Journal of Financial Stability最新文献

This paper explores how banks’ environmental, social, and governance (ESG) activities affect their lending during financial crises. We use a sample of European listed banks with available ESG scores from 2002 to 2020 and consider the global financial crisis of 2007–2009 and the European sovereign debt crisis of 2010–2012. We estimate a two-step system GMM dynamic panel data model and also address potential endogeneity with instrumental variable (IV) and difference-in-difference (DiD) estimations. We find that lending falls to a lesser extent for banks with higher ESG scores during crisis times. Our findings are robust to using alternative ESG rating providers. An investigation of the different potential channels shows that, during crises, banks more engaged in ESG activities are less affected in terms of credit risk, asset risk, and profitability. They also face a lower reduction in market funding, allowing them to downsize to a lesser extent during crises, and their deposit rates do not increase as much as in less ESG-engaged banks. A deeper investigation reveals that our findings mainly hold for banks focused on traditional lending and deposit activities and are essentially driven by the environmental pillar component of ESG scores and the global financial crisis of 2007–2009.

This study explores the effect of an investment system reform (deregulation) on the innovation performance of private firms in China. Using a difference-in-differences approach on the data on patent applications of private firms from 1998 to 2009, this study confirms the positive relationship between investment deregulation and innovation performance. We also find that the positive relationship is moderated by types of innovation, firm size and international orientation, and regional patent promotion policy. The study further finds evidence that investment deregulation stimulates innovation performance through two mechanisms, the escaping competition effect, and the preemptive patenting effect. Moreover, investment deregulation may improve the innovation performance of private firms by encouraging investment in fixed capital.

This paper finds the first evidence of time variation in the relationship between inflation expectations and the price of cryptocurrency futures. Daily data on the futures markets of Bitcoin – starting in December 2017 – and Ethereum – available since February 2021 – reveal responses to inflation expectations that are consistently positive across both measures in a full sample encompassing 2022. These results hold for a sample that precedes the Luna crash in May 13, 2022. However, the response turns negative in the period between the failures of the Luna and FTX crypto exchanges. We find cryptocurrency futures provide an effective hedge against inflation expectations and may provide a hedge against idiosyncratic market risk if the ensuing uncertainty is embraced by traders leading them to search-for-yield behavior. Risk that is more systemic – and not properly digested by financial markets – may lead futures contract holders to exit their positions ahead of expiration, leading to a bid down of futures prices and an erosion of their hedging ability. This may have contributed to the turbulence in cryptocurrencies experienced during the latter part of 2022.

External imbalances played a pivotal role leading to the global financial crisis and were an important cause of turmoil. While current account (flow) imbalances narrowed in the aftermath of the crisis, the net international investment position (NIIP) (stock) imbalances persisted. This study explores the implications of countries’ net foreign positions on systemic risk. Using a sample of 470 banks located in 49 advanced economies, emerging countries, and developing economies over 2000–2020, we find robust empirical evidence that banks can reduce their systemic risk exposure when the countries in which they are incorporated improve their NIIPs and maintain creditor status vis-à-vis the rest of the world. However, only the equity component of the NIIP is responsible for this outcome, whereas debt flows are not significant. Similarly, we find that the mitigating effect of an external balance sheet on systemic risk is derived from valuation gains rather than from the incremental net acquisition of assets or liabilities represented by the current account. Our findings are particularly relevant for policymakers seeking to improve banks’ resilience to adverse shocks and maintain financial stability.

In the midst of the unprecedented COVID-19 pandemic crisis, the scope of the current study is to outline the channels of shock propagation across sovereigns under these unprecedent conditions. We use a sample of European countries for a period of twelve years that encompasses the COVID-19 as well as the turbulent period of the European debt crisis. We apply Bayesian Vector Autoregressive techniques to show a dramatic increase in sovereign contagion during the outbreak of the COVID-19 pandemic, even higher than the increase recorded during the European Debt crisis. The result works through government response and containment measures. Extensive and severe detachment from any financial fundamentals is evident. The announcements of fiscal and monetary easing measures have eliminated the tension in the markets. When focusing on the period of the pandemic the impact of the national culture emerges through the channel of collectivism.

In this paper, we use knowledge graph (KG) to study systemic risk in the banking industry. KG provides a graphic representation of the connections of entities of interest (known as vertices or nodes) with the strengths of connections being reflected by the lines connecting them (known as edges) or distances between them. As a result, KG is a natural tool for visualizing the relationships among financial institutions. Furthermore, various data and graph choices can present how differently entities of interest can be connected. In this paper, we draw KGs on two datasets: liquidity index and volatility and three different embedding methods: locally linear embedding, spectral embedding and principal component analysis. Our empirical results show, not surprisingly, that volatility and liquidity index are not similar in explaining how banks are connected. Embedding methods also matter.

We examine the direct and indirect impacts of natural disasters on deposit rates of U.S. bank branches from 2008 to 2017. We capture the indirect impact by the spatial spillover effects of disasters, from branches directly exposed to such disasters to neighboring branches. We theoretically motivate our spatial framework by local competition for deposits among branches and provide empirical evidence consistent with this model. We find that indirect effects contribute to at least two-thirds of the total impact for deposit rate-setting branches. Rate-setting branches in affected counties, on average, raise their deposit rates on 12-month CDs by 1.5 basis points directly due to the disaster shock. However, there is an additional indirect increase of 2.7 – 4.3 basis points for all rate-setting branches, including those in adjacent but unaffected counties, due to the local geographical competition for deposits. We also confirm that the spillover effect occurs among branches across counties via an overlooked social connectedness. Moreover, and importantly, online and one-county banks are more likely to rely on the information channel embedded in the social connectedness effect in response to natural disasters. Branches in less concentrated local markets also respond more to the nature disaster and rate adjustments of neighboring branches.

Climate-related risks have become a major concern for financial regulators and can pose a significant threat to financial stability. In this paper, we first propose a theoretical framework for the transmission of climate risks to financial institutions and the financial system. We then estimate the influence of physical and transition risks on the European financial system through bank-level and system-wide measures of financial stability. We find that Scope 3 greenhouse gas emissions, chronic and acute climate risks negatively affect financial stability at both the financial institution and system levels. Temperature anomalies, heat waves, wildfires and droughts are among the most significant risks. As Europe warms twice as fast as the rest of the world, our theoretical and empirical results urge regulators to mandatorily require the assessment and disclosure of corporate climate risks to allow banks to adjust their prudential capital requirements.

Assume data on Nj stock (asset) returns are available for p stocks, allowing us to construct approximate density functions $f\text{(}{x}_j$) for (j=1, 2, …, p) from p empirical cumulative distribution functions (ECDFs). Our portfolio choice is designed to rank ECDF-induced, ill-behaved $f\text{(}{x}_j$) densities subject to multiple modes, asymmetric fat tails, dips, turns, and numerous overlaps. Older portfolio theory assumes that parameters like the mean, variance, and percentiles fully describe $f\text{(}{x}_j$). All six of our algorithms avoid (expected) utility theory. The only available algorithm by Anderson for order-k Stochastic Dominance (SDk) needs a trapezoidal approximation. Our new exact algorithm for SDk is based on ECDFs and overcomes pairwise comparisons. We include algorithms for statistical inference using the bootstrap and one for “pandemic proof” out-of-sample portfolio performance comparisons from our R package ‘generalCorr’. We suggest a test for “zero cost profitable arbitrage” and illustrate our algorithms in action by using two sets of recent 169-month stock returns. We do not claim to suggest new optimal portfolios.

We find strong evidence that measures of social responsibility contribute to increasing the resilience of banks. This finding holds when social responsibility is measured by aggregated ESG scores provided by Thomson Reuters, both according to their older Asset 4 categorization and to the reformed ESG Refinitiv classification, and resilience is proxied by various measures of systemic and systematic risk. The results hold on the level of subcategories of the ESG pillars, where we find that, particularly, variables related to the long-term perspective enhance resilience. Moreover, in our international study, we find significant transatlantic differences.