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on Banking |
| By: | Flores Zendejas, Juan; Nodari, Gianandrea; Dávalos, Jorge |
| Abstract: | What are the effects of political instability on the banking sector? This article examines the short-term impacts on banking activities in Mexico during the late 1920s, a decade marked by civil conflicts and political violence. Although political upheavals affected some regions more than others, banks and depositors were compelled to respond to a general atmosphere of political violence. Drawing on new qualitative and quantitative evidence, this article analyzes how banks and depositors behaved in the context of armed conflicts and assesses the consequences for the banking sector. Our results show a negative effect of political violence on bank deposits and banks' capitalization. We also account for the geographic proximity of violent regions to neighboring municipalities and observe that political instability promoted capital flight, particularly in the northern region of the country, where episodes of political violence were more severe. We conclude that political instability likely contributed to the lack of financial development in Mexico. |
| Keywords: | Political instability, Mexico, Banking fragility, Financial development, Political violence, Banking sector |
| JEL: | N16 N26 E58 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:gnv:wpaper:unige:180827 |
| By: | Rosalind L. Bennett; Manju Puri; Paul E. Soto |
| Abstract: | Community banks are critical for local economies, yet research on their corporate governance has been scarce due to limited data availability. We explore a unique, proprietary dataset of board membership and meeting minutes of failed community banks to present several stylized facts regarding their board structure and meetings. Community bank boards have fewer members and a higher percentage of insiders than larger publicly traded banks, and experience little turnover during normal times. Their meetings are held monthly and span about two hours. During times of distress, community bank boards convene less often in regularly scheduled meetings in lieu of impromptu meetings, experience higher turnover, particularly among their independent directors, and their meeting tone switches from neutral to significantly negative. Board attention during distressed times shifts towards discussion of capital and examination oversight, and away from lending activities and meeting formalities. |
| Keywords: | Corporate governance; Board of directors; Banking; Machine learning; Natural language processing |
| JEL: | G21 G34 C81 |
| Date: | 2024–10–17 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2024-85 |
| By: | Olympia Bover (BANCO DE ESPAÑA); Laura Hospido (BANCO DE ESPAÑA, CEMFI AND IZA); Ana Lamo (EUROPEAN CENTRAL BANK) |
| Abstract: | Using anonymised personnel records from the Banco de España, we examine gender differences in career progression. This institution features a complex professional development system, in which competitive calls, direct appointments and vertical promotions coexist. We document that the presence of women has increased markedly since the late 1990s, although not always in a monotonic manner. Comparing male and female potential candidates for the same process, we find no significant gender gaps in the probability of promotion in competitive calls, nor in direct appointments or in vertical promotions. Among managers, however, our findings suggest differences between different types of promotion processes. In promotions to/between department director and division head positions, we do find a significantly lower probability of promotion for women relative to men through competitive calls. We also find that women are less likely to apply for managerial positions in competitive calls than men. Finally, in the business areas where most economists work, we find that women are less likely than men to be promoted to/between department director and division head positions in competitive calls, but have a higher probability of achieving vertical promotions to positions immediately below these levels in the hierarchy, such as unit heads. For this group of business areas, gender differences in the probability of application are not significant. |
| Keywords: | gender gaps, working histories, central banking |
| JEL: | J16 J31 J41 J63 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2443 |
| By: | Massimo Filippini (ETH Zürich; University of Lugano - Faculty of Economics); Markus Leippold (University of Zurich; Swiss Finance Institute); Tobias Wekhof (ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich) |
| Abstract: | This paper studies the impact of an educational program on Sustainable Finance Literacy (SFL) and the impact of this program on sustainable investment decisions. For this purpose, we conducted a randomized controlled trial (RCT) and an incentivized choice experiment. Our findings demonstrate that the SFL educational treatment significantly improves literacy while considering the influence of priming. Participants exposed to the SFL program were more likely to invest in highly sustainable funds by 6 percentage points and less likely to choose less sustainable options with magnitudes between 3 and 2.5 percentage points. The treatment effects increased by up to one half among investors with pre-existing green attitudes. In addition, we provide suggestive evidence that a higher SFL leads to more accurate sustainability perceptions and reduces the tendency to chase high past returns. |
| Keywords: | Sustainable Finance Literacy, RCT, text analysis, household finance |
| JEL: | G11 G18 G53 C83 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2457 |
| By: | David A. Grigorian (Mossavar-Rahmani Center for Business and Government, Harvard Kennedy School; Center for Global Development); Aditya Bhayana (Public Service Fellow and MPA candidate, Harvard Kennedy School) |
| Abstract: | Having its public debt written off as part of the Heavily Indebted Poor Countries initiative in 2005, Zambia welcomed significant investment in the late 2000s, particularly from Chinese state-owned banks, to propel economic development and diversify its economy beyond natural resources. While these investments have contributed to economic development, they have also raised debt levels and interest payments that eventually triggered a sovereign default in December 2020. What followed—Zambia’s 2020-24 sovereign debt restructuring under the G20 Common Framework—was an epic story of protracted and back-and-forth negotiations among various stakeholders that kept the Zambian economy in standstill for over 3.5 years. It also highlighted the weaknesses of the Common Framework, which are by now largely acknowledged by the development community. This paper details Zambia’s experience with restructuring its sovereign debt and highlights areas where reform of the Common Framework could be pursued to benefit low-income countries in debt distress in the future. |
| Date: | 2024–10–24 |
| URL: | https://d.repec.org/n?u=RePEc:cgd:wpaper:707 |
| By: | Gregor Schwerhoff; Mouhamadou Sy |
| Abstract: | The 2023 United Nations Climate Change Conference reinforced already existing pressure to transition away from fossil fuels, in particular for the most polluting source, coal. We use a comprehensive dataset on bank loans for coal projects to shed light on which type of banks continue to finance coal and how coal phase-out commitments affect coal financing. We find that coal financing is becoming increasingly concentrated, partly in banks with a very high coal exposure. We also find that many coal loans have maturities much shorter than the remaining lifetime of coal assets, thus exposing equity holders of coal assets to the risk of a more difficult loan rollover. An econometric analysis shows that countries with a strong commitment to coal phase-out, fixed in national law for example, receive less coal financing. Using an instrumental variable, we identify this effect as causal. |
| Keywords: | Coal; climate change; stranded assets; coal; divestment; United Nations climate change conference; Coal financing; phase-out commitment; coal financing; financing to the coal sector; Non-renewable resources; Financial sector development; Climate policy; Foreign direct investment; Asia and Pacific; Global; Europe; Middle East; Sub-Saharan Africa |
| Date: | 2024–11–01 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/228 |
| By: | Nasrum, Muhammad |
| Abstract: | A credit card is a symbol of different types of consumer credit. Their use to satisfy consumer needs can trigger impulsive spending, often leading to addiction and even debt bondage. This study follows the activities of a credit card community in Indonesia and includes ethnographic fragments in which credit cards are not used for consumptive purposes but rather as productive business capital. Temporality, as a concept in the anthropological study of debt and credit, is used as a research framework as well as a strategy to comprehensively analyse the credit card algorithm from a cultural perspective, including the characteristics and functions of credit cards that are reflected in the decision-making of community members throughout the life cycle of the credit card, from application to business use, which enables this financial facility to provide benefits and maintain trust. |
| Date: | 2024–10–16 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:mzr8y |
| By: | Silvana Tenreyro; Ludovica Ambrosino; Jenny Chan |
| Abstract: | How does trade fragmentation affect inflationary pressures? What is the response of monetary policy needed to sustain inflation at target? To answer these questions, we develop a heterogeneous agent, open-economy model featuring imperfect international risk-sharing. The model captures both the demand and supply side effects of fragmentation. It illustrates how the impact of fragmentation on inflationary pressures and the appropriate policy response depends not only on the direct effect of higher import prices on supply but, crucially, on how aggregate demand adjusts in response to lower real incomes and productivity stemming from fragmentation. |
| Keywords: | monetary policy, trade fragmentation, open economies, inflation, heterogeneity, globalisation |
| JEL: | F12 F15 F41 F62 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1225 |
| By: | Financial Markets Department (Bank of Japan) |
| Abstract: | While implementing a variety of unconventional monetary policy measures, the Bank of Japan has provided ample reserves that far exceed the levels of required reserves for most of the past 25 years. This report assesses the impact of the unconventional monetary policy measures on the money markets by looking back on the rate formation and transaction trends in the money markets with such excess reserves. The money markets are expected to function as (1) the starting point of the yield curve and (2) a place to adjust the excess and shortage of funds. With excess reserves, the importance of the latter function is considered to be declining. However, there is a growing importance of ensuring the uncollateralized call market consisting of diverse participants with a certain transaction volume, given the role which the uncollateralized overnight call rate (TONA) has taken as an interest rate benchmark in recent years. The period in which unconventional monetary policy measures were taken can be broadly divided into (1) the quantitative easing period from 2001 to 2006 (the first phase), (2) the period from the introduction of the complementary deposit facility in 2008 to the introduction of the negative interest rate policy in 2016 (the second phase), and (3) the negative interest rate policy period from 2016 to 2024 (the third phase), based on the interest rate on excess reserves. In the first phase, in which the complementary deposit facility did not exist and a zero percent interest rate was applied to excess reserves, trading incentives were lost in the uncollateralized call market, and the functioning of the market declined. In the second phase, the complementary deposit facility was introduced, and trading incentives arose between financial institutions eligible for the facility and those not eligible. Under these circumstances, the functioning of the uncollateralized call market gradually recovered and was maintained in the third phase as well. Meanwhile, the functioning of the GC repo market was also maintained in terms of rate formation and transaction trends. Following the decision to change the monetary policy framework in March 2024 and the termination of the negative interest rate policy, the money markets transitioned smoothly from the world of "negative interest rates" to the one with "positive interest rates." The fact that participants in the uncollateralized call market were diversified, resulting in the expansion of trading networks in the third phase, among other factors, has contributed to the smooth transition. Given the role which TONA has taken as an interest rate benchmark in recent years, in addition to the fact that the Bank set the short-term interest rate as its primary policy tool, it is becoming ever more important that the functioning of the money markets remains robust. The Bank intends to continue to carefully monitor the rate formation and trading trends in the money markets and pay attention to the market functioning. |
| Date: | 2024–11–06 |
| URL: | https://d.repec.org/n?u=RePEc:boj:bojron:ron241106a |
| By: | Oksana Leukhina |
| Abstract: | Standards and terms for business loans ease during economic expansions and tighten during recessions. An analysis looks at why, and how these fluctuations are linked to productivity. |
| Keywords: | business lending; lending standards; lending terms; productivity |
| Date: | 2024–10–25 |
| URL: | https://d.repec.org/n?u=RePEc:fip:l00001:99028 |
| By: | Gomes, Renato; Lefouili, Yassine |
| Abstract: | This paper explores the pricing of ancillary payment services by platforms and its implications for welfare. We distinguish between two types of platforms: vertical platforms that operate their own closed payment schemes, and stacked platforms that offer payment services through open schemes operated by third parties. We analyze the impact of a regulation mandating platforms to provide access to third-party payment services and examine the regulation of interchange fees within the context of stacked platforms. |
| Keywords: | platforms, payment services, ancillary services, regulation, interoperability, interchange fee |
| JEL: | L51 L86 E42 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:129914 |
| By: | Thomas Wangi |
| Abstract: | The accumulation of excess reserves in the banking system of PNG may have undesirable implications on the financial system, macroeconomic stability and monetary policy implementation. Hence, this paper examines the factors that induce commercial banks to hold unremunerated excess reserves. The paper employs an ARDL model to estimate the determinants of excess reserves using monthly time-series data for the period January 2002 to December 2017. The model includes three precautionary variables of volatility of demand deposits, discount rate and cash reserve requirement and four involuntary variables of foreign reserve inflows, private sector lending, private sector deposits and treasury bill rate. The selection of these variables is determined by data availability and relevance to the economy of PNG. The findings suggest that the discount rate, volatility of demand deposits and private sector deposits significantly contribute to the accumulation of excess reserves. In contrast, foreign exchange reserves, private sector credit and the treasury bill rate effectively reduce excess reserves pressure in the banking system. However, the cash reserve requirement is not effective in influencing the demand for excess reserves. The empirical analysis concludes that involuntary variables are the leading determinants of excess reserves in PNG. Hence, the central bank should review the involuntary variables to take appropriate policy actions in order to reduce the level of excess reserves in the banking system. |
| Keywords: | excess reserves, precautionary variables, involuntary variables, banking system, ARDL method |
| JEL: | C29 E52 G21 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2024-65 |
| By: | Segerlind, Carin (Swedbank); Eriksson, Kent (Department of Real Estate and Construction Management, Royal Institute of Technology); Hermansson, Cecilia (Department of Real Estate and Construction Management, Royal Institute of Technology) |
| Abstract: | This paper examines the relationship between customer satisfaction and changes in individual-level bank revenue, using data from 19, 060 Swedish bank customers combining subjective surveys and objective bank records. It also investigates whether the effect of satisfaction on revenue change involves a time lag, and whether this lag differs across customer satisfaction levels. The study finds that higher satisfaction is associated with greater revenue changes over time, with more pronounced effects for customers in the medium-high and highest satisfaction group, while the difference between the lowest customer satisfaction group and the medium-low group is not statistically significant. The research does not support the hypothesis of diminishing returns when moving from the medium-high to the highest satisfaction, although weak indications suggest further investigation. These findings highlight the long-term impact of customer satisfaction on bank revenue and emphasize the importance of targeting customers with lower to medium-low satisfaction to improve overall earnings. |
| Keywords: | bank customer satisfaction; bank revenue; individual level; time lags bank customer satisfaction; bank revenue; individual level; time lags |
| JEL: | D14 D22 G21 M31 |
| Date: | 2024–10–29 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:kthrec:2024_009 |
| By: | Florian Huber; Karin Klieber; Massimiliano Marcellino; Luca Onorante; Michael Pfarrhofer |
| Abstract: | This paper analyzes nonlinearities in the international transmission of financial shocks originating in the US. To do so, we develop a flexible nonlinear multi-country model. Our framework is capable of producing asymmetries in the responses to financial shocks for shock size and sign, and over time. We show that international reactions to US-based financial shocks are asymmetric along these dimensions. Particularly, we find that adverse shocks trigger stronger declines in output, inflation, and stock markets than benign shocks. Further, we investigate time variation in the estimated dynamic effects and characterize the responsiveness of three major central banks to financial shocks. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.16214 |
| By: | Junko Koeda; Bin Wei |
| Abstract: | This study evaluates the effectiveness of Japan's unconventional monetary policies over the past quarter century within a unified term structure framework. It specifically examines the impact of the Bank of Japan's (BOJ) outcome-based forward guidance and yield curve control (YCC) and incorporates other policy types into the framework. The findings show that the BOJ’s forward guidance and YCC have both had a significant impact on the shadow rate. Forward guidance accounted for most of the policy impact in the early stages of unconventional monetary policies and remained influential throughout. YCC, since its introduction in 2016 until March 2022, contributed to more than a third of the policy impact. Furthermore, these policies have been effective in raising output and inflation. |
| Keywords: | forward guidance; effective lower bound (ELB); liftoff; term structure; shadow rate; macro finance; unspanned macro factors; yield curve control; Japan |
| JEL: | E43 E44 E52 E58 |
| Date: | 2024–09–23 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedawp:99037 |
| By: | Deepak Mishra (Indian Council for Research on International Economic Relations (ICRIER)); Tanu Goyal; Havishaye Puri |
| Abstract: | ICRIER, in close coordination with Brookings, the Centre for Global Development (CGD), and ODI, conducted a global survey of experts on their perceptions of the pace of Multilateral Development Bank (MDB) reforms, based on recommendations by the Independent Experts Group (IEG) under the Indian G20 Presidency. The questionnaire focused on five key areas where reforms are critical to transforming the MDB system: vision and mission, making MDBs better, bolder, and bigger banks, and establishing a monitoring mechanism. The results from the survey indicate slow and uneven progress on MDB reforms. While MDBs have expanded their mandate to address global public goods like climate change, pandemic preparedness, and other transboundary challenges without neglecting the SDGs, the implementation of reforms to achieve their broader mandate—to become better, bolder, and bigger banks—has been unsatisfactory. |
| Keywords: | MDB reforms, G20, Independent Experts Group (IEG), Emerging Market and Developing Economy, EMDEs, Sustainable Development Goals, SDGs |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:bdc:report:24-r-06 |
| By: | Weng, Hsu-Chi (Department of Real Estate and Construction Management, Royal Institute of Technology); Hermansson, Cecilia (Department of Real Estate and Construction Management, Royal Institute of Technology) |
| Abstract: | This paper examines how behavioral intention, combined with risk tolerance, self-defined financial confidence, and self-control, influences consumer credit usage. Grounded in the theory of planned behavior – which suggests that behavioral intention is the direct precursor to actual behavior – our study explores the moderating effects of risk tolerance, self-defined financial confidence, and self-control on behavioral intention to determine which individuals are more likely to utilize consumer credit among those intending to do so. Using a combination of survey and bank register data, we find that both higher risk tolerance and increased self-confidence are associated with a greater likelihood of taking on consumer credit, while self-control does not significantly moderate the relationship between behavioral intention and consumer credit behavior. Furthermore, we observe that gender differences in financial behavior are notable: men who report high confidence and an intention to use consumer credit tend to accrue more consumer credit, whereas higher self-control in men is linked to reduced credit use. Additionally, although both behavioral intention and higher income are positively associated with increased consumer credit use, stronger self-control in financial activities appears to mitigate this effect. Our study adds to consumer credit research by revealing the complex interplay between behavioral intention, risk tolerance, self-defined financial confidence, and self-control in consumer credit behavior. |
| Keywords: | consumer credit; behavioral intention; risk tolerance; financial confidence; self-control |
| JEL: | D12 D14 D91 G41 |
| Date: | 2024–10–29 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:kthrec:2024_008 |
| By: | Chamon Wieles; Jan Kwakkel; Willem L. Auping; Jan Willem van den End |
| Abstract: | We analyse shock and parameter uncertainty in a Dynamic Stochastic General Equilibrium (DSGE) model by exploratory modelling and analysis (EMA). This method evaluates in a novel way the performance of monetary policy under deep uncertainty about the shock and model parameters. Scenarios are designed based on the outcomes of interest for the policymaker. We assess the performance of different policies on their objectives in the scenarios. This maps out the policy trade-offs and supports the central bank in making robust policy decisions. We find that in response to a negative supply shock, policies with low interest rate smoothing and a strong response to inflation most obviously contribute to price stability under deep uncertainty. |
| Keywords: | Monetary policy; Scenarios; Exploratory modelling; Deep uncertainty |
| JEL: | E52 E58 G12 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:dnb:dnbwpp:818 |
| By: | Nasrum, Muhammad |
| Abstract: | This article presents an anthropological study on credit card use in Indonesia. It focuses on cultural and social knots that mutually influence financial knowledge and experience using the concepts of performativity and temporality in relation to the rapid process of financialization. By focusing on the credit card community in Indonesia, this article explains how they strategize their financial algorithms in the credit card management cycle. This article contributes to anthropological research on the unequal impact of credit card use by exploring the complex relationship between access to financial and ethical justice, variations in cultural contexts, and social hierarchies. The research examines how financial temporality is created through material and institutional practices. The findings presented in this article underscore the importance of considering credit card activities within a broader framework of financialization and complex social dynamics in contemporary Indonesia and other similar contexts. This study contributes to theoretical discussions on the social and cultural elements of financialization by providing an in-depth and specific narrative analysis of credit and debt. |
| Date: | 2024–10–16 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:4wjzv |
| By: | Liu, Liyuan; Wang, Xianshuang; Zhou, Zhen |
| Abstract: | This paper examines the consequences of Chinese regulators deviating from a long-standing full bailout policy in addressing the distress of a city-level commercial bank. This policy shift led to a persistent widening of credit spreads and a significant decline in funding ratios for negotiable certificates of deposit issued by small banks relative to large ones. Our empirical analysis reveals a novel contagion mechanism driven by reduced confidence in future bailouts (implicit non-guarantee), contributing to the subsequent collapse of other small banks. However, in the longer term, this policy shift improved price efficiency, credit allocation, and discouraged risk-taking among small banks. |
| Keywords: | Implicit guarantee, Bailout, Contagion, Price efficiency, Credit allocation, TBTF |
| JEL: | G14 G21 G28 H81 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bofitp:305281 |
| By: | Julien Bengui; Lu Han; Gaelan MacKenzie |
| Abstract: | Large swings in the expenditure shares of goods and services at the start of the pandemic have contributed to the inflation surge, posing new challenges for monetary policy. Using a multi-sector model featuring upward labor adjustment frictions, we analyze the transmission of monetary policy during a demand reallocation episode, focussing on sectoral heterogeneity in inflation and output responses. Following an unexpected contractionary monetary policy shock, (constrained) expanding sectors respond primarily by lowering prices, while (unconstrained) contracting sectors reduce output more significantly. At the aggregate level, monetary policy is thus more effective at curbing inflation when a larger proportion of sectors are expanding or expected to be expanding in the near future. |
| Keywords: | Domestic demand and components; Inflation and prices; Monetary policy transmission |
| JEL: | E52 E31 E24 E12 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:24-42 |
| By: | Yu-Ting Chiang; Mick Dueholm; Ezra Karger |
| Abstract: | This analysis looks at how the 2021-22 inflation shock affected households based on their exposure to nominal assets and nominal liabilities. |
| Keywords: | inflation; household finances |
| Date: | 2024–10–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:l00001:99007 |
| By: | Hecker, Dominik; Jang, Hun; Rubio, Margarita; Verona, Fabio |
| Abstract: | In this paper, we design countercyclical capital buffer rules that perform robustly across a wide range of Dynamic Stochastic General Equilibrium (DSGE) models. These rules offer valuable guidance for policymakers uncertain about the most appropriate model(s) for decision-making. Our results show that robust rules call for a relatively restrained response from macroprudential authorities. The cost of insuring against model uncertainty is moderate, emphasizing the practicality of following these robust countercyclical capital buffer rules in uncertain economic environments. |
| Keywords: | countercyclical capital buffers, macroprudential policy, model comparison, structural models, model uncertainty, robust rule |
| JEL: | E32 E44 E47 E60 G20 G28 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bofrdp:305273 |
| By: | Nasrum, Muhammad |
| Abstract: | This study examines the moral and value-based framing of credit cards as an important tool of Indonesian financial perceptions and practices. By exploring the concept of ‘moral alchemy’, the transformation of cultural values and ethical perspectives on debt and credit is embodied and materialized in credit cards. Using a dynamic mix of multisite ethnography and netnography, I examine how credit card communities in Indonesia are reshaping the use of credit cards from a symbol of risky privileges to tools for financial empowerment. This research combines three areas of interest: Cultural economics, sociocultural perspectives on ethics, and value theory to provide a comprehensive understanding of this phenomenon. My findings show how consumers who are part of the largest community of credit card users in Indonesia actively reshape their moral beliefs to adapt to new financial practices, illustrating the complex interaction between global financial products and local cultural contexts. Such communities represent more than just the adoption of new financial instruments. They also represent a fundamental shift in how consumers and businesses interact with modern financial instruments. This research makes a valuable contribution to the growing literature on financial and economic practices based on socio-cultural perspectives and offers interesting insights into how innovative financial products are adopted and reinterpreted based on moral preferences and values that enable financial returns. |
| Date: | 2024–10–16 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:q9y7d |
| By: | Sebastian Doerr |
| Abstract: | The recent banking turmoil has renewed focus on banks' branch networks and deposit taking activity. This paper provides novel evidence that the geographic diversification of banks' deposit base enhances their funding stability. I establish that banks with greater diversification exhibit higher dispersion in deposit growth rates across their branches; and lower volatility in deposit growth rates over time. Subsequently, banks benefit from lower deposit rates, partly by shifting from time deposits to cheaper demand deposits. These patterns are consistent with diversification improving funding stability. I then show that deposit diversification spurs banks' liquidity creation and small business lending, with positive effects for real economic activity. The funding stability channel of geographic diversification is distinct from previous findings on banks' asset-side diversification. It also highlights benefits of branch networks for bank lending that go beyond local information acquisition. |
| Keywords: | bank diversification, deposits, funding stability, liquidity creation, risk |
| JEL: | G20 G21 G28 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1221 |
| By: | Rodrigo Sekkel; Tamon Takamura; Yaz Terajima |
| Abstract: | This paper analyzes the dynamic and heterogeneous responses of loan performance to a monetary-policy shock using loan-level panel data for small-scale private firms in Canada. Our dataset contains detailed loan characteristics information that allows us to distinguish the effects of the aggregate-demand channel, which affects loan performance through general-equilibrium effects, and the cash-flow channel that directly impacts debt service of firms through variable rates. We find that the effects on loan performance through both channels materialize with a delay and are persistent over time. The peak effect of the cash-flow channel is as large as that of the aggregate-demand channel. Moreover, we investigate whether collateral can reduce the sensitivity of variable-rate loan performance to a policy-rate shock through an ex post disciplinary effect that incentivizes loan repayment by small firms. We find that collateral induces repayment incentives of borrowers relative to unsecured loans but only for ex ante safe loans that are used for investment rather than for other purposes such as working capital. This implies that collateral has a limited impact on reducing financial frictions of small firms. |
| Keywords: | Monetary policy transmission; firm dynamics |
| JEL: | C32 E17 E37 E52 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:24-41 |
| By: | Maxi Günnewig; Yuliyan Mitkov |
| Abstract: | Diamond and Rajan (2000, 2001) argue that banks create liquidity by issuing deposits to fund difficult, illiquid firms that otherwise cannot obtain funding. Since deposits may lead to bank runs, this resulting financial fragility is essential for liquidity creation. We revisit the Diamond-Rajan model of financial intermediation and show that a bank with an optimal financing structure is not subject to runs. Our contract rests on three simple notions. First, each bank creditor has the right to demand repayment at every instant. Second, the repayment is given by the value of a pre- specified fraction of the bank’s assets. Third, some creditors are more senior than others: their repayment demands are prioritized. In contrast to Diamond and Rajan, we find that financial fragility is detrimental to liquidity creation. |
| Keywords: | Liquidity, banking, financial fragility, optimal contracts, collateral. |
| JEL: | G21 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_605 |
| By: | YiLi Chien; Ashley Stewart |
| Abstract: | An analysis breaks down Japan’s consolidated balance sheet and considerations surrounding fiscal and monetary policies. |
| Keywords: | Japan; fiscal policy; monetary policy |
| Date: | 2024–10–24 |
| URL: | https://d.repec.org/n?u=RePEc:fip:l00001:99027 |
| By: | Sabrina T. Howell; Dean Parker; Ting Xu |
| Abstract: | The central tension in securities regulation is between protecting investors and enabling broad capital formation. Focusing on VC fund managers, we study key tools of investor protection in private markets: enforcing relationship-based fundraising and restricting eligible investors. A new policy permitting public advertising is disproportionately used by less well-networked, underrepresented fund managers and is less sensitive to local conditions. Yet it has limited take-up because track record matters at arm’s length while strong networks matter in relationship financing; underrepresented managers more often have neither. Arm’s length fundraising also imposes costs to accessing the “crowd” and verifying investors, inducing negative signaling. |
| JEL: | G21 G23 G32 J15 J16 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33080 |
| By: | Berensmann, Kathrin; Walle, Yabibal; Dufief, Elise; Esteves, Paulo; Floyd, Rob; Ye, Yu |
| Abstract: | In 2021, the G20 committed to reallocate USD 100 billion of the International Monetary Fund's (IMF) recent allocation of Special Drawing Rights (SDRs) to low-income and vulnerable middle-income countries. However, most of these donations have been made to the IMF's Poverty Reduction and Growth Trust (PRGT) and Resilience and Sustain-ability Trust (RST), which have a leverage ratio of less than one. As a result, there have been growing calls to channel SDRs to multilateral development banks (MDBs), which can leverage them up to three to six times. In this respect, the African Development Bank (AfDB) and the Inter-American Development Bank (IDB) have proposed an innovative mechanism structured as a hybrid capital instrument comple-mented by a Liquidity Support Agreement (LSA). In May 2024, the IMF Executive Board approved using SDRs for purchasing hybrid capital instruments from prescribed holders, significantly boosting the prospect of this initiative. Nevertheless, the level of participation in both the SDR channelling and the LSA remains relatively low. Against this background, this Policy Brief assesses the current positions as well as the institutional and political challenges of key players concerning the hybrid capital proposal, and it outlines how these challenges could be overcome. Some countries, in-cluding France, Japan, Spain and the United Kingdom, have announced their support for the proposal. Nevertheless, these countries have yet to translate their support into concrete action, and the precise extent of their contributions remains un-certain. Other potential donor countries with strong external positions and no legal restrictions, such as China, Qatar, Saudi Arabia, Canada and Australia, have not expressed interest in this proposal or have not done so openly. A third group of potential donor countries face legal challenges in channelling their SDRs to MDBs. In particular, it is unlikely that the United States will use its SDRs to purchase hybrid capital issued by MDBs, as this would require congressional authorisation, which seems unlikely given the current political climate. Similarly, EU member states are being advised against using SDRs outside of the IMF by a - still informal - position of the European Central Bank (ECB). To overcome these challenges, several actions are required of the various stakeholders. * First, potential donors with minimal legal constraints should act to channel their SDRs through the proposed hybrid capital vehicle. * Second, Eurozone countries should request that the ECB provide a clarification of its informal position on the channelling of European SDRs to MDBs. We discuss in this Policy Brief that there are sound reasons why the ECB could and should decide favourably. * Third, in the event that the ECB fails to formally rule on this mechanism in a timely manner, or rules unfavourably, EU member states should support this proposal by participating in the "second layer" LSA through their development budgets. * Fourth, African governments and the African Union (AU) should advocate on behalf of the AfDB in different fora such as the World Bank and IMF's Spring and Annual Meetings, the G20 and regular summits such as with China and the EU. * Finally, global and local civil society organisations (CSOs) and think tanks should advocate for potential donor countries to channel their SDRs to MDBs and provide enhanced analysis and research on the topic to inform policymakers and leaders both in donor and recipient countries. |
| Keywords: | Special Drawing Rights (SDRs), Hybrid capital, Multilateral Development Banks (MDBs), Developing countries, African Development Bank, Interamerican Development Bank, European Central Bank, International Monetary Fund, International Financial Architecture, Sustainable Development Goals (SDGs) |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:idospb:305237 |
| By: | Jing Cynthia Wu; Yinxi Xie; Ji Zhang |
| Abstract: | We assess whether unconventional monetary and fiscal policy implemented in response to the COVID-19 pandemic contribute to the 2021-2023 inflation surge through the lens of several different empirical methodologies—event studies, vector autoregressions, and regional panel regressions using granular data—and establish a null result. The key economic mechanism works through a disinflationary channel in the Phillips curve while monetary and fiscal stimuli put positive pressure on inflation through the usual demand channel. We illustrate this negative supply-side channel both theoretically and empirically. |
| JEL: | E31 E52 E63 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33044 |
| By: | Cedric H. A. Koffi; Viani Biatat Djeundje; Olivier Menoukeu Pamen |
| Abstract: | This paper develops multistate models to analyse loan delinquency in the microfinance sector, using data from Ghana. The models are designed to account for both partial repayments and the short repayment durations typical in microfinance, focusing on estimating the probability of transitions between two or three repayment states, including delinquency. Social variables, such as religious and cultural factors, were found to play a statistically significant role in influencing repayment behavior, highlighting the impact of societal dynamics on financial outcomes. We explored both time-independent and time-dependent frailty models to capture unobserved heterogeneity. Overall, the findings emphasize the importance of social factors in delinquency but suggest limited predictive gains from incorporating frailties into multistate models. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.13100 |
| By: | Rösl, Gerhard; Seitz, Franz |
| Abstract: | We analyze the role of a well-functioning cash infrastructure for the stabilizing role of cash and the resilience of cash cycles. For that purpose, experiences from developed countries with low and high cash usage are assessed by distinguishing between demand and supply factors to demonstrate that cash has to keep a vital role as a means of payment not only to maintain its status of a highly liquid store-of-value but also as an efficient tool to combat crises. To do so, access, availability, acceptance, and affordability of cash are crucial building blocks of a robust cash infrastructure. Important aspects are also the public good characteristics of the "institution" cash which should encourage central banks to re-evaluate their position of "neutrality" as a player in the payments market to a more active role. |
| Abstract: | Wir analysieren die Rolle einer gut funktionierenden Bargeldinfrastruktur für die stabilisierende Rolle von Bargeld und die Resilienz des Bargeldkreislaufs. Zu diesem Zweck werden Erfahrungen aus entwickelten Ländern mit geringer und hoher Bargeldnutzung ausgewertet und zwischen Nachfrage- und Angebotsfaktoren unterschieden. Es wird abgeleitet, dass Bargeld als Zahlungsmittel wichtig ist, damit es als hochliquides Wertaufbewahrungsmittel fungieren kann und als effizientes Instrument zur Krisenbekämpfung zur Verfügung steht. Dementsprechend sind Zugang, Verfügbarkeit, Akzeptanz und Erschwinglichkeit von Bargeld entscheidende Bausteine einer robusten Bargeldinfrastruktur. Wichtige Aspekte sind auch die Öffentliches-Gut-Eigenschaften der "Institution" Bargeld, die impliziert, dass Zentralbanken ihre "neutrale" Position als Akteur im Zahlungsverkehr überdenken sollten, um eine aktivere Rolle bei der Unterstützung von Bargeld einzunehmen. |
| Keywords: | Cash, banknotes, ATM, cash infrastructure |
| JEL: | E41 E51 E58 O57 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:hawdps:305297 |
| By: | Paul Cochran; Lubomir Petrasek; Zack Saravay; Mary Tian; Edward Wu |
| Abstract: | We provide an assessment of broker-dealers’ current and future capacity to support the smooth functioning of the Treasury and agency MBS markets, considering increases in Treasury issuance and continued Federal Reserve balance sheet normalization. Drawing on regulatory data analysis, recent research, and experiences with fixed income market functioning, we focus on two types of constraints that are most relevant for dealers’ intermediation activities: regulatory constraints—specifically the minimum Supplementary Leverage Ratio (SLR) requirement at the Bank Holding Company (BHC) level—and internal risk limits—specifically Value at Risk (VaR) limits at the trading-desk level for each dealer. |
| Date: | 2024–10–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2024-10-22 |
| By: | Olivo, Victor |
| Abstract: | The main purpose of this paper is to reexamine the relationship between money growth and inflation using a large (unbalanced) panel of 133 countries for the period 1961-2022. The data is split into three subcategories of countries, three subperiods of time, and two intervals of the inflation rate. Applying panel data estimation techniques, I find that money growth continues to be a fundamental variable for understanding the behavior of inflation. Although the impact of money growth on inflation diminishes at lower inflation rates, it is still statistically significant at these lower levels, and it increases markedly when inflation moves beyond the 20 percent threshold. Additionally, there is not an evident reduction in the influence of money growth on inflation in the last thirty years in comparison with the preceding thirty-year period. Finally, I found some evidence that suggests that inflation and money growth might have a negative impact on output growth in the long run. |
| Keywords: | Aggregate price levels, inflation, money supply, money growth, output growth. |
| JEL: | E31 E51 |
| Date: | 2024–10–28 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122587 |
| By: | Peter Karadi; Anton Nakov; Galo Nuño; Ernesto Pastén; Dominik Thaler |
| Abstract: | We study the Ramsey optimal monetary policy within the Golosov and Lucas (2007) state-dependent pricing framework. The model provides micro-foundations for a nonlinear Phillips curve: the sensitivity of inflation to activity increases after large shocks due to an endogenous rise in the frequency of price changes, as observed during the recent inflation surge. In response to large cost-push shocks, optimal policy leverages the lower sacrifice ratio to reduce inflation and stabilize the frequency of price adjustments. When facing total factor productivity shocks, an efficient disturbance, the optimal policy commits to strict price stability, similar to the prescription in the standard Calvo (1983) model. |
| Keywords: | state-dependent pricing, large shocks, nonlinear Phillips curve, optimal monetary policy |
| JEL: | E31 E32 E52 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11372 |
| By: | Arpita Mukherjee (Indian Council for Research on International Economic Relations (ICRIER)); Anupam Gaur |
| Abstract: | The objective of this study is to (a) examine the need and impact of ATMs in promoting and facilitating financial inclusion, (b) present the status of ATMs and other instruments of financial inclusion in India and globally, (c) identify the issues that hinder the effective utilisation of ATMs for financial inclusion purposes, and (d) recommend policies and measures to enhance the efficiency and effectiveness of ATM utilisation to foster financial inclusion so that a broader segment of the population gains access to the financial tools and services they need to improve their economic well-being. |
| Keywords: | ATM, financial inclusion, economic growth, National Strategy for Financial Inclusion, NSFI, RBI |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:bdc:report:24-r-05 |
| By: | Andreas Haufler; Bernhard Kassner |
| Abstract: | We set up a simple theoretical model in which banks with varying degrees of government support are matched with CEOs that have different degrees of overconfidence. The channel through which the matching occurs is the share of bonus payments offered by banks in their profit-maximizing contracts. This yields a sequence of hypotheses: banks with more government support incentivize their CEOs more and this disproportionately attracts overconfident CEOs. In equilibrium this in turn leads to an assortative matching between overconfident managers and banks with a larger bailout probability. We then test the hypotheses derived from this model for U.S. data spanning both the Great Financial Crisis and the Covid Crisis. Our results confirm the hypotheses from our theoretical model for normal years, but not during crises and periods of enhanced regulation. In normal years, therefore, overconfident bankers are indeed matched with government-protected banks, with cumulative effects on the degree of risk-taking. |
| Keywords: | matching, overconfidence, incentive contracts |
| JEL: | G21 G28 H32 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11336 |
| By: | Xavier Gabaix; Ralph S J Koijen; Robert Richmond; Motohiro Yogo |
| Abstract: | Asset demand systems specify the demand of investors for financial assets and the supply of securities by firms. We discuss how realistic models of the asset demand system are essential to assess ex post, and predict ex ante, how central bank policy interventions impact asset prices, the distribution of wealth across households and institutions, and financial stability. Due to the improved availability of big holdings data and advances in modelling techniques, estimating asset demand systems is now a practical reality. We show how demand systems provide improved information for policy decisions (eg in the context of financial contagion, convenience yield or the strength of the dollar) or to design optimal policies (eg in the context of quantitative easing or designing climate stress tests). We discuss how recent AI methods can be used to improve models of the asset demand system by better measuring asset and investor similarity through so-called embeddings. These embeddings can for instance be used for policymaking by central banks to understand the rebalancing channel of asset purchase programs and to measure crowded trades. |
| Keywords: | asset prices, central bank policies, artificial intelligence, embeddings |
| JEL: | C5 G11 G12 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1222 |