Pub Date : 2025-11-03DOI: 10.1016/j.jfs.2025.101474
Desislava Andreeva , Andra Coman , Mary Everett , Maren Froemel , Kelvin Ho , Simon Lloyd , Baptiste Meunier , Justine Pedrono , Dennis Reinhardt , Andrew Wong , Eric Wong , Dawid Żochowski
We study the effects of negative interest rate policies (NIRP) on the transmission of monetary policy through cross-border lending. Using bank-level data from international financial centers (IFCs) – the United Kingdom and Hong Kong, as well as Ireland – we examine how NIRP in the economies where banks have their headquarters influences cross-border lending from financial-center affiliates. Outside of NIRP periods, tighter monetary policy in affiliates’ headquarter country is associated with a reduction in cross-border lending from the UK and Hong Kong to non-bank borrowers abroad. In contrast, we find evidence that NIRP impairs the bank-lending channel for cross-border lending to non-bank sectors from the UK and Hong Kong, especially for those banks that have only a weak deposit base in these IFCs – and are thus relatively more exposed to NIRP in their headquarters. Consistent with these IFC findings, using euro-area data that includes bank-level information for France, we find that NIRP also impairs headquarter-banks’ lending to bank borrowers in IFCs, which include their IFC affiliates.
{"title":"Negative rates, monetary policy transmission and cross-border lending via international financial centers","authors":"Desislava Andreeva , Andra Coman , Mary Everett , Maren Froemel , Kelvin Ho , Simon Lloyd , Baptiste Meunier , Justine Pedrono , Dennis Reinhardt , Andrew Wong , Eric Wong , Dawid Żochowski","doi":"10.1016/j.jfs.2025.101474","DOIUrl":"10.1016/j.jfs.2025.101474","url":null,"abstract":"<div><div>We study the effects of negative interest rate policies (NIRP) on the transmission of monetary policy through cross-border lending. Using bank-level data from international financial centers (IFCs) – the United Kingdom and Hong Kong, as well as Ireland – we examine how NIRP in the economies where banks have their headquarters influences cross-border lending from financial-center affiliates. Outside of NIRP periods, tighter monetary policy in affiliates’ headquarter country is associated with a reduction in cross-border lending from the UK and Hong Kong to non-bank borrowers abroad. In contrast, we find evidence that NIRP impairs the bank-lending channel for cross-border lending to non-bank sectors from the UK and Hong Kong, especially for those banks that have only a weak deposit base in these IFCs – and are thus relatively more exposed to NIRP in their headquarters. Consistent with these IFC findings, using euro-area data that includes bank-level information for France, we find that NIRP also impairs headquarter-banks’ lending to bank borrowers in IFCs, which include their IFC affiliates.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"81 ","pages":"Article 101474"},"PeriodicalIF":4.2,"publicationDate":"2025-11-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145525677","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-10-30DOI: 10.1016/j.jfs.2025.101473
Rodrigo Londoño van Rutten
This paper examines the effect of firms’ lobbying activities on US federal grants. My model indicates that firms lobbying the granting agency during the grant allocation process have 7.04 times higher odds of getting a federal award. The main results are robust across lobbying measures and account for endogeneity concerns by employing instrumental variables and propensity score matching strategies. I also observe that federal grants are more responsive to lobbying expenditures to the granting agency when a firm’s information is more opaque. In addition, I find that firms receiving more federal grants tend to have lower costs of debt and higher CEO compensation without being able to show higher firm performance. Overall, these results appear consistent with the informational lobbying theory at the regulator level and self-serving behavior at the management level.
{"title":"Corporate lobbying and US federal grants: Information in exchange for compensation","authors":"Rodrigo Londoño van Rutten","doi":"10.1016/j.jfs.2025.101473","DOIUrl":"10.1016/j.jfs.2025.101473","url":null,"abstract":"<div><div>This paper examines the effect of firms’ lobbying activities on US federal grants. My model indicates that firms lobbying the granting agency during the grant allocation process have 7.04 times higher odds of getting a federal award. The main results are robust across lobbying measures and account for endogeneity concerns by employing instrumental variables and propensity score matching strategies. I also observe that federal grants are more responsive to lobbying expenditures to the granting agency when a firm’s information is more opaque. In addition, I find that firms receiving more federal grants tend to have lower costs of debt and higher CEO compensation without being able to show higher firm performance. Overall, these results appear consistent with the informational lobbying theory at the regulator level and self-serving behavior at the management level.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"81 ","pages":"Article 101473"},"PeriodicalIF":4.2,"publicationDate":"2025-10-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145415635","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-10-29DOI: 10.1016/j.jfs.2025.101472
I. Aldasoro , L. Gambacorta , A. Korinek , V. Shreeti , M. Stein
At the core of the financial system is the processing and aggregation of vast amounts of information into price signals that coordinate participants in the economy. Throughout history, advances in information processing, from simple book-keeping to artificial intelligence (AI), have transformed the financial sector. We use this framing to analyze how generative AI (GenAI), emerging AI agents and, more speculatively, artificial general intelligence will impact finance. We focus on four functions of the financial system: financial intermediation, insurance, asset management, and payments. We also assess the implications of advances in AI for financial stability and prudential policy. Moreover, we investigate potential spillover effects of AI on the real economy, examining both an optimistic and a disruptive AI scenario. To address the transformative impact of advances in AI on the financial system, we propose a framework for upgrading financial regulation based on well-established general principles for AI governance.
{"title":"Intelligent financial system: How AI is transforming finance","authors":"I. Aldasoro , L. Gambacorta , A. Korinek , V. Shreeti , M. Stein","doi":"10.1016/j.jfs.2025.101472","DOIUrl":"10.1016/j.jfs.2025.101472","url":null,"abstract":"<div><div>At the core of the financial system is the processing and aggregation of vast amounts of information into price signals that coordinate participants in the economy. Throughout history, advances in information processing, from simple book-keeping to artificial intelligence (AI), have transformed the financial sector. We use this framing to analyze how generative AI (GenAI), emerging AI agents and, more speculatively, artificial general intelligence will impact finance. We focus on four functions of the financial system: financial intermediation, insurance, asset management, and payments. We also assess the implications of advances in AI for financial stability and prudential policy. Moreover, we investigate potential spillover effects of AI on the real economy, examining both an optimistic and a disruptive AI scenario. To address the transformative impact of advances in AI on the financial system, we propose a framework for upgrading financial regulation based on well-established general principles for AI governance.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"81 ","pages":"Article 101472"},"PeriodicalIF":4.2,"publicationDate":"2025-10-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145525675","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-10-27DOI: 10.1016/j.jfs.2025.101470
Matthew Schaffer , Nimrod Segev
This paper suggests a new channel through which central bank Quantitative Easing (QE) policies can amplify aggregate fluctuations. By significantly increasing excess reserve holdings in the banking sector, QE policies reduce liquidity risk and increase banks’ lending potential. Thus, disturbances that increase credit demand generate a stronger increase in lending, further amplifying the shock’s impact. We offer empirical evidence supporting this mechanism by utilizing two sources of variation in the US during the COVID-19 pandemic. First, we use cross-bank variation in mortgage-backed security (MBS) holdings to measure banks’ exposure to QE policies. Second, we use cross-state variation in the per capita Economic Impact Payments (EIP) to quantify the local aggregate demand shock stemming from pandemic-related fiscal relief. Bank-level analysis reveals that while QE is associated with an overall increase in reserves, its impact on credit expansion depends on the magnitude of the economic stimulus payments. Additionally, state-level evidence suggests increases in credit expansion and house prices following the shock were larger in states with greater banking sector exposure to QE. The results, therefore, suggest that QE amplified the impact of government stimulus programs during COVID-19.
{"title":"Quantitative easing, bank lending, and aggregate fluctuations","authors":"Matthew Schaffer , Nimrod Segev","doi":"10.1016/j.jfs.2025.101470","DOIUrl":"10.1016/j.jfs.2025.101470","url":null,"abstract":"<div><div>This paper suggests a new channel through which central bank Quantitative Easing (QE) policies can amplify aggregate fluctuations. By significantly increasing excess reserve holdings in the banking sector, QE policies reduce liquidity risk and increase banks’ lending potential. Thus, disturbances that increase credit demand generate a stronger increase in lending, further amplifying the shock’s impact. We offer empirical evidence supporting this mechanism by utilizing two sources of variation in the US during the COVID-19 pandemic. First, we use cross-bank variation in mortgage-backed security (MBS) holdings to measure banks’ exposure to QE policies. Second, we use cross-state variation in the per capita Economic Impact Payments (EIP) to quantify the local aggregate demand shock stemming from pandemic-related fiscal relief. Bank-level analysis reveals that while QE is associated with an overall increase in reserves, its impact on credit expansion depends on the magnitude of the economic stimulus payments. Additionally, state-level evidence suggests increases in credit expansion and house prices following the shock were larger in states with greater banking sector exposure to QE. The results, therefore, suggest that QE amplified the impact of government stimulus programs during COVID-19.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"81 ","pages":"Article 101470"},"PeriodicalIF":4.2,"publicationDate":"2025-10-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145416375","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-10-25DOI: 10.1016/j.jfs.2025.101476
Han Dai , Dahlia Robinson , Yi Shen
Section 953b of the Dodd-Frank Act mandates the disclosure of CEO-employee pay ratios for public companies beginning in fiscal year 2017. Using hand-collected data on CEO-employee pay ratios, we investigate the association between CEO-employee pay disparity and risk-taking behaviors at both the executive and firm levels. We find that higher pay ratios are associated with greater CEO risk-taking incentives, less conservative financial reporting, more frequent merger and acquisition activities, and marginally higher risk disclosure on 10-K filings. Robustness tests and heterogeneity analyses reveal stronger effects in firms with weaker governance, lower transparency, male CEOs, and less R&D-intensive environments. We also show that the SEC’s 2017 mandatory pay ratio disclosure rule significantly reduced CEO Vega, suggesting that transparency may constrain CEO’s risk-taking incentives. Our findings highlight the behavioral implications of internal pay inequality and provide important insights into how compensation structure shapes executive incentives and corporate decision-making.
{"title":"CEO-employee pay disparity, risk-taking incentives, and financial reporting choices","authors":"Han Dai , Dahlia Robinson , Yi Shen","doi":"10.1016/j.jfs.2025.101476","DOIUrl":"10.1016/j.jfs.2025.101476","url":null,"abstract":"<div><div>Section 953b of the Dodd-Frank Act mandates the disclosure of CEO-employee pay ratios for public companies beginning in fiscal year 2017. Using hand-collected data on CEO-employee pay ratios, we investigate the association between CEO-employee pay disparity and risk-taking behaviors at both the executive and firm levels. We find that higher pay ratios are associated with greater CEO risk-taking incentives, less conservative financial reporting, more frequent merger and acquisition activities, and marginally higher risk disclosure on 10-K filings. Robustness tests and heterogeneity analyses reveal stronger effects in firms with weaker governance, lower transparency, male CEOs, and less R&D-intensive environments. We also show that the SEC’s 2017 mandatory pay ratio disclosure rule significantly reduced CEO Vega, suggesting that transparency may constrain CEO’s risk-taking incentives. Our findings highlight the behavioral implications of internal pay inequality and provide important insights into how compensation structure shapes executive incentives and corporate decision-making.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"81 ","pages":"Article 101476"},"PeriodicalIF":4.2,"publicationDate":"2025-10-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145416363","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-10-24DOI: 10.1016/j.jfs.2025.101475
Vivek Sharma
This paper studies how bank-firm lending relationships shape the macroeconomic effects of banking sector shocks. I develop a dynamic general equilibrium model in which collateral-constrained entrepreneurs borrow from banks through endogenously persistent credit relationships, modeled using a deep habits in banking framework. A negative repayment shock to bank loans triggers a sharp rise in credit spread and a contraction in bank lending and investment. However, the persistence embedded in credit relationships accelerates recovery – as spread normalizes, credit and output rebound. In contrast, when lending relationships are absent, the same shock generates a milder initial downturn but a more prolonged slowdown, as high spread persists and credit remains depressed. These findings highlight a fundamental trade-off in financial crises – relationship lending amplifies short-run effects but stabilizes recovery. The results underscore the importance of preserving bank-firm ties during financial shocks – through potential mechanisms such as credit guarantees, liquidity provision, or regulatory flexibility – as a means to support faster post-crisis normalization.
{"title":"Real effects of bank shocks","authors":"Vivek Sharma","doi":"10.1016/j.jfs.2025.101475","DOIUrl":"10.1016/j.jfs.2025.101475","url":null,"abstract":"<div><div>This paper studies how bank-firm lending relationships shape the macroeconomic effects of banking sector shocks. I develop a dynamic general equilibrium model in which collateral-constrained entrepreneurs borrow from banks through endogenously persistent credit relationships, modeled using a deep habits in banking framework. A negative repayment shock to bank loans triggers a sharp rise in credit spread and a contraction in bank lending and investment. However, the persistence embedded in credit relationships accelerates recovery – as spread normalizes, credit and output rebound. In contrast, when lending relationships are absent, the same shock generates a milder initial downturn but a more prolonged slowdown, as high spread persists and credit remains depressed. These findings highlight a fundamental trade-off in financial crises – relationship lending amplifies short-run effects but stabilizes recovery. The results underscore the importance of preserving bank-firm ties during financial shocks – through potential mechanisms such as credit guarantees, liquidity provision, or regulatory flexibility – as a means to support faster post-crisis normalization.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"81 ","pages":"Article 101475"},"PeriodicalIF":4.2,"publicationDate":"2025-10-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145415636","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-10-14DOI: 10.1016/j.jfs.2025.101471
Mario Eboli
In this paper, I investigate the relationship between centralisation and systemic resilience in two-tiered interbank networks. Using flow network theory, I characterise the systemic contagion thresholds of stylised Core–Periphery (CP) and Star-Core–Periphery (SCP) networks, focusing on two fundamental contagion channels: common exposures and direct balance-sheet default contagion. Both network typologies are benchmarked against the maximally centralised star networks. The results demonstrate that centralisation when embedded within a modular two-tiered structure, enhances systemic resilience against shocks by reducing aggregate interbank exposures and constraining the spread of contagion across regions of the network. However, this stability comes at a cost. The obtained results highlight a fundamental trade-off between efficiency and risk concentration posed by the centralisation of interbank networks. While the centralisation of interbank exposures facilitates more efficient liquidity reallocations among banks and attenuates the spread of decentralised shocks, it simultaneously amplifies the vulnerability of the network to distress at the hub nodes. Indeed, the two-tiered modular structure of CP and SCP appears particularly exposed to the risk of systemic crises if all hub nodes, i.e. all banks in the core, suffer an exogenous solvency shock. The consequent policy implications for real-world core–periphery networks underscore the importance of reducing the likelihood of common shocks to core banks penalising them for holding overlapping and correlated portfolios.
{"title":"Systemic risk in centralised interbank networks","authors":"Mario Eboli","doi":"10.1016/j.jfs.2025.101471","DOIUrl":"10.1016/j.jfs.2025.101471","url":null,"abstract":"<div><div>In this paper, I investigate the relationship between centralisation and systemic resilience in two-tiered interbank networks. Using flow network theory, I characterise the systemic contagion thresholds of stylised Core–Periphery (CP) and Star-Core–Periphery (SCP) networks, focusing on two fundamental contagion channels: common exposures and direct balance-sheet default contagion. Both network typologies are benchmarked against the maximally centralised star networks. The results demonstrate that centralisation when embedded within a modular two-tiered structure, enhances systemic resilience against shocks by reducing aggregate interbank exposures and constraining the spread of contagion across regions of the network. However, this stability comes at a cost. The obtained results highlight a fundamental trade-off between efficiency and risk concentration posed by the centralisation of interbank networks. While the centralisation of interbank exposures facilitates more efficient liquidity reallocations among banks and attenuates the spread of decentralised shocks, it simultaneously amplifies the vulnerability of the network to distress at the hub nodes. Indeed, the two-tiered modular structure of CP and SCP appears particularly exposed to the risk of systemic crises if all hub nodes, i.e. all banks in the core, suffer an exogenous solvency shock. The consequent policy implications for real-world core–periphery networks underscore the importance of reducing the likelihood of common shocks to core banks penalising them for holding overlapping and correlated portfolios.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"81 ","pages":"Article 101471"},"PeriodicalIF":4.2,"publicationDate":"2025-10-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145416362","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-09-17DOI: 10.1016/j.jfs.2025.101469
Ahmad K. Ismail, Assem Safieddine
We investigate how operating synergies from mergers and acquisitions (M&A) influence the acquiring firm’s debt capacity, credit ratings, and market valuation. Our analysis incorporates credit rating quality, revealing that investment-grade acquirers predominantly drive the positive relationship between synergy forecasts and debt issuance. This pattern reflects reduced information asymmetry and strengthens lender confidence. Further, we find that while increased debt issuance generally pressures credit ratings downward, this effect is reversed for high-credit-quality firms with credible synergy forecasts, allowing them to improve their ratings post-merger. Market reactions align with these findings, demonstrating more favorable abnormal returns for deals with high synergy projections that boost debt capacity. Robustness checks, including sample selection correction and alternative leverage measures, confirm the robustness and stability of these results. Our study highlights the critical role of credible synergy forecasts and credit quality in shaping financing strategies and market perceptions in the M&A context.
{"title":"Projected operating efficiencies, credit ratings and the creation of debt capacity","authors":"Ahmad K. Ismail, Assem Safieddine","doi":"10.1016/j.jfs.2025.101469","DOIUrl":"10.1016/j.jfs.2025.101469","url":null,"abstract":"<div><div>We investigate how operating synergies from mergers and acquisitions (M&A) influence the acquiring firm’s debt capacity, credit ratings, and market valuation. Our analysis incorporates credit rating quality, revealing that investment-grade acquirers predominantly drive the positive relationship between synergy forecasts and debt issuance. This pattern reflects reduced information asymmetry and strengthens lender confidence. Further, we find that while increased debt issuance generally pressures credit ratings downward, this effect is reversed for high-credit-quality firms with credible synergy forecasts, allowing them to improve their ratings post-merger. Market reactions align with these findings, demonstrating more favorable abnormal returns for deals with high synergy projections that boost debt capacity. Robustness checks, including sample selection correction and alternative leverage measures, confirm the robustness and stability of these results. Our study highlights the critical role of credible synergy forecasts and credit quality in shaping financing strategies and market perceptions in the M&A context.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"81 ","pages":"Article 101469"},"PeriodicalIF":4.2,"publicationDate":"2025-09-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145118588","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-09-03DOI: 10.1016/j.jfs.2025.101459
Adrian POP, Diana POP
We examine various implementation issues related to the calibration of output floors in setting minimum bank capital requirements under the finalized version of the Basel III capital accord. The main raison d’être of output floors is to limit the capital savings enjoyed by large banks due to regulatory arbitrage under the internal model paradigm. We consider regulatory arbitrage through the bank’s incentive to optimize its grading system in order to lower as much as possible the capital requirement given the structure of its asset portfolio in terms of internal ratings and default probabilities. Based on a fictional portfolio of SME loans observed over a full business cycle, we conduct a counterfactual analysis in order to compare the effect of the output floor implemented with respect to two benchmarks: (i) a standardized approach calibrated from credit ratings assigned by external rating agencies, as proposed in the finalized version of the Basel III capital accord; and (ii) an alternative, more granular, and comprehensive standardized approach benchmark, based on an external grading system that mimics the in-house credit assessment systems used by certain national central banks. Our results show that a more granular, risk-sensitive, benchmark is likely to reduce the effect of the output floor on the minimum capital requirement. We also reveal that output floors exhibit a countercyclical pattern, which is an interesting feature of the mechanism from a macroprudential point of view.
{"title":"Output floors in setting bank capital requirements","authors":"Adrian POP, Diana POP","doi":"10.1016/j.jfs.2025.101459","DOIUrl":"10.1016/j.jfs.2025.101459","url":null,"abstract":"<div><div>We examine various implementation issues related to the calibration of output floors in setting minimum bank capital requirements under the finalized version of the Basel III capital accord. The main <em>raison d’être</em> of output floors is to limit the capital savings enjoyed by large banks due to regulatory arbitrage under the internal model paradigm. We consider regulatory arbitrage through the bank’s incentive to optimize its grading system in order to lower as much as possible the capital requirement given the structure of its asset portfolio in terms of internal ratings and default probabilities. Based on a fictional portfolio of SME loans observed over a full business cycle, we conduct a counterfactual analysis in order to compare the effect of the output floor implemented with respect to two benchmarks: (<em>i</em>) a standardized approach calibrated from credit ratings assigned by external rating agencies, as proposed in the finalized version of the Basel III capital accord; and (<em>ii</em>) an alternative, more granular, and comprehensive standardized approach benchmark, based on an external grading system that mimics the in-house credit assessment systems used by certain national central banks. Our results show that a more granular, risk-sensitive, benchmark is likely to reduce the effect of the output floor on the minimum capital requirement. We also reveal that output floors exhibit a <em>countercyclical</em> pattern, which is an interesting feature of the mechanism from a macroprudential point of view.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"81 ","pages":"Article 101459"},"PeriodicalIF":4.2,"publicationDate":"2025-09-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145027477","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-09-01DOI: 10.1016/j.jfs.2025.101456
Jeong-Bon Kim , Johan Maharjan , Yijiang Zhao
Social psychology research suggests that management groups under greater external pressure are more prone to groupthink (i.e., a tendency to reach premature consensus), leading to greater performance volatility. To isolate the group dynamics channel, we focus on the pressure management faces from largely uninformed and dissatisfied non-blockholders. Consistent with the groupthink view, we find that non-blockholder dissatisfaction is positively associated with performance volatility, which is further corroborated by tests addressing omitted variable bias and reverse causality. In addition, the baseline relationship is stronger in firms with greater interaction among directors, more powerful CEOs, and less diverse boards. Our findings suggest that non-blockholder dissatisfaction heightens performance volatility by exacerbating groupthink.
{"title":"Non-blockholder dissatisfaction and firm performance volatility: A groupthink perspective","authors":"Jeong-Bon Kim , Johan Maharjan , Yijiang Zhao","doi":"10.1016/j.jfs.2025.101456","DOIUrl":"10.1016/j.jfs.2025.101456","url":null,"abstract":"<div><div>Social psychology research suggests that management groups under greater external pressure are more prone to groupthink (i.e., a tendency to reach premature consensus), leading to greater performance volatility. To isolate the group dynamics channel, we focus on the pressure management faces from largely uninformed and dissatisfied non-blockholders. Consistent with the groupthink view, we find that non-blockholder dissatisfaction is positively associated with performance volatility, which is further corroborated by tests addressing omitted variable bias and reverse causality. In addition, the baseline relationship is stronger in firms with greater interaction among directors, more powerful CEOs, and less diverse boards. Our findings suggest that non-blockholder dissatisfaction heightens performance volatility by exacerbating groupthink.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"80 ","pages":"Article 101456"},"PeriodicalIF":4.2,"publicationDate":"2025-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144919692","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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