We evaluate the implications of the ECB's negative interest rate policy (NIRP) on the yield curve. To capture various shapes of the short end of the yield curve induced by the NIRP, we introduce two policy indicators, which summarize the immediate and longer-horizon future monetary policy stances. We find the four NIRP events lowered the short term interest rate by the same amount. The impact is dampened at longer maturities for the first two event dates due to lack of forward guidance. In contrast, in the last two dates, forward guidance drives the largest effects in two years.
{"title":"Negative Interest Rate Policy and the Yield Curve","authors":"Jing Cynthia Wu, F. Xia","doi":"10.2139/ssrn.3265882","DOIUrl":"https://doi.org/10.2139/ssrn.3265882","url":null,"abstract":"We evaluate the implications of the ECB's negative interest rate policy (NIRP) on the yield curve. To capture various shapes of the short end of the yield curve induced by the NIRP, we introduce two policy indicators, which summarize the immediate and longer-horizon future monetary policy stances. We find the four NIRP events lowered the short term interest rate by the same amount. The impact is dampened at longer maturities for the first two event dates due to lack of forward guidance. In contrast, in the last two dates, forward guidance drives the largest effects in two years.","PeriodicalId":344099,"journal":{"name":"ERN: Banking & Monetary Policy (Topic)","volume":"205 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123257973","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 analyses the relationship between bank credit and economic growth. We extend existing literature by treating separately the oil and non-oil sectors of 28 oil-dependent economies from 1990-2012. We employ panel cointegration and pooled mean group estimation techniques which are appropriate for drawing conclusions from dynamic heterogenous panels. The results of the panel cointegration test indicate that bank credit has no significant long-run relationship with non-oil GDP per capita. The results of the pooled mean group estimator reveal no significant long-run impact of bank credit on non-oil GDP per capita. Overall results suggest that banks do not yet provide adequate credit to stimulate non-oil economic growth. The policy implication of our findings is that the financial sector should be more involved in productive investment activities to promote inclusive growth.
{"title":"The Differential Impact of Financial Intermediation on Economic Growth in Oil-Dependent Economies","authors":"Anthony Anyanwu, C. Gan, Baiding Hu","doi":"10.15353/rea.v10i3.1447","DOIUrl":"https://doi.org/10.15353/rea.v10i3.1447","url":null,"abstract":"This paper analyses the relationship between bank credit and economic growth. We extend existing literature by treating separately the oil and non-oil sectors of 28 oil-dependent economies from 1990-2012. We employ panel cointegration and pooled mean group estimation techniques which are appropriate for drawing conclusions from dynamic heterogenous panels. The results of the panel cointegration test indicate that bank credit has no significant long-run relationship with non-oil GDP per capita. The results of the pooled mean group estimator reveal no significant long-run impact of bank credit on non-oil GDP per capita. Overall results suggest that banks do not yet provide adequate credit to stimulate non-oil economic growth. The policy implication of our findings is that the financial sector should be more involved in productive investment activities to promote inclusive growth.","PeriodicalId":344099,"journal":{"name":"ERN: Banking & Monetary Policy (Topic)","volume":"41 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-08-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122226657","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}
Basim Alzugaiby, Jairaj Gupta, A. Mullineux, R. Ahmed
Employing a statistical model-building strategy, this study aims to empirically analyse the United States’ bank failures across different size categories (small, medium, and large). Our results suggest that factors associated with bank failures vary across respective size categories, and the Average Marginal Effects (AMEs) of mutually significant covariates also exhibit significant variability across different size classes of banks. The results are robust to up-to three years of lagged regression estimates, various control variables, interaction between bank size and bank charter, alternative bank size classifications, and macroeconomic crisis periods.
{"title":"Relevance of Size in Predicting Bank Failures","authors":"Basim Alzugaiby, Jairaj Gupta, A. Mullineux, R. Ahmed","doi":"10.2139/ssrn.3210959","DOIUrl":"https://doi.org/10.2139/ssrn.3210959","url":null,"abstract":"Employing a statistical model-building strategy, this study aims to empirically analyse the United States’ bank failures across different size categories (small, medium, and large). Our results suggest that factors associated with bank failures vary across respective size categories, and the Average Marginal Effects (AMEs) of mutually significant covariates also exhibit significant variability across different size classes of banks. The results are robust to up-to three years of lagged regression estimates, various control variables, interaction between bank size and bank charter, alternative bank size classifications, and macroeconomic crisis periods.","PeriodicalId":344099,"journal":{"name":"ERN: Banking & Monetary Policy (Topic)","volume":"5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-07-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128230382","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}
Pub Date : 2018-07-01DOI: 10.5089/9781484363010.001
Juan A. Garcia, Sebastian Werner
Do euro area inflation expectations remain well-anchored? This paper finds that the protracted period of low (and below-target) inflation in the euro area since 2013 has weakened their anchoring. Testing their sensitivity to inflation and macroeconomic news, this paper expands existing results in two key dimensions. First, by analyzing all available (advanced) inflation releases. Second, the reactions of expectations are investigated at daily, time-varying and intraday frequency regressions to add robustness to our conclusions. Results point to a significant impact of inflation news over recent years that had not been observed before in the euro area.
{"title":"Inflation News and Euro Area Inflation Expectations","authors":"Juan A. Garcia, Sebastian Werner","doi":"10.5089/9781484363010.001","DOIUrl":"https://doi.org/10.5089/9781484363010.001","url":null,"abstract":"Do euro area inflation expectations remain well-anchored? This paper finds that the protracted period of low (and below-target) inflation in the euro area since 2013 has weakened their anchoring. Testing their sensitivity to inflation and macroeconomic news, this paper expands existing results in two key dimensions. First, by analyzing all available (advanced) inflation releases. Second, the reactions of expectations are investigated at daily, time-varying and intraday frequency regressions to add robustness to our conclusions. Results point to a significant impact of inflation news over recent years that had not been observed before in the euro area.","PeriodicalId":344099,"journal":{"name":"ERN: Banking & Monetary Policy (Topic)","volume":"103 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116011565","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. Infante, Stefano Piermattei, R. Santioni, Bianca Sorvillo
The derivatives market has experienced quick growth all over the world in the last two decades. Banks decide to participate in the derivatives market either to hedge against unexpected movements in economic variables or for trading and broker-dealer activities. This paper analyses, by means of multivariate descriptive statistical tools, the determinants of Italian banks’ use of derivatives over a long time horizon (2003-2017) by using quarterly Bank of Italy supervisory data. We find that size and being part of a banking group positively affect banks’ use of derivatives. Moreover, banks mainly employ derivatives for hedging purposes, especially to hedge against interest rate and credit risks. Finally, derivatives represent a hedging alternative to capital and liquidity. Our results are robust to different specifications that take into account the classification of derivatives by purpose (hedging versus trading) and the distinction between dealer versus end-user banks.
{"title":"Why Do Banks Use Derivatives? An Analysis of the Italian Banking System","authors":"L. Infante, Stefano Piermattei, R. Santioni, Bianca Sorvillo","doi":"10.2139/ssrn.3212651","DOIUrl":"https://doi.org/10.2139/ssrn.3212651","url":null,"abstract":"The derivatives market has experienced quick growth all over the world in the last two decades. Banks decide to participate in the derivatives market either to hedge against unexpected movements in economic variables or for trading and broker-dealer activities. This paper analyses, by means of multivariate descriptive statistical tools, the determinants of Italian banks’ use of derivatives over a long time horizon (2003-2017) by using quarterly Bank of Italy supervisory data. We find that size and being part of a banking group positively affect banks’ use of derivatives. Moreover, banks mainly employ derivatives for hedging purposes, especially to hedge against interest rate and credit risks. Finally, derivatives represent a hedging alternative to capital and liquidity. Our results are robust to different specifications that take into account the classification of derivatives by purpose (hedging versus trading) and the distinction between dealer versus end-user banks.","PeriodicalId":344099,"journal":{"name":"ERN: Banking & Monetary Policy (Topic)","volume":"147 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-06-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114893472","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 the design of macro-prudential stress tests and capital requirements. The tests provide information about correlation in banks portfolios. The regulator chooses contingent capital requirements that create a liquidity buffer in case of a fire sale. The optimal stress test discloses information partially: when systemic risk is low, capital requirements reflect full information; when systemic risk is high, the regulator pools information and requires all banks to hold precautionary liquidity. With heterogeneous banks, weak banks determine the level of transparency and strong banks are often required to hold excess capital when systemic risk is high. Moreover, dynamic disclosure and capital adjustments can improve welfare.
{"title":"Design of Macro-Prudential Stress Tests","authors":"Dmitry Orlov, P. Zryumov, Andrzej Skrzypacz","doi":"10.2139/SSRN.2977016","DOIUrl":"https://doi.org/10.2139/SSRN.2977016","url":null,"abstract":"We study the design of macro-prudential stress tests and capital requirements. The tests provide information about correlation in banks portfolios. The regulator chooses contingent capital requirements that create a liquidity buffer in case of a fire sale. The optimal stress test discloses information partially: when systemic risk is low, capital requirements reflect full information; when systemic risk is high, the regulator pools information and requires all banks to hold precautionary liquidity. With heterogeneous banks, weak banks determine the level of transparency and strong banks are often required to hold excess capital when systemic risk is high. Moreover, dynamic disclosure and capital adjustments can improve welfare.","PeriodicalId":344099,"journal":{"name":"ERN: Banking & Monetary Policy (Topic)","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-05-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122786241","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}
Isabel Argimón, C. Bonner, Ricardo Correa, Patty Duijm, Jon Frost, Jakob de Haan, Leo de Haan, Viktors Stebunovs
Global financial institutions play an important role in channeling funds across countries and, therefore, transmitting monetary policy from one country to another. In this paper, we study whether such international transmission depends on financial institutions’ business models. In particular, we use Dutch, Spanish, and U.S. confidential supervisory data to test whether the transmission operates differently through banks, insurance companies, and pension funds. We find marked heterogeneity in the transmission of monetary policy across the three types of institutions, across the three banking systems, and across banks within each banking system. While insurance companies and pension funds do not transmit home-country monetary policy internationally, banks do, with the direction and strength of the transmission determined by their business models and balance sheet characteristics.
{"title":"Financial Institutions' Business Models and the Global Transmission of Monetary Policy","authors":"Isabel Argimón, C. Bonner, Ricardo Correa, Patty Duijm, Jon Frost, Jakob de Haan, Leo de Haan, Viktors Stebunovs","doi":"10.2139/ssrn.3191930","DOIUrl":"https://doi.org/10.2139/ssrn.3191930","url":null,"abstract":"Global financial institutions play an important role in channeling funds across countries and, therefore, transmitting monetary policy from one country to another. In this paper, we study whether such international transmission depends on financial institutions’ business models. In particular, we use Dutch, Spanish, and U.S. confidential supervisory data to test whether the transmission operates differently through banks, insurance companies, and pension funds. We find marked heterogeneity in the transmission of monetary policy across the three types of institutions, across the three banking systems, and across banks within each banking system. While insurance companies and pension funds do not transmit home-country monetary policy internationally, banks do, with the direction and strength of the transmission determined by their business models and balance sheet characteristics.","PeriodicalId":344099,"journal":{"name":"ERN: Banking & Monetary Policy (Topic)","volume":"77 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126001988","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 the effect of the conventional and unconventional (e.g. Quantitative Easing - QE) monetary policy intervention on the insurance industry. We first analyze the impact on the stock performances of 166 (re)insurers from the last QE programme launched by the European Central Bank (ECB) by constructing an event study around the announcement date. Then we enlarge the scope by looking at the monetary policy surprise effects on the same sample of (re)insurers over a timeframe of 12 years, also extending the analysis to the Credit Default Swaps (CDS) market. In the second part of the paper by building a set of balance sheet-based indices, we identify the characteristics of (re)insurers that determine sensitivity to monetary policy actions. Our evidences suggest that a single intervention extrapolated from the comprehensive strategy cannot be utilized to estimate the effect of monetary policy intervention on the market. With respect to the impact of monetary policies, we show how the effect of interventions changes over time. Expansionary monetary policy interventions, when generating an instantaneous reduction of interest rates, generated movement in stock prices in the same direction till September 2010. This effect turned positive during the European sovereign debt crisis. However, the effect faded away in 2014-2015. The pattern is confirmed by the impact on the CDS market. With regard to the determinants of these effects, our analysis suggests that sensitivity is mainly driven by asset allocation and in particular by exposure to fixed income assets.
{"title":"The Impact of Monetary Policy Interventions on the Insurance Industry","authors":"L. Pelizzon, M. Sottocornola","doi":"10.2139/ssrn.3167148","DOIUrl":"https://doi.org/10.2139/ssrn.3167148","url":null,"abstract":"This paper investigates the effect of the conventional and unconventional (e.g. Quantitative Easing - QE) monetary policy intervention on the insurance industry. We first analyze the impact on the stock performances of 166 (re)insurers from the last QE programme launched by the European Central Bank (ECB) by constructing an event study around the announcement date. Then we enlarge the scope by looking at the monetary policy surprise effects on the same sample of (re)insurers over a timeframe of 12 years, also extending the analysis to the Credit Default Swaps (CDS) market. In the second part of the paper by building a set of balance sheet-based indices, we identify the characteristics of (re)insurers that determine sensitivity to monetary policy actions. Our evidences suggest that a single intervention extrapolated from the comprehensive strategy cannot be utilized to estimate the effect of monetary policy intervention on the market. With respect to the impact of monetary policies, we show how the effect of interventions changes over time. Expansionary monetary policy interventions, when generating an instantaneous reduction of interest rates, generated movement in stock prices in the same direction till September 2010. This effect turned positive during the European sovereign debt crisis. However, the effect faded away in 2014-2015. The pattern is confirmed by the impact on the CDS market. With regard to the determinants of these effects, our analysis suggests that sensitivity is mainly driven by asset allocation and in particular by exposure to fixed income assets.","PeriodicalId":344099,"journal":{"name":"ERN: Banking & Monetary Policy (Topic)","volume":"3 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-04-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122679153","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}
The UK’s decision to leave the EU and the potential withdrawal of the UK from the single market triggered unprecedented legal and regulatory issues, particularly for UK-based banks and investment firms. A major consequence of Brexit will be the loss of EU passports for UK-based Institutions that are currently authorised to provide their services across the EEA. This paper examines whether and how UK-based institutions can continue to offer their services within the EU/EEA without the EU passport from a European and German regulatory law perspective. The analysis is based on a ‘hard Brexit’ scenario, which means that the UK will cease to be a Member State, leave the Single Market and will not apply to join the EEA.
{"title":"After the Sunset: The Impact of Brexit on EU Market Access for Banks and Investment Firms","authors":"Mathias Hanten, Osman Sacarcelik","doi":"10.2139/SSRN.3142173","DOIUrl":"https://doi.org/10.2139/SSRN.3142173","url":null,"abstract":"The UK’s decision to leave the EU and the potential withdrawal of the UK from the single market triggered unprecedented legal and regulatory issues, particularly for UK-based banks and investment firms. A major consequence of Brexit will be the loss of EU passports for UK-based Institutions that are currently authorised to provide their services across the EEA. This paper examines whether and how UK-based institutions can continue to offer their services within the EU/EEA without the EU passport from a European and German regulatory law perspective. The analysis is based on a ‘hard Brexit’ scenario, which means that the UK will cease to be a Member State, leave the Single Market and will not apply to join the EEA.","PeriodicalId":344099,"journal":{"name":"ERN: Banking & Monetary Policy (Topic)","volume":"57 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-03-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134589312","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}
Abstract We construct theory-based measures of systemic bank shocks. These measures complement banking crisis indicators employed in many empirical studies, which we show capture (lagged) policy responses to systemic bank shocks. To illustrate the importance of disentangling shocks and policy responses to these shocks, we assess the impact of deposit insurance and safety net guarantees on both the probability of a systemic bank shock and that of a policy response. We find that deposit insurance and safety net guarantees do not affect the probability of a systemic bank shock, but increase the probability of a policy response to such a shock, consistent with the results of the previous literature. The joint use of measures of systemic bank shocks and policy responses may lead to a policy-relevant re-interpretation of the findings of a large empirical literature.
{"title":"Banking Crises and Crisis Dating: Disentangling Shocks and Policy Responses","authors":"John H. Boyd, Gianni De Nicoló, T. Rodionova","doi":"10.2139/ssrn.3161013","DOIUrl":"https://doi.org/10.2139/ssrn.3161013","url":null,"abstract":"Abstract We construct theory-based measures of systemic bank shocks. These measures complement banking crisis indicators employed in many empirical studies, which we show capture (lagged) policy responses to systemic bank shocks. To illustrate the importance of disentangling shocks and policy responses to these shocks, we assess the impact of deposit insurance and safety net guarantees on both the probability of a systemic bank shock and that of a policy response. We find that deposit insurance and safety net guarantees do not affect the probability of a systemic bank shock, but increase the probability of a policy response to such a shock, consistent with the results of the previous literature. The joint use of measures of systemic bank shocks and policy responses may lead to a policy-relevant re-interpretation of the findings of a large empirical literature.","PeriodicalId":344099,"journal":{"name":"ERN: Banking & Monetary Policy (Topic)","volume":"1107 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-03-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116055717","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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