{"title":"Who Values Economist Forecasts? Evidence From Trading in Treasury Markets","authors":"Robert James , Elvis Jarnecic , Henry Leung","doi":"10.1016/j.jfi.2021.100934","DOIUrl":"https://doi.org/10.1016/j.jfi.2021.100934","url":null,"abstract":"<div><p><span>While economic forecasting is ubiquitous within the </span>industry, its role in the trading process has received little attention in the literature. We examine how economist forecasts are related to trading activity in the OTC treasury bond market at the participant level. Consistent with models of heterogeneous opinions, we show that the forecasting economists employing institution places a disproportionately large reliance on the forecast. There is pervasive evidence that this reliance is asymmetric. Only forecasts which imply a fall in future treasury bond prices are associated with an abnormal trading reaction consistent with the forecast. Reference dependence and loss aversion offer one possible explanation for this asymmetric trading response.</p></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":null,"pages":null},"PeriodicalIF":5.2,"publicationDate":"2022-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"71783549","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"The spread of deposit insurance and the global rise in bank asset risk since the 1970s","authors":"Charles W. Calomiris , Sophia Chen","doi":"10.1016/j.jfi.2020.100881","DOIUrl":"https://doi.org/10.1016/j.jfi.2020.100881","url":null,"abstract":"<div><p>We construct a new measure of deposit insurance generosity for many countries, empirically model the exogenous international influences on the adoption and generosity of deposit insurance and use a novel econometric method to explore the causal chain from the expansion of deposit insurance generosity to increased overall lending, increased lending to households, increased banking system leverage, and more severe and frequent banking crises. Greater deposit insurance generosity robustly produces greater overall lending relative to bank assets and more lending to households relative to both bank assets and GDP, and results in higher banking system leverage. Our estimates, however, are not conclusive regarding whether greater deposit insurance generosity resulted in greater total loans relative to GDP or in more frequent or severe banking crises.</p></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":null,"pages":null},"PeriodicalIF":5.2,"publicationDate":"2022-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1016/j.jfi.2020.100881","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"71784561","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Allen N. Berger , Omrane Guedhami , Hugh H. Kim , Xinming Li
{"title":"Economic policy uncertainty and bank liquidity hoarding","authors":"Allen N. Berger , Omrane Guedhami , Hugh H. Kim , Xinming Li","doi":"10.1016/j.jfi.2020.100893","DOIUrl":"https://doi.org/10.1016/j.jfi.2020.100893","url":null,"abstract":"<div><p><span>We examine the impact of economic policy uncertainty (</span><em>EPU</em><span>) on bank liquidity hoarding. We create a comprehensive measure of bank liquidity hoarding that takes into account asset-, liability-, and off-balance sheet activities. Using over one million bank-quarter observations, we find that in response to </span><em>EPU</em><span>, banks hoard liquidity overall and through all three components. This behavior is more pronounced for banks with less liquidity, more peer-bank spillover effects, and more </span><em>EPU</em> exposure. Additional analyses of interest rate spreads on several bank products suggest that our findings reflect at least in part bank choices, rather than just the reactions of customers.</p></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":null,"pages":null},"PeriodicalIF":5.2,"publicationDate":"2022-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1016/j.jfi.2020.100893","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"71784563","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"COVID-19, policy interventions and credit: The Brazilian experience","authors":"Lars Norden , Daniel Mesquita , Weichao Wang","doi":"10.1016/j.jfi.2021.100933","DOIUrl":"10.1016/j.jfi.2021.100933","url":null,"abstract":"<div><p>The COVID-19 pandemic caused a global health and economic crisis to which governments responded with massive policy interventions. Using Brazil as a testing ground, we investigate the influence of the pandemic and ensuing policy interventions on local credit markets. First, we find that the pandemic has a significantly negative impact on local credit. Second, using a novel manually collected database on the staggered municipal government policy interventions, we show heterogenous effects of interventions: positive effects of soft interventions (e.g., social distancing and mass gathering restrictions) and late reopening, and negative effects of hard interventions (e.g., closure of non-essential services) and early reopening. Third, we find that state-owned banks grant more local credit than privately owned banks during the COVID-19 crisis but this difference is less pronounced than it was in the 2008 Financial Crisis. We confirm our results using pre-pandemic local political preference as instrument for policy interventions and orthogonalized policy intervention indicators, and in placebo tests.</p></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":null,"pages":null},"PeriodicalIF":5.2,"publicationDate":"2021-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1016/j.jfi.2021.100933","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49665744","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Securitization and optimal foreclosure","authors":"John Chi-Fong Kuong , Jing Zeng","doi":"10.1016/j.jfi.2020.100885","DOIUrl":"https://doi.org/10.1016/j.jfi.2020.100885","url":null,"abstract":"<div><p>Does securitization distort the foreclosure decisions of non-performing mortgages? In a model of mortgage-backed securitization with an endogenous foreclosure policy, we find that the securitizing bank adopts a tougher foreclosure policy than the first-best, despite resulting in higher loan losses. This is optimal because foreclosure mitigates the adverse selection problem in securitization by making the optimal security, a risky debt, less information-sensitive. We further show that policies that limit mortgage foreclosure would discourage the bank’s ex ante screening effort, reducing the quality of securitized mortgages. Our model yields novel testable predictions on the effect of mortgage securitization on foreclosure rates, loan performance, and mortgage servicing.</p></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":null,"pages":null},"PeriodicalIF":5.2,"publicationDate":"2021-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1016/j.jfi.2020.100885","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"71868115","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Credit default swaps and corporate bond trading","authors":"Robert Czech","doi":"10.1016/j.jfi.2021.100932","DOIUrl":"https://doi.org/10.1016/j.jfi.2021.100932","url":null,"abstract":"<div><p>Using regulatory data on CDS holdings and corporate bond transactions, I provide evidence for a liquidity spillover effect from CDS to bond markets. Bond trading volumes are 70% larger for investors with CDS positions written on the debt issuer. Moreover, higher CDS trading activity substantially improves the liquidity of the underlying bonds, particularly around rating downgrades. Additional analyses reveal that the spillover effect is partly driven by naked CDS positions, highlighting one of the adverse consequences of naked CDS bans for bond markets. The results suggest that the presence of an accessible CDS market enhances the liquidity of the underlying bond market.</p></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":null,"pages":null},"PeriodicalIF":5.2,"publicationDate":"2021-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1016/j.jfi.2021.100932","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"71868117","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Portfolio rebalancing and the transmission of large-scale asset purchase programs: Evidence from the Euro area","authors":"Ugo Albertazzi , Bo Becker , Miguel Boucinha","doi":"10.1016/j.jfi.2020.100896","DOIUrl":"10.1016/j.jfi.2020.100896","url":null,"abstract":"<div><p><span>The European Central Bank's large-scale asset purchase program targeted safe assets, but also aimed to impact prices of risky assets. The mechanism for this is the “portfolio rebalancing channel”, where financial institutions’ portfolio decisions impact financial prices more broadly. We examine this mechanism using cross-sectional heterogeneity in how the financial portfolios of different sectors of the European economy were affected around the purchase program. We find evidence of rebalancing. In vulnerable countries, where </span>macroeconomic unbalances and relatively high risk premia remained, we document rebalancing towards riskier securities. In less vulnerable countries, based on granular information for large European banks, we document rebalancing toward bank loans.</p></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":null,"pages":null},"PeriodicalIF":5.2,"publicationDate":"2021-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1016/j.jfi.2020.100896","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43978902","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Liquidity from two lending facilities","authors":"Sriya Anbil , Angela Vossmeyer","doi":"10.1016/j.jfi.2020.100884","DOIUrl":"https://doi.org/10.1016/j.jfi.2020.100884","url":null,"abstract":"<div><p>We examine how the threat of disclosure (stigma) changes the quality of banks that approach emergency lending facilities. We study a financial crisis where two confidential facilities were available to banks. Unexpectedly, a partial list of bank names from one facility was published, suddenly stigmatizing that facility. We find that the composition of banks that approached each facility changed, where the newly stigmatized facility attracted weaker banks that maintained smaller liquidity buffers, while the alternative confidential facility attracted both weaker and stronger banks. Our results shed light on how stigma prevents regulators from reaching many banks to inject critical liquidity into the banking sector during a crisis.</p></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":null,"pages":null},"PeriodicalIF":5.2,"publicationDate":"2021-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1016/j.jfi.2020.100884","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"71867423","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Capital requirements and mortgage pricing: Evidence from Basel II","authors":"Matteo Benetton , Peter Eckley , Nicola Garbarino , Liam Kirwin , Georgia Latsi","doi":"10.1016/j.jfi.2020.100883","DOIUrl":"10.1016/j.jfi.2020.100883","url":null,"abstract":"<div><p><span>As a result of the Basel II reforms, capital requirements on UK mortgages fell substantially in coincidence with the financial crisis. We exploit a novel, loan-level dataset on </span><em>within</em>-lender variation in risk-weighted capital requirements and a triple-difference identification strategy to estimate the pass through of capital requirements to mortgage rates. We find that a 1pp lower risk-weighted capital requirement leads to a reduction in rates by 10–16bp on average, with stronger effects for less-capitalized lenders. The competitive advantage induced by multi-tier regulation also affects the composition of banks mortgage portfolios, with larger lenders specializing in lower risk loans. Finally, our results support the use of countercyclical capital requirements to sustain lending in a crisis.</p></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":null,"pages":null},"PeriodicalIF":5.2,"publicationDate":"2021-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1016/j.jfi.2020.100883","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49196020","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"The agency of CoCos: Why contingent convertible bonds are not for everyone","authors":"Roman Goncharenko , Steven Ongena , Asad Rauf","doi":"10.1016/j.jfi.2020.100882","DOIUrl":"https://doi.org/10.1016/j.jfi.2020.100882","url":null,"abstract":"<div><p>Some regulators grant contingent convertible bonds (CoCos) the status of “going-concern” capital. Theory, however, suggests that CoCos can induce debt overhang, thereby amplifying the leverage ratchet effect. In this paper, we provide empirical evidence consistent with this theory. Our results suggest that banks with more volatile assets (riskier banks) (i) are less likely to issue CoCos, (ii) conditional on having CoCos outstanding are less likely to issue equity, and (iii) prefer issuing equity over CoCos. Since riskier banks suffer from more debt overhang it is more costly for them to issue CoCos.</p></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":null,"pages":null},"PeriodicalIF":5.2,"publicationDate":"2021-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1016/j.jfi.2020.100882","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"71868116","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}