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on Banking |
| By: | Peter Bednarek (Deutsche Bundesbank); Olga Briukhova (University of Zurich - Department of Banking and Finance; Swiss Finance Institute); Steven Ongena (University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)); Natalja von Westernhagen (Deutsche Bundesbank) |
| Abstract: | What is the impact of a sudden and sizeable increase in bank capital requirements on the lending activity by directly affected banks and by non-affected non-bank financial institutions (NBFIs)? To answer this question, we apply a difference-in-differences methodology around the capital exercise by the European Banking Authority (EBA) in 2011 with German credit register data. We find that insurance companies, financial enterprises, and factoring companies — but not leasing companies or very large NBFIs — and Non-EBA banks expand their corporate lending relative to EBA banks. In particular, NBFIs use the opportunity to expand their credit activities, in riskier and more competitive borrower segments. |
| Keywords: | non-bank financial intermediation, bank capital requirements, EBA capital exercise |
| JEL: | E50 G21 G23 G28 C33 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2512 |
| By: | Andreea Maura Bobiceanu (Babes-Bolyai University); Simona Nistor (Babes-Bolyai University - Department of Finance); Steven Ongena (University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)) |
| Abstract: | We leverage differences in central bank independence and financial stability sentiment across countries to investigate the variability in banks' stock market reactions to prudential policy announcements during the COVID-19 crisis. Our findings reveal that the relaxation of both macro and micro-prudential policies leads to negative cumulative abnormal returns (CARs), the reaction being attenuated in countries where the central bank is more independent or communicates deteriorations in financial stability. The CARs around the announcement dates are 0.75 percentage points (pp) and 6.89 pp higher in countries with greater versus lesser central bank independence, for macro- and micro-prudential policy announcements. The difference is close to 3.73 pp and 5.65 pp between banks based in countries where the central bank communicates a negative versus a positive sentiment about financial stability. The positive effect of higher degrees of central bank independence and deteriorations in financial stability sentiment on bank market valuation is enhanced for smaller banks, and in countries characterized by greater fiscal flexibility, and a higher prevalence of privately owned banks. |
| Keywords: | stock market reaction, macro-prudential regulation, micro-prudential regulation, central bank independence, financial stability sentiment |
| JEL: | E61 G14 G21 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2511 |
| By: | Lluberas, Rodrigo |
| Abstract: | The functioning of the banking sector is key for economic growth. In this paper, we first gather banks' balance sheet monthly regulatory information in a consistent manner for seven Latin American countries. Second, we estimate lending markups and deposits markdowns in each country over time. Third, with the estimated markups and markdowns in the different countries we study how they relate with banks' profitability, the cost of credit, credit risk and credit supply. Finally, we explore whether there are differences in markups on lending rates and markdowns on deposit rates between international and domestic banks. |
| Keywords: | Banking;Markups;markdowns;Market concentration |
| JEL: | E44 L11 L16 G21 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:13988 |
| By: | Jeffery Piao; K. Philip Wang; Diana L. Weng |
| Abstract: | Utilizing confidential microdata from the Census Bureau’s new technology survey (technology module of the Annual Business Survey), we shed light on U.S. banks’ use of artificial intelligence (AI) and its effect on their small business lending. We find that the percentage of banks using AI increases from 14% in 2017 to 43% in 2019. Linking banks’ AI use to their small business lending, we find that banks with greater AI usage lend significantly more to distant borrowers, about whom they have less soft information. Using an instrumental variable based on banks’ proximity to AI vendors, we show that AI’s effect is likely causal. In contrast, we do not find similar effects for cloud systems, other types of software, or hardware surveyed by Census, highlighting AI’s uniqueness. Moreover, AI’s effect on distant lending is more pronounced in poorer areas and areas with less bank presence. Last, we find that banks with greater AI usage experience lower default rates among distant borrowers and charge these borrowers lower interest rates, suggesting that AI helps banks identify creditworthy borrowers at loan origination. Overall, our evidence suggests that AI helps banks reduce information asymmetry with borrowers, thereby enabling them to extend credit over greater distances. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:cen:wpaper:25-07 |
| By: | Christopher Anderson |
| Abstract: | Regulating bank risk-taking is challenging since banks know more than regulators about the risks of their portfolios and can make adjustments to game regulations. To address this problem, I build a tractable model that incorporates this information asymmetry. The model is flexible enough to encompass many regulatory tools, although I focus on taxes. These taxes could also be interpreted as reflecting the shadow costs of other regulations, such as capital requirements. I show that linear risk-sensitive taxes should not generally be set more conservatively to address asymmetric information. I further show the efficacy of three regulatory tools: (1) not disclosing taxes to banks until after portfolio selection, (2) nonlinear taxes that respond to information contained in banks' portfolio choice, and (3) taxes on banks' realized pro ts that incentivize banks to reduce risk. |
| Keywords: | Symmetric information; Bank portfolio choice; Capital regulation; Bank regulation |
| JEL: | G21 G28 G18 G11 |
| Date: | 2025–02–04 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-09 |
| By: | Robert J. Kurtzman; Hannah Landel |
| Abstract: | Private depository institutions play a crucial role in the provisioning of credit in the United States. The two private depository sectors in the Financial Accounts of the United States (the Financial Accounts) serving as the primary lenders to households are U.S.-chartered depository institutions (banks) and credit unions. Credit unions mostly make loans to households, while banks make large shares of their loans to both households and businesses. |
| Date: | 2025–01–31 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2025-01-31-2 |
| By: | Kwabena A. Addo (Utrecht University); Shams Pathan (University of Newcastle - Newcastle University Business School); Steven Ongena (University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)) |
| Abstract: | We investigate how CEO overconfidence influences banks' decisions to join the United Nations Environment Programme Finance Initiative. Analyzing 13, 000 bank-year observations, spanning the last quarter century, with a duration model, we find that overconfident CEOs delay participation by reducing the likelihood of joining by 15% annually. This effect is stronger in large, profitable, deposit-funded banks and persists across various CEO demographics. Our findings reveal how behavioral biases shape strategic decisions, highlighting overconfidence as a barrier to timely sustainability commitments. These insights underscore the importance of leadership traits in driving-or hindering-progress in green finance. |
| Keywords: | CEO overconfidence, green bank alliances, green finance, duration model |
| JEL: | G21 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2520 |
| By: | Gregory Phelan; William Chen |
| Abstract: | Banking-sector stability may suffer, yet household welfare may improve should a digital currency be fully integrated into the financial system. Keywords: Central bank digital currency, CBDC, volatility, digital assets, stable coins |
| Date: | 2023–03–22 |
| URL: | https://d.repec.org/n?u=RePEc:ofr:ofrblg:23-06 |
| By: | Vesa Pursiainen (University of St. Gallen; Swiss Finance Institute); Hanwen Sun (University of Bath, School of Management); Qiong Wang (Southeast University); Guochao Yang (School of Accounting, Zhongnan University of Economics and Law; IIDPF, Zhongnan University of Economics and Law) |
| Abstract: | A unique natural experiment in China – the city-level staggered introduction of administrative approval centers (AAC) – reduces bank loan processing times by substantially speeding up the process of registering collateral without affecting credit decisions. Following the establishment of an AAC, firms significantly reduce their cash holdings. State-owned enterprises are less affected. Cash flow sensitivity of cash holdings decreases, as does the cash flow sensitivity of investment. The share of short-term debt increases, while inventory holdings and reliance on trade credit decrease. Defaults also decrease. These results suggest that timely access to credit has important implications on firms' financial management. |
| Keywords: | banking, efficiency, precautionary cash holdings, capital management, corporate loans |
| JEL: | D25 G21 G28 G32 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2517 |
| By: | Beyer, Andreas; Dautović, Ernest |
| Abstract: | This paper explores the impact of bank transparency on market efficiency by comparing banks that disclose supervisory capital requirements to those that remain opaque. Due to the informational content of supervisory capital requirements for the market this opacity might hinder market efficiency. The paper estimates an average 11.5% reduction in funding costs for transparent versus opaque banks. However, there is some heterogeneity in those effects. Transparency helps the market to sort across safer and riskier banks. Conditional on disclosure, the safest quartile of banks, those with a CET1 P2R lower than 1.5% of risk-weighted assets, benefits in average from 31.1% lower funding costs. The paper concludes that supervisory transparency is beneficial, supporting the view that supervisory transparency enhances market discipline by allowing markets to better evaluate and price the risk associated with each bank. JEL Classification: D5, E5, E58, G18, G21 |
| Keywords: | bank transparency, market discipline, market efficiency, supervisory effectiveness |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253031 |
| By: | Masashige Hamano (Waseda University); Philip Schnattinger (Bank of England); Mototsugu Shintani (University of Tokyo); Iichiro Uesugi (Hitotsubashi University); Francesco Zanetti (University of Oxford) |
| Abstract: | We develop a simple model of financial intermediation with search and matching frictions between banks and firms. The model links credit market tightness –encapsulating the abundance of credit– to the search and opportunity costs of credit intermediation. Search costs generate lending to unprofitable firms (i.e., zombies) and the opportunity costs of searching exert countervailing forces on the incentives for banks and firms to participate in zombie lending, generating an inverted U-shaped relationship between credit market tightness and the share of zombie lending. High bargaining power of firms decreases the opportunity cost of firms foregoing credit relationships, reduces the share of zombie firms and increases the efficacy of capital injections to reduce zombie lending. Using data for 31 industries in Japan over the period 2000-2019, we test and corroborate our theoretical predictions by constructing theory-consistent measures of credit market tightness and bargaining power. Consistent with our theory, the findings reveal that capital injections are more effective in industries with higher credit market tightness and greater bargaining power of firms. |
| Keywords: | Zombie firms; bank lending; credit market tightness |
| JEL: | E22 E23 E32 E44 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:wap:wpaper:2416 |
| By: | Christoph Kaufmann; Jaime Leyva; Manuela Storz |
| Abstract: | The insurance sector and its relevance for real economy financing have grown significantly over the last two decades. This paper analyses the effects of monetary policy on the size and composition of insurers’ balance sheets, as well as the implications of these effects for financial stability. We find that changes in monetary policy have a significant impact on both sector size and risk-taking. Insurers’ balance sheets grow materially after a monetary loosening, implying an increase of the sector’s financial intermediation capacity and an active transmission of monetary policy through the insurance sector. We also find evidence of portfolio re-balancing consistent with the risktaking channel of monetary policy. After a monetary loosening, insurers increase credit, liquidity and duration risk-taking in their asset portfolios. Our results suggest that extended periods of low interest rates lead to rising financial stability risks among non-bank financial intermediaries. |
| JEL: | E52 G11 G22 G20 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ptu:wpaper:w202502 |
| By: | Damast, Dominik; Kubitza, Christian; Sørensen, Jakob Ahm |
| Abstract: | We document a novel transmission channel of monetary policy through the homeowners insurance market. On average, contractionary monetary policy shocks result in higher homeowners insurance prices. Using granular data on insurers' balance sheets, we show that this effect is driven by the interaction of financial frictions and the interest rate sensitivity of investment portfolios. Specifically, rate hikes reduce the market value of insurers' assets, tightening insurers' balance sheet constraints and increasing their shadow cost of capital. These frictions in insurance supply amplify the effects of monetary policy on real estate and mortgage markets by making housing less affordable. We find that monetary policy shocks have a stronger impact on home prices and mortgage applications when local insurers are more sensitive to interest rates. This channel is particularly pronounced in areas where households face high climate risk exposure. Our findings highlight the role of insurance markets in amplifying macroeconomic shocks and the interconnections between homeowners insurance, residential real estate, and mortgage lending |
| Keywords: | Insurance Markets, Monetary Policy, Financial Frictions, Housing Markets |
| JEL: | E5 E44 G21 G22 G5 R3 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:icirwp:312410 |
| By: | Hadjiemmanuil, Christos |
| Abstract: | The adoption of bail-in by the EU and other jurisdictions as the core tool of their bank resolution regimes promised to ensure the effective financial restructuring of failed banks with the resources of their own stakeholders, thereby achieving the financial stability objectives of resolution while making taxpayer-funded bailouts a thing of the past. In retrospect, despite its many positive effects, it is questionable whether bail-in has fully lived up to its promise. The operationalisation of the bail-in tool is still ongoing, with several legal and practical issues yet to be fully resolved. Furthermore, the tool’s actual use in resolution actions has so far been sporadic and uneven, undermining its credibility; in any event, significant doubts remain as to the appropriateness of bail-in in situations of system-wide distress. |
| Keywords: | BRRD; bail-in; bailout; bank resolution; FSB; Key Attributes |
| JEL: | E6 F3 G3 J1 |
| Date: | 2025–01–30 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:127284 |
| By: | Julian Caballero; Sebastian Doerr; Aaron Mehrotra; Fabrizio Zampolli |
| Abstract: | Small and medium-sized enterprises (SMEs) in emerging market economies struggle to access credit, partly due to firms' short financial histories and lack of collateral. The rise of big tech and fintech lenders that make better use of data and digital innovation could reduce the need for collateral and improve SMEs' access to credit. However, big tech and fintech lending so far constitutes only a small share of the total. Digital innovation by itself may not be enough to substantially improve SME lending without further progress in overcoming more deep-seated obstacles. |
| Date: | 2025–02–27 |
| URL: | https://d.repec.org/n?u=RePEc:bis:bisblt:99 |
| By: | Priftis, Romanos; Schoenle, Raphael |
| Abstract: | We construct a New-Keynesian E-DSGE model with energy disaggregation and financial intermediaries to show how energy-related fiscal and macroprudential policies interact in affecting the euro area macroeconomy and carbon emissions. When a shock to the price of fossil resources propagates through the energy and banking sector, it leads to a surge in inflation while lowering output and carbon emissions, absent policy interventions. By contrast, imposing energy production subsidies reduces both CPI and core inflation and increases aggregate output, while energy consumption subsidies only lower CPI inflation and reduce aggregate output. Carbon subsidies instead produce an intermediate effect. Given that both energy subsidies raise carbon emissions and delay the “green transition, ” accompanying them with parallel macroprudential policy that taxes dirty energy assets in bank portfolios promotes “green” investment while enabling energy subsidies to effectively mitigate the adverse effects of supply-type shocks, witnessed in recent years in the EA. JEL Classification: E52, E62, H23, Q43, Q58 |
| Keywords: | DSGE model, energy sector, energy subsidies, financial frictions, macroprudential policy |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253032 |
| By: | Afonso S. Moura; Gergely Buda; Vasco M. Carvalho; Giancarlo Corsetti; João B. Duarte; Stephen Hansen; Álvaro Ortiz; Tomasa Rodrigo; José V. Rodríguez Mora; Guilherme Alves da Silva |
| Abstract: | We examine the transmission of monetary policy shocks to the macroeconomy at high frequency. To do this, we build daily consumption and investment aggregates using bank transaction records and leverage administrative data for measures of daily gross output and employment for Spain. We show that variables typically regarded as "slow moving", such as consumption and output, respond significantly within weeks. In contrast, the responses of aggregate employment and consumer prices are slow and peak at long lags. Disaggregating by sector, consumption category and supply-chain distance to final demand, we find that fast adjustment is led by downstream sectors tied to final consumption—in particular luxuries and durables—and that the response of upstream sectors is slower but more persistent. Finally, we find that time aggregation to the quarterly frequency alters the identification of monetary policy transmission, shifting significant responses to longer lags, whereas weekly or monthly aggregation preserves daily-frequency results. |
| JEL: | E31 E43 E44 E52 E58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ptu:wpaper:w202501 |
| By: | Longaric, Pablo Anaya; Cera, Katharina; Georgiadis, Georgios; Kaufmann, Christoph |
| Abstract: | We document that compared to all other investor groups investment funds exhibit a distinctly procyclical behavior when financial-market beliefs about the probability of a euro-related, institutional rare disaster spike. In response to such euro disaster risk shocks, investment funds shed periphery but do not adjust core sovereign debt holdings. The periphery debt shed by investment funds is picked up by investors domiciled in the issuing country, namely banks in the short term and insurance corporations and households in the medium term. JEL Classification: F34, F45, G23 |
| Keywords: | euro disaster risk, investment funds, non-bank financial intermediation, sovereign debt markets |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253029 |
| By: | Petrella, Ivan; De Polis, Andrea; Melosi, Leonardo |
| Abstract: | We document that inflation risk in the U.S. varies significantly over time and is often asymmetric. To analyze the macroeconomic effects of these asymmetric risks within a tractable framework, we construct the beliefs representation of a general equilibrium model with skewed distribution of markup shocks. Optimal policy requires shifting agents’ expectations counter to the direction of inflation risks. We perform counterfactual analyses using a quantitative general equilibrium model to evaluate the implications of incorporating real-time estimates of the balance of inflation risks into monetary policy communications and decisions. JEL Classification: E52, E31, C53 |
| Keywords: | asymmetric risks, balance of inflation risks, flexible average inflation targetin, optimal monetary policy, risk-adjusted inflation targeting |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253028 |
| By: | Carbone, Sante; Giuzio, Margherita; Kapadia, Sujit; Krämer, Johannes Sebastian; Nyholm, Ken; Vozian, Katia |
| Abstract: | This paper explores how the low-carbon transition affects firms' credit ratings and market-implied distance-to-default. We develop a novel dataset covering firms' greenhouse gas emissions alongside climate disclosure and forward-looking emission reduction targets. Panel regression analysis indicates that high emissions are associated with higher credit risk, but that this relationship can be mitigated by disclosing emissions and committing to reduce emissions. After the Paris agreement, firms most exposed to transition risk saw their ratings deteriorate relative to their peers, with the effect larger for European than US firms, probably reflecting differential climate policy expectations. A dynamic difference-in-differences approach also shows that European firms who make a climate commitment subsequently experience an improvement in their credit rating relative to comparable firms who do not set a target. These results have policy implications for corporate disclosure and pricing of transition risk. |
| Keywords: | climate change, transition risk, climate disclosure, net zero targets, green finance, credit risk |
| JEL: | C58 E58 G11 G32 Q51 Q56 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:safewp:312432 |