nep-isf New Economics Papers
on Islamic Finance
Issue of 2022‒04‒18
five papers chosen by

  1. Syndicated Lending, Competition and Relative Performance Evaluation By Thomas Schneider; Philip Strahan; Jun Yang
  2. Money markets and bank lending: evidence from the adoption of tiering By Altavilla, Carlo; Boucinha, Miguel; Burlon, Lorenzo; Giannetti, Mariassunta; Schumacher, Julian
  3. A study on the EBA stress test results: influence of bank, portfolio, and country-level characteristics By Hernández, Javier; Población García, Francisco Javier; Suárez, Nuria; Tarancón, Javier
  4. Republic of Kazakhstan: Technical Assistance Report-Risk-Based Supervision Pillar 2 Liquidity By International Monetary Fund
  5. Climate Change and Financial Stability: The Weather Channel By Kristian S. Blickle; Donald P. Morgan

  1. By: Thomas Schneider; Philip Strahan; Jun Yang
    Abstract: Relative performance evaluation (RPE) intensifies competitive pressure by tying executive compensation to the profits of rivals. We show that these contracts make loan syndication harder by reducing banks’ willingness to participate in loans underwritten by banks named in their RPE contracts. Lead arranger banks which are more frequently named in RPE hold larger shares of the loans they syndicate, and their borrowers face higher spreads. These banks, in turn, lose market share to banks less likely to be named in RPE. Our results highlight the tension between the normal benefits of competition versus the need for cooperation in loan syndication.
    JEL: G20
    Date: 2022–03
  2. By: Altavilla, Carlo; Boucinha, Miguel; Burlon, Lorenzo; Giannetti, Mariassunta; Schumacher, Julian
    Abstract: Exploiting the introduction of the ECB’s tiering system for remunerating excess reserve holdings, we document the importance of access to the money market for bank lending. We show that the two-tier system produced positive wealth effects for banks with excess reserves and encouraged a reallocation of liquidity toward banks with unused exemptions. This ultimately decreased the fragmentation in the money market and enhanced the monetary policy transmission mechanism. The increased access to money market by banks with unused allowances incentivizes them to extend more credit than other banks, including banks with excess liquidity whose valuations increase the most. JEL Classification: G2, E5
    Keywords: bank lending, Money market, negative interest rate policy
    Date: 2022–02
  3. By: Hernández, Javier; Población García, Francisco Javier; Suárez, Nuria; Tarancón, Javier
    Abstract: The purpose of this paper is to investigate the main drivers of the change in the credit risk provisions at a portfolio level for the banks that have been subject of the 2018 EBA stress tests. Therefore, we perform a holistic review of the drivers of the three-year projections of credit losses. First, we define a model containing all the macroeconomic variables considered by the EBA methodological approach. By adding a three-dimension set of explanatory variables, entity-, banking sector- and portfolio-level aspects, we verify whether the published results show some kind of relation with these explanatory variables. Our results show that, although EBA variables explain most part of credit risk provisions, we obtain evidence about the role played by bank-level variables, banking sector features in each country, and the specific characteristics of the portfolio in explaining part of the provisions. Moreover, the results also indicate the existence of complementary/substitution effects of both bank- and portfolio-level variables with the characteristics of the banking sector when explaining credit risk provisions. JEL Classification: G20, G21, G28
    Keywords: bank characteristics, credit risk, EBA, stress tests
    Date: 2022–02
  4. By: International Monetary Fund
    Abstract: This virtual technical assistance (TA) mission assisted the Agency in strengthening liquidity elements of its risk-based supervisory framework. The mission focused on supporting the Agency with the development of internal supervisory methodology for the assessment of banks’ ILAAP and setting individual Pillar 2 supervisory liquidity requirements and provided guidance on stress testing and sensitivity analysis through survival horizon analysis. The mission consisted of a combination of presentations, discussions, and trainings, including case studies, and covered the BCBS standards on liquidity risk and other jurisdictions’ approaches for the assessment of ILAAP and the Pillar 2 liquidity supervisory review process. This mission should be seen in the context of previous three IMF TA missions which were held since September 2020.
    Date: 2022–03–01
  5. By: Kristian S. Blickle; Donald P. Morgan
    Abstract: Climate change could affect banks and the financial systems they anchor through various channels: increasingly extreme weather is one (Financial Stability Board, Basel Committee on Bank Supervision). In our recent staff report, we size up this channel by studying how U.S. banks, large and small, fared against disasters past. We find even the most destructive disasters had insignificant or small effects on bank stability and small and positive effects on bank income. We conjecture that recovery lending after disasters helps stabilize larger banks while smaller, local banks’ knowledge of “unmarked” (flood) hazards may help them navigate disaster risk. Federal disaster aid seems not to act as a bank stabilizer.
    Keywords: climate change; financial stability
    JEL: G21
    Date: 2022–04–04

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NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.