Journal of Financial Stability最新文献

This paper compares three methods for assessing the contagion of risk among ten Globally Significant International Banks, known as GSIBs, listed on the New York Stock Exchange with daily and weekly data sets from 2007 to 2020, based on Machine Learning and Network Analysis. In particular we identify the banks which are the largest net sources or transmitters of risk, and net receptors of risk. We also examine the response of regulatory actions, in the form of fines and BIS Bin Classification for capital adequacy.

Under alternative risk measures, of Range Volatility (RV) of share prices, Credit Default Swap (CDS) premia, and Conditional Value at Risk ($\Delta$CoVar), there is a stronger and significant connection between Contagion and the BIS Bin classifications relative to the connections between Contagion and banking fines, either in the amount or frequency of the fines. These results show that BIS bin classifications respond positively to underlying signals of increased contagion in the form of Range Volatility (RV) and $\Delta$CoVar measures but not to CDS risk premia.

Using a recent global sample, this paper estimates the effect of cryptocurrency usage on tax revenue collections. We hypothesize that greater cryptocurrency use undermines tax collections, and this result generally holds across overall tax collections, VAT revenues, and GST revenues. The other contribution lies in dissecting the direct and indirect channels of cryptocurrency use on tax collections. Results show that greater cryptocurrency usage reduces tax collections. Furthermore, larger government sizes increase tax collections, while the COVID-19 pandemic undermined tax collections. Finally, significant differences were found in the direct and indirect effects. The main results withstand a number of robustness checks.

Using Facebook’s social network data for the US counties, we examine whether social connectedness reduces the informational disadvantage in lending to small businesses at a distance. We find that for a given distance, there is a pecking order of lending. Banks first lend to more socially connected counties, and later, banks expand credit to socially less connected areas. The probability of loan charge-off decreases in social connectedness and more so for the loans originated by small banks. In the cross-section, the positive effect of social connectedness on loan performance is higher for the loans originated by out of state banks. These findings suggest that loan officers get valuable information through their social networks.

We study a model in which leverage and compensation are both choice variables for the firm and borrowing spreads are endogenous. First, we analyze the correlation between leverage and variable compensation. We show that allowing for endogenous compensation and leverage can explain the conflicting findings of the empirical literature. We uncover a new channel of complementarity between effort and leverage that induces a correlation sign opposite to what current theoretical models predict. Second, we study the dynamics of leverage and compensation design after a credit stimulus. We derive a set of new empirical predictions. For outward-shifts in credit supply, variable compensation is increasing in leverage growth. Moreover, variable compensation increases after the credit stimulus, especially for firms with low idiosyncratic risk.

Credit contractions are costly, but policymakers have limited tools to counter them. In this paper, we examine the efficacy of public credit guarantees as antidotes to a credit crunch by studying the Paycheck Protection Program (PPP). We find that the program averted a historic credit crunch at a time when banks were unlikely to meet firm credit needs by risking their own capital. Our evaluation incorporates selection effects emanating from banks’ participation decision on both the extensive and intensive margins. Risk-aversion, rather than profitability, motivated bank participation in the program. Indeed, even as the program boosted loan growth among participants, it attenuated profitability.

This paper empirically analyses whether post-global financial crisis regulatory reforms have created appropriate incentives to voluntarily centrally clear over-the-counter (OTC) derivative contracts. We use confidential European trade repository data on single-name sovereign credit default swap (CDS) transactions and show that both seller and buyer manage counterparty exposures and capital costs, strategically choosing to clear when the counterparty is riskier. The clearing incentives seem particularly responsive to seller credit risk, which is in line with the notion that counterparty credit risk (CCR) is asymmetric in CDS contracts. The riskiness of the underlying reference entity also impacts the decision to clear as it affects both CCR capital charges for OTC contracts and central counterparty clearing house (CCP) margins for cleared contracts. Lastly, we find evidence that when a transaction helps netting positions with the CCP and hence lower margins, the likelihood of clearing is higher.

We add to the literature on the economic outcomes of government debt and argue that government debt increases crash risk via two channels: (i) hoarding bad news and (ii) tax avoidance. Based on a large international sample, our results indicate that stock crash risk is positively associated with government debt. Our conclusions are robust when we treat endogeneity issues, and our tests confirm the validity of bad news hoarding and tax avoidance as channels through which government debt influences stock price crash risk.

This study explores the relationship between sovereign credit risk, banking fragility, and global financial factors in a large panel database of emerging market economies. To measure banking fragility, we construct a novel model-based semi-parametric metric (JLoss) that computes the expected joint loss of the banking sector in each country conditional on a country-level systemic event. Our metric of banking fragility is positively associated with sovereign credit spreads, after controlling for the standard determinants of sovereign credit risk, a comprehensive set of measures of systemic risk, and country and time fixed effects. The results additionally indicate that countries with more fragile banking sectors are more exposed to global (exogenous) financial factors than those with more resilient banking sectors. These findings underscore that regulators must ensure the stability of the banking sector to improve governments’ borrowing costs in international debt markets.

How financial investors may react to policy events related to sustainability and climate change mitigation in particular, is a key question with implications for sustainable finance and financial stability. We address this question by carrying out a multi-period difference-in-difference approach on a confidential database of securities holdings of the European Central Bank, and we provide evidence of several effects related to the Paris Agreement. In aggregate, investors reduced their participation in the equities of high-carbon firms in response to the agreement, and the trend reverted after the US’s announcement of withdrawal from the agreement. However, the reaction varies across categories and geographies of the securities holders, their ownership size, and the emissions of owned firms. In particular, transition risk has been taken up by less regulated financial institutions and the BRIC countries. Our results highlight that the redirection of global financial flows towards climate action requires clear and unanimous signals from the global community of policy makers.

This paper shows that higher information technology (IT) adoption by banks was associated to a larger increase in corporate lending in the months following the COVID-19 outbreak in Italy. Examining banks with heterogeneous degrees of IT adoption, we investigate the dynamics of credit and its allocation across firms using a new database with detailed information on banks’ IT expenditures and use of innovative technologies matched with bank-firm level data on credit growth before and during the pandemic. Using a diff-in-diff approach, we find that banks with a higher share of IT spending increased their credit more than others during the pandemic. The increase was concentrated in term loans extended to smaller and financially sounder companies; the effect was stronger in the initial phase of tighter restrictions to firm activity and individual mobility, and more significant for undertakings active in the sectors most affected by the shock. We provide evidence that these results are driven by bank’s ability to offer credit entirely online and bank’s use of artificial intelligence for credit risk assessment. Physical proximity between borrowers and lenders was important for credit provision during the pandemic, but only when combined with high level of IT adoption.