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on Financial Development and Growth |
| By: | Ramoutar, Richard. S |
| Abstract: | Earlier studies examining the impact of insurance sector activity on economic growth have produced mixed and often inconclusive results. This study re-examines the growth effects of financial development by jointly analyzing life insurance premium volume, non-life insurance premium volume, insurance company assets, pension fund assets, and mutual fund assets. Using annual panel data for 33 developed and developing countries over the period 2000--2016, we apply a panel Autoregressive Distributed Lag (ARDL) framework employing the Pooled Mean Group (PMG) and Mean Group (MG) estimators. The results provide robust evidence of cointegration among the variables and indicate that insurance sector development and mutual fund assets have a positive, statistically significant impact on economic growth in both the short- and long-run. These findings highlight the importance of contractual savings institutions as key channels through which financial development supports long-term economic performance. |
| Keywords: | Insurance markets, Pension funds, Mutual funds, Financial development, Economic growth, Panel ARDL, PMG, MG |
| JEL: | G15 O1 |
| Date: | 2025–12–17 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127380 |
| By: | Mr. Tigran Poghosyan; Davaasukh Damdinjav; Dulamzaya Batjargal; Tserendavaa Tsend-Ayush; Bat-Orgil Bat-Erdene; Gerelmaa Baatarchuluun |
| Abstract: | This paper examines the macroeconomic effects of credit supply shocks in Mongolia. Using bank credit surveys and a newly constructed indicator of changes in lending standards, adjusted for macroeconomic and bank-specific factors influencing credit demand, we identify the impact of credit supply disruptions on key macroeconomic variables. Our findings reveal that one standard deviation shock to credit supply leads to an initial reduction in total lending growth, output growth, and inflation. Decomposing the shocks into credit supply components we find that shocks to enterprise and household lending also have similar effects on respective lending growth rates. However, household credit supply shocks have a stronger impact on output growth, while enterprise credit supply shocks have a stronger impact on inflation. Variance decomposition analysis suggests that adjusted credit supply shocks purged from demand fluctuations hold significant power in explaining the variability of macroeconomic variables. Overall, our results confirm the importance of credit supply shocks for macroeconomic variables in Mongolia. |
| Keywords: | Bank lending standards; credit supply shocks; Mongolia |
| Date: | 2025–12–12 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/262 |
| By: | Yasmin (Department of Sharia Economics, Faculty of Islamic Economics and Business, Islamic State University (UIN) Sunan Kalijaga); Muhammad Ali Mustofa (Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada); Amirullah Setya Hardi (Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada) |
| Abstract: | The nexus between financial inclusion, income inequality, and poverty remains debated, especially in developing economies with diverse regional contexts. This study examines the impact of financial inclusion on inequality and poverty across 33 Indonesian provinces using panel data. We estimate Fixed-Effects and Generalized Method of Moments (GMM) models to address unobserved heterogeneity and potential endogeneity. Financial inclusion is proxied by deposits per capita, while key outcomes are provincial income inequality and poverty rates. Results show a significant negative association between financial inclusion and both inequality and poverty. Regional heterogeneity is evident: the poverty-reducing effects of financial inclusion are stronger in Eastern Indonesia than in the more developed Western region. These findings highlight the need for region-specific policies that expand affordable financial access, strengthen financial literacy, and deepen financing for micro, small, and medium enterprises (MSMEs) to support inclusive growth. Future research should assess the roles of fintech and Islamic finance, evaluate how financial inclusion shapes MSME performance, and rigorously examine the effectiveness of Indonesia’s National Strategy for Financial Inclusion to inform progress toward the Sustainable Development Goals. |
| Keywords: | Financial Inclusion, Income Inequality, Poverty, Fixed-Effect Model, Generalized Method of Moments (GMM) |
| JEL: | G20 D63 I32 C23 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:gme:wpaper:202503005 |
| By: | Elvio Accinelli; Laura Policardo; Edgar J. Sanchez Carrera |
| Abstract: | This paper develops a dynamic general equilibrium (DGE) model with heterogeneous agents to connect three macroeconomic phenomena: persistent poverty traps, sluggish real growth, and rising wealth inequality. The model achieves this by allowing agents, who differ in patience and face a subsistence consumption constraint, to choose portfolios between productive capital and a fixed-supply, unproductive asset susceptible to rational speculative bubbles. The analysis reveals that these bubbles, while rational, induce a positive wealth effect for asset-holders, which, through optimal consumption-smoothing (via agents’ Euler equations), reduces the aggregate savings rate, permanently “crowding out†productive capital that crowds out productive investment, leading to lower real wages and output, which in turn exacerbates wealth inequality by pushing constrained agents closer to the poverty trap. A calibration exercise, disciplined by real-world stylized facts, illustrates the model’s path-dependence and highlights the particular vulnerability of middle-income economies to such collapses |
| Keywords: | Poverty Traps, Wealth Inequality, Speculative Bubbles, Endogenous Savings, Portfolio Choice, Heterogeneous Agents, General Equilibrium, Subsistence Consumption. Jel Classification:D31, E21, E44, G12, O11, O40 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:usi:wpaper:936 |
| By: | Ken Tabata (School of Economics, Kwansei Gakuin University) |
| Abstract: | Does reducing the corporate income tax while increasing the consumption tax to satisfy government budget constraints improve welfare? To address this question, this paper examines the welfare-maximizing consumption and corporate income tax rates within a Rivera-Batiz and Romer (1991)-type variety-expanding growth model with financial frictions and heterogeneous R&D productivity. We also explore how these welfare-maximizing tax rates change as financial constraints become less binding due to financial development. The results indicate that under mild and plausible levels of financial frictions, relaxing financial constraints on R&D investment lowers the optimal corporate income tax rate, while raising the optimal consumption tax rate. This finding implies that when financial constraints are eased, enhancing innovation at the expense of current production—by raising the consumption tax and reducing the corporate income tax—improves welfare. The underlying mechanism is that relaxing financial constraints induces entry into R&D only by highly productive entrepreneurs, thereby increasing the average efficiency of R&D investment. |
| Keywords: | Financial Frictions, Corporate Income Tax, Consumption Tax, R&D, Endogenous growth |
| JEL: | E62 H21 H25 O30 O38 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:kgu:wpaper:304 |
| By: | Jorge Miranda-Pinto; Eugenio I. Rojas; Felipe Saffie; Alvaro Silva |
| Abstract: | We study how production networks shape the severity of Sudden Stops. We build a small open economy model with collateral constraints and input–output linkages, derive a sufficient statistic that maps network structure into the amplification of tradable shocks, and show that a planner optimally introduces sectoral wedges to reduce amplification. Using OECD input–output data and Sudden Stop episodes, we document systematic network differences between emerging and advanced economies and show they predict crisis severity. A calibrated three-sector DSGE model disciplined by these differences reveals that endowing an advanced economy with an emerging-market production network moves most of the way toward the observed emerging–advanced Sudden Stop gap. |
| JEL: | E32 F32 G01 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34604 |
| By: | Mr. Damien Capelle; Eduardo Espuny Diaz; Mr. Divya Kirti; Mr. Germán Villegas-Bauer; Sharan Banerjee |
| Abstract: | This paper analyzes the effectiveness of green financial policies—green credit policies and free emissions allowances—at improving emission efficiency while supporting output. We develop a heterogeneous-firm model with financial constraints and endogenous adoption of cleaner capital. The model matches key targeted and untargeted moments from granular micro-data, including the facts that more financially constrained firms are less productive, more emission intensive, and respond less to carbon pricing. In counterfactual simulations in our model, credit policies without green bias raise output but also raise emissions, as firms become more capital and energy intensive. In contrast, well-targeted green credit policies—focusing on frontier technologies—cut emissions while boosting output. In the presence of financial frictions, free emissions allowances offset the output costs of carbon pricing, breaking the usual irrelevance of permits allocation. |
| Keywords: | Climate Change; Emissions; Financial Constraints; Financial Frictions; Productivity; Technology Adoption; Capital Vintages. |
| Date: | 2025–12–19 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/269 |
| By: | Suleyman Faruk Gozen; David Hong; Mehmet Furkan Karaca |
| Abstract: | We study how non-rival intangible capital interacts with borrowing structure and financial frictions to shape firm dynamics over business cycles. We show: (i) the positive and significant association between intangible-capital growth and labor productivity growth becomes smaller in recessions; (ii) the non-rivalry of intangible capital is evident such that intangible growth predicts faster sales growth and broader firm scope, yet this relationship declines in recessions; (iii) intangible-intensive firms carry less total and secured debt, and substitute toward earnings-based covenant (EBC) borrowing over asset-based covenant (ABC) borrowing; and (iv) intangible-intensive firms with EBC have tightening financially constraints in recessions, which mitigates the productivity payoff of non-rival intangibles. We rationalize these patterns in a general-equilibrium model in which firms draw EBC/ABC constraints at entry and intangibles are non-rival in the firm production technology. The model yields a creditamplification mechanism with heterogeneous borrowing types, reconciling the productivity slowdown despite rising intangibles |
| Date: | 2025–04–02 |
| URL: | https://d.repec.org/n?u=RePEc:bri:uobdis:25/815 |
| By: | Federico Ravenna |
| Abstract: | We study the implications for the business cycle and monetary policy of loan securitization in a DSGE model where information asymmetries lead to adverse selection across financial intermediaries. Securitization is an endogenous equilibrium outcome when the resources saved by acquiring incomplete information about some risk-classes of borrowers outweigh the cost of being selected against by mortgage originators. Adverse selection results in a time-varying market share of individually risk-priced loans held by banks, and of securitized loans held by the secondary market. We analyze the impact of conventional monetary policies and credit market policies in response to an increase in default risk, and discuss its welfare implications. Overall securitization allows more efficient funding of loans, at the expense of increased volatility in risky interest rates, consumption, and inflation over the business cycle. |
| Keywords: | Securitization, Credit market imperfections, Monetary policy. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:cca:wpaper:751 |
| By: | Luis Méndez Lobos; Esteban Ramon Perez Caldentey |
| Abstract: | Since the Global Financial Crisis developing economies, including those of Latin America, increased their reliance on foreign currency borrowing, making greater use of the international bond market. The non-financial corporate sector became the second most important issuer of debt. Using a data base comprising approximately 295 listed firms for the larger Latin American economies for the period 2013-2023, the paper shows that bond issuing firms account for a larger share of total assets, revenue and investment expenditure relative to non-bond issuing firms. These findings are reproduced for nine sectors of economic activity (agriculture, construction, information, manufacturing, mining, retail trade, transportation, utilities, wholesale trade). In addition, bond issuing firms exhibit higher and increasing levels of profitability in most sectors. This favourable context for bond issuing firms and the decoupling in profitability has not led to increased investment expenditure. This is explained by overleveraging and prioritizing financial over investment in productive activities. |
| Keywords: | international bond market, bond/non-bond issuing firms, solvency, Minsky, non-linear threshold model. |
| JEL: | E32 G15 O10 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:pke:wpaper:pkwp2525 |
| By: | Hakhverdyan, Davit; Kalantaryan, Hayk |
| Abstract: | The complex nature of international capital flows remains a central topic in academic debate. Despite extensive research, the relationship between capital inflows and financial system vulnerabilities remains complex and influenced by both global, regional and domestic factors that necessitate nuanced approaches when considering such relationships. This paper contributes to the ongoing debate by shedding light on the buildup of financial vulnerabilities stemming from capital inflows. Using a panel dataset covering 128 advanced and emerging economies and employing two-stage GMM estimation techniques, the paper examines the channels through which cross-border capital inflows contribute to financial vulnerability build-up. Our findings suggest that capital inflows, namely portfolio and cross-border bank inflows, remain a key driver of credit expansion and positively influence the risk-taking behaviour of commercial banks. Importantly, the underlying drivers of these flows are also critical in explaining such vulnerabilities. By using regional flows as an instrument for capital flows, we emphasise the role of regional and pull factors, while the distinction between natural-level and gap-driven inflows in the paper highlights important policy implications for economies exposed to external shocks. Finally, we find that capital flow control measures play a mitigating role in vulnerability build-up associated with external financing. |
| Keywords: | capital flows, cross-border bank flows, portfolio flows, financial vulnerability, credit growth, capital adequacy, capital controls, regional flows, pull factors, natural level of capital |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:opodis:333913 |
| By: | Tommaso Gasparini; Aymeric Ortmans; Arthur Saint-Guilhem |
| Abstract: | We present a new “financial impulse index” (FII) for the euro area that aggregates changes in key financial variables based on their impact on real GDP growth. The FII suggests that financial impulse has now returned close to neutral. <p> Nous présentons un nouvel « indice d’impulsion financière » (IIF) pour la zone euro qui agrège les évolutions de variables financières-clés en fonction de leur impact sur la croissance du PIB en volume. L’IIF suggère que l’impulsion financière est désormais redevenue presque neutre dans la zone euro. |
| Date: | 2025–11–12 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:econot:417 |
| By: | Stefano Caselli, Marta Zava |
| Abstract: | The study examines the structure, functioning, and strategic implications of financial ecosystems across four European countries—France, Sweden, the United Kingdom, and Italy—to identify institutional best practices relevant to the ongoing transformation of Italy’s financial system. Building on a comparative analysis of legislation and regulation, taxation, investor bases, and financial intermediation, the report highlights how distinct historical and institutional trajectories have shaped divergent models: the French dirigiste system anchored by powerful state-backed institutions and deep asset management pools; the Swedish social-democratic ecosystem driven by broad household equity participation, tax efficient savings vehicles, and equity-oriented pension funds; and the British liberal model, characterized by deep capital markets, strong institutional investor engagement, and globally competitive listing infrastructure. In contrast, Italy remains predominantly bank-centric, with fragmented institutional investment, limited retail equity participation, underdeveloped public markets, and a structural reliance on domestic banking channels for corporate finance. |
| Keywords: | financial ecosystems; capital markets; institutional investors; household savings; taxation; IPO markets; SME finance; European financial integration; Savings and Investments Union. |
| JEL: | G10 G18 G23 G28 O16 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp25261 |
| By: | Gustavo Silva Araujo; José Valentim Machado Vicente; Wagner Piazza Gaglianone |
| Abstract: | This article investigates the determinants of the risk premium in Brazilian nominal interest rates. The risk premium reflects the compensation investors require for holding long-term bonds instead of sequentially investing in short-term bonds. The study estimates risk premiums embedded in the Brazilian yield curve and analyzes their relationship with a comprehensive set of domestic and external macroeconomic variables. This is, to our knowledge, the first application of the ACM model to Brazil using such a comprehensive macro-financial variable set. Regression results reveal that the policy rate, long-term public financing cost, inflation expectations, public debt indicators, U.S. interest rates, USD/BRL exchange rate, and global volatility measures are statistically significant drivers. The timeseries decomposition highlights the predominance of domestic interest rates and the increasing role of external shocks in periods of heightened global uncertainty. These findings contribute to the understanding of long-term interest rate dynamics in emerging markets. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bcb:wpaper:637 |
| By: | Luis Fernando Mejía (Feedesarrollo); María Angélica Arbeláez (Fedesarrollo) |
| Abstract: | En lo corrido del siglo XXI, la economía colombiana ha registrado un crecimiento promedio de 3, 6%, superior al observado en América Latina y el Caribe (2, 4%). Esta senda de crecimiento ha sido sostenida, con excepción de 2020, cuando el Producto Interno Bruto (PIB) cayó 7, 2% como consecuencia de la pandemia de COVID-19. Aunque en 2021 y 2022 la economía se recuperó con tasas de crecimiento significativas, en los años siguientes se presentó una fuerte desaceleración, con un crecimiento promedio de 1, 6%, inferior al 3, 7% registrado entre 2010 y 2019 y al promedio regional en el mismo periodo (2, 3%), lo que refleja un problema persistente en la capacidad de crecimiento del país. Este menor dinamismo ha estado asociado principalmente a la desaceleración de la inversión que viene cayendo desde 2015, cuando alcanzó un máximo de 23, 4% del PIB, con un ritmo de disminución que se ha acelerado en los últimos años. En el primer semestre de 2025, la inversión se ubicó en 16, 1% del PIB, el nivel más bajo en dos décadas e inferior al registrado durante la pandemia (18, 4%), con una reducción de tres puntos porcentuales frente a 2023, retroceso similar al observado entre 2019 y 2020. Esta caída responde a varios factores que se analizan en este documento. En primer lugar, el aumento del costo de uso del capital, asociado con el incremento de las tasas de interés de largo plazo y a la elevada carga tributaria. En segundo lugar, el aumento de la incertidumbre, reflejado en el Índice de Incertidumbre de la Política Económica (IPEC) de Fedesarrollo, que en lo corrido de 2025 alcanzó 258 puntos frente a un promedio de 100 entre 2000 y 2019.-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Este documento presenta un análisis de estas dinámicas. Primero, se estudia la evolución histórica del crecimiento y la inversión, tanto en el corto como en el largo plazo. Luego, se analiza la evolución de los principales determinantes de la inversión, incluyendo la interacción entre gasto y deuda pública, el costo de uso del capital con sus componentes financieros y tributarios, y el comportamiento de la incertidumbre. Asimismo, se analizan las consecuencias de mantener los niveles actuales de inversión en el crecimiento tendencial de la economía. Posteriormente, se presenta una estimación econométrica sobre el efecto que ha tenido el costo de uso del capital y la incertidumbre sobre la tasa de inversión. Por último, se plantean recomendaciones de política pública orientadas a recuperar la inversión en Colombia, como una estrategia fundamental para impulsar el crecimiento económico y el empleo. |
| Keywords: | Crecimiento Económico; Inversión; Incertidumbre; Costo de Uso del Capital; Política Fiscal |
| JEL: | O4 E22 D81 |
| Date: | 2025–12–01 |
| URL: | https://d.repec.org/n?u=RePEc:col:000124:021964 |
| By: | Yizhi Xu; Fan Zhang; Rongyu Cui; Ding Hua |
| Abstract: | Household savings in China are markedly higher than in peer economies, which have been channeled into financing excessive investment. This paper examines the structural and cyclical factors contributing to China’s elevated household savings. The analysis suggests that low government social spending in rural areas and residency (“Hukou”) restrictions in urban areas play a significant role in increasing household savings. In addition, the paper provides evidence that fluctuations in real estate prices significantly impact household savings, both through the wealth effect and the downpayment effect (i.e., need for non-homeowners to save so as to afford downpayments), though the latter channel has weakened after the recent real estate market correction. These findings suggest that further strengthening social safety nets, continuing Hukou reforms, and policies that promote a more efficient transition for the housing market can help reduce household savings and boost private consumption, thus facilitating China’s economic rebalancing. |
| Keywords: | Household saving; precautionary saving; social safety net; demographics; migrant workers; homeownership |
| Date: | 2025–12–12 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/259 |
| By: | Benoit Mojon; Han Qiu; Fang Wang; Michael Weber |
| Abstract: | We estimate the effects of changes in house prices on consumption using unique data of Alipay transactions from Chinese households, spanning from January 2017 to March 2023. We find significant housing wealth effects: changes in house prices are positively associated with future changes in consumption in 33 Tier 1 and Tier 2 cities. Specifically, in these cities, a 10% increase in house prices leads to a 1.6% increase in consumption. However, this relationship is not observed in smaller Tier 3 and Tier 4 cities. We also find that housing wealth effects are more pronounced among older households and homeowners, while renters show no such effect. Additionally, in Tier 3 and Tier 4 cities, higher house prices tend to crowd out consumption among younger households. |
| Keywords: | consumption, house prices, savings |
| JEL: | R2 R3 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1319 |
| By: | Richard Kima; Keagile Lesame |
| Abstract: | We estimate the macroeconomic effects of shifting to a lower inflation target for South Africa, within a Structural Vector Autoregressive (SVAR) framework identified using the Max Share Identification strategy and estimated with Bayesian methods. We find that a decrease of 1% (in terms of percentage points change) in the inflation target leads to output expanding over the next few quarters after an initial muted response, with a peak of about 1.20% after about two years and remains positive and statistically significant for nearly three years after the shock. |
| Keywords: | Inflation targeting, Macroeconomics, Econometric models (Monetary policy), South Africa |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:unu:wpaper:wp-2025-106 |
| By: | Cristina Badarau (University of Bordeaux); Eleonora Cavallaro (Sapienza University of Rome); Stefania Stancu (University of Bordeaux,) |
| Abstract: | We analyse how corporate debt structure can shape the transmission of monetary policy in a general equilibrium model. We endogenise firms’ choice between bond and loan financing in a dynamic setting, building on the analytical framework of the financial accelerator and show that the corporate structure of firms is not irrelevant. We assume that banks have an informational advantage over other market participants in evaluating firms’ projects. This results in a lower cost of bank finance compared to market finance in a steady state, given institutional factors and market size. Over time, shocks to the cost of finance or liquidity shocks feed back into the dynamics of firms’ net worth, investment and output. In our framework, monetary policy can have asymmetric effects. On one hand, higher banks’ refinancing costs due to more stringent conventional monetary policies have a greater impact on firms that cannot easily substitute loans for bonds. Firms with easier access to the bond market have a competitive advantage over firms that can only rely on bank financing. On the other hand, shocks that increase the liquidity in the bond markets, such as unconventional monetary policies, benefit firms with a more diversified corporate debt structure. From this perspective, the development of bond markets can have important macroeconomic implications for building resilience. |
| Keywords: | Corporate debt structure, investment, monetary policy transmission |
| JEL: | E |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:inf:wpaper:2025.21 |
| By: | Duk Gyoo Kim (Yonsei University); Ohik Kwon (Korea University); Seungduck Lee (Sungkyunkwan University) |
| Abstract: | This study investigates the public demand for retail Central Bank Digital Currency (CBDC) and its implications for financial intermediation by focusing on its potential substitution effects on existing digital payment methods and viability as a store of value. Using an information-provision survey experiment, we analyze public responses to technically various CBDC issuance types, including online and offline applications and a physical card type, with and without interest payments. The survey experiment finds that, while CBDC design features do not significantly influence its demand as a payment method, offering positive interest payments can enhance its appeal as a store of value. Moreover, it indicates that payment practices and trust in central banks would have a greater impact on demand for CBDC than its technical design features. |
| Keywords: | CBDC, Privacy, Demand for CBDC, Issuance Type, Survey Experiment |
| JEL: | E41 E58 G11 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:yon:wpaper:2025rwp-274 |
| By: | Jean Xiao Timmerman |
| Abstract: | This paper examines the evolution of artificial intelligence (AI) patent rates (i.e., the number of AI patents/number of firms of the same type) and concentration metrics (i.e., the Herfindahl-Hirschman Index (HHI) and Gini coefficient) among financial market participants from 2000 to 2020. It documents the historical trajectories of AI innovation for regulated banking entities and less-regulated firms, revealing that nonfinancial companies exhibit the highest baseline AI patent rate, while banks show the highest growth in AI patent rate over time. Banks have the highest HHI, and nonfinancial companies have the highest Gini coefficient, suggesting that a small number of banks dominate AI innovation and the distribution of AI innovation at nonfinancial firms � though higher in number � is highly skewed toward a subset of players. These findings indicate that the AI technological gap between small and large banks may be widening and the diversity of nonfinancial companies serving as third-party AI service providers may be limited. |
| Keywords: | Artificial intelligence; Banking; Financial innovation; Patents; Regulatory perimeter; Technological change |
| JEL: | G21 G23 G28 O31 O33 |
| Date: | 2025–12–12 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-104 |
| By: | Traversa, Marina; Vuillemey, Guillaume |
| Abstract: | We show that adverse selection is a key determinant of banking market structure. Using data on US bank branches over 1981-2016, we study banks' decisions to expand or contract geographically. First, banks are more likely to expand in counties that are similar, in terms of industry shares, to those in which they already have branches. Second, when contracting, banks are more likely to close or sell branches in similar areas. These results suggest that banks value diversification, but that informational barriers prevent them from achieving optimal scale. These findings have implications for banking competition and the rise of fintechs. |
| Keywords: | Banks, Barriers To Entry, Branching, Acquisitions, Diversification, Adverse Selection |
| JEL: | G21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:safewp:333924 |
| By: | Christian Glocker (WIFO); Thomas Url (WIFO) |
| Abstract: | We investigate the emergence of the Vienna Initiative (VI) as a public-private partnership established in response to the global financial crisis, and assess its short-term impact on the risk metrics of Western European banks. Our findings suggest that negative herding behavior toward certain banks can be associated with their decision to participate in the initiative. Banks with weaker balance sheet fundamentals showed a higher likelihood of participation. The measures implemented through the VI proved effective in curbing risk transmission within the network of participating banks, underscoring a strong signaling effect on investor sentiment. Our findings underscore the value of coordinated information disclosure and conditional support in curbing short-run risk transmission. |
| Keywords: | Banking, Financial crisis, Herding behavior, Vienna Initiative, Network analysis, Event study |
| Date: | 2025–12–19 |
| URL: | https://d.repec.org/n?u=RePEc:wfo:wpaper:y:2025:i:718 |