting LDI-driven gilt market dysfunction. The temporary, targeted nature of these purchases was crucial in avoiding monetary spillovers. Third, we model two counterfactual instruments – an NBFI repo tool and a macroprudential liquidity buffer – and compare their effectiveness as well as monetary spillovers. Our results show that the central bank can successfully address NBFI-driven market stress without loosening monetary policy, avoiding potential tensions between price and financial stability |
| Keywords: | Monetary policy; financial stability; asset purchases; liquidity crisis; liability-driven investors; gilt; DSGE model |
| JEL: | C68 E44 E52 E58 G01 G23 |
| Date: | 2024–04–05 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:1070&r=ban |
| By: | Siciliani, Paolo (Bank of England); Eccles, Peter (Bank of England) |
| Abstract: | We analyse how the design of credit registers can influence competition in lending markets. We focus on a particular design choice, namely whether or not credit registers should record previous loan applications that did not result to a subsequent loan origination. This design choice can have subtle effects to the extent that the fact that a prospective borrower has previously applied with other lenders for the same loan can be informative. This is particularly likely to be the case if the failed or withdrawn application was with an innovative lender that is better at screening prospective borrowers thanks to the use of Big Data-driven methodologies (eg ML and AI) alongside the traditional credit scoring approach. On the one hand, we find that when credit registers record previous loan requests rates advertised to borrowers are lower than when credit registers do not record loan requests. On the other hand, the incentives to invest in advanced screening technologies are weakened as a result. |
| Keywords: | Innovation; competition; disclosure; credit markets |
| JEL: | G20 L15 L40 |
| Date: | 2024–03–28 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:1067&r=ban |
| By: | Giang Nghiem; Lena Dräger; Ami Dalloul |
| Abstract: | This paper explores communication strategies for anchoring households’ medium-term inflation expectations in a high inflation environment. We conducted a survey experiment with a representative sample of 4, 000 German households at the height of the recent inflation surge in early 2023, with information treatments including a qualitative statement by the ECB president and quantitative information about the ECB’s inflation target or projected inflation. Inflation projections are most effective, but combining information about the target with a qualitative statement also significantly improves anchoring. The treatment effects are particularly pronounced among respondents with high financial literacy and high trust in the central bank. |
| Keywords: | anchoring of inflation expectations, central bank communication, survey experiment, randomized controlled trial (RCT) |
| JEL: | E52 E31 D84 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_11042&r=ban |
| By: | Stefano Colonnello (Department of Economics, Ca’ Foscari University of Venice); Giuliano Curatola (University of Siena; Leibniz Institute for Financial Research SAFE); Shuo Xia (Leipzig University; Halle Institute for Economic Research (IWH)) |
| Abstract: | To contain bankers' risk-shifting behavior, policymakers use a variety of tools. Among them, mandating the use of default-linked (i.e., debt-like) pay features prominently, typically in the form of bonus deferrals. In our model, a risk-neutral manager is in charge of choosing bank-level asset risk, receiving in exchange a compensation package consisting of a bonus and a default-linked component. In the spirit of existing regulation and widespread industry practices, we give the manager discretion over the allocation of the personal default-linked account between own bank's shares and an alternative asset. The possibility for the manager to tie the value of default-linked pay to equity weakens its debt-like feature and, in the same way, its ability to rein in excessive risk-taking. Bank leverage and bailout expectations appear to exacerbate these effects, which may be further aggravated by the endogenous shareholders' choice to design a more convex bonus as a response to mandatory default-linked pay. Our analysis raises concerns on the robustness of the theoretical foundations of some recent regulatory efforts. |
| Keywords: | Bank Risk-Taking, Banking Regulation, Default-Linked Compensation |
| JEL: | G21 G28 G34 M12 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2024:07&r=ban |
| By: | Bardoscia, Marco (Bank of England); Carro, Adrian (Banco de España, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford); Hinterschweiger, Marc (Bank of England); Napoletano, Mauro (Scuola Superiore Sant’Anna); Popoyan, Lilit (Queen Mary, University of London); Roventini, Andrea (Scuola Superiore Sant’Anna); Uluc, Arzu (Bank of England) |
| Abstract: | We develop a macroeconomic agent-based model to study the joint impact of borrower and lender-based prudential policies on the housing and credit markets and the economy more widely. We perform three experiments: (i) an increase of total capital requirements; (ii) an introduction of a loan-to-income (LTI) cap on mortgages to owner-occupiers; and (iii) a joint introduction of both experiments at the same time. Our results suggest that tightening capital requirements leads to a sharp decrease in commercial and mortgage lending, and housing transactions. When the LTI cap is in place, house prices fall sharply relative to income, and the homeownership rate decreases. When both policy instruments are combined, we find that housing transactions and prices drop. Both policies have a positive impact on real GDP and unemployment, while there is no material impact on inflation and the real interest rate. |
| Keywords: | Prudential policies; housing market; macroeconomy; agent-based models |
| JEL: | C63 D10 D31 E58 G21 G28 R20 R21 R31 |
| Date: | 2024–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:1066&r=ban |
| By: | Simon Firestone; Nathan Y. Godin; Akos Horvath; Jacob Sagi |
| Abstract: | We use model-implied volatility to proxy for property risk perceptions in the commercial real estate lending market. Although loan-to-value ratios (LTVs) unconditionally decreased following the Global Financial Crisis, LTVs conditioned on implied volatility and other theoretically motivated fundamental determinants of optimal leverage show no conclusive trend before or after the crisis. Taking reported property and loan attributes at face value, we find no clear pattern of unwarranted credit being extended to commercial real estate assets. We conclude that systematically higher LTV decisions pre-crisis would have primarily stemmed from risk misperceptions rather than imprudent practices. Our findings suggest that the aggregate LTV level should be interpreted as a proxy for lending standards only after controlling for aggregate risk perceptions, among a host of asset and lending market factors. Our findings also highlight the importance of measuring and tracking aggregate risk perceptions in informing regulators and policymakers. |
| Keywords: | Loan underwriting; Lending standards; Global Financial Crisis; Mortgages; Real estate finance; Implied volatility |
| JEL: | C22 D80 G01 G10 G18 G21 R38 |
| Date: | 2024–04–10 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2024-19&r=ban |
| By: | Pazhanisamy, R. |
| Abstract: | Small and Micro Enterprises (SMEs) in India are facing many problems such as unable to access to low cost credit from the formal financial institutions, specifically banking and extend their product to the remote markets. Some factors restrict the access to the finance on the input side while others restrict the products and its market outreach on the others side blocks the micro enterprises growth and lead to the rural population to be interlocked in chronic underemployment underdevelopment. With regard to this there are a very few research attempts are only available to test and verify the implication and operations of the Economic theories that highlights these two side issues rationalize how they contribute for the long run credit gap in the rural economy. Particularly the literature on the credit rationing theory on the input side of the financial inclusion policies and the pecking order theory on the demand side of the finance and their inter relationship with other theories like theory of moral hazard, agency theory, and the theory of adverse selection etc. are not documented and tested at the gross root level for which this paper attempted fill this gap. |
| Keywords: | Challenges of Micro Businesses, Issues of Rural Micro Enterprises, Test of theoretical impact on micro businesses, challenges of rural business Management, Financial inclusion challenges in rural areas |
| JEL: | D21 E32 G53 L22 L98 M30 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:289783&r=ban |
| By: | Makram El-Shagi (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan); Yishuo Ma (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan) |
| Abstract: | While policy reaction functions of most major central banks are routinely approximated by fitting Taylor (type) rules to their policy rate, there is no such consensus for the People's Bank of China (PBoC). What makes it hard to get a clear impression of the “true†reaction function is that most papers in the extensive literature focus on a single aspect of the reaction function typically mostly comparing it to one (or a few) widely used baseline models. Contrarily, we assess a broad range of questions regarding the reaction function in a unified approach, estimating several hundred reaction functions. While we find that no single policy measure fully captures all aspects of the PBoC's policy, our paper provides clear evidence for asymmetric behavior, support for an important role of monetary aggregates, and robust evidence for the PBoC considering both financial stability and exchange rate stabilization in its policy deliberations. |
| Keywords: | China, monetary policy, reaction function, Taylor rule |
| JEL: | E58 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:fds:dpaper:202405&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:upf:upfgen:1883&r=ban |
| By: | Cañon, Carlos (Bank of England); Gerba, Eddie (Bank of England); Pambira, Alberto (Bank of England); Stoja, Evarist (University of Bristol) |
| Abstract: | We examine how the tail risk of currency returns of nine countries, from 2000 to 2020, were impacted by central bank monetary and liquidity measures across the globe with an original and unique dataset that we make publicly available. Using a standard factor model, we derive theoretical measures of tail risks of currency returns which we then relate to the various policy instruments employed by central banks. We find empirical evidence for the existence of a cross-border transmission channel of central bank policy through the FX market. The tail impact is particularly sizeable for asset purchases and swap lines. The effects last for up to one month, and are proportionally higher in a hypothetical joint QE action scenario. This cross-border source of tail risk is largely undiversifiable, even after controlling for the US dollar dominance and the effects of its own monetary policy stance. |
| Keywords: | Unconventional and conventional monetary policy; liquidity measures; currency tail risk; systematic and idiosyncratic components of tail risk |
| JEL: | E44 E52 G12 G15 |
| Date: | 2024–04–05 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:1068&r=ban |
| By: | Jens H. E. Christensen; Xin Zhang |
| 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; financial market frictions; safety premium; unconventional monetary policy |
| JEL: | C32 E43 E52 E58 F41 F42 G12 |
| Date: | 2024–04–04 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:98076&r=ban |
| By: | Krause, Thomas; Sfrappini, Eleonora; Tonzer, Lena; Zgherea, Cristina |
| Abstract: | The establishment of the European Banking Union constitutes a major change in the regulatory framework of the banking system. Main parts are implemented via directives that show staggered transposition timing across EU member states. Based on the newly compiled Banking Union Directives Database, we assess how banks' funding costs responded to the Capital Requirements Directive IV (CRD IV). Our findings show an upward trend in funding costs which is driven by an increase in cost of equity and partially offset by a decline in cost of debt. The diverging trends are most present in countries with an ex-ante lower regulatory capital stringency, which is in line with banks' short-run adjustment needs but longer-run benefits from increased financial stability. |
| Keywords: | banking union, CRD IV, funding costs, staggered difference-in-difference estimators |
| JEL: | C52 G01 G18 G21 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:289797&r=ban |
| By: | van der Ploeg, Frederick (University of Oxford, University of Amsterdam and CEPR); Willems, Tim (Bank of England) |
| Abstract: | Since the post‑Covid rise in inflation has been accompanied by strong wage growth, the distributional conflict between wage and price‑setters (both wishing to attain a certain markup) has regained prominence. We examine how a central bank should resolve a ‘battle of the markups’ when aspired markups are cyclically sensitive, highlighting a new ‘aspirational channel’ of monetary transmission. We establish conditions under which an inflationary situation characterised by inconsistent aspirations requires a reduction in economic activity, to eliminate worker‑firm disagreement over the appropriate level of the real wage. We find that countercyclical markups and/or a flat Phillips curve call for more dovish monetary policy. Estimating price markup cyclicality across 44 countries, we find that monetary contractions are better able to lower inflation when markups are procyclical. |
| Keywords: | Inflation; wage-price dynamics; markups; monetary policy transmission; Taylor principle; determinacy |
| JEL: | E31 E32 E52 E58 |
| Date: | 2024–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:1065&r=ban |
| By: | Jens H. E. Christensen; Xin Zhang |
| 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; financial market frictions; safety premium; unconventional monetary policy |
| JEL: | C32 E43 E52 F41 F42 G12 |
| Date: | 2024–04–04 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:98075&r=ban |
| By: | Gasparini, Matteo; Ives, Matthew C.; Carr, Ben; Fry, Sophie; Beinhocker, Eric |
| Abstract: | Investments via the financial system are essential for fostering the green transition. However, the role of existing financial regulations in influencing investment decisions is understudied. Here we analyse data from the European Banking Authority to show that existing financial accounting frameworks might inadvertently be creating disincentives for investments in low-carbon assets. We find that differences in the provision coverage ratio indicate that banks must account for nearly double the loan loss provisions for lending to low-carbon sectors as compared with high-carbon sectors. This bias is probably the result of basing risk estimates on historical data. We show that the average historical financial risk of the oil and gas sector has been consistently estimated to be lower than that of renewable energy. These results indicate that this bias could be present in other model-based regulations, such as capital requirements, and possibly impact the ability of banks to fund green investments. |
| JEL: | N0 R14 J01 |
| Date: | 2024–04–02 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:122630&r=ban |
| By: | Meta Brown; Rajashri Chakrabarti; Felipe Severino |
| Abstract: | Increasing personal bankruptcy protection raises consumers’ desire to borrow and lenders’ cost of extending credit; the impact on equilibrium borrowing is ambiguous. Using bankruptcy protection changes between 1999 and 2005 across U.S. states, we find that borrowers respond to greater protection by increasing their unsecured debt. Border county estimates suggest that local economic conditions do not drive these results. Borrowers pay more for protection through higher interest rates, yet delinquency is unaffected. Remarkably, our results indicate that rising borrower demand outstripped decreasing supply. Increased protections did not reduce the aggregate level of household debt but affected the composition of borrowing. |
| Keywords: | bankruptcy; debt; credit cards; delinquency |
| JEL: | D14 D18 H81 G33 |
| Date: | 2024–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:98134&r=ban |
| By: | Miguel Faria-e-Castro; Samuel Jordan-Wood |
| Abstract: | An analysis suggests that commercial real estate exposures may have been a relevant driver of bank holding company stock returns in 2023. |
| Keywords: | commercial real estate; bank stock |
| Date: | 2024–04–09 |
| URL: | http://d.repec.org/n?u=RePEc:fip:l00001:98110&r=ban |
| By: | Agustín Carstens; Nandan Nilekani |
| Abstract: | This paper lays out a vision for the Finternet: multiple financial ecosystems interconnected with each other, much like the internet, designed to empower individuals and businesses by placing them at the centre of their financial lives. It advocates for a user-centric approach that lowers barriers between financial services and systems, thus promoting access for all. The envisioned system leverages innovative technologies such as tokenisation and unified ledgers, underpinned by a robust economic and regulatory framework, to dramatically expand the range and quality of financial services. This integration aims to foster greater participation, offer more personalised services and improve speed and reliability, all while reducing costs for end users. Most of the technology needed to achieve this vision exists and is fast improving, driven by efforts around the world. This paper provides a blueprint for how key technical characteristics like interoperability, verifiability, programmability, immutability, finality, evolvability, modularity, scalability, security and privacy can be incorporated, and how varied governance norms can be embedded. Delivering this vision requires proactive collaboration between public authorities and private sector institutions. The paper serves as a call for action for these entities to establish a strong foundation. This would pave the way for a user-centric, unified and universal financial ecosystem brought into the digital era that is inclusive, innovative, participatory, accessible and affordable, and leaves no one behind. |
| Keywords: | payment systems, financial system, financial intermediaries, financial instruments, currency, digital innovation, unified ledgers, tokenisation |
| JEL: | E42 F33 G21 G23 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1178&r=ban |
| By: | Josep Dols-Miro (Universitat de València, Valencia, Spain); Joaquim Cuevas (Universitat de València, Valencia, Spain); Juan Fernández de Guevara (Instituto Valenciano de Investigaciones Económicas (IVIE), Valencia, Spain) |
| Abstract: | This study links the evolution of market power in the Spanish banking sector since 1971 with changes in banking regulation between 1970 and 1990. The main contributions are: 1) An exhaustive chronology of liberalization and deregulation measures in the sector during those years is provided; and 2) Market power is empirically measured for over 40 years using the Lerner Index. A decrease in market power in the 70s was observed, coinciding with increased competition through the branch network, followed by an increase in the 80s, as the liberalization process was affected by the economic cycle. Since 1988, competition intensified with the consolidation of liberalization measures. The results allow for an additional hypothesis in the literature analyzing competition in the Spanish banking sector: There seems to be no evidence that the bulk of deregulation was the trigger per se for rivalry. Rather, it appears that entities anticipated, taking advantage of the imminent changes, and the increase in competition was early. Possibly, it was not the regulatory changes. The latent rivalry between entities took advantage of the opportunities offered by liberalization. |
| Keywords: | Spain, Banking History, Regulation, Lerner Index |
| JEL: | D40 G18 N20 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:ahe:dtaehe:2402&r=ban |
| By: | Iñaki Aldasoro; Sebastian Doerr; Leonardo Gambacorta; Daniel Rees |
| Abstract: | This paper studies the effects of artificial intelligence (AI) on sectoral and aggregate employment, output and inflation in both the short and long run. We construct an index of industry exposure to AI to calibrate a macroeconomic multi-sector model. Building on studies that find significant increases in workers' output from AI, we model AI as a permanent increase in productivity that differs by sector. We find that AI significantly raises output, consumption and investment in the short and long run. The inflation response depends crucially on households' and firms' anticipation of the impact of AI. If they do not anticipate higher future productivity, AI adoption is initially disinflationary. Over time, general equilibrium forces lead to moderate inflation through demand effects. In contrast, when households and firms anticipate higher future productivity, inflation rises immediately. Inspecting individual sectors and performing counterfactual exercises we find that a sector's initial exposure to AI has little correlation with its long-term increase in output. However, output grows by twice as much for the same increase in aggregate productivity when AI affects sectors producing consumption rather than investment goods, thanks to second round effects through sectoral linkages. We discuss how public policy should foster AI adoption and implications for central banks. |
| Keywords: | artificial intelligence, generative AI, inflation, output, productivity, monetary policy |
| JEL: | E31 J24 O33 O40 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1179&r=ban |
| By: | Matthew O'Donnell; Aleksandar Vasilev |
| Abstract: | This paper analyses the link between interest rates and consumption in the UK and will allow better understanding of the relationship between these two variables, as this is extremely important to the Bank of England and the monetary policy that it adopts. Analysis of the empirical evidence from the period last 60 years has produced some interesting observations and the most significant discovery was the way consumption responds to interest rates changed over time. In the first 30 years the real interest rate had a much higher coefficient, with the lagged variable being insignificant. However, in the second period, the opposite occurred, and the lagged variable had a significantly higher coefficient. Overall, consumption and interest rates do have an inverse relationship, as in both periods the interest rate experienced a negative coefficient when regressed with consumption. Therefore, changes in consumer decision making, and the development of a lagged response to interest rate changes could alter how governments influence consumption. |
| Keywords: | consumption, interest rate, modelling, UK |
| JEL: | E21 C32 |
| Date: | 2024–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:eei:rpaper:eeri_rp_2024_01&r=ban |
| By: | Luciana Juvenal; Ivan Petrella |
| Abstract: | We examine the impact of commodity price changes on the business cycles and capital flows in emerging markets and developing economies (EMDEs), distinguishing between their role as a source of shock and as a channel of transmission of global shocks. Our findings reveal that surges in export prices, triggered by commodity price shocks, boost domestic GDP, an effect further amplified by the endogenous decline of country spreads. However, the effects on capital flows appear muted. Shifts in U.S. monetary policy and global risk appetite drive the global financial cycle in EMDEs. Eased global credit conditions, attributed to looser U.S. monetary policy or lower global risk appetite, lead to a rise in export prices, higher output, a decrease in government borrowing costs, and stimulate greater capital flows. The endogenous response of export prices amplifies the output effects of a more accommodative U.S. monetary policy while country spreads magnify the impact of shifts in global risk appetite. |
| Date: | 2024–04–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2024/082&r=ban |
| By: | Ida, Daisuke |
| Abstract: | This study explores how the real money balance effect (RMBE) affects the neo-Fisherian effect (NFE) in a standard new Keynesian model. First, we find that the presence of the RMBE can partly explain the occurrence of the NFE, and that increasing the nonseparability parameter magnifies the positive response of the nominal interest rate to a persistent inflation target shock. Second, we show that the degree of nominal price stickiness is important in explaining how the RMBE amplifies the NFE. In sum, this study addresses how the presence of the RMBE facilitates generating the NFE. |
| Keywords: | Neo-Fisherian effect; New Keynesian model; Real money balances; Interest rates; Inflation |
| JEL: | E52 E58 |
| Date: | 2024–03–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120575&r=ban |
| By: | Otaviano Canuto |
| Abstract: | Recent initiatives and policy moves by China and other countries to extend the reach of use of the renminbi in the international monetary system, while the U.S. dollar share in global reserves has slightly shrunk in relative terms, have sparked frequent discussions about a hypothetical “de-dollarization” of the global economy. We approach here what that would mean in terms of global currency functions as means of payment and store of value. While we point out a relative decline of the U.S. dollar weight in those functions more recently, we also highlight gravitational factors that tend to uphold its position. Therefore, the “exorbitant privilege” that the U.S. dollar has provided to its issuer is likely to remain. |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:ocp:ppaper:pb21-23&r=ban |
| By: | Philippe Goulet Coulombe; Karin Klieber; Christophe Barrette; Maximilian Goebel |
| Abstract: | Timely monetary policy decision-making requires timely core inflation measures. We create a new core inflation series that is explicitly designed to succeed at that goal. Precisely, we introduce the Assemblage Regression, a generalized nonnegative ridge regression problem that optimizes the price index's subcomponent weights such that the aggregate is maximally predictive of future headline inflation. Ordering subcomponents according to their rank in each period switches the algorithm to be learning supervised trimmed inflation - or, put differently, the maximally forward-looking summary statistic of the realized price changes distribution. In an extensive out-of-sample forecasting experiment for the US and the euro area, we find substantial improvements for signaling medium-term inflation developments in both the pre- and post-Covid years. Those coming from the supervised trimmed version are particularly striking, and are attributable to a highly asymmetric trimming which contrasts with conventional indicators. We also find that this metric was indicating first upward pressures on inflation as early as mid-2020 and quickly captured the turning point in 2022. We also consider extensions, like assembling inflation from geographical regions, trimmed temporal aggregation, and building core measures specialized for either upside or downside inflation risks. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.05209&r=ban |
| By: | Rodriguez, Harold; Colombo, Jefferson |
| Abstract: | Spot bitcoin ETFs have been recently approved in the U.S., increasing retail and institutional investors' attention to the crypto space. Still, empirical evidence on whether Bitcoin is an asset that protects investors against inflation is still inconclusive. To contribute to this debate, we analyze the effect of inflation shocks on bitcoin returns through the estimation and inference of Vector Autoregressive Models (VARs). Unlike previous research on the topic, we identify inflation shocks as surprises in the US’s CPI and Core PCE announcements: the difference between the announced inflation and the analysts’ consensus. The results, based on monthly data between August 2010 and January 2023, indicate that bitcoin returns increase significantly after a positive inflationary shock, corroborating empirical evidence that Bitcoin can act as an inflation hedge. However, we observe that bitcoin’s inflationary hedging property is sensitive to the price index -- it only holds for CPI shocks -- and to the period of analysis –- the hedging property stems primarily from sample periods before the increasing institutional adoption of BTC (``early days''). Thus, the inflation-hedging property of Bitcoin is context-specific and is likely to be diminishing as adoption increases. This research contributes to the still under-explored strand of literature that analyzes the hedging and safe-haven properties of Bitcoin and benefits asset managers, investors, and monetary authorities. |
| Keywords: | Bitcoin, Hedge against inflation, Unexpected inflation, surprises in CPI, surprises in PCE. |
| JEL: | E31 E44 G11 |
| Date: | 2024–03–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120477&r=ban |
| By: | Canitgia Tambariki (BINUS Business School Master Program, Bina Nusantara University, Jakarta, Indonesia Author-2-Name: Octavianie Bernadette Sondakh Author-2-Workplace-Name: BINUS Business School Doctor of Research in Management, Bina Nusantara University, Jakarta, Indonesia Author-3-Name: Virgino Agassie Dondokambey Author-3-Workplace-Name: BINUS Business School Doctor of Research in Management, Bina Nusantara University, Jakarta, Indonesia Author-4-Name: "Evelyn Hendriana" Author-4-Workplace-Name: "BINUS Business School Doctor of Research in Management, Bina Nusantara University, Jakarta, Indonesia " Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:) |
| Abstract: | " Objective - This study aims to analyze the relationships between perceived knowledge and protection habits on cybersecurity behavior among active mobile banking users in Indonesia. The research direction involves empirical testing, employing the protection motivation theory (PMT) to develop a mediating model encompassing threat appraisal and coping appraisal components. Methodology/Technique - A quantitative research approach was employed to examine the twelve hypotheses developed based on the extended PMT. An online survey could obtain 380 valid responses where the respondents were selected using a purposive sampling technique. Since this study extended the PMT, data was analyzed using PLS-SEM to maximize the predictive model. Findings - This study validated the protection motivation theory (PMT) by confirming the effect of all threat and coping appraisal components on protection behavior, except for perceived vulnerability. The results also reported a substantial impact of perceived knowledge and protection habits on cybersecurity behavior among active mobile banking users in Indonesia. Novelty - This research is one of a few studies that extend PMT by integrating perceived knowledge and protection habits to understand consumer behavior toward cybersecurity risk. Type of Paper - Empirical" |
| Keywords: | Cybersecurity behavior, Mobile banking, Perceived knowledge, Protection habit, protection Motivation theory (PMT). |
| JEL: | M31 M15 |
| Date: | 2024–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:gtr:gatrjs:jmmr327&r=ban |
| By: | Ichiro Fukunaga (Bank of Japan); Yosuke Kido (International Monetary Fund); Kotaro Suita (Bank of Japan) |
| Abstract: | In this paper, with a brief examination of the global inflation synchronization, we analyze the effects of domestic and global factors on Japan's consumer price inflation and related variables (inflation expectations, nominal wages, etc.) since the late 1990s, when Japan fell into deflation, mainly using structural vector autoregression (SVAR) models with short- and long-run zero and sign restrictions. Historical decompositions show that various types of global shocks, including downward cost pressure due to globalization, had continuously pushed down Japan's consumer prices until the late 2010s. Subsequently, their contribution reversed, significantly pushing up prices, especially in the high-inflation phase after the pandemic. In addition, we find that service prices and nominal wages, which had not been much affected by global shocks, have also been pushed up significantly by global shocks in the recent period. |
| Keywords: | Inflation; Monetary policy; Globalization |
| JEL: | E31 E52 F62 |
| Date: | 2024–04–26 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:wp24e04&r=ban |