Journal of Financial Stability最新文献

Utilising climate-related narratives in conference call transcripts to measure firm-level exposure to climate risks, we examine the association between such exposure and the corporate cost of debt financing. Using a sample of 21 European countries from 2001 to 2020, we find that firms exposed to greater climate change experience higher debt costs. The impact is even more extreme when using climate-related opportunity and regulatory exposure measures. We further find critical economic channels through which the higher debt costs occur: financial development and credit supplies. Specifically, our findings hold only for firms in weakly developed financial markets and institutions as measured by the new broad-based multi-dimensional financial development indices. We also find some other conditioning factors. Firstly, the higher the carbon intensity level, the greater the debt cost a firm with more climate change exposure must pay. Secondly, debtholders appear to punish firms with high environmental and social disclosure that are exposed to more climate change. Thirdly, the findings are more pronounced in financially constrained firms.

Central banks around the world are exploring the possibility of Central Bank Digital Currencies (CBDCs) for retail and wholesale use. While no major economy is yet to fully introduced a CBDC, some countries have begun pilot programs. The purpose of this paper is to highlight the potential benefits and risks associated with CBDCs, including challenges and opportunities associated with proposed CBDC regulation in the United States and the European Union. The paper also discusses the CBDC landscape in Asia. It highlights some of the key findings of the research presented in this special issue on FinTech and CBDCs. Lastly, the paper offers thoughts for potential future research in areas such as the actual designs of CBDCs and their uses, ‘DeFi’ versus ‘CeFi’, their interoperability and stability, and concerns over cybercrime.

We employ the green revenue factors of firms, used in the computation of the FTSE Russell 1000 Green Revenues index to create corresponding green-adjusted share prices. We compute the firm betas, under both the standard and the green-adjusted share pricing. Our findings suggest that tilting of firm stock returns towards green finance could change temporarily asset pricing views. The Fama-French risk factors display very high correlations between the two settings. Nevertheless, there are some significant differences between standard and green-adjusted betas during periods associated with green activism and positive political decisions of financially supporting the global climate action.

We show how external credit market development can affect corporate social responsibility. Using a sample of US public firms over the period 1991–2010, we find that bank deregulation negatively affects CSR performance. We argue that deregulation-induced banking competition enhances credit accessibility, thereby reducing firms’ incentives to pursue CSR as a means of securing stakeholder rewards. Empirical evidence shows that firms increase their use of debt financing in response to the intensified banking competition, and these firms experience a more pronounced decline in CSR performance. We alleviate the potential concern that the observed decline in CSR could be attributed to changes in bank monitoring following deregulation. Further analyses find that firms reduce CSR regardless of their material nature, suggesting that the primary driver of CSR could be the trade-off between costs and returns. Overall, our findings shed light on the strategic motives of CSR, which exhibits adaptability in response to business dynamism.

In this paper, we investigate price exuberance episodes in the main UK commercial real estate sectors – retail, offices and industrials - over the period December 1986–April 2022. Using the Backward Supremum Augmented Dickey Fuller approach of Phillips et al. (2015a,b), we find that episodes of price explosiveness are asynchronous across sectors with only common phase being the period 2003–2007. We also conduct a multivariate probit analysis to identify factors that indicate the occurrence of price exuberance episodes and generate early signals for possible price bubble building. The predictors for price explosiveness differ by sector with more consistent signals obtained from the yield curve for retail and industrials, rent growth for offices and industrials, and inflation for retail and offices. A key implication of this study is that the study of price exuberance and bubbles in private real estate should be sector specific even within the same country.

In this study, we examine the relationship between firm-level political risk and stock price crash risk. Using a broad dataset of 4230 U.S. firms, 38,097 firm-year observations from 2002 to 2019, we reveal a positive association between political risk and stock price crash risk. These findings are robust to several model specifications and endogeneity checks. By using the Brexit referendum as a quasi-natural experiment, we provide evidence of a causal relationship between political risk and crash risk. Through channel analysis, we identify that this relationship is mediated via higher idiosyncratic volatility, lower price informativeness, and higher distress risk. We also find that our results are more pronounced in intangible-intensive firms. Interestingly, we show that managers of these firms respond to political risk by engaging in bad news hoarding. Finally, strong (external or internal) corporate governance mechanisms can moderate the positive relationship between political risk and stock price crash risk.

Charge-offs provide critical insights into the risk level of loan portfolios within the banking system, signaling potential systemic risks that could lead to deep recessions. Utilizing consolidated financial statements, we have compiled the net charge-off rate (COR) data from the 10 largest U.S. bank holding companies (BHCs) for disaggregated loans, including business loans, real estate loans, and consumer loans, as well as the average COR for each loan category among these top 10 banks. We propose factor-augmented forecasting models for CORs that incorporate latent common factor estimates, including targeted factors, via an array of data dimensionality reduction methods for a large panel of macroeconomic predictors. Our models have demonstrated superior performance compared with benchmark forecasting models, particularly well for business loan and real estate loan CORs, while predicting consumer loan CORs remains challenging especially at short horizons. Notably, real activity factors improve the out-of-sample predictability over the benchmarks for business loan CORs even when financial sector factors are excluded.

The vacuum caused by the absence of a political leader has a major economic impact. We manually collect data on the absence of a political leader in 247 Chinese cities between 2009 and 2019 and find that firms reduce their investment by an average of 2.326 % for each month that a political office remains vacant. This result holds even after subjecting the data to a series of endogeneity tests, robustness tests, and alternative explanations. We also demonstrate that the absence of a political leader reduces corporate investment through increased uncertainty of economic policy, reduced governmental efficiency, and disrupted political connections. Finally, our results show that this kind of absence has a more pronounced impact on younger firms, firms located in provinces with slower marketization, firms located in provinces with weak media development, non-state-owned enterprises, and firms located in regions under significant promotional pressure.

This study explores the empirical link between income inequality and banks’ Loan Loss Provisions (LLPs) through a sample of banking institutions from 132 countries, applying a panel regression methodology. The evidence reveals that higher LLPs have a positive impact on income inequality, and the findings remain valid across various model specifications and income inequality measures. The results also hold against various robustness tests, such as different bank sizes, developed vs. emerging countries, the impact of the 2008 global financial crisis, and the controlling for risk. The implications are relevant for stakeholders, including regulators that endeavor to protect banking systems against expected and unexpected losses via LLPs. Specifically, since credit decisions have substantial effects on income inequality, regulators should mitigate the accumulation of LLPs, allowing more funds to be available for other banking system activities and functions.

We study the effects of both tighter and looser bank capital requirements on bank risk-taking. We exploit credit register data matched with firm and bank level data in conjunction with changes in capital requirements stemming from Basel III, including the introduction of a SME supporting bank capital factor in the European Union. We find that tighter capital requirements reduce the supply of bank credit to firms, while looser capital requirements mitigate the credit supply effects of increasing capital. Importantly, at the loan level (credit supply), banks more affected by capital requirements change less the supply of credit to riskier than to safer firms, and these asymmetric effects occur for both the tightening and the loosening of bank capital requirements. Finally, these effects are also important at the firm-level for total credit availability and for firm survival. Interestingly, our results suggest that those banks most impacted by the tighter Basel III capital requirements prioritize credit among ex-ante riskier firms to avoid their closure, consistent with loan evergreening.