Banking & Insurance eJournal最新文献

{"title":"Un-Used Bank Capital Buffers and Credit Supply Shocks at SMEs During the Pandemic","authors":"J. Berrospide, Arun Gupta, Matthew P. Seay","doi":"10.17016/FEDS.2021.043","DOIUrl":"https://doi.org/10.17016/FEDS.2021.043","url":null,"abstract":"Did banks curb lending to creditworthy small and mid-sized enterprises (SME) during the COVID-19 pandemic? Sitting on top of minimum capital requirements, regulatory capital buffers introduced after the 2008 global financial crisis (GFC) are costly regions of \"rainy day\" equity capital designed to absorb losses and provide lending capacity in a downturn. Using a novel set of confidential loan level data that includes private SME firms, we show that \"buffer-constrained\" banks (those entering the pandemic with capital ratios close to this regulatory buffer region) reduced loan commitments to SME firms by an average of 1.4 percent more (quarterly) and were 4 percent more likely to end pre-existing lending relationships during the pandemic as compared to \"buffer-unconstrained\" banks (those entering the pandemic with capital ratios far from the regulatory capital buffer region). We further find heterogenous effects across firms, as buffer-constrained banks disproportionately curtailed credit to three types of borrowers: (1) private, bank-dependent SME firms, (2) firms whose lending relationships were relatively young, and (3) firms whose pre-pandemic credit lines contractually matured at the start of the pandemic (and thus were up for renegotiation). While the post-2008 period saw the rise of banking system capital to historically high levels, these capital buffers went effectively unused during the pandemic. To the best of our knowledge, our study is the first to: (1) empirically test the usability of these Basel III regulatory buffers in a downturn, and (2) contribute a bank capital-based transmission channel to the literature studying how the pandemic transmitted shocks to SME firms.","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129249496","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":"Are Government Bond Yields Bounded or Quasi-Bounded at the Zero? – Credibility of Central Banks' Commitments","authors":"C. Hui, C. Lo, Ho-Yan Ip","doi":"10.2139/ssrn.3894746","DOIUrl":"https://doi.org/10.2139/ssrn.3894746","url":null,"abstract":"This paper develops a model based on a target-zone approach in which the dynamics of government bond yields follow a quasi-bounded process, such that the zero lower bound (ZLB) can be breached if the probability leakage condition of the dynamics is met. A one-sided U-shaped bond yield distribution illustrates accumulation of probability at the ZLB. Allowing the expected return and variance of the market’s return proportional to the square of the state variable governing changes in production and investment opportunities over time suggests the state variable following an asymmetric mean-reverting process with strong counteracting force at the ZLB representing the credibility of the bound committed by a central bank. Empirical calibrations of the proposed process for the US and French government bond yields show that the process can adequately describe their dynamics. While the yields were bounded above the ZLB during most of the time, as indicated by their dynamics, the conditions for breaching the bound were met in January 2013 for the French government bond and March 2020 for the US Treasury using only information until those points. The economic and financial condition uncertainties are negatively co-integrated with the mean reversion in the dynamics, suggesting increased likelihood of the yield breaching the ZLB and erosion of the credibility of the bound amid higher uncertainties.","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134193991","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":"Financial Stability Amidst the Pandemic Crisis: On Top of the Wave","authors":"C. Gortsos, W. Ringe, Filippo Annunziata, E. Avgouleas, R. Ayadi, Marco Bodellini, C. Bosque, Concetta Brescia Morra, D. Busch, B. Casu, Blanaid Clarke, L. Enriques, G. Ferri, Claudio Frigeni, Willem Pieter De Groen, Seraina N. Grunewald, R. Haselmann, B. Joosen, Marco Lamandini, Matthias B. Lehmann, L. S. Morais, David Ramos Muñoz, M. Pagano, Juana Pulgar Ezquerra, Antonella Sciarrone Alibrandi, Ignacio Signes de Mesa, M. Siri, Tobias H. Troeger, Charles Wyplosz","doi":"10.2139/ssrn.3877946","DOIUrl":"https://doi.org/10.2139/ssrn.3877946","url":null,"abstract":"The pandemic crisis, which broke out in early 2020, is still affecting human lives and economic activity around the globe, causing unprecedented transformations which were not foreseen just before its onset. The European Union, its citizens and the financial and non-financial firms active therein have also been negatively affected (albeit to a varying degree). Nevertheless, unlike in the two previous, most recent economic crises, namely the 2007-2009 Global Financial Crisis (GFC) and the 2010-2018 sovereign debt crisis in the Eurozone, the impact on the stability of the EU financial system has been comparatively mild so far. This is due to several reasons: most importantly, the root-cause of the pandemic was not attributed to any sector of the financial system but originated in the real economy. Further, the financial regulatory framework had become much more robust in the meantime (albeit also much more complicated to comply with), credit institutions in particular are better capitalised now than in 2008, with (almost across the board) lower ratios of non-performing loans (NPLs) and significantly stronger liquidity, while financial supervision has also been enhanced and the macro-prudential financial framework adopted in the wake of the GFC was fully activated. Finally, many EU Member States and the EU itself acted decisively, and proactively pumped billions of Euros of support programmes into the real economy to prevent an economic meltdown. During the last 15 months, national and EU institutions and agencies have orchestrated their efforts towards establishing an appropriate framework in order to primarily support those parts of the population and of the businesses most severely affected by the pandemic and to contain its negative effects. This included a combination of fiscal policy, monetary policy and financial policy measures; new instruments and rescue funds were introduced, flexibility in the application of several existing rules has been applied to the extent necessary and feasible, and some ‘quick-fix’ legislative actions supplemented the pandemic crisis management toolbox. When we published the first edition of this EBI e-book in May 2020 (‘Pandemic Crisis and Financial Stability’, https://ssrn.com/abstract=3607930), the world seemed to be on the brink of collapse. Reflecting the positive developments over the past year, this second edition supports a more optimistic approach on the further evolution of the pandemic. Entitled ‘Financial stability amidst the pandemic crisis: On top of the wave’, the key assumption is that the various infection waves of the crisis will not be followed by another severe one, as are we gradually reaching a much-desired point of ‘new normality’. And yet, we are ‘on top of the wave’ of the crisis as a whole, as our book title suggests. Therefore, challenges in relation to financial stability should not be underestimated, especially in (but not limited to) the field of NPLs, a new wave of which is emerging d","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114551095","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 Rising Private Asset Class: Core+ Real Estate Debt","authors":"Michelle Teng, Wenbo Zhang, Jonathan Kohana","doi":"10.2139/ssrn.3899209","DOIUrl":"https://doi.org/10.2139/ssrn.3899209","url":null,"abstract":"The Global Financial Crisis (GFC) disrupted the real estate (RE) debt market and triggered a retrenchment by traditional lenders such as commercial banks. Since then, this financing void has been filled by private fund vehicles – particularly within the core+ RE market – which has enabled growing institutional investor allocations to private RE debt. CIOs managing a multi-asset portfolio with allocations to both liquid and illiquid assets need to evaluate the cash flows from each asset class to better understand their portfolio’s liquidity risk. However, due to the specific cash flow pattern of core+ RE debt funds, and a lack of publicly available data, commonly used cash flow models for other private assets such as private equity (PE) are not suitable. We present a new cash flow model for private core+ RE debt funds. Our aim is to model a fund’s key cash flow dynamics using reasonable, practitioner supplied parameter estimates. As data become available, we expect to update the parameter values. The model incorporates sensitivity to the economic environment both at fund launch and over the fund’s life. This core+ RE debt cash flow model can be integrated into a multi-asset portfolio analytics tool such as the PGIM IAS asset allocation framework OASIS TM to help CIOs evaluate the diversification and liquidity management potential that private core+ RE debt may bring to their portfolios.","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123332472","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 Theory of Credit Cycles under Pandemic","authors":"Feng Dong, Pengfei Wang, Zhiwei Xu","doi":"10.2139/ssrn.3876824","DOIUrl":"https://doi.org/10.2139/ssrn.3876824","url":null,"abstract":"We develop a tractable dynamic theory linking endogenous credit cycles with conditions in the labor market, in which a pandemic may cripple credit markets and even cause a credit collapse by freezing the labor supply. We execute the idea in a general equilibrium framework with banks and financially constrained heterogeneous firms. In the static model, a modest pandemic disrupts the credit markets only at the intensive margin by decreasing the labor supply. A worsening pandemic can trigger a credit crisis, followed by a discontinuous sharp fall in aggregate output. By extending to a dynamic general equilibrium setting, we show that this mechanism can generate endogenous boom-bust credit cycles. Credit injection per se cannot adequately stabilize the economy. The lockdown policy combined with subsidizing firms turns out to be an efficient policy package to curb pandemic-induced recession.","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-06-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115207384","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":"Financial Crises and the Transmission of Monetary Policy to Consumer Credit Markets","authors":"Sasha Indarte","doi":"10.2139/ssrn.2705008","DOIUrl":"https://doi.org/10.2139/ssrn.2705008","url":null,"abstract":"\u0000 How does creditor health affect the pass-through of monetary policy to households? Using data on the universe of U.S. credit unions, I document that creditor asset losses increase the sensitivity of consumer credit to monetary policy. Identification exploits plausibly exogenous variation in asset losses and high-frequency identification of monetary policy shocks. Weaker lenders can respond more if they face financial frictions that easing alleviates. The estimates imply constraints on monetary policy become more costly in financial crises featuring creditor asset losses and that an additional benefit of monetary easing is that it weakens the causal, contractionary effect of asset losses.","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-06-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133721454","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":"Information or Persuasion in the Mortgage Market: The Role of Brand Names","authors":"V. Michelangeli, A. Carella","doi":"10.2139/ssrn.3891594","DOIUrl":"https://doi.org/10.2139/ssrn.3891594","url":null,"abstract":"The role, informative or persuasive, of brand names in driving purchasing decisions is very much under debate. We exploit the rebranding of a mortgage lender to analyse households’ choice behaviour in response to brand popularity. Loan-level data on new mortgages suggest that (1) brand awareness reduces the equilibrium price of residential mortgage contracts and (2) the reduction mainly reflects consumers’ selection of cheaper products due to better information. Our calibrated model implies an overall gain equal to 6 per cent of the initial loan amount and a roughly 10 percentage point increase in the share of households that shift to cheaper lenders.","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-06-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123741998","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":"Uncertain Execution in Order-Driven Markets","authors":"Leandro Sánchez-Betancourt","doi":"10.2139/ssrn.3871298","DOIUrl":"https://doi.org/10.2139/ssrn.3871298","url":null,"abstract":"So-called `latency' refers to the various small but significant time delays that occur in the course of the communications between a trader and a market. Such delays happen between the time an exchange streams market data to a trader, the time at which the trader processes the information and decides to trade, and the time at which the exchange receives and processes the order from the trader. Latency is a challenge faced by all traders and is of great importance in modern financial markets. In the present work, we develop mathematical models to solve a variety of problems faced by liquidity takers regarding uncertainty in executions.<br><br>Firstly, we devise a model for computing the price that traders are willing to pay to reduce their latency. This latency-optimal strategy balances the tradeoff, over a period of time, between the costs of walking the limit order book and the percentage of orders filled. This work may lead to social benefits, since it offers a way to stop the arms race to being faster in the marketplace. <br><br>Secondly, we develop a latency-optimal trading strategy that improves the marksmanship of liquidity takers. We make use of the techniques of variational analysis to obtain the optimal price limit of each marketable limit order (MLO) that the trader sends. The price limit of each MLO is characterized as the solution to a new class of forward-backward stochastic differential equations (FBSDEs) driven by random measures. We prove the existence and uniqueness of the FBSDE solution and solve the FBSDE numerically to illustrate the performance of the strategies.<br><br>Finally, we show how traders can optimally liquidate a position over a trading window when there is latency in the marketplace. We frame our model as an impulse control problem with stochastic delay -- this work contributes to the stochastic control literature by allowing one to have random delays before the impulses take place. We show that impatient liquidity takers submit MLOs that may walk the book (capped by the limit price) to increase the probability of filling the trades. Patient traders who are fast do not use their speed to hit the quotes they observe, nor to finish the execution programme early: they use speed to complete the execution with as many speculative MLOs as possible. We use foreign exchange data to implement the random-latency-optimal strategy and to compare it with various benchmarks. We find that for patient traders, the random-latency optimal strategy outperforms the bechmarks that do not account for latency by a quantity that is greater than the transaction costs paid by liquidity takers. Around news announcements, the value of the outperformance significantly increases. The superiority of the latency-optimal strategies is due to both the speculative MLOs that are filled and the price protection of the MLOs.","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-06-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122588219","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":"Government Loan Guarantees during a Crisis: The Effect of the PPP on Bank Lending and Profitability","authors":"W. Marsh, Padma Sharma","doi":"10.2139/ssrn.3890319","DOIUrl":"https://doi.org/10.2139/ssrn.3890319","url":null,"abstract":"We study bank responses to the Paycheck Protection Program (PPP) and its effects on lender balance sheets and profitability. To address the endogeneity between bank decisions and balance sheet effects, we develop a Bayesian joint model that examines the decision to participate, the intensity of participation, and ultimate balance sheet outcomes. Overall, lenders were driven by risk-aversion and funding capacity rather than profitability in their decision to participate and the intensity of their participation. Indeed, with greater participation intensity, banks experienced sizable growth in their loan portfolios but a decline in their interest margins. In counterfactual exercises, we show that the PPP offset a large potential contraction in business lending, and that bank margins would have fallen even more precipitously if lenders had not participated in the program. Although the PPP was intended as a credit support program for small firms, the program indirectly supported the margins of banks that channeled these loans.","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-06-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114850442","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":"Optimal Shadow Banking","authors":"Zehao Liu, Jinfan Zhang","doi":"10.2139/ssrn.3830240","DOIUrl":"https://doi.org/10.2139/ssrn.3830240","url":null,"abstract":"A puzzle of China’s shadow banking system is its stark growth since the 2008 Subprime Crisis, which is in sharp contrast to most of countries. We present a model to explain why the shadow banking activities have been allowed to expand with the full awareness of regulators in China. In the presence of local government intervention, which tends to distort the banks’ portfolio choices towards inefficient low-quality projects, the policy combination of formal banking sector credit tightening and shadow banking sector loosening forces banks to improve credit quality. This is because shadow banking assets are less diversified than commercial bank assets, thereby subject to higher bank run risk, which forces banks to improve the quality of shadow banking assets. Negative shocks to project quality may trigger information production in the shadow banking sector and prevent banks from providing funding to efficient projects, which creates additional welfare losses. This result provides a rationale for China's new regulations on shadow banking sector since 2018 in the background of increasing risks.","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-06-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131075776","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}