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on Financial Markets |
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Issue of 2010‒05‒22
seven papers chosen by |
| By: | Eichengreen, Barry (Asian Development Bank Institute) |
| Abstract: | This paper attempts to draw out the implication of the financial crisis for emerging markets. The most important implications will center on financial markets, where there will be less reliance on portfolio capital flows to finance investment and some deglobalization of banking so that the domain of bank operations more closely coincides with the domain of regulation. By contrast, the implications for other dimensions of globalization and for the structure of the international monetary system will be more limited. |
| Keywords: | global financial crisis; lessons; exchange rate policy; financial architecture |
| JEL: | F00 F30 |
| Date: | 2009–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0179&r=fmk |
| By: | Kawai, Masahiro (Asian Development Bank Institute) |
| Abstract: | The paper attempts to evaluate whether the international financial architecture is adequate for maintaining the financial stability of the East Asian economies by summarizing the lessons learned from the Asian financial crisis of 1997-1998 and the global financial crisis of 2007-2009 and reviewing the progress being made to enhance the effectiveness of the international financial architecture in crisis prevention, management and resolution. The paper finds that the international community had to experience the two crises before seriously starting to work on the reform of the international financial architecture. Facing the global financial crisis, the international community has responded by making the G20 Summit the premier forum for international economic and financial cooperation, creating a potentially more powerful Financial Stability Board, and augmenting the financial resources of the IMF. <p>The paper concludes, however, that the international financial architecture remains inadequate for the needs of many emerging market economies, including in East Asia. International Monetary Fund surveillance—particularly that of systemically important economies (such as the United States, the United Kingdom and the Euro Area)—is ineffective and its governance structure is heavily biased towards Europe and the United States. International liquidity support is insufficient in assisting countries with sound economic and financial management that are hit by externally driven crises. No international agreements exist on external (sovereign) debt restructuring, or on the cross-border resolution of insolvent, internationally active financial firms for fair burden sharing of losses between creditors and debtors, or among different national authorities. <p>The paper emphasizes the importance of a well-functioning regional financial architecture to complement and strengthen the global financial architecture. It offers advice for East Asian authorities to focus on: (i) the establishment of resilient national financial systems, including local-currency bond markets; (ii) integration of national financial markets to facilitate the mobilization of regional savings for regional investment (in infrastructure and small- and medium-sized enterprises); (iii) enhancement of regional liquidity (Chiang Mai Initiative Multilateralization) and economic surveillance mechanisms; and (iv) regional exchange rate policy coordination to achieve sustained economic growth without creating macroeconomic and financial instability. |
| Keywords: | asian financial crisis; global financial crisis; crisis prevention; management and resolution; the imf; the financial stability board; regional financial architecture |
| JEL: | F30 F32 F33 F34 F53 |
| Date: | 2009–11–24 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0167&r=fmk |
| By: | Busch, Ulrike; Scharnagl, Michael; Scheithauer, Jan |
| Abstract: | Distinguishing pure supply effects from other determinants of price and quantity in the market for loans is a notoriously difficult problem. Using German data, we employ Bayesian vector autoregressive models with sign restrictions on the impulse response functions in order to enquire the role of loan supply and monetary policy shocks for the dynamics of loans to non-financial corporations. For the three quarters following the Lehman collapse, we find very strong negative loan supply shocks, while monetary policy was essentially neutral. Nevertheless, the historical decomposition shows a cumulated negative impact of loan supply shocks and monetary policy shocks on loans to non-financial corporations, due to the lagged effects of past loan supply and monetary policy shocks. However, these negative effects on loans to non-financial corporations are overcompensated by positive other shocks, which implies that loans developed more favorably than implied by the model, over the past few quarters. -- |
| Keywords: | Loan supply,Bayesian VAR,sign restrictions |
| JEL: | C11 C32 E51 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:201005&r=fmk |
| By: | Batten, Jonathan A. (Asian Development Bank Institute); Hogan, Warren P. (Asian Development Bank Institute); Szilagyi, Peter G. (Asian Development Bank Institute) |
| Abstract: | The domestic bond markets of the Asia and Pacific region have grown considerably since the Asian financial crisis of 1997, although they remain undeveloped relative to the region's weight in the world economy. This paper proposes that in order to encourage further development of these markets, regulators should make them more accessible to foreign borrowers. <p>To that end we offer insights into the nature and mechanics of foreign bond issuance by investigating the key characteristics of 3,132 foreign bonds issued in 14 countries (other than the United States) between July 1928 and June 2009. We found that the foreign borrowers that tap domestic markets are overwhelmingly of high credit quality and comprise sovereigns, supranationals, and major financial institutions. There is a preference for simple fixed-rate payment structures, which can then be swapped into the currency and coupon type of choice using currency and interest rate derivatives. On the whole, the long-term viability of foreign bond markets appears linked to the presence of highly liquid foreign exchange and derivatives markets that facilitate risk management and transformation, enabling regulation that facilitates cooperation with market participants, the presence of benchmark issues, and competitive pricing between alternate market segments. |
| Keywords: | bond markets; financial market development; foreign bonds |
| JEL: | F34 G18 O57 |
| Date: | 2009–12–08 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0173&r=fmk |
| By: | Simone Varotto (ICMA Centre, University of Reading) |
| Abstract: | By using Moody's historical corporate default histories we explore the implications of scenarios based on the Great Depression for banks' economic capital and for existing and proposed regulatory capital requirements. By assuming different degrees of portfolio illiquidity, we then investigate the relationship between liquidity and credit risk and employ our findings to estimate the Incremental Risk Charge (IRC), the new credit risk capital add-on introduced by the Basel Committee for the trading book. Finally, we compare our IRC estimates with stressed market risk measures derived from a sample of corporate bond indices encompassing the recent financial crisis. This allows us to determine the extent to which trading book capital would change in stress conditions under newly proposed rules. We find that, typically, banking book regulation leads to minimum capital levels that would enable banks to withstand Great Depression-like events, except when their portfolios have long average maturity. We also show that although the IRC in the trading book may be considerable, the capital needed to absorb market risk related losses in stressed scenarios can be more than twenty times larger. |
| Keywords: | Credit Risk, Financial Crisis, Economic Capital, Basel II, Liquidity Risk |
| JEL: | G11 G21 G22 G28 G32 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:rdg:icmadp:icma-dp2010-03&r=fmk |
| By: | Bec, Frédérique; Gollier, Christian |
| Abstract: | This paper explores empirically the link between stocks returns Value-at-Risk (VaR) and the state of financial markets cycle. The econometric analysis is based on a simple vector autoregression setup. Using quarterly data from 1970Q4 to 2008Q4 for France, Germany and the United-Kingdom, it turns out that the k-year VaR of equities is actually dependent on the cycle phase: the expected losses as measured by the VaR are smaller in recession times than expansion periods, whatever the country and the horizon. These results strongly suggest that the European rules regarding the solvency capital requirements for insurance companies should adapt to the state of the financial market’s cycle. |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:21942&r=fmk |
| By: | Cerasi, Vittoria; Chizzolini, Barbara; Ivaldi, Marc |
| Abstract: | This paper analyses the relation between competition and concentration in the banking sector. The empirical answer is given by testing a monopolistic competition model of bank branching behaviour on individual bank data at county level (départements and provinces) in France and Italy. We propose a measure of the degree of competiveness in each local market that is function also of market structure indicators. We then use the econometric model to evaluate the impact of horizontal mergers among incumbent banks on competition and discuss when, depending on the pre-merger structure of the market and geographic distribution of branches, the merger is anti-competitive. The paper has implications for competition policy as it suggests an applied tool to evaluate the potential anti-competitive impact of mergers. |
| JEL: | G21 L13 L59 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:21972&r=fmk |