The impact of credit supply shocks and a new Financial Conditions Index based on a FAVAR approach

This paper investigates the impact of credit supply shocks on the macroeconomy and estimates a new financial conditions index. We calculated two credit supply factors using a time-varying parameter FAVAR model. The first factor is identified as the willingness to lend, while the second factor is the lending capacity. The impact of these two types of shocks and their changes over time is examined using Hungarian data. The two types of lending shocks affect macro variables rather differently: a positive lending capacity shock (in a banking system mostly owned by non-residents) influences GDP through a decrease in country risk and the easing of monetary policy, while willingness to lend primarily increases lending activity. The two financial shocks also differ in terms of their evolution over time: deviations from the average in the impact of a willingness to lend shock usually occur for short periods of time and are of a small degree between the various quarters. However, in the case of lending capacity, certain trends can be observed: before the crisis, the stability of the banking system played an increasing role in country risk, whereas after 2008 it appears that monetary policy paid increasing attention to financial stability. Finally, a new type of financial conditions index is quantified based on our estimates, which measures the impact of the banking system’s lending activity on GDP growth.     

Identifying credit demand,financial intermediation,and supply of funds shocks: A structural VAR approach

In this paper, we identify three exogenous shocks to credit market: demand for credit, supply of funds into the financial system, and the willingness to lend of financial institutions (financial intermediation), and also, determine the contribution of these shocks to fluctuations in the credit market and overall economic activity. We estimate a structural vector autoregression model where the three credit shocks are identified with a set of sign restrictions motivated by a simple partial equilibrium model of financial intermediation. We find that the credit demand shock explains significantly the variations in the long-term loan rate proxied by the Moody’s Baa corporate bond yield, while the supply of funds shock contributes to most of the fluctuations in the short-term commercial paper rate. The financial intermediation shock drives most of the fluctuations in the quantity of loans as well as the spread between the Baa and commercial paper rates. Of the credit shocks, we find that the financial intermediation shock has the largest impact on real economic activity. In fact, our analysis implies that the sharp decline in output during the 2007–2009 financial crisis is largely attributable to the financial intermediation shock, along with shocks originating outside of the financial system.     

金融危机给我国银行信贷风险管理带来的思考

本文通过对次贷危机引发的金融危机的具体影响对我国的商业银行信贷风险管理的诸多弊端进行分析并提出建议对策。     

Financial stability of Islamic banking and the global financial crisis: Evidence from the Gulf Cooperation Council

Using a sample of 76 banks from the Gulf Cooperation Council region, we use accounting- as well as market-based measures of financial stability to examine whether Islamic banks outperformed conventional banks in the time of financial shocks during the period 2000–2013. We find that the difference between the two banking types was initially not significant during the GFC. However, when the financial shock spread to the real economy during the later phases of the crisis, Islamic banks suffered a significantly higher level of financial instability than conventional banks. This result holds true for large banks but not for small Islamic banks. Small Islamic banks demonstrated a relatively better handling of the economic downturn than large Islamic banks, supporting the argument that Islamic banks are more stable when they operate at a small scale but lose this stability when they increase their scale of operations. Hence, while Islamic banks may have escaped the consequences of highly volatile financial instruments, they were not spared from a major shock in the real economic sectors.     

Robustness of banking networks to idiosyncratic and systemic shocks: a network-based approach

We propose a network-based structural model of credit risk to demonstrate how idiosyncratic and systemic shocks propagate across the banking system and evaluate the costs. The banking system is built as a network of heterogeneous banks which are connected with one another. In such a system, single credit events propagate through the interbank market from debtors to creditors and across the system. The shock is imposed as an unexpected event. We demonstrate that while idiosyncratic shocks cannot substantially disturb the banking system, a systemic shock of even a moderate magnitude can be highly detrimental. Such shock includes a huge contagious potential. We demonstrate that the costs of the shock are largely determined by the extent of contagion and range from negligible to catastrophic. The results imply that a severe crisis has to be initiated by a systemic shock of at least moderate magnitude. Capital ratio and the bank size are two additional factors of the banking system stability. Finally, credit risk analysis is sensitive to the network topology and exhibits a profound nonlinear characteristic.     

Risk contagion in the banking network: New evidence from China

Based on data from 111 Chinese banks over the 2013–2016 period, this paper estimates the interbank bilateral lending matrix using the maximum entropy method. The estimated matrix is used to simulate the effects of credit and liquidity shocks on China’s banking network. Simulation results show that, under the extreme pressure scenario, the contagion arising from a liquidity shock is significantly stronger than the effect of a credit shock, indicating the importance of liquidity in the banking system. The contagion effect arising from a credit shock does not vary much over the sample period. However, the contagion effect arising from a liquidity shock decreases significantly, which could be attributed to contraction in interbank business due to stricter interbank business supervision. The simulation results also identify the most important and most vulnerable nodes of the banking system. An increase in the level of capital level can enhance the ability of banks to withstand credit and liquidity shocks. Our analysis also suggests that risk contagion faced by China’s banks varies across banking network structures.     

Structural changes,competition and bank stability in Malaysia’s dual banking system

This paper assesses Malaysia’s competition landscape and its risk implications subsequent to conventional banking consolidation and Islamic banking penetration in the aftermath of the 1997/1998 Asian financial crisis. Employing a panel sample of conventional and Islamic commercial banks, it arrives at the following conclusions. First, the consolidation exercise, which has led to a significant reduction in the number of domestic commercial banks, has not stifled banking competition. Second, the paper provides empirical support for the competition-stability relationship, particularly for the conventional banking sector. Islamic banking sector risk appears to be neutral to market competition or market power, although there is limited evidence that it increases with overall market concentration. Finally, the analysis uncovers the risk-increasing effect of the Islamic banking market structure on the conventional banking sector. By contrast, conventional banking market concentration tends to reduce the credit risk of Islamic banks.     

BANK CAPITAL REQUIREMENTS, BUSINESS CYCLE FLUCTUATIONS AND THE BASEL ACCORDS: A SYNTHESIS

Abstract.  In order to survey the mechanisms through which the introduction of Basel II bank capital requirements is likely to accentuate the procyclical tendencies of banking, this paper brings together the theoretical literature on the bank capital channel of propagation of exogenous shocks and the literature on the regulatory framework of capital requirements under the Basel Accords. We conclude that the theoretical models that revisit the bank capital channel under the new accord generally support the Basel II procyclicality hypothesis and that the magnitude of the procyclical effects essentially depends on (i) the composition of banks' asset portfolios, (ii) the approach adopted by banks to compute their minimum capital requirements, (iii) the nature of the rating system used by banks, (iv) the view adopted concerning how credit risk evolves through time, (v) the capital buffers over the regulatory minimum held by the banking institutions, (vi) the improvements in credit risk management and (vii) the supervisor and market intervention under Basel II. The recent events and instability in financial markets all over the world have led the procyclicality issue to enter the agendas of several political international  fora  and some measures to mitigate procyclicality are being put forward. The bank capital channel literature should now play an important role in evaluating their effectiveness.     

Spillover effects in oil-related CDS markets during and after the sub-prime crisis

This paper investigates the return and volatility spillover effects across oil-related credit default swaps (CDSs), the oil market, and financial market risks for the US during and after the subprime crises. The empirical analysis is based on monthly return and realized volatility data from February 2004 to April 2020. We estimate both static and dynamic generalized dynamic spillover measures based on vector autoregressive (VAR) models. Our full sample empirical findings show that the oil market is the primary source of risk transmission for all the oil-related credit default swaps, while the bond market is the highest source of risk transmission to the stock market and vice versa. We also provide evidence that the regulated monopoly US utility sector has the least role in volatility transmission. Furthermore, the bailout program conducted by the US Treasury and Federal Reserve helped stabilize the US financial market through the purchase of toxic assets after the subprime financial crisis. We find strong evidence that the federal funds rate hike cycles lessen total risk transmission throughout the US bond market. Finally, our findings assert that oil price shocks have a significant effect on the oil-related CDSs in some sub-periods via the demand and supply transmission channels.     

Contagion risk in the Czech financial system: A network analysis and simulation approach

This paper examines the potential for contagion within the Czech banking system via the channel of interbank exposures of domestic banks, enriched by a liquidity channel and an asset price channel, over the period March 2007 to June 2012. A computational model is used to assess the resilience of the Czech banking system to interbank contagion, taking into account the size and structure of interbank exposures as well as balance sheet and regulatory characteristics of individual banks in the network. The simulation results suggest that the potential for contagion due to credit losses on interbank exposures was rather limited. Even after the introduction of a liquidity condition into the simulations, the average contagion was below 3.8% of the remaining banking sector assets, with the exception of the period from December 2007 to September 2008. Activation of the asset price channel further increases the losses due to interbank contagion, showing that the liquidity of government bonds would be essential for the stability of Czech banks in stress situations. Finally, the simulation results for both idiosyncratic and multiple bank failure shocks suggest that the potential for contagion in the Czech banking system has decreased since the onset of the global financial crisis.     

How important can bank lending shocks be for economic fluctuations?

We analyze the quantitative importance of bank lending shocks on real activity fluctuations in Norway and the UK, using structural VARs estimated on quarterly data from 1988 to 2010. We find that an adverse bank lending shock causes output to contract, and that such shocks can account for a substantial share of output volatility. This suggests that financial intermediation is an important source of shocks. The empirical analysis comprises the Norwegian banking crisis (1988–1992) and the recent period of banking failures in the UK. However, the results are also non-trivial when omitting periods of systemic banking distress from the sample.     

Analysing contagion and bailout effects with copulae

In this paper, a new methodical framework that combines elements of event studies and copula methodology is proposed in the context of the analysis of bank contagion. Furthermore, to the best knowledge of the author, this paper is the first one to analyse changes in the dependence structure of banks around bailout announcements. The results of the empirical study show that significant contagion effects could be detected both in the German banking sector after the onset of the subprime crisis as well as in the Japanese banking sector in the mid-nineties. I find that announcements of crisis at struggling banks induce a significant increase of lower tail dependence in the banking sector. The analysed bailouts and rescue measures by the central bank proved to be effective in reducing this increased lower tail dependence while increasing tail independence of bank stock returns at the same time. In both data samples, I find that the bailout announcements did not simply restore the pre-crisis dependence structure, but rather only decreased the likelihood of a joint crash of bank stocks without increasing the chances of a joint boom.     

Financial innovation and bank behavior: Evidence from credit markets

This paper investigates whether, and through which channel, the active use of credit derivatives changes bank behavior in the credit market, and how this channel was affected by the crisis of 2007–2009. Our principal finding is that banks with larger gross positions in credit derivatives charge significantly lower corporate loan spreads, while banks׳ net positions are not consistently related to loan pricing. We argue that this is consistent with banks passing on risk management benefits to corporate borrowers but not with alternative channels through which credit derivative use may affect loan pricing. We also find that the magnitude of the risk management effect remained unchanged during the crisis period of 2007–2009. In addition, banks with larger gross positions in credit derivatives cut their lending by less than other banks during the crisis and have consistently lower loan charge-offs. In sum, our study is suggestive of significant risk management benefits from financial innovations that persist under adverse conditions – that is, when they matter most.     

The double-edged sword effect of diversified operation on pre- and post-loan risk in the government-led Chinese commercial banks

Under the background of China’s deregulation of financial institutions since 2004, Chinese commercial banks have undergone remarkable change from traditional lending activities to universal fee-based activities. This paper explores the effect of diversified operation on bank credit activities. We find that diversification can reduce pre-loan risk but increase post-loan risk. Besides, enhanced disclosure requirement of other comprehensive income can mitigate pre- and post-loan risk under diversified operation. Additionally, in the state-owned commercial banks where government function is primary, diversification reduces both pre- and post-loan risk. This paper aims to reveal the double-edged sword effect of diversification in the Chinese commercial banks which are more government-led.     

美国金融危机对国内银行的影响及银行授信管理对策

当前美国金融危机成为全球关注的焦点话题。本文从关国金融危机的源起入手,分析金融危机对国内银行业的影响,并针对当前国内银行授信管理方面存在的薄弱环节,提出银行改进授信管理的对策建议。     

论公允价值计量与国有银行改制上市

本文主要分析了目前我国四大国有商业银行改制上市与金融稳定的关系以及会计披露在金融危机中的角色。本文认为,国有银行改制上市过程中,采用国际会计准则,尤其是公允价值计量,将会带来损益的剧烈波动。在中国特殊的银行信用机制下,银行系统会将很小的经济波动或者银行支付危机放大,最终可能酿成金融动荡。因此,在国有银行改制上市过程中,要充分研究公允价值计量的影响,慎重做出相关决策,将负面影响减少到最低限度。     

The productivity and performance of Australia’s major banks since deregulation

The aim of this study is to present some measures of the performance of banks operating in Australia since the deregulation of the Australian financial system in early 1980s; including the periods of financial market instability (the early 1990s and mid to late 2000s). In undertaking this measurement two approaches will be used. The first simply applies standard financial indicators. The second approach applies data envelopment analysis (DEA), to determine Malmquist indices of the levels of and the changes in the efficiency and productivity of Australian banks. The empirical results demonstrate the effect of deregulation and periodic financial crisis’s on the performance of individual banks, and the major part of the Australian banking sector. Overall the productivity performance of the Australian banks tended to improve considerably in those periods of strongest economic growth (i.e. the mid 1980s and 2000s).     

Spillover effects of subprime mortgage originations: The effects of single-family mortgage credit expansion on the multifamily rental market

The dramatic expansion in subprime mortgage credit fueled a remarkable boom and bust in the US housing market and created a global financial crisis. Even though considerable research examines the housing and mortgage markets during the previous decade, how the expansion in mortgage credit affected the rental market remains unclear; and yet, over 30 percent of all U.S. households reside in the rental market. Our study fills this gap by showing how the multifamily rental market was adversely affected by the development of subprime lending in the single-family market before the advent of the 2007/2008 subprime induced financial crisis. We provide evidence for a fundamentals based linkage by which the effect of an innovation in one market (i.e, the growth in subprime mortgage originations) is propagated through to another market. Using a large database of residential rental lease payment records, our results confirm that the expansion in subprime lending corresponds with an overall decline in the quality of rental payments. Finally, we present evidence showing that the financial performance of multifamily rental properties reflected the increase in rental lease defaults.     

金融全球化过程中银行危机的传染性及我国的应对策略

随着经济全球化的深化,随着我国整个金融体系开放程度的加深,任何来自国际金融市场的危机都可能对我国商业银行体系造成灾难性冲击,本文从分析银行危机跨国传染的路径着手,提出了我国防范国际金融危机传染的对策和建议,以期为我国银行体系的改革提供新的思路。     

金融系统脆弱性的生成机制研究

2007年爆发的美国次贷危机始于一场信用危机,最终演化为一场全球经济危机,给世界经济的发展带来了极大的冲击。对金融系统脆弱性的概念进行界定,总结出金融系统脆弱性的生成因素,包括信息不对称、有限理性与羊群效应以及金融机构内部管理缺陷等内在因素和金融自由化、金融同质化、经济虚拟化以及经济全球化等外在因素。因此,应加强对金融机构的管理和监管,舒缓金融系统脆弱性,保证金融系统稳健运行。