We propose a new method to estimate the unobservable natural real rate of interest in the United States (US). We begin by describing the natural rate in the New Keynesian model and then theoretically linking its evolution to both demand and supply-side shocks hitting the US economy. Our results indicate that the technology shock dominated the shift in the natural real rate of interest during the sample period 1947-2017. In addition, we also examine whether the Taylor rule should be augmented for changes in the estimated natural rate. Our maximum likelihood estimation shows that the inclusion of the natural interest rate shift in the Taylor rule leads to significant improvement of the interest rate modelling.
{"title":"The Natural Real Rate of Interest and Monetary Policy: New Evidence for the US","authors":"Sheng Zhu, Ella Kavanagh, Jun Gao","doi":"10.2139/ssrn.3756557","DOIUrl":"https://doi.org/10.2139/ssrn.3756557","url":null,"abstract":"We propose a new method to estimate the unobservable natural real rate of interest in the United States (US). We begin by describing the natural rate in the New Keynesian model and then theoretically linking its evolution to both demand and supply-side shocks hitting the US economy. Our results indicate that the technology shock dominated the shift in the natural real rate of interest during the sample period 1947-2017. In addition, we also examine whether the Taylor rule should be augmented for changes in the estimated natural rate. Our maximum likelihood estimation shows that the inclusion of the natural interest rate shift in the Taylor rule leads to significant improvement of the interest rate modelling.","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-05-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128608846","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}
C. Mastropasqua, Alessandro Intonti, Michael Jennings, C. Mandolini, M. Maniero, Stefano Vespucci, D. Toma
Italian Abstract: Il funzionamento dei mercati finanziari richiede l’esistenza di infrastrutture per la conclusione degli scambi degli operatori. Queste devono essere sicure, efficienti e in grado di assicurare l’ordinato svolgimento delle operazioni che vi si effettuano. Lo Statuto del SEBC dà mandato all’Eurosistema di “assicurare sistemi di compensazione e di pagamento efficienti e affidabili all’interno dell’Unione”; in linea con il mandato, l’Eurosistema ha realizzato le infrastrutture TARGET2 – per il regolamento dei pagamenti di largo importo (large-value), TARGET2-Securities (T2S) – per il regolamento dei titoli, TIPS – per il regolamento degli instant payments. Questo lavoro si concentra su T2S: la piattaforma paneuropea per gestire in maniera armonizzata la fase di regolamento delle transazioni in titoli che, per la parte in contanti, avviene sui conti detenuti dagli intermediari presso la banca centrale (regolamento in moneta di banca centrale o in base monetaria). La sua partenza, nel giugno del 2015, ha rappresentato una tappa fondamentale del processo di integrazione dei mercati finanziari in Europa, nei quali prevalevano infrastrutture, procedure e standard di regolamento definiti a livello nazionale la cui eterogeneità ostacolava la realizzazione di un unico mercato dei capitali. Il progetto di T2S muoveva da obiettivi di interesse pubblico, quali definire e attuare la politica monetaria dell’UE, promuovere il regolare funzionamento dei sistemi di pagamento e contribuire all’integrazione del mercato europeo dei capitali, favorendone l’allocazione efficiente. La piattaforma è stata realizzata per conto dell’Eurosistema da quattro banche centrali: Banque de France, Banca d’Italia, Deutsche Bundesbank, Banco de España (cosiddette “4CB”). Il progetto è partito nel 2008; i costi progettuali e operativi sono stati finanziati da tutte le banche centrali; essi devono essere interamente recuperati attraverso la tariffazione dei servizi offerti e senza generare margini di profitto. T2S “ospita” sia i conti titoli, sia i conti cash sulla medesima piattaforma, che per questo viene detta “integrata”. Il regolamento su base lorda e sui conti detenuti presso la banca centrale elimina di fatto il rischio di credito dovuto all’insolvenza della controparte. Queste caratteristiche, unite a presidi molto robusti di continuità operativa fanno di T2S un sistema sicuro e in grado di ridurre i rischi sistemici e operativi. T2S permette il regolamento anche in valute diverse dall’euro: da ottobre 2018 regola le transazioni in titoli in corone danesi. T2S ha ridotto significativamente la frammentazione nella fase di regolamento delle transazioni finanziarie europee, attraverso l’offerta di servizi standardizzati e uguali per tutti i depositari centrali di titoli (Central Securities Depositories, CSD) aderenti, per l’accesso ai quali è richiesta un’armonizzazione delle pratiche nazionali. Applicando ai CSD un’unica tariffa per il regolamento e transf
意大利摘要:金融市场的运作需要基础设施来完成交易。它们必须是安全的、有效的，并能够确保在那里进行的行动的有序进行。escb章程授权欧洲系统“确保欧盟内部有效和可靠的清算和支付系统”;根据其任务规定，欧洲系统建立了TARGET2基础设施——用于大规模支付结算(大额价值)、TARGET2证券(T2S)、证券结算、TIPS——用于短期支付结算。这项工作的重点是T2S:一个泛欧洲平台，以协调的方式管理证券交易结算阶段，就现金而言，证券交易结算阶段发生在中央银行的中介机构持有的账户(以中央银行货币或货币为基础的结算)。它于2015年6月启用，标志着欧洲金融市场一体化进程的一个重要阶段。在这一进程中，各国制定的基础设施、程序和监管标准占主导地位，其多样性阻碍了单一资本市场的建立。T2S项目的目标是确定和实施欧盟货币政策等公共利益目标，促进支付系统的平稳运行，促进欧洲资本市场的有效配置，促进欧洲资本市场的一体化。系统委托进行了四个平台:Banque de France),意大利央行(bank of italy)中央银行,德意志联邦银行Banco de 1.79ña(所谓的“4CB”)。该项目始于2008年;设计和运营成本由所有央行提供资金;它们必须通过对所提供的服务收费而不产生任何利润来全部收回。T2S“拥有”同一平台上的证券账户和现金账户，因此被称为“集成”。对央行持有的账户和总金额的监管，有效地消除了交易对手违约带来的信贷风险。这些特性，加上非常强大的操作连续性，使T2S成为一个安全的系统，能够减少系统和操作风险。T2S还允许对欧元以外的货币进行结算:自2018年10月以来，它一直在管理丹麦克朗的证券交易。T2S通过为所有参与的中央证券存管机构(CSD)提供标准化和平等的服务，大大减少了欧洲金融交易结算阶段的碎片化。为了获得这些服务，需要协调各国的做法。通过对CSD实行单一的跨境结算关税，它大大降低了不同国家运营商之间的交易成本，使它们更容易、更便宜地获得跨境发行的证券。T2S现在是欧洲和全球支付基础设施的一个既定现实。2020年，21个CSD在20个欧洲市场开展了业务;它稳定地以央行货币结算了70多万笔交易，峰值超过100万笔。它的运作受到持续监测，并定期向市场提供欧元系统的资料。此外，它还受到欧洲系统的监督，欧洲系统根据为具有系统重要性的技术基础设施制定的国际标准对该平台进行评估。这样一个复杂和广泛的项目需要适当的法律和参与性结构，既适用于设计阶段，也适用于业务阶段。欧洲系统与CSD和非欧元区央行(非欧元央行)分别签订了两份合同，这两份合同进行了密集而漫长的谈判。在确定平台提供的服务时，行业参与者和央行积极参与合同框架内定义的治理非常重要。意大利央行(bank of italy)参加决策T2S法律框架所规定的(内部和外部)治理所做的更高,地址,作用是由欧洲央行管理委员会管理和市场基础设施委员会(市场基础设施委员会,MIB)系统。 此外,银行在2007年主要职能:德国央行(Bundesbank)一起,Banque de France)和Banco de 1.79平台实现了ñ以及与德国央行(Bundesbank)负责经营管理;它通过意大利证券中央储存库基督山证券(Monte securities)使用T2S，作为中央银行，它直接与意大利广场金融机构使用的流动性管理平台互动。它还参与欧洲系统的监督和与金融市场监管当局的合作。T2S已经运行了一段时间，以评估预期的利益是否已经实现，以及是否出现了新的环境元素。因此，自2015年以来一直使用该平台的意大利市场上的三家主要参与者——意大利中央保管人蒙特托蒂、谅解备忘录和UniCredit——被要求报告他们的经验。这三家运营商的证词显示，T2S预期的收益在很大程度上已经实现，尤其是对CSD和银行而言;至于发行人，他们的意见是，到目前为止，T2S的效益有限。T2S的发展是一个持续发展的过程;下一个目标将是与其他目标服务的集成，以及加强正在进行工作的安全和数据恢复能力。应用于证券结算的新分布式技术所带来的挑战似乎还不能替代T2S的高度先进功能。欧盟委员会(european commission)排放的方案,这是合理的假设将对资本市场的欧洲,是抓住的机会来加强T2S的网络效应,增加其他一些工具层面规范和相关市场的商业机会。这项工作分为六章。第一章描述T2S是如何工作的。第二章阐述了外部治理的法律框架和结构。第三章集中讨论欧洲金融共同体在T2S中进行的业务。第4章概述了意大利银行执行的任务。第5章介绍了三家主要的意大利T2S运营商自成立以来的经验。第6章介绍了设计和政策干预措施、新技术带来的挑战以及增加T2S在欧洲后贸易中作用的机会。2015年6月，欧洲交易后市场一体化迈出了重要一步。欧洲系统在2008年决定建立一个泛欧洲的平台，以结算中央银行货币的目标和任务，定义和实施欧盟的货币政策，并促进支付系统的平稳运行。T2S还代表了欧盟资本市场一体化的关键构建块。The平台是realized由Banque de France),意大利央行(bank of italy),德意志联邦银行Banco de 1.79ña (4CB)。它的设计和运营成本由所有欧洲系统中央银行支付;这些费用将通过应用于T2S用户的服务费来支付。今天的T2S在欧洲和全球支付基础设施的土地景观中建立得很好。到2020年，它将21个CSDs的运营从20个欧洲市场转移;每天在稳定的基础上，中央银行的资金将超过7万美元。它的功能是定期监控和定期向市场报告。此外，它是欧洲系统监督的对象，它同意系统重要性技术基础设施的国际定义原则。T2S的进化是一个持续发展的过程;下一个目标涉及与其他目标服务的整合，以及对正在进行的工作的安全和弹性措施的调整。新兴发行技术应用于证券结算的挑战并不足以替代T2S的极端高级功能。欧洲委员会的自我提升计划，可以合理地假设，将对欧洲资本市场产生推动效应，在另一方面代表一个提高T2S网络效应的机会，增加固定工具的数量和尺寸，以及与之相关的市场的商业机会。这项工作分为六章。第一章描述T2S是如何工作的。第二章阐述法律框架和外部治理结构。 第三章主要介绍欧洲金融界在T2S中开展的业务。第四章阐述了意大利银行所执行的任务。第五章描述了自T2S成立以来意大利三家领先运营商的经验。第六章提供了pl
{"title":"T2S - TARGET2-Securities - La piattaforma paneuropea per il regolamento dei titoli in base monetaria. (T2S - TARGET2-Securities - The Pan-European Platform for the Settlement of Securities in Central Bank Money)","authors":"C. Mastropasqua, Alessandro Intonti, Michael Jennings, C. Mandolini, M. Maniero, Stefano Vespucci, D. Toma","doi":"10.2139/ssrn.3854970","DOIUrl":"https://doi.org/10.2139/ssrn.3854970","url":null,"abstract":"<b>Italian Abstract:</b> Il funzionamento dei mercati finanziari richiede l’esistenza di infrastrutture per la conclusione degli scambi degli operatori. Queste devono essere sicure, efficienti e in grado di assicurare l’ordinato svolgimento delle operazioni che vi si effettuano. Lo Statuto del SEBC dà mandato all’Eurosistema di “assicurare sistemi di compensazione e di pagamento efficienti e affidabili all’interno dell’Unione”; in linea con il mandato, l’Eurosistema ha realizzato le infrastrutture TARGET2 – per il regolamento dei pagamenti di largo importo (large-value), TARGET2-Securities (T2S) – per il regolamento dei titoli, TIPS – per il regolamento degli instant payments. Questo lavoro si concentra su T2S: la piattaforma paneuropea per gestire in maniera armonizzata la fase di regolamento delle transazioni in titoli che, per la parte in contanti, avviene sui conti detenuti dagli intermediari presso la banca centrale (regolamento in moneta di banca centrale o in base monetaria). La sua partenza, nel giugno del 2015, ha rappresentato una tappa fondamentale del processo di integrazione dei mercati finanziari in Europa, nei quali prevalevano infrastrutture, procedure e standard di regolamento definiti a livello nazionale la cui eterogeneità ostacolava la realizzazione di un unico mercato dei capitali. Il progetto di T2S muoveva da obiettivi di interesse pubblico, quali definire e attuare la politica monetaria dell’UE, promuovere il regolare funzionamento dei sistemi di pagamento e contribuire all’integrazione del mercato europeo dei capitali, favorendone l’allocazione efficiente. La piattaforma è stata realizzata per conto dell’Eurosistema da quattro banche centrali: Banque de France, Banca d’Italia, Deutsche Bundesbank, Banco de España (cosiddette “4CB”). Il progetto è partito nel 2008; i costi progettuali e operativi sono stati finanziati da tutte le banche centrali; essi devono essere interamente recuperati attraverso la tariffazione dei servizi offerti e senza generare margini di profitto. T2S “ospita” sia i conti titoli, sia i conti cash sulla medesima piattaforma, che per questo viene detta “integrata”. Il regolamento su base lorda e sui conti detenuti presso la banca centrale elimina di fatto il rischio di credito dovuto all’insolvenza della controparte. Queste caratteristiche, unite a presidi molto robusti di continuità operativa fanno di T2S un sistema sicuro e in grado di ridurre i rischi sistemici e operativi. T2S permette il regolamento anche in valute diverse dall’euro: da ottobre 2018 regola le transazioni in titoli in corone danesi. T2S ha ridotto significativamente la frammentazione nella fase di regolamento delle transazioni finanziarie europee, attraverso l’offerta di servizi standardizzati e uguali per tutti i depositari centrali di titoli (Central Securities Depositories, CSD) aderenti, per l’accesso ai quali è richiesta un’armonizzazione delle pratiche nazionali. Applicando ai CSD un’unica tariffa per il regolamento e transf","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-05-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124751101","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}
We decompose euro area sovereign bond yields into five distinct components: i) expected future short-term risk-free rates and a term premium, ii) default risk premium, iii) redenomination risk premium, iv) liquidity risk premium, and a v) segmentation (convenience) premium. Identification is achieved by considering sovereign bond yields jointly with other rates, including sovereign credit default swap spreads with and without redenomination as a credit event feature. We apply our framework to study the impact of European Central Bank (ECB) monetary policy and European Union (E.U.) fiscal policy announcements during the Covid-19 pandemic recession. We find that both monetary and fiscal policy announcements had a pronounced effect on yields, mostly through default, redenomination, and segmentation premia. While the ECB's unconventional monetary policy announcements benefited some (vulnerable) countries more than others, owing to unprecedented flexibility in implementing bond purchases, the E.U.’s fiscal policy announcements lowered yields more uniformly.
{"title":"Euro Area Sovereign Bond Risk Premia During the COVID-19 Pandemic","authors":"Stefano Corradin, Niklas Grimm, B. Schwaab","doi":"10.2139/ssrn.3857400","DOIUrl":"https://doi.org/10.2139/ssrn.3857400","url":null,"abstract":"We decompose euro area sovereign bond yields into five distinct components: i) expected future short-term risk-free rates and a term premium, ii) default risk premium, iii) redenomination risk premium, iv) liquidity risk premium, and a v) segmentation (convenience) premium. Identification is achieved by considering sovereign bond yields jointly with other rates, including sovereign credit default swap spreads with and without redenomination as a credit event feature. We apply our framework to study the impact of European Central Bank (ECB) monetary policy and European Union (E.U.) fiscal policy announcements during the Covid-19 pandemic recession. We find that both monetary and fiscal policy announcements had a pronounced effect on yields, mostly through default, redenomination, and segmentation premia. While the ECB's unconventional monetary policy announcements benefited some (vulnerable) countries more than others, owing to unprecedented flexibility in implementing bond purchases, the E.U.’s fiscal policy announcements lowered yields more uniformly.","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128772306","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}
In this paper we present a methodology of model-based calibration of additional capital needed in an interconnected financial system to minimize potential contagion losses. Building on ideas from combinatorial optimization tailored to controlling contagion in case of complete information about an interbank network, we augment the model with three plausible types of fire sale mechanisms. We then demonstrate the power of the methodology on the euro area banking system based on a network of 373 banks. On the basis of an exogenous shock leading to defaults of some banks in the network, we find that the contagion losses and the policy authority's ability to control them depend on the assumed fire sale mechanism and the fiscal budget constraint that may or may not restrain the policy authorities from infusing money to halt the contagion. The modelling framework could be used both as a crisis management tool to help inform decisions on capital/liquidity infusions in the context of resolutions and precautionary recapitalisations or as a crisis prevention tool to help calibrate capital buffer requirements to address systemic risks due to interconnectedness.
{"title":"On the Optimal Control of Interbank Contagion in the Euro Area Banking System","authors":"Gábor Fukker, Christoffer Kok","doi":"10.2866/223229","DOIUrl":"https://doi.org/10.2866/223229","url":null,"abstract":"In this paper we present a methodology of model-based calibration of additional capital needed in an interconnected financial system to minimize potential contagion losses. Building on ideas from combinatorial optimization tailored to controlling contagion in case of complete information about an interbank network, we augment the model with three plausible types of fire sale mechanisms. We then demonstrate the power of the methodology on the euro area banking system based on a network of 373 banks. On the basis of an exogenous shock leading to defaults of some banks in the network, we find that the contagion losses and the policy authority's ability to control them depend on the assumed fire sale mechanism and the fiscal budget constraint that may or may not restrain the policy authorities from infusing money to halt the contagion. The modelling framework could be used both as a crisis management tool to help inform decisions on capital/liquidity infusions in the context of resolutions and precautionary recapitalisations or as a crisis prevention tool to help calibrate capital buffer requirements to address systemic risks due to interconnectedness.","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124242055","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}
L. Mastroeni, A. Mazzoccoli, Greta Quaresima, P. Vellucci
In this paper we exploit the wavelet analysis approach to investigate oil-food price correlation and its determinants in the domains of time and frequency.Wavelet analysis is able to differentiate high frequency from low frequency movements which correspond, respectively, to short and long run dynamics. We show that the significant local correlation between food and oil is only apparent and this is mainly due both to the activity of commodity index investments and, to a lesser extent, to a growing demand from emerging economies.Moreover, the activity of commodity index investments gives evidence of the overall financialisation process. In addition, we employ wavelet entropy to assess the predictability of the time series under consideration at different frequencies. We find that some variables share a similar predictability structure with food and oil.These variables are the ones that move the most along with oil and food. We also introduce a novel measure, the Cross Wavelet Energy Entropy Measure (CWEEM), based on wavelet transformation and information entropy, with the aim of quantifying the intrinsic predictability of food and oil given demand from emerging economies, commodity index investments, financial stress, and global economic activity. The results show that these dynamics are best predicted by global economic activity at all frequencies and by demand from emerging economies and commodity index investments at high frequencies only.
本文利用小波分析方法研究了石油和粮食价格在时间和频率上的相关性及其决定因素。小波分析能够区分高频和低频运动，分别对应于短期和长期动态。我们表明，食品和石油之间的显著局部相关性只是显而易见的，这主要是由于商品指数投资的活动，以及新兴经济体不断增长的需求(在较小程度上)。此外，大宗商品指数投资活动证明了整个金融化过程。此外，我们利用小波熵来评估时间序列在不同频率下的可预测性。我们发现一些变量与食物和石油有着相似的可预测性结构。这些变量是随着石油和食物变化最大的。我们还引入了一种基于小波变换和信息熵的新测度——交叉小波能量熵测度(Cross Wavelet Energy Entropy measure, CWEEM)，旨在量化新兴经济体需求、商品指数投资、金融压力和全球经济活动对食品和石油的内在可预测性。结果表明，所有频率的全球经济活动和新兴经济体的需求以及仅高频的商品指数投资都能最好地预测这些动态。
{"title":"Wavelet Analysis and Energy-Based Measures for Oil-Food Price Relationship as a Footprint of Financialisation Effect","authors":"L. Mastroeni, A. Mazzoccoli, Greta Quaresima, P. Vellucci","doi":"10.2139/ssrn.3925504","DOIUrl":"https://doi.org/10.2139/ssrn.3925504","url":null,"abstract":"In this paper we exploit the wavelet analysis approach to investigate oil-food price correlation and its determinants in the domains of time and frequency.Wavelet analysis is able to differentiate high frequency from low frequency movements which correspond, respectively, to short and long run dynamics. We show that the significant local correlation between food and oil is only apparent and this is mainly due both to the activity of commodity index investments and, to a lesser extent, to a growing demand from emerging economies.Moreover, the activity of commodity index investments gives evidence of the overall financialisation process. In addition, we employ wavelet entropy to assess the predictability of the time series under consideration at different frequencies. We find that some variables share a similar predictability structure with food and oil.These variables are the ones that move the most along with oil and food. We also introduce a novel measure, the Cross Wavelet Energy Entropy Measure (CWEEM), based on wavelet transformation and information entropy, with the aim of quantifying the intrinsic predictability of food and oil given demand from emerging economies, commodity index investments, financial stress, and global economic activity. The results show that these dynamics are best predicted by global economic activity at all frequencies and by demand from emerging economies and commodity index investments at high frequencies only.","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-04-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126509838","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}
This paper investigates how cross-selling affects relationship lending using internal data from a large bank and the Swedish credit registry. I show that within a bank-firm relationship, profit earned from non-loan products cross-subsidizes loans and increases (1) credit supply and (2) the likelihood of the bank’s pausing or waiving interest payments for delinquent loans (lenience in delinquency). For identification, I exploit the Basel II-induced exogenous variation in products’ profitability while holding constant the firm’s creditworthiness and relationship informativeness. I find that the average affected firm experienced a decrease of 6% ($400,000) in credit supply and 30% (9.8 pp) in lenience in delinquency. The results highlight the importance of cross-subsidization as a mechanism through which cross-selling affects bank-firm relationships and inform optimal regulatory design for lenders who multi-produce.
{"title":"Big Broad Banks: How Does Cross-Selling Affect Lending?","authors":"Yingjie Qi","doi":"10.2139/ssrn.3074343","DOIUrl":"https://doi.org/10.2139/ssrn.3074343","url":null,"abstract":"\u0000 This paper investigates how cross-selling affects relationship lending using internal data from a large bank and the Swedish credit registry. I show that within a bank-firm relationship, profit earned from non-loan products cross-subsidizes loans and increases (1) credit supply and (2) the likelihood of the bank’s pausing or waiving interest payments for delinquent loans (lenience in delinquency). For identification, I exploit the Basel II-induced exogenous variation in products’ profitability while holding constant the firm’s creditworthiness and relationship informativeness. I find that the average affected firm experienced a decrease of 6% ($400,000) in credit supply and 30% (9.8 pp) in lenience in delinquency. The results highlight the importance of cross-subsidization as a mechanism through which cross-selling affects bank-firm relationships and inform optimal regulatory design for lenders who multi-produce.","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-04-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131506947","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}
We study how FDI affects the financial structure of targeted firms, by looking at a sample of foreign acquisitions that occurred in Italy between 1998 and 2016. We show that the entry of foreign investors promotes the diversification of financing sources. Moreover, foreign acquisitions lower investment sensitivity to the availability of bank credit and the cash flow sensitivity of cash, allowing targeted firms to rely more on non-bank external financing channels. Importantly, these effects are stronger for investment in intangible assets. These findings suggest that the positive productivity effects of FDI emphasized in the literature are, at least in part, traceable to enhanced investment in capital that is harder to finance through the banking sector.
{"title":"Foreign Investors and Target Firms’ Financial Structure: Cavalry or Locusts?","authors":"L. Bencivelli, B. Pisicoli","doi":"10.2139/ssrn.3852377","DOIUrl":"https://doi.org/10.2139/ssrn.3852377","url":null,"abstract":"We study how FDI affects the financial structure of targeted firms, by looking at a sample of foreign acquisitions that occurred in Italy between 1998 and 2016. We show that the entry of foreign investors promotes the diversification of financing sources. Moreover, foreign acquisitions lower investment sensitivity to the availability of bank credit and the cash flow sensitivity of cash, allowing targeted firms to rely more on non-bank external financing channels. Importantly, these effects are stronger for investment in intangible assets. These findings suggest that the positive productivity effects of FDI emphasized in the literature are, at least in part, traceable to enhanced investment in capital that is harder to finance through the banking sector.","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-04-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131541827","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}
This paper presents a spatial model to analyze the effects of the entry of Fintech lenders on credit market competition and welfare. In the model, banks compete with a Fintech lender for borrowers under asymmetric information. Both types of lenders can screen borrowers before making a loan, and their signals are conditionally independent and asymmetric. The Fintech lender will enter the market if its screening ability is sufficiently high or the credit market is not very competitive. Increased competition from Fintech entrants erodes banks' profitability. Contrary to the standard view, Fintech entry could hurt borrowers' access to credit and worsen allocative efficiency. Fintech entry crowds out banks in the long run and may reduce social welfare.
{"title":"Fintech Entry and Credit Market Competition","authors":"Yinxiao Chu, Jianxing Wei","doi":"10.2139/ssrn.3827598","DOIUrl":"https://doi.org/10.2139/ssrn.3827598","url":null,"abstract":"This paper presents a spatial model to analyze the effects of the entry of Fintech lenders on credit market competition and welfare. In the model, banks compete with a Fintech lender for borrowers under asymmetric information. Both types of lenders can screen borrowers before making a loan, and their signals are conditionally independent and asymmetric. The Fintech lender will enter the market if its screening ability is sufficiently high or the credit market is not very competitive. Increased competition from Fintech entrants erodes banks' profitability. Contrary to the standard view, Fintech entry could hurt borrowers' access to credit and worsen allocative efficiency. Fintech entry crowds out banks in the long run and may reduce social welfare.","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-04-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127585269","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}
This paper presents a new approach that quantifies how a credit rating agency and investors judge the effects of collateral and various covenants on syndicated loan risk. It addresses firms’ self-selection of these contract terms by analyzing how a loan’s collateral and covenants affect: 1) the difference between the loan’s credit rating and the senior, unsecured credit rating of the borrowing firm; and 2) the difference between the borrowing firm’s senior, unsecured CDS spread and its loan’s credit spread. The results show that the rating agency and investors agree that a collateral requirement, a capital expenditure covenant, and a dividend restriction covenant are most important for reducing a loan’s credit risk. However, equity issuance and excess cashflow sweeps increase a loan’s risk.
{"title":"Syndicated Loan Risk: The Effects of Covenants and Collateral","authors":"Jianglin Ding, George G. Pennacchi","doi":"10.2139/ssrn.3828153","DOIUrl":"https://doi.org/10.2139/ssrn.3828153","url":null,"abstract":"This paper presents a new approach that quantifies how a credit rating agency and investors judge the effects of collateral and various covenants on syndicated loan risk. It addresses firms’ self-selection of these contract terms by analyzing how a loan’s collateral and covenants affect: 1) the difference between the loan’s credit rating and the senior, unsecured credit rating of the borrowing firm; and 2) the difference between the borrowing firm’s senior, unsecured CDS spread and its loan’s credit spread. The results show that the rating agency and investors agree that a collateral requirement, a capital expenditure covenant, and a dividend restriction covenant are most important for reducing a loan’s credit risk. However, equity issuance and excess cashflow sweeps increase a loan’s risk.","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-04-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131577880","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}
Rosalind Z. Wiggins, Aidan Lawson, Steven J. Kelly, Lily Engbith, Andrew Metrick
In September 2008, in the midst of the broader financial crisis, the Federal Reserve Board of Governors used its emergency authority under Section 13(3) of the Federal Reserve Act to authorize the largest loan in its history, a $85 billion collateralized credit line to American International Group (AIG), a $1 trillion insurance and financial company that was experiencing severe liquidity strains. In connection with the loan, the government received an equity interest representing 79.9% of the company’s ownership. AIG continued to experience a depressed stock price, asset devaluations, and the risk of ratings downgrades leading to questions about its solvency. To stabilize the company, the government committed additional assistance, including equity investments under the Troubled Assets Relief Program and asset purchases, for a total commitment of $182.3 billion. AIG survived as a smaller entity and repaid all amounts owed to the government, which, along with the government’s sale of its AIG equity stake, resulted in a profit of $22.7 billion for the government and taxpayers (Treasury 2013, 14). In this case we discuss the government’s actions on an aggregate basis and analyze how the rescue was conceived and executed in order to better understand the unique lessons to be learned and possibly applied to future crisis events.
{"title":"The Rescue of American International Group Module Z: Overview","authors":"Rosalind Z. Wiggins, Aidan Lawson, Steven J. Kelly, Lily Engbith, Andrew Metrick","doi":"10.2139/ssrn.3902819","DOIUrl":"https://doi.org/10.2139/ssrn.3902819","url":null,"abstract":"In September 2008, in the midst of the broader financial crisis, the Federal Reserve Board of Governors used its emergency authority under Section 13(3) of the Federal Reserve Act to authorize the largest loan in its history, a $85 billion collateralized credit line to American International Group (AIG), a $1 trillion insurance and financial company that was experiencing severe liquidity strains. In connection with the loan, the government received an equity interest representing 79.9% of the company’s ownership. AIG continued to experience a depressed stock price, asset devaluations, and the risk of ratings downgrades leading to questions about its solvency. To stabilize the company, the government committed additional assistance, including equity investments under the Troubled Assets Relief Program and asset purchases, for a total commitment of $182.3 billion. AIG survived as a smaller entity and repaid all amounts owed to the government, which, along with the government’s sale of its AIG equity stake, resulted in a profit of $22.7 billion for the government and taxpayers (Treasury 2013, 14). In this case we discuss the government’s actions on an aggregate basis and analyze how the rescue was conceived and executed in order to better understand the unique lessons to be learned and possibly applied to future crisis events.","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-04-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123510151","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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