|
on Banking |
| By: | Swapan-Kumar Pradhan; Viktors Stebunovs; Előd Takáts; Judit Temesvary |
| Abstract: | We use bilateral cross-border bank claims by nationality to assess the effects of geopolitics on cross-border bank flows. We show that a rise in geopolitical tensions between countries — disagreements in UN voting, broad sanctions, or sentiments captured by geopolitical risk indices — significantly dampens cross-border bank lending. Elevated geopolitical tensions also amplify the international transmission of monetary policies of major central banks, especially when geopolitical tensions coincide with monetary policy tightening. Overall, our results suggest that geopolitics is roughly as important as monetary policy in driving cross-border lending. |
| Keywords: | Monetary policy; Geopolitical tensions; Cross-border claims; Diff-in-diff estimations |
| JEL: | E52 F34 F42 F51 F53 G21 |
| Date: | 2025–02–12 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgif:1403 |
| By: | KOUAKOU, Thiédjé Gaudens-Omer |
| Abstract: | This paper analyzes the effect of Basel III adapted to WAEMU on the behavior of banks in the zone (intermediation and market activities). After having developed a model for optimizing the return on bank equity, under various constraints (balance sheet constraints, Basel III regulatory constraints), we resort to linear programming via the Danzig simplex algorithm and to a structure of reasonable rates to obtain the optimal values of the various bank balance sheet items. The results, obtained by comparing these theoretical values with the values observed before Basel III (before January 1, 2018), show an increase in the supply of loans, obtained not only from deposits and bank refinancing but also via resources from the financial markets. We can also observe the intuitive result of an increase of bank reserves in line with the constraint that Basel III imposes on banks to increase their liquidity. In short, Basel III tends to strengthen bank financing in the zone, while improving the soundness of banks through the constitution of larger reserves. |
| Keywords: | prudential regulation, calibration, credit supply, linear programming |
| JEL: | C44 E50 E58 |
| Date: | 2025–01–31 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123515 |
| By: | Koetter, Michael; Noth, Felix; Wöbbeking, Carl Fabian |
| Abstract: | We study whether and how EU banks comply with tighter macroprudential policy (MPP). Observing contractual details for more than one million securitized loans, we document an elusive risk-shifting response by EU banks in reaction to tighter loan-to-value (LTV) restrictions between 2009 and 2022. Our staggered difference-in-differences reveals that banks respond to these MPP measures at the portfolio level by issuing new loans after LTV shocks that are smaller, have shorter maturities, and show a higher collateral valuation while holding constant interest rates. Instead of contracting aggregate lending as intended by tighter MPP, banks increase the number and total volume of newly issued loans. Importantly, new loans finance especially properties in less liquid markets identified by a new European Real Estate Index (EREI), which we interpret as a novel, elusive form of risk-shifting. |
| Keywords: | European Real Estate Index, LTV, macroprudential policy, risk shifting |
| JEL: | H30 R00 R31 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:iwhdps:311202 |
| By: | Mark M. Spiegel |
| Abstract: | The period following the global financial crisis was marked by low interest rates and low responsiveness of bank lending to monetary policy. This led some to conclude that the bank lending channel for monetary policy to influence economic activity had weakened. This paper revisits the responsiveness of the bank lending channel using a bank-level panel of US Call Report data and updated measures of U.S. monetary policy shocks. Results indicate that the efficacy of the bank lending channel increased over our sample period. We find tepid responses in bank lending to monetary shocks from 2012H1 through 2016H2, matching the existing literature, but significantly more robust responsiveness after liftoff, represented by the latter portion of our sample from 2017H1 through 2023H2. Separating the later panel by bank size reveals that the bank lending channel is larger for small and medium-sized banks than for large banks over this later period, also consistent with studies predating the global financial crisis. Increases in responsiveness at conventional rates are even greater for small business lending. An interactive specification over our entire sample period confirms that the stronger recent bank lending responses to monetary policy shocks are associated with sufficiently high prevailing levels of the federal funds rate. |
| Keywords: | credit channel; monetary policy; interest rate channel |
| JEL: | E58 E63 G14 G18 G32 |
| Date: | 2025–02–11 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedfwp:99557 |
| By: | Benjamin Dennis; Gurubala Kotta; Caroline Norris |
| Abstract: | The correlation of the spatial distribution of banking exposures with changes in spatial patterns of economic activity (e.g., internal migration, changes in agglomeration patterns, climate change, etc.) may have financial stability implications. We therefore study the spatial distribution of large U.S. banks' commercial and industrial (C&I) lending portfolios. We construct a novel dataset that augments FR Y-14Q regulatory data with borrower microdata for a more granular understanding of where banks' exposures are located by looking beyond headquarters to the location of facilities. We find that banks are exposed to almost all U.S. counties, with clustered exposure in certain geographies. We then use our dataset for a climate-related application by analyzing what fraction of C&I loans have been extended to firms that operate in areas vulnerable to physical risks, identifying, for example, counties where both (i) banks are highly exposed via their lending portfolios, and (ii) physical risks have historically resulted in large losses. Results of this kind can help inform risk management and be used to improve resilience to future stresses. |
| Keywords: | Bank lending to firms; Climate risks; Mapping of firm facilities; Spatial lending patterns |
| JEL: | R32 R11 Q54 G21 |
| Date: | 2025–01–13 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-06 |
| By: | Buckmann, Marcus (Bank of England); Eccles, Buckmann (Bank of England) |
| Abstract: | We study the effects intermediaries have on the UK mortgage market by exploiting the strong increase in broker intermediation between 2013 and 2020. Our findings indicate that this rise coincided with more households choosing mortgages with a short fixed term, due to brokers steering households towards these mortgages to increase fees from repeat business. Increased broker intermediation also enabled smaller lenders to reach more customers by geographically diversifying their mortgage portfolios, which gave smaller lenders the opportunity to specialise their mortgage portfolios, concentrating on long fixed-term and high LTV mortgages. |
| Keywords: | Mortgages; brokers; banks; household finances; portfolio diversification. |
| JEL: | D43 G21 G28 |
| Date: | 2025–02–12 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:1104 |
| By: | Petre Caraiani (Bucharest University of Economic Studies and Institute for Economic Forecasting, Romanian Academy, Romania); Onur Polat (Department of Public Finance, Bilecik Seyh Edebali University, Bilecik, Turkiye); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Elie Bouri (Corresponding author. School of Business, Lebanese American University, Lebanon) |
| Abstract: | In this paper, we relate physical and transition climate risks of the United States (US) to systemic risk of its banking sector. We start by estimating the systemic risk of 128 bank stock prices of the US over the period 26th May 2008 to 30th June 2023, taking the time-varying financial risk meter (FRM) approach, which relies on the Lasso quantile regression model. The FRM for the overall system of banks, as well as for large, medium, and small banks separately, exhibits notable peaks during COVID-19 in particular, and the global financial and European sovereign debt crises. Subsequently, using a nonparametric causality-in-quantiles test, which is robust to misspecification due to nonlinearity and structural breaks, we show that news-based metrics of physical and transition risks can significantly predict the entire conditional distribution of the FRMs over the full-sample and in a time-varying manner, with strongest causal impacts derived from news on international summits, compared to those on natural disasters, global warming, and US climate policies. Further analysis shows that all four climate risk factors consistently exert a positive impact on the conditional quantiles of the FRMs, supporting the premise that climate risks can damage assets and augment operating costs in the banking sector. Our findings have important policy implications which concern the stability of the banking sector. |
| Keywords: | US bank stocks, financial risk meter (FRM), climate risks, nonparametric causality-in-quantiles test, predictability |
| JEL: | C21 C22 G21 Q54 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:pre:wpaper:202507 |
| By: | DiGiuseppe, Matthew (Leiden University); Garriga, Ana Carolina (University of Essex); Kern, Andreas |
| Abstract: | Why do citizens support central bank independence (CBI)? Despite important research on economic and political reasons to grant independence to central banks, we know little about what the public thinks about CBI. This is important given citizens' potential role in constraining politicians' ability to alter CBI. We hypothesize that support for CBI is influenced by citizens' limited understanding of central bank governance and their beliefs about who will gain control over monetary policy if independence is reduced. Our expectations are confirmed by a preregistered survey experiment and a pre-post-election test in the U.S. Support for CBI increases when respondents learn that the President would gain more influence if independence was reduced. This support decreases when respondents expect a co-partisan to lead the executive branch. These findings shed light on the legitimacy basis of monetary institutions in politically polarized contexts and, from a policy perspective, indicate the limits of central bank communication. |
| Date: | 2025–02–08 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:trpgz_v1 |
| By: | Garriga, Ana Carolina |
| Abstract: | How has central bank independence (CBI) changed over time and across countries? This paper introduces the most comprehensive dataset on de jure CBI, including country-year observations covering 192 countries between 1970 and 2023. The dataset identifies statutory reforms affecting CBI, their direction, and codes four dimensions of CBI (personnel independence, central bank’s objectives, policy formulation, and limits on lending). It includes two CBI indices and a regional diffusion variable. The broader coverage of this dataset has important implications. First, although this dataset coding decisions are generally consistent with previous research, countries included only in this dataset tend to have lower CBI and differ in other dimensions with those previously coded. This suggests that systematically missing data in other data sources may have effects on inferences. Second, extended temporal coverage allows analyzing the evolution of central bank governance for more than a decade since the Global Financial Crisis. Finally, the data show that although there is a global tendency towards more CBI, there is significant variance across and within regions, including numerous reforms reducing CBI in the past two decades. This data contribution is important for research beyond the study of monetary institutions and their effects. |
| Keywords: | Central bank independence; Central banks; Data; Delegation; Global Financial Crisis; Great Moderation; Reforms |
| JEL: | E02 E5 E58 Y10 |
| Date: | 2025–01–21 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123578 |
| By: | Klaus, Hendrik |
| Abstract: | This paper explores the genesis of the German monetary framework between 1866 and 1876, with a specific focus on the 1875 Banking Act. The Banking Act constituted the final piece within the legislation that established Germany's post- unification monetary order, regulated bank note issuance across the Reich, and established the Reichsbank as Germany's first central bank. The Banking Act has rarely featured prominently in the literature, and it has often been regarded as a subordinate aspect of Germany's adoption of a gold currency. Drawing on a broad range of primary sources, this study argues that the Banking Act was in fact the most complicated and politicised element of the monetary reform. The debates on the centralisation of note issuance and banking functions are a fascinating window into how late nineteenth-century monetary management developed within the political imperatives of the time. As a case study, the historical perspective on the development of Germany's monetary framework is relevant in a broader context. It offers insight into the dynamics that have shaped political economies past and present, and it enables us to reflect critically on outcomes and alternatives for specific forms of monetary governance |
| Keywords: | Bankgesetz, Banking Act, Reichsbank, Ludwig Bamberger, Otto Michaelis, financial history, central bank history, free banking |
| JEL: | N13 N23 B15 B17 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ibfpps:311086 |
| By: | Ayse Karasoy; Gokce Karasoy Can; Emine Ozgu Ozen |
| Abstract: | [EN]This note aims to provide an overview of “relationship lending” (RL) which represents the beneficial alliance between the lender and the borrower in terms of available funds and affordable rates for Türkiye. The examination of the data provides following findings: 1) When the relationship is measured by loan share (the weight of the bank in the overall debt of the firm), it is strongly associated with loans having longer maturities and lower interest rates. 2) These observations are even stronger for small and medium-sized firms. 3) The correlation between loan share with interest rates and maturity changes over time. 4) RL has a more pronounced effect on interest rates and maturities when the bank is the main lender. 5) The duration (length of the relationship between bank and the firm) as an RL indicator works in the same direction as loan share. 6) Duration is also strongly associated with larger amounts of new loans. 7) The number of lenders matters. A firm’s engagement with multiple banks might signal its riskiness. Having more lenders results in higher interest rates and shorter loan maturities. 8) Securing multiple new loans from the same bank within a quarter often leads to slightly higher interest rates and shorter maturities. These observations demonstrate the existence of the phenomenon of RL within the Turkish banking sector, thereby affording borrowers with strong relations access to more favorable credit conditions. The results are mostly in line with the literature on relationship lending and likely to motivate further research on credit markets and transmission channels. [TR]Bu not, Turkiye icin borc veren ve borc alan arasindaki faydali ittifak anlamina gelen "iliski bankaciligi" (iB) kavramina genel bir bakis saglamayi amaclamaktadir. Gozlemler soyle ozetlenebilir: 1) “guclu iliski”, kredi payi (bankanin firmanin toplam borcu icindeki agirligi) ile olculdugunde, daha guclu iliskiler daha uzun vadeler ve daha dusuk faiz oranlari ile dogru orantilidir. 2) Bu gozlemler kucuk ve orta olcekli firmalar icin daha da gucludur. 3) Bunlar arasindaki (kredi payi ile faiz oranlari ve vade) korelasyon zaman icinde degismektedir. 4) iliski bankaciligi, bankanin ana borc veren oldugu durumlarda faiz oranlari ve vadeler uzerinde daha belirgin bir etkiye sahiptir. 5) Bir iliski gostergesi olarak sure (banka ile firma arasindaki iliskinin uzunlugu) degiskeni, kredi payi ile benzer yonde calismaktadir. 6) Ayrica sure, daha yuksek tutarli yeni krediler ile guclu sekilde iliskilidir. 7) Kredi saglayan banka sayisi onemlidir. Birden fazla banka ile kredi iliskisine girmesi, firmalarin kredi riskliligine isaret edebilir. Daha fazla banka ile calismak daha yuksek faiz oranlari ve daha kisa kredi vadeleri ile sonuclanmaktadir. 8) Bir ceyrek icinde ayni bankadan birden fazla yeni kredi sozlesmesi daha yuksek faiz orani ve daha kisa vadeler ile dogru orantilidir. Bu gozlemler, Turk bankacilik sektorunde IB olgusunun varligini gostermekte ve boylece guclu iliskilere sahip firmalarin daha uygun kredi kosullarina erisim sagladiklarini gostermektedir. Bu gozlemler cogunlukla iliski bankaciligi literaturu ile uyumludur. Bulgularin kredi piyasalari ve aktarim kanallarina iliskin pek cok arastirmayi motive edecegi degerlendirilmektedir. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:tcb:econot:2505 |
| By: | Andrés Alonso-Robisco (BANCO DE ESPAÑA); José Manuel Carbó (BANCO DE ESPAÑA); Pedro Jesús Cuadros-Solas (CUNEF UNIVERSIDAD AND FUNCAS); Jara Quintanero (BANCO DE ESPAÑA) |
| Abstract: | Open banking initiatives, which aim to increase competition and innovation in the financial sector by enabling the customer-authorised sharing of financial data among banks, regulated third-party providers and other financial stakeholders, are becoming widespread around the world. This paper investigates the impact of open banking on the development of the fintech sector, focusing particularly on payment-related financial services. We utilise the implementation of the Second Payment Services Directive (PSD2) in Europe as a natural experiment and employ a difference-in-differences methodology to analyse a unique microdata set of 406 Spanish fintech firms from 2014 to 2022, sourced from the Banco de España Central Balance Sheet Data Office and Fintech Radar. Our findings reveal that following PSD2, fintech firms specialising in payment services (Paytech) improved their performance compared with non-payment fintechs (control), with this improvement driven primarily by revenue growth rather than cost reduction. Additionally, treated fintech firms exhibited a significant reduction in long-term bank debt reliance, securing more stable market-equity funding. We also find that Paytech firms increased their liquidity holdings, reduced their labor intensity while increasing their labor costs and enhanced their productivity. Our results contribute to the literature on open banking by providing empirical evidence of its benefits for fintech firms, particularly in the payment sector, and underscore the importance of regulatory frameworks in fostering innovation and competition. These insights are valuable for policymakers aiming to enhance financial sector dynamics through data-driven regulations. |
| Keywords: | open banking, fintech, payments, PSD2 |
| JEL: | L22 G23 C63 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2514 |
| By: | Francesco Luna; Ms. Luisa Zanforlin |
| Abstract: | Social welfare costs from bank resolution, including contagion and moral hazard, are often thought to be minimized when supervisors can direct the merger of a failing bank with a sound, healthy one. However, social losses may become even larger if the absorbing institutions fail themselves. We ask whether social welfare losses are indeed lower when supervisors intervene rather than not. We use the sand pile/Abelian model as a metaphor to model financial losses which, as sand grains that fall onto a pile, eventually lead to a slide/failure. When capital in the system is insufficient to absorb the failing institution there will be welfare losses. Results suggest that, over the longer-term, social costs are lower when supervisors manage mergers. Additionally, financial networks that have a structure that minimizes social losses also minimize crises frequency. However, the bank employed resolution strategy will determine which financial network structures are associated with the minimum average loss per bankruptcy event. |
| Keywords: | Applied Abelian model; Banking; Financial Networks; Financial Economics; Banking Crisis; Bankrupcy; Bank Resolution; Selforganized Criticality; Bank Regulation and Supervision; welfare loss; resolution strategy; loss distribution; bank resolution regime supervisor; banks fail; shareholder bank; Distressed institutions; Commercial banks; Crisis resolution; Global |
| Date: | 2025–02–14 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/041 |
| By: | Sedki Zaiane (National Research University Higher School of Economics); Maria Semenova (National Research University Higher School of Economics) |
| Abstract: | This study examines the relationship between managerial ability (MA) and bank loan quality, employing a quantile regression model. It analyzes whether the impact of MA on loan quality changes across various quantiles of risk. Using a sample of 126 MENA banks (2006–2020), the results reveal that the impact of MA on bank loan quality varies across loan quality quantiles. Using non-performing loans (NPLs) as a loan quality measure, we find that MA reduces NPLs at moderate quantile levels. This relation becomes inverse at higher level of NPLs. Our findings are strengthened by a quantile-on-quantile regression. These results add to the literature by providing insight between MA and bank loan quality using a non-monotonic methodology. |
| Keywords: | No |
| JEL: | C21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:hig:wpaper:96/fe/2025 |
| By: | Abhishek Bhardwaj; Shan Ge; Saptarshi Mukherjee |
| Abstract: | CLOs fund 65% of syndicated loans, theoretically insulating borrowers from bank and idiosyncratic investor shocks. However, concentrated capital and sticky relationships expose firms to idiosyncratic shocks to insurers, the largest CLO investors. We find that: 1) insurers experiencing favorable cash flows invest more in CLOs, especially with familiar managers; 2) CLO managers exposed to these cash flows launch more deals; 3) using an instrumental–variable approach, affected firms take out more loans at lower spreads, increase employment, and expand operations; 4) effects are stronger for private than public firms. These findings reveal significant frictions in the loan securitization market. |
| JEL: | G21 G22 G23 G31 G32 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33449 |
| By: | Burr, Natalie (Bank of England) |
| Abstract: | This paper studies how monetary policy impacts inflation expectations in the United Kingdom. Using higher moments of the distribution of inflation expectations, I construct a summary measure of expectations for households, firms, professional forecasters and financial markets. In a Bayesian VAR identified using a high frequency-identified monetary policy shock series, I find that a monetary policy tightening causes significant variation in the response of inflation expectations across groups: firms’ and financial market median expectations fall, while households’ inflation expectations rise. I document that monetary policy decisions act as a stabilisation mechanism by reducing the dispersion of expectations 12–18 months following a shock. |
| Keywords: | Inflation expectations; monetary policy transmission; structural VAR |
| JEL: | C38 E31 E52 E58 |
| Date: | 2025–01–10 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:1109 |
| By: | Salib, Michael (Bank of England); Ghazaleh, Mesha (Bank of England) |
| Abstract: | The Bank’s monetary policy objectives are among the most significant statutory objectives bestowed by Parliament on any UK public authority. The objectives make the Bank responsible for maintaining price stability and, subject to that, for supporting the government’s economic policy, including its objectives for growth and employment. When granted in 1998, the objectives were a watershed moment in the three centuries‑old history of an institution that had long‑resisted having its role prescribed or, as Bank officials at the time saw it, constrained by, law. Yet the Bank quickly embraced the benefits of having greater clarity in its legal mandate, and the objectives have proved remarkably resilient in directing the Bank’s monetary response over the past 25 years. This paper offers an in‑depth historical and legal account of the Bank’s statutory monetary policy objectives; it explores the relevant statutory provisions in the Bank of England Act 1998 and the debates that surrounded their drafting, as well as their application and interpretation in practice. |
| Keywords: | Monetary policy; objectives; price stability |
| JEL: | E52 E58 E63 K23 |
| Date: | 2025–01–17 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:1110 |
| By: | Kaminska, Iryna (Bank of England); Kontoghiorghes, Alex (Bank of England); Ray, Walker (Federal Reserve Bank of Chicago, London School of Economics and CEPR) |
| Abstract: | We analyse the role of preferred habitat (PH) demand in the transmission of quantitative tightening (QT) and quantitative easing (QE) programmes. For this, we combine granular data from Bank of England QT and QE auctions with secondary market bond level transaction data. We find that when dealers traded on behalf of pension funds and insurance companies, their bidding at QE auctions was less elastic, in line with PH demand theory. In contrast, during QT auctions, there is no evidence of significant PH demand pressures. To account for the observed asymmetric demand effects during QE and QT, we build on and extend the constant elasticity demand model by Vayanos and Vila (2021), so that the PH demand elasticity can depend on available bond supply. We show that the decreased role of the PH demand channel during QT is consistent with the increased government bond issuance post the Covid-19 pandemic. |
| Keywords: | Quantitative easing; quantitative tightening; central bank auctions; monetary policy; monetary transmission mechanism; preferred habitat; gilt market |
| JEL: | E43 E52 E58 G12 |
| Date: | 2025–01–10 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:1108 |
| By: | Ozili, Peterson K |
| Abstract: | This study considers a world where it is possible to attain full financial inclusion where full financial inclusion means achieving a 100% level of financial inclusion in whichever way financial inclusion is measured. It was argued that increasing the level of financial inclusion is a priority for policymakers in developing countries while many developed countries have already attained a high level of financial inclusion. After the highest possible level of financial inclusion has been attained, countries that have achieved such a feat will think about what next can be done about financial inclusion. This article addresses this issue and offers insights into the course of action that countries can take after achieving full financial inclusion in whichever way financial inclusion is measured. This study also explores the philosophical nature of this question by casting some light into whether attaining full financial inclusion is a worthwhile goal for policymakers to focus on. The insights offered in this study are useful to scholars, policymakers and those responsible for increasing financial inclusion in their countries. |
| Keywords: | financial inclusion, digital financial inclusion, full financial inclusion, criticism |
| JEL: | G21 G28 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123587 |
| By: | Mooij, Joke |
| Abstract: | This paper focuses on the economic and societal impact of women in the Dutch financial sector during the period 1898-1940 by examining a dozen organisations in banking, insurance as well as brokerage, and by examining a dozen pioneering women with senior positions in finance. During this period, a growing number of well- educated women gained access to a broader range of economic activities and jobs. The organisations and the pioneering women contributed to a public recognition of women as finance professionals and as autonomous clients. Having more women in finance also enabled other women to better manage their finances, meet their credit demand, and insure against occasional loss of income. These developments contributed to female participation and economic growth. |
| Keywords: | Financial Sector, Gender, Entrepreneurship, Europe |
| JEL: | G21 G22 G24 J16 L26 N23 N24 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ibfpps:311084 |
| By: | Ozge Akinci; Martín Almuzara; Silvia Miranda-Agrippino; Ramya Nallamotu; Argia M. Sbordone; Greg Simitian; William Zeng |
| Abstract: | Our previous post identified strong global components in the slow-moving and persistent dynamics of headline consumer price index (CPI) inflation in the U.S. and abroad. We labeled these global components as the Global Inflation Trend (GIT), the Core Goods Global Inflation Trend (CG-GIT) and the Food & Energy Global Inflation Trend (FE-GIT). In this post we offer a narrative of the drivers of these global inflation trends in terms of shocks that induce a trade-off for monetary policy, versus those that do not. We show that most of the surge in the persistent component of inflation across countries is accounted for by global supply shocks—that is, shocks that induce a trade-off for central banks between their objectives of output and inflation stabilization. Global demand shocks have become more prevalent since 2022. However, had central banks tried to fully offset the inflationary pressures due to sustained demand, this would have resulted in a much more severe global economic contraction. |
| Keywords: | global inflation; persistence; Multivariate Core Trend (MCT); supply chains; demand shocks |
| JEL: | E31 E37 E52 F34 |
| Date: | 2025–02–27 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:99630 |
| By: | Michael Dinerstein; Samuel Earnest; Dmitri K. Koustas; Constantine Yannelis |
| Abstract: | Student loan forgiveness has been proposed as a means to alleviate soaring student loan burdens. This paper uses administrative credit bureau data to study the distributional, consumption, borrowing, and employment effects of the largest event of student loan forgiveness in history. Beginning in March 2021, the United States federal government ordered $132 billion in student loans cancelled, or 7.8% of the total $1.7 trillion in outstanding student debt. We estimate that forgiven borrowers’ predicted monthly earnings were $115 higher than borrowers who did not receive forgiveness and $193 more than the general population. We find that student loan forgiveness led to increases in mortgage, auto, and credit card debt by 9 cents for every dollar forgiven. Borrowers’ monthly earnings and employment fell, at increasing rates for each month post forgiveness. The implied Marginal Propensities for Consumption (MPC) and Earnings (MPE) are 0.27 and -0.49, respectively. |
| JEL: | G51 I22 I28 J29 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33462 |
| By: | Ivan, Miruna-Daniela (Bank of England); Banti, Chiara (Essex Business School, University of Essex); Kellard, Neil (Essex Business School, University of Essex) |
| Abstract: | This paper explores a novel directional liquidity-based transmission channel of monetary policy, which explains the heterogeneity in the response of commodity future prices to monetary policy. Employing an event-study analysis with a high-frequency instrumental variable estimator, we find that the trading volume of our sample of commodity futures declines following FOMC announcements. Further, we find that more traded commodities are also more exposed to monetary policy surprises, suggesting a significant role for trading activity in the transmission of monetary policy shocks to commodity markets. Lastly, we show that the direction of the target rate change matters to this transmission mechanism of monetary policy. |
| Keywords: | Monetary policy; monetary transmission; financial liquidity; commodity futures |
| JEL: | E52 G12 G14 |
| Date: | 2025–01–24 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:1114 |
| By: | Moktan, Sidharth (London School of Economics and Political Science); Guin, Benjamin (Bank of England); Clarke, Liam (Bank of England) |
| Abstract: | What is the role of lending in transmitting shocks to residential real estate? We consider this question by examining an adverse and salient shock to a segment of the property market in England and Wales. This shock, arising from a tragic event which resulted in significant loss of life, affected high-rise properties.1 Using comprehensive administrative data on all residential mortgage and property transactions, combined with property‑level rent data, we study responses in these markets. Consistent with the idea of credit being a ‘financial accelerator’, we document a decline in mortgage originations following the shock, with the sharpest contraction observed among first‑time buyers. We also highlight the role of cash buyers and lender size in dampening the overall impact of the shock. Additionally, the paper provides a conceptual framework that integrates multiple administrative data sets to understand how salient shocks, including those related to climate risks, may affect the property market. It offers valuable insights for financial policymakers on how these shocks propagate through credit and housing markets. |
| Keywords: | Residential real estate; mortgage market; collateral shocks |
| JEL: | D14 G21 |
| Date: | 2025–01–17 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:1111 |
| By: | Andrew F. Haughwout; Donghoon Lee; Daniel Mangrum; Joelle Scally; Wilbert Van der Klaauw |
| Abstract: | Debt balances continued to rise at a moderate pace in the fourth quarter of 2024, and delinquencies, particularly for auto loans and credit cards, remained elevated, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data. Auto loan balances have grown steadily since 2011, expanding by $48 billion in 2024. This increase reflects a steady inflow of newly originated auto loan balances, which in 2024 were boosted primarily by originations to very prime borrowers (those with credit scores over 760) while originations to borrowers with midprime and subprime scores held roughly steady. In this post, we take a closer look at auto loan performance and find that delinquencies have been rising across credit score bands and area income levels. We also break down auto loan performance by lender type and find that delinquencies are primarily concentrated in loans from non-captive auto finance companies. |
| Keywords: | household finance; Consumer Credit Panel (CCP); auto loans |
| JEL: | G5 |
| Date: | 2025–02–13 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:99552 |
| By: | Czech, Robert (Bank of England); Monroe, Win (Imperial College Business School) |
| Abstract: | In this paper, we empirically study the role of information in safe asset liquidity crises, using the 2022 UK LDI crisis as a laboratory. Contrary to traditional adverse selection models, which predict higher liquidity costs due to the presence of informed traders, we find that dealers initially reduce liquidity costs for informed investors, and subsequently raise costs and reduce liquidity for the broader market. We interpret this as evidence of dealers seeking to learn from informed investors and then restricting liquidity as they process this information. We also document that dealers exploit their informational advantage in anonymous interdealer markets and that similar dynamics are present in other crises. These patterns reverse when central bank interventions restore market liquidity, thereby mitigating the effects of dealers’ information chasing and their liquidity reallocation. |
| Keywords: | D82; E44; G12; G14; G15; G21 |
| JEL: | D82 E44 G12 G14 G15 G21 |
| Date: | 2025–01–24 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:1113 |
| By: | Zhang, Yuan; Hu, Qianqian; Mak, Ho Wai; Hu, Yan |
| Abstract: | This research examines the progression of Corporate Social Responsibility (CSR) initiatives at China Construction Bank (CCB) from 2014 to 2023. The study assesses the evolution of CCB's CSR reporting, focusing on environmental sustainability and employee diversity. Using a longitudinal study approach, it integrates case studies, content analysis, and an in-depth review of annual CSR reports, alongside an analysis of quantitative indicators such as green financing and employee statistics, including correlation analysis, principal component analysis, and regression analysis. This allows for evaluating CSR trends and their relationship to financial and business performance. The findings indicate substantial improvements in both the quantity and quality of CCB’s CSR disclosures during the review period. The data shows a significant rise in green financing, demonstrating CCB's commitment to environmental sustainability, along with improvements in employee diversity, marked by an increased proportion of younger staff and minority staff. The correlation analysis highlights a positive relationship between CSR initiatives and financial outcomes, suggesting that CSR is a crucial factor in driving business success. This research provides a comprehensive analysis of a decade of CSR practices in a leading Chinese commercial bank, emphasizing the importance of regulatory frameworks in guiding CSR activities and demonstrating the positive impact of CSR on financial performance. The insights derived from this study offer valuable implications for policymakers, industry stakeholders, and researchers interested in CSR practices within the banking sector. |
| Date: | 2025–02–04 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:47bkr_v1 |
| By: | Carmen Broto (BANCO DE ESPAÑA); Olivier Hubert (BANCO DE ESPAÑA) |
| Abstract: | We study whether the process of desertification in Spain has an impact on the volume of credit granted to Spanish non-financial corporations (NFCs). To this end, we use a panel data model at the municipal level from 1984 to 2019 for bank loans obtained from the Banco de España’s central credit register, where the main explanatory variable is the aridity index. Given that aridity is a long-term climatic phenomenon, we also estimate the model with local projections (Jordà, 2005) to disentangle the impact of aridity on credit to NFCs over longer horizons. Consistent with the literature, we find that higher aridity leads to lower credit to firms, at both short and long-term horizons. We also show that the effect of aridity on credit is sector-specific and depends on the climate zone. Credit to the agricultural sector is most negatively affected by this climatic hazard, while this phenomenon leads to more credit to the tourism sector in the most humid regions. |
| Keywords: | climate change, credit, aridity index, non-financial corporations, panel data model, local projections |
| JEL: | Q54 Q51 C33 E51 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2513 |
| By: | Lisa J. Dettling; Melissa Schettini Kearney |
| Abstract: | This paper proposes that the adoption of the modern U.S. mortgage (i.e., low down payment, long-term, and fixed-rate)—led by the Federal Housing Administration (FHA) and Veteran’s Administration (VA) loan insurance programs—set the stage for the mid-twentieth century U.S. baby boom by dramatically raising rates of home ownership for young families. Using newly digitized data on FHA- and VA- backed loan issuance and births by state-year, and a novel instrumental variables strategy that isolates supply-side variation in loan issuance, we find that the FHA and VA mortgage insurance programs led to 3 million additional births from 1935-1957, roughly 10 percent of the excess births in the baby boom. Aggregate effects mask differences by group—we find no effects of FHA/VA lending on births for Nonwhite women, consistent with well-documented racial discrimination in these lending programs. Our results highlight the importance of access to home ownership for fertility decisions. |
| JEL: | G21 H31 J13 N32 R38 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33446 |
| By: | David Andolfatto; Fernando M. Martin |
| Abstract: | We use an analytically tractable DSGE model to study the surge in the cost of living in the wake of the COVID-19 pandemic. A calibrated version of the model is used to assess the conduct of US monetary and fiscal policy over the 2020-2024 period. The model is also used to estimate the economic and welfare consequences of alternative monetary and fiscal policies. The calibrated model suggests that while the extraordinary fiscal transfers made in 2020-21 generally improved economic welfare, they were significantly larger than needed. These welfare gains came primarily in the form of insurance, not stimulus. For the observed fiscal policy, an optimal monetary policy would not have resulted in a significantly different inflation dynamic. Although monetary policy could have prevented the inflation surge with sufficient fiscal support, such a policy would have required a permanently higher real rate of interest and a permanent recession. Finally, our model suggests that while observed monetary policy muted the inflation dynamic, it did not significantly alter the total amount of inflation experienced. Finally, the COVID-19 inflation would have been mean-reverting even without an aggressive tightening of monetary policy. |
| Keywords: | monetary policy; fiscal policy; inflation; price level; COVID-19 |
| JEL: | E40 E52 E60 E63 E65 |
| Date: | 2025–02–14 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedlwp:99576 |
| By: | Zhang, Yuan |
| Abstract: | This research aims to examine the progression of Corporate Social Responsibility (CSR) initiatives at China Construction Bank (CCB) from the year 2014 to 2023. The study seeks to assess the evolution of CCB's CSR reporting, with a particular emphasis on environmental sustainability, employee well-being, and the impact of government policies. This research employs a longitudinal study approach, incorporating case studies, content analysis, and a thorough review of annual CSR reports. It scrutinizes quantitative indicators such as green financing and employee statistics to discern trends and patterns in CSR engagement. Our findings indicate a substantial enhancement in both the quantity and quality of CSR disclosures by CCB during the period under review. A significant upsurge in green financing is observed, signifying CCB's dedication to environmental sustainability. There is also a noticeable improvement in employee welfare and diversity, evidenced by an increase in the proportion of female and younger staff. The correlation analysis reveals a positive relationship between CSR initiatives and financial outcomes, implying that CSR may be instrumental in achieving business prosperity. Furthermore, government policies are found to have a substantial influence on the CSR strategies adopted by CCB. This research offers an in-depth examination of a decade of CSR practices within a prominent Chinese commercial bank. It underscores the pivotal role that government regulations play in directing CSR initiatives and illustrates the beneficial effects of CSR on financial performance. The insights gained are of significant value to policymakers, industry participants, and scholars intrigued by CSR within the banking industry. |
| Date: | 2025–02–06 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:nphqm_v1 |
| By: | Shin-ichi Fukuda (Faculty of Economcis, The University of Tokyo); Naoto Soma (Faculty of International Social Sciences, Division of International Social Sciences) |
| Abstract: | The purpose of this study is to examine how short-term and medium-term inflation expectations evolved on a sustained basis in Japan. In the analysis, we define the "anchor of inflation expectations" as inflation expectations excluding the expected effects of the GDP gap and supply shocks. We examine the extent to which the "anchor of inflation expectations" has changed since 2010 using Japanese forecaster-level data in the "ESP Forecast." The estimated anchor of inflation expectations increased significantly after the Bank of Japan launched unprecedented monetary easing in April 2013. However, the increase was not only modest but also temporary. In contrast, the estimated anchor continued to rise after the global supply shocks became noticeable in April 2022. The estimated anchor has already exceeded 2% for short-term inflation expectations and is approaching 2% for medium-term inflation expectations. This means that the global supply shocks and the subsequent depreciation of the yen have caused a dramatic change in inflation expectations. However, the increased anchor of medium-term inflation expectations is still about the same as in 2014-2015. Given that the upward shift did not continue in 2014-2015, the Japanese economy may not be able to achieve the 2% target on a sustainable basis unless there are additional changes, such as an improvement in consumer sentiment through real wage increases. |
| URL: | https://d.repec.org/n?u=RePEc:tky:fseres:2025cf1238 |
| By: | Omar Briceno Cruzado |
| Abstract: | The Basel Committee on Banking Supervision proposed replacing all approaches for operational risk capital, including the Advanced Measurement Approach (AMA), with a simplified formula called the Standardized Measurement Approach (SMA). This paper examines and criticizes the weaknesses and failures of SMA, such as instability, insensitivity to risk, superadditivity, and the implicit relationship between the SMA capital model and systemic risk in the banking sector. Furthermore, it discusses the issues of the proposed Operational Risk Capital (OpCar) model by the Basel Committee, a precursor to SMA. The paper concludes by advocating for the maintenance of the AMA internal model framework and suggests a series of standardization recommendations to unify internal operational risk modeling. The findings and viewpoints presented in this paper have been discussed and supported by numerous operational risk professionals and academics from various regions of the world. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.00962 |
| By: | Pablo Aguilar Perez |
| Abstract: | This paper examines the effects of monetary policy on the profitability of life insurers during the prolonged low-interest-rate period, leveraging a novel dataset of 31 leading French insurers from 2009 to 2018. We classify insurers into three business models—bancassurers, traditional S.A insurers, and mutual insurers—and provide new evidence on the mechanisms driving performance differences. Bancassurers demonstrate consistently higher profitability levels and expanding market shares over the period. This advantage is driven by their ability to mitigate the "income channel" effect of low rates by rapidly reducing guaranteed yields offered to policyholders more effectively than their peers, thereby sustaining profitability and gaining market share throughout the low-yield environment. We also examine how insurers’ portfolio strategies shape profitability in this context. Specifically, we explore the "hunt-for-yield" effect by analyzing the impact of higher equity allocations compared to bonds, the shift toward greater reliance on unit-linked policies, and the role of capital adequacy structures. Our findings reveal substantial heterogeneity in how different types of insurers adapt to monetary policy, illustrating the diverse effects of prolonged monetary easing on non-bank financial intermediaries. |
| Keywords: | Low interest rate environment, Insurance profitability, Monetary policy, Financial stability |
| JEL: | G22 E58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:drm:wpaper:2025-8 |
| By: | Karlsson, Sune (Örebro University School of Business); Mazur, Stepan (Örebro University School of Business); Raftab, Mariya (Örebro University School of Business) |
| Abstract: | This paper focuses on identifying useful indicators for nowcasting GDP in Sweden. We analyze 35 monthly indicators spanning the period from 1993 to 2023. Additionally, we evaluate the group-wise performance of these indicators. The analysis is conducted using mixed-data sampling (MIDAS) and mixed-frequency VAR models in both individual and pooled setups for nowcasting. While the primary focus is on nowcasting, we also assess the performance of the indicators for backcasting and forecasting. For nowcasting, we identify 16 indicators in the individual setup and 23 indicators in the pooled setup that outperform the benchmark. Group-wise, indicators belonging to the survey, interest & exchange rates, and public finance groups exhibit strong performance in the individual setup. Notably, in the pooled setup, the output, survey, price, interest & exchange rates, and public finance groups demonstrate strong performance. |
| Keywords: | Nowcasting; Swedish GDP; MIDAS; Mixed-frequency VAR |
| JEL: | C32 C53 E37 |
| Date: | 2025–02–13 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:oruesi:2025_004 |
| By: | Ruth A. Judson |
| Abstract: | The incidence of currency counterfeiting and the possible total stock of counterfeits in circulation are popular topics of speculation and discussion in the press and are of substantial practical interest to the Federal Reserve, the U.S. Treasury and the United States Secret Service (USSS), who are jointly responsible for U.S. banknote design, including security features, and production. This paper assembles data from Federal Reserve and USSS sources and presents a range of estimates for the number of counterfeits in circulation in the United States. In addition, the paper presents figures on counterfeit passing activity by denomination, location, and counterfeit type. The paper has two main conclusions: first, the stock of counterfeits in the United States as a whole is at most about $30 million, or about 1 in 40, 000 notes and is likely about $15 million, or on the order of 1 every 80, 000 genuine notes in both piece and value terms. This estimate marks a significant decline from the estimate of 1 in 10, 000 notes presented in Treasury (2006) using similar methods and data sources, and the decline is likely at least partially due to increased circulation of higher-security banknotes as well as increased public education about U.S. dollar banknote security features. Second, when counterfeit notes of reasonable quality are considered, losses to the U.S. public from only the high-quality counterfeits of the most commonly used notes, the $20 and smaller denominations, are minuscule. However, there is a range of estimates overall for counterfeits in circulation, and these estimates vary by denomination. |
| Keywords: | Banknotes; Counterfeiting; Estimation; Money |
| JEL: | C89 |
| Date: | 2025–02–14 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgif:1404 |
| By: | Bunn, Philip (Bank of England); Anayi, Lena (Bank of England); Bloom, Nicholas (Stanford University); Mizen, Paul (King’s College London); Thwaites, Gregory (University of Nottingham); Yotzov, Ivan (Bank of England) |
| Abstract: | Macro data suggest a convex relationship between inflation and economic slack, but identifying causality in this setting is challenging. Using data from large panel surveys of UK and US firms we show that the response of prices to demand shocks is also convex at the firm level. We obtain similar results using three different empirical exercises examining: the impact of Covid demand shocks, the response to sales shocks, and hypothetical shocks from a survey question. This convexity is strongest in firms and industries with higher inflation, disappears in horizons beyond two years, and is also present in response to cost shocks. We rationalise these findings in a menu cost model with positive trend inflation and decreasing returns at the firm level, which replicates firm and aggregate Phillips curve convexity. The non‑linearity emerges from trend inflation pushing firms closer to their price increase thresholds. |
| Keywords: | Inflation; survey data; firms; Phillips curve |
| JEL: | C83 D22 D84 E31 |
| Date: | 2025–01–10 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:1107 |