{"title":"Investigation on the Interconnectivity in the Korean Financial Industry","authors":"Hyeon-Hye Go, Hayoung Kim, Jane Yoo","doi":"10.2139/ssrn.3306502","DOIUrl":"https://doi.org/10.2139/ssrn.3306502","url":null,"abstract":"Using weekly stock prices from 1990 to 2016, the trends and the connectivity of major institutions are estimated using Granger causality test and principal component analysis. According to the results, the statistical evidence of the strong connectivity during the financial crises in 1997 and 2008 was found. The connectivity index provides statistically significant information in predicting the changes in CD rates and long-short spreads over the two crises. According to sector-based analysis, commercial and merchant banks have played a significant role in heightening the systemic risks during the 1997 currency crisis, whereas commercial banks and the securities firms played a key role in the 2008 financial crisis.","PeriodicalId":123550,"journal":{"name":"Financial Crises eJournal","volume":"49 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116862742","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Systemic Risk and the Great Depression","authors":"Sanjiv Ranjan Das, K. Mitchener, Angela Vossmeyer","doi":"10.3386/W25405","DOIUrl":"https://doi.org/10.3386/W25405","url":null,"abstract":"We employ a unique hand-collected dataset and a novel methodology to examine systemic risk before and after the largest U.S. banking crisis of the 20th century. Our systemic risk measure captures both the credit risk of an individual bank as well as a bank’s position in the network. We construct linkages between all U.S. commercial banks in 1929 and 1934 so that we can measure how predisposed the entire network was to risk, where risk was concentrated, and how the failure of more than 9,000 banks during the Great Depression altered risk in the network. We find that the pyramid structure of the commercial banking system (i.e., the network’s topology) created more inherent fragility, but systemic risk was nevertheless fairly dispersed throughout banks in 1929, with the top 20 banks contributing roughly 18% of total systemic risk. The massive banking crisis that occurred between 1930{33 raised systemic risk per bank by 33% and increased the riskiness of the very largest banks in the system. We use Bayesian methods to demonstrate that when network measures, such as eigenvector centrality and a bank’s systemic risk contribution, are combined with balance sheet data capturing ex ante bank default risk, they strongly predict bank survivorship in 1934.","PeriodicalId":123550,"journal":{"name":"Financial Crises eJournal","volume":"98 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116756256","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"To Ask or Not To Ask? Bank Capital Requirements and Loan Collateralization","authors":"H. Degryse, Artashes Karapetyan, Sudipto Karmakar","doi":"10.2139/ssrn.3290581","DOIUrl":"https://doi.org/10.2139/ssrn.3290581","url":null,"abstract":"We study the impact of higher capital requirements on banks' decisions to grant collateralized rather than uncollateralized loans. We exploit the 2011 EBA capital exercise, a quasi-natural experiment that required a number of banks to increase their regulatory capital but not others. This experiment makes secured lending more attractive vis-a-vis unsecured lending for the affected banks as secured loans require less regulatory capital. Using a loan-level dataset covering all corporate loans in Portugal, we identify a novel channel of higher capital requirements: relative to the control group, treated banks require loans to be collateralized more often after the shock, but less so for relationship borrowers. This applies in particular for collateral that saves more on regulatory capital.","PeriodicalId":123550,"journal":{"name":"Financial Crises eJournal","volume":"41 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133367518","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Inflation, Debt, and Default","authors":"Sewon Hur, Illenin Kondo, F. Perri","doi":"10.2139/ssrn.3259649","DOIUrl":"https://doi.org/10.2139/ssrn.3259649","url":null,"abstract":"We study how the co-movement of inflation and economic activity affects real interest rates and the likelihood of debt crises. First, we show that for advanced economies, periods with procyclical inflation are associated with lower real interest rates. Procyclical inflation implies that nominal bonds pay out more in bad times, making them a good hedge against aggregate risk. However, such procyclicality also increases sovereign default risk when the economy deteriorates, since the government needs to make larger (real) payments. In order to evaluate both effects, we develop a model of sovereign default on domestic nominal debt with exogenous inflation risk and domestic risk-averse lenders. Countercyclical inflation is a substitute with default, while procyclical inflation is a complement with it, by increasing default incentives. In good times, when default is unlikely, procyclical inflation yields lower real rates. In bad times, as default becomes more material, procyclical inflation can magnify default risk and trigger an increase in real rates.","PeriodicalId":123550,"journal":{"name":"Financial Crises eJournal","volume":"21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-09-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132834877","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Smart-Beta Herding and Its Economic Risks: Riding the Dragon?","authors":"Eduard Krkoska, K. Schenk-Hoppé","doi":"10.2139/ssrn.3256432","DOIUrl":"https://doi.org/10.2139/ssrn.3256432","url":null,"abstract":"Smart-beta (or factor) investing industry’s assets under management have grown to over $1 trillion. We attempt to survey the merits and risks of this investment style from both professional investors’ and academics’ points of view. After reviewing academic papers, reports of practitioners in the field and relevant news articles around the topic as well as the literature on herding in financial markets, we conclude that herding in smart-beta is likely taking place, with a distinct and growing possibility of a market correction that would catch many factor investors wrong-footed.","PeriodicalId":123550,"journal":{"name":"Financial Crises eJournal","volume":"5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-09-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128950354","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"A Decade Later, Understanding 2008 Financial Crisis","authors":"Roy C. Smith","doi":"10.2139/ssrn.3245923","DOIUrl":"https://doi.org/10.2139/ssrn.3245923","url":null,"abstract":"Ten years and a great deal of study by economists and others leave us still lacking a consensus on (a) what caused the financial crisis of 2008, (b) whether the reforms it generated will be enough to prevent another systemic collapse of the financial system, and (c) whether the reforms are worth their cost in enforcement and compliance expense and lost economic growth due to constraints on lending. This paper contains some of my observations and conclusions.","PeriodicalId":123550,"journal":{"name":"Financial Crises eJournal","volume":"22 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-09-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124609076","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"The Panic of 1861 and the Advent of Greenbacks and National Banking (a)","authors":"R. Bruner, Michael T. Caires","doi":"10.2139/ssrn.3221436","DOIUrl":"https://doi.org/10.2139/ssrn.3221436","url":null,"abstract":"Set in 1870, the case describes the situation of Supreme Court Chief Justice Salmon P. Chase, who must render an opinion in Hepburn v. Griswold, which challenges the constitutionality of the creation of a national fiat currency, so-called greenbacks. In 1862, Chase was Secretary of the Treasury in Abraham Lincoln's administration and reluctantly endorsed creating the greenbacks. Now, eight years later, he still harbors misgivings. The task for the student in this case is to recommend a decision. The larger consideration is to assess the massive pivot in US government financial policy that occurred in the 1860s. \u0000Excerpt \u0000UVA-F-1822 \u0000Rev. Oct. 23, 2019 \u0000The Panic of 1861 and the Advent of Greenbacks and National Banking (A) \u0000Introduction \u0000On December 10, 1869, Salmon P. Chase, chief justice of the US Supreme Court, and the other seven justices settled into their chairs to hear arguments in the case of Hepburn v. Griswold. Nominally, the case was about whether a creditor was legally bound to accept payment of the debt in paper currency called “greenbacks” (see Exhibit 1). The decision would hinge on the constitutionality of the federal government's authority to create fiat money. \u0000In 1860, Susan Hepburn of Louisville, Kentucky, borrowed $ 11,250 from Henry Griswold and promised to repay the debt by February 20, 1862. She was unable to fulfill her obligation on time. It happened that five days after Hepburn was due to repay the debt (February 25, 1862), the US Congress enacted legislation to issue $ 150million in greenbacks. The Legal Tender Act stated: “And such notes, and shall also be lawful money and a legal tender in payment of all debts, public and private, within the United States…” \u0000. . .","PeriodicalId":123550,"journal":{"name":"Financial Crises eJournal","volume":"17 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-08-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134130002","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"The Impact of Expanded Bank Powers on Loan Portfolios Decisions","authors":"Gokhan Torna","doi":"10.2139/ssrn.2444324","DOIUrl":"https://doi.org/10.2139/ssrn.2444324","url":null,"abstract":"This paper investigates the impact of the integration of traditional and nontraditional banking activities on loan portfolio management at the consolidated level. The increased risk exposure to nontraditional banking assets, e.g., trading and merchant banking assets, has a nontrivial impact on traditional loan portfolios and, in particular, on the supply of short-term credits. The findings show that confronted with the market-wide shock of the financial crisis, commercial-focused banks which hold larger amounts of risky nontraditional banking assets gravitate their loan portfolios away from business and consumer loan sectors. The results from a quasi-natural experiment reveal that in response to an exogenous regulatory shock of FAS No. 166 and 167, which required banks to transfer off-balance sheet securitized loans onto bank balance sheets, securitizer banks tend to reduce business credits substantially more due to their pre-existing exposures to nontraditional assets.","PeriodicalId":123550,"journal":{"name":"Financial Crises eJournal","volume":"37 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-07-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115363209","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Bernadette A. Minton, René M. Stulz, Alvaro G. Taboada
{"title":"Are the Largest Banks Valued More Highly?","authors":"Bernadette A. Minton, René M. Stulz, Alvaro G. Taboada","doi":"10.2139/ssrn.3213623","DOIUrl":"https://doi.org/10.2139/ssrn.3213623","url":null,"abstract":"\u0000 Some argue too-big-to-fail (TBTF) status increases the value of the largest banks. In contrast, we find that the value of the largest banks is negatively related to asset size in normal times, but much less so during the crisis. Further, shareholders lose when large banks cross a TBTF threshold through acquisitions. The negative relation between bank value and bank size for the largest banks cannot be explained by differences in ROA, ROE, equity volatility, tail risk, distress risk, or equity discount rates, but it can be partly explained by the market’s discounting of trading activities.\u0000 Received December 20, 2017; editorial decision November 14, 2018 by Editor Itay Goldstein.","PeriodicalId":123550,"journal":{"name":"Financial Crises eJournal","volume":"3 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-07-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131268727","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"If Boilerplate Could Talk","authors":"Anna Gelpern, G. Gulati, Jeromin Zettelmeyer","doi":"10.2139/SSRN.2984293","DOIUrl":"https://doi.org/10.2139/SSRN.2984293","url":null,"abstract":"Standard contract terms are “sticky”: they rarely change, even if change appears to be in the parties’ interest. Multiple theories to explain stickiness do not reach consensus on its causes. We investigate the role of stickiness in sovereign bond contracts, where it would be especially costly and therefore puzzling. In our interviews with more than a hundred officials responsible for the bond contracts of 28 countries, they linked reluctance to change non-financial contract terms and the imperative of following a “market standard” for such terms. When a term could be described as standard for the government’s debt stock or borrower cohort, its content often came across as secondary. Sovereign debt managers seemed willing to forgo some of the benefits of contract terms for dealing with contingencies and revealing private information, to avoid negative signals and maintain the liquidity of primary and secondary debt markets. Interviews with investors suggested a similar focus on standard form, and a limited engagement with contract content.","PeriodicalId":123550,"journal":{"name":"Financial Crises eJournal","volume":"54 3 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-07-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116952471","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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