Lenders on the storm of wholesale funding shocks: saved by the central bank?

We provide empirical evidence on banks’ responses to shocks in the wholesale funding market, using data of 181 euro area banks over the period from August 2007 to June 2013. Responses to funding liquidity shocks for both banks’ lending volumes and loan rates, to households and corporates, are analysed in a panel VAR framework. We thereby distinguish banks by country, extent of Eurosystem borrowing, bank size and capitalization. The results show that shocks in the securities and interbank markets have significant effects on loan rates and credit supply, particularly of banks in stressed countries of the periphery. The results also suggest that central bank liquidity has mitigated this effect on lending volumes. Lending to nonfinancial corporations is more sensitive to wholesale funding shocks than lending to households. Lending volumes of large banks that are typically more dependent on wholesale funding and banks with large exposure to sovereign bonds show stronger responses to wholesale funding shocks.     

Credit in Times of Stress: Lessons from Latin America during the Global Financial Crisis

The 2008–2009 global financial crisis disrupted the provision of credit in Latin America less than in previous crises. This paper tests whether specific characteristics at both the bank and country levels at the onset of the global crisis contributed to the behavior of real credit growth in this region during the crisis. As shown, financial soundness characteristics of Latin American banks, such as capitalization, liquidity, and bank efficiency in the pre‐crisis period, played a role in explaining the dynamics of real credit during the crisis. We also found that foreign banks and banks that had expanded credit growth more before the crisis were also those that cut credit the most. Among country‐specific characteristics, we found evidence that balance sheet measures such as the economy's overall currency mismatches and external debt ratios (measuring either total debt or short‐term debt) were key variables in explaining credit growth resilience.     

Credit card cash‐out as informal financing: Evidence from China

Using a proprietary account‐level database from a commercial bank in China, we document that credit card holders can ease their credit constraints through the practice of cash‐out based on bogus transactions using credit cards. We find that such behaviour might be beneficial to both cardholders and banks. First, we find that a 1% increase in the cumulative number of credit card cash‐out transactions lowers the probability of default by 9.59%. Second, for private businesses, a 1% increase in the number of abnormal cash‐out transactions lowers overdue risk by 13.45%. Third, by lowering the overdue risk, the card‐issuing bank earns a larger profit. Our results are consistent with the notion that unconventional credit card cash‐out can mitigate the extent of capital misallocation in emerging markets.     

The role of banks in the Czech monetary policy transmission mechanism

With this work, I aim to enrich the knowledge about the monetary policy transmission mechanism in the Czech Republic with empirical evidence on the impact of monetary policy on bank lending. Using a panel of quarterly time series for Czech commercial banks for the period 1996–2001, I study the overall effect of monetary policy changes on the growth rate of loans and the characteristics of the supply of loans. The characterization of the credit market's supply side allows us to make inferences on the operativeness of the credit channel (the bank lending channel and the broad credit channel) of the monetary transmission mechanism. I find that changes in monetary policy alter the growth rate of loans, with considerably stronger magnitude in the period 1999–2001 than in the period 1996–1998. From the analysis intended to capture the characteristics of the supply of loans, I conclude that the lending channel was operative in the period 1996–1998: I find cross‐sectional differences in the lending reactions to monetary policy shocks due to the degree of capitalization and to liquidity. For the subsequent period 1999–2001, the results also show distributional effects of monetary policy due to bank size and its bank's proportion of classified loans. In the context of steadily decreasing interest rates, this can bolster the supposition of financial frictions between borrowers and lenders and hence, that of an operative broad credit channel.     

A QUEST FOR UNFETTERED CREDIT: HOW MONETARY POLICY DRIVES CREDIT RISK TRANSFER OF STRUCTURED FINANCE PRODUCTS

This study examines the effects of monetary policy contractions on bank loans to households and firms and instruments in three different credit risk transfer (CRT) capital markets over two separate time periods (1995–2006 and 2007–2015). The findings show that in both periods, banks decrease business lending but increase lending to consumers through a combination of mortgage, auto, credit card, and student loans from more liquidity produced by consumer‐related CRT activity. Additional results reveal relative CRT movements toward securitized mortgages from bank mortgage debt over both periods and toward securitized and insured business loans from bank business debt in the latter period, which suggest vulnerabilities among interconnected credit markets. (JEL E44, E51, G21, G23)     

Global banking,global crises? The role of the bank balance-sheet channel for the transmission of financial crises

We examine whether shocks to leveraged creditors with cross border holdings have an incidence on debtor countries׳ risk of suffering financial turmoil. We construct a new proxy of shocks to international banks׳ balance-sheets using credit ratings and the structure of their international assets. This allows us investigating the effect of (foreign) bank balance-sheet shocks on domestic financial turmoil in a large sample of 146 developed and emerging economies from 1984 to 2011. Our proxies of shocks towards bank balance-sheets are strong predictors of systemic banking crises in their debtor countries. Confirming these results, bilateral bank flows significantly decrease when creditor banks׳ assets are hit by negative shocks, as measured by credit rating downgrades from third-party countries. Short-term liabilities towards global banks appear to increase roll-over and funding risks, thereby amplifying the impact of shocks to foreign lenders’ balance-sheets. Domestic banking sectors vulnerabilities, such as illiquid assets and a low deposit-asset ratio, are found to increase crisis contagion risk. In contrast, a high level of global liquidity attenuates the transmission of shocks to international banks׳ assets to debtor countries.     

The Theory of the Second Best and the Competitive Equilibrium Model

We study the international transmission of bank liquidity shocks from multinational, Islamic, bank-holding companies to their subsidiaries. Based on a total sample of 120 Islamic and conventional bank subsidiaries, we test whether foreign bank lending for Islamic and conventional banks is determined by different factors. We estimate a model that includes subsidiary and parent bank characteristics as well as host and home country variables. Our empirical findings show that lending is negatively affected by the fragility of conventional parent banks' subsidiaries. Nevertheless, we show that parent Islamic banks do not significantly affect lending by subsidiaries. Finally, we examine the market discipline regarding the transmission of liquidity shocks. We also find that reduction in foreign Islamic bank lending is stronger for those that are dependent on the interbank market. We establish that the depositors react to a deterioration of bank performance and punish their institutions by withdrawing their money. We show that market discipline has a more important role for Islamic banks, whereas liquidity needs determine the change in conventional banks.     

The Credit Channel at Work: Lessons from the Financial Crisis in Korea

We demonstrate that the credit channel of transmission of monetary/financial shocks appears to have aggravated Korea's economic crisis. We use micro-data gathered at the individual bank level to identify this channel of transmission. Our major findings are as follows: i) consistent with banks' autonomous retrenchment in loan supply, monetary tightening broadens the spread between marginal bank lending rates and corporate commercial paper rates; ii) credit limits on overdrafts – arguably a proxy identifying shifts in loan supply – react negatively to the monetary squeeze; iii) large negative capital shocks induce banks to disproportionately slow-down both lending and deposit taking and to disproportionately raise their lending rates. Our findings lend unequivocal support to the hypothesis that banks' autonomous contraction restricted the availability of credit and magnified the increase in its cost. In turn, this compounded the Korean crisis by aggravating liquidity constraints for the vast majority of agents who rely only on bank credit as an external source of funds.     

The transmission of financial shocks in an estimated DSGE model with housing and banking

We develop a dynamic stochastic general equilibrium (DSGE) model with housing and banking to study the transmission of financial shocks between the financial and real sectors. A deterioration in the bank's balance sheet induced by financial shocks could have amplified and persistent impacts on real activities. The amplification of the shocks are originated from financial frictions tied to households and banks. We find that a disruption in bank net worth initiated by capital quality shocks generates a decline in household loans, house prices and output. Bank liquidity shocks also have negative effects on these variables. Housing preference shocks could generate a positive comovement between house prices and output. All these findings are qualitatively consistent with empirical evidence, suggesting that these financial shocks are critical to the dynamics of house prices and other macroeconomic variables.     

Default and liquidity regimes in the bond market during the 2002–2012 period

Using a real‐time random regime shift technique, we identify and discuss two different regimes in the dynamics of credit spreads during 2002–2012: a liquidity regime and a default regime. Both regimes contribute to the patterns observed in credit spreads. The liquidity regime seems to explain the predictive power of credit risk on the 2007–2009 NBER recession, whereas the default regime drives the persistence of credit spreads over the same recession. Our results complement the recent dynamic structural models as well as monetary and credit supply effects models by empirically supporting two important patterns in credit spreads: the persistence and the predictive ability toward economic downturns.     

金融危机、货币政策与信贷供给*——基于公司层面银行信贷数据的经验研究

不同的银行特征会对金融危机和货币政策传导的银行信贷渠道产生异质性影响。本文运用2001-2015年公司层面银行信贷数据实证检验了我国货币政策传导的银行信贷渠道,随后进一步研究金融危机对不同特征银行信贷供给的影响差异。经验研究发现：我国货币政策银行信贷渠道主要通过非国有控股银行传导,并引起不同资产负债表特征银行信贷供给的异质性反应。银行规模越大、流动性越强、资本充足率越高,银行信贷供给对货币政策越不敏感。金融危机期间,银行信贷渠道的传导效率显著降低,高资本充足水平的银行和国有控股银行受金融危机的冲击较小,并且宽松的货币政策对国有控股银行信贷供给调控的效率更高。     

Contagion effects of sovereign credit rating revisions on the real economy: is it trade or finance?

We analyse the contagion effects of sovereign credit rating revisions on the real economy, with particular emphasis on the intensity of trade and finance channels. Our findings show that event countries that experienced rating revisions cause substantial contagion effects on the real output growth rates of nonevent countries. Nonevent countries with a high export ratio, high external debt levels, or those that are more dependent on common bank credit relative to other nonevent countries are more likely to be infected by event countries’ adverse credit shocks. The results remain after accounting for alternative real economy indicators, financial liberalization, financial crises, and economic development status.     

The bank lending channel of unconventional monetary policy: The impact of the VLTROs on credit supply in Spain

We assess the impact on the credit supply to non-financial corporations of the two very long term refinancing operations (VLTROs) conducted by the Eurosystem in December 2011 and February 2012 for the case of Spain. To do so we use bank–firm level information from a sample of more than one million lending relationships during two years. Our methodology tackles three main identification challenges: (i) how to disentangle credit supply from demand; (ii) the non-random assignment of firms to banks; (iii) the endogeneity of the VLTRO bids, as banks with more deteriorated funding conditions were more likely both to ask for a large amount of funds and to restrain credit supply. Our findings suggest that the VLTROs had a positive moderate-sized effect on the supply of bank credit to firms. We also find that the effect was greater for illiquid banks and that it was driven by credit to SMEs, as there was no impact on loans to large firms. By contrast, strong firm–bank relationships were less sensitive to the positive liquidity shock caused by the VLTROs, which is consistent with the studies that find that relationship lending is a more stable source of credit than transaction lending. Finally, the VLTROs had no impact on either the degree of loan collateralisation or the probability of making loans to new borrowers, while they decreased the probability of renewing old ones, which suggests that those funds were not used for loan “evergreening”.     

The effects of foreign shocks when interest rates are at zero

In a two‐country DSGE model, the effects of foreign demand shocks on the home country are greatly amplified if the home economy is constrained by the zero lower bound on policy interest rates. This result applies even to countries that are relatively closed to trade such as the United States. Departing from many of the existing closed‐economy models, the duration of the liquidity trap is determined endogenously. Adverse foreign shocks can extend the duration of the trap, implying more contractionary effects for the home country. The home economy is more vulnerable to adverse foreign shocks if the neutral rate is low—consistent with “secular stagnation”—and trade openness is high.     

Estimating the effects of non‐discriminatory trade policies within structural gravity models

We propose a simple method to identify the effects of unilateral and non‐discriminatory trade policies on bilateral trade within a theoretically consistent empirical gravity model. Specifically, we argue that structural gravity estimations should be performed with data that include not only international trade flows but also intra‐national trade flows. The use of intra‐national sales allows identification of the effects of non‐discriminatory trade policies such as most favoured nation tariffs, even in the presence of exporter and importer fixed effects. A byproduct of our approach is that it can be used to recover estimates of the trade elasticity, a key parameter for quantitative trade models. We demonstrate the effectiveness of our techniques in the case of most favoured nation tariffs and “time to export” as representative non‐discriminatory determinants of trade on the importer and on the exporter side, respectively. Our methods can be extended to quantify the impact on trade of any country‐specific characteristics as well as any non‐trade policies.     

Impact of US monetary policy rate shock and other external shocks on the Hong Kong economy: A factor‐augmented vector autoregression approach

This paper uses the factor‐augmented vector autoregression framework to study the impact on the Hong Kong economy of the diverging monetary policies by the Fed, the European Central Bank (ECB) and the Bank of Japan as well as the slowdown of the Mainland economy. The empirical results show that shocks in US monetary policy rate mainly affect interest rate‐sensitive sectors in Hong Kong and that monetary easing from the European Central Bank and the Bank of Japan somewhat offsets the impact of tightening of the Fed. The transmission of external shocks is through trade and capital markets. Real variables such as real GDP growth and the unemployment rate are more sensitive to the economic slowdown in Mainland China. It is estimated that the combined effect of the four external shocks will on average lower Hong Kong's quarterly GDP growth by 0.6 percentage points and quarterly inflation by 0.2 percentage points in the first four quarters. However, Hong Kong's financial stability, particularly with regard to loan quality, banks’ capital and liquidity, is well maintained by macroprudential policies, suggesting that Hong Kong's financial system is resilient to external shocks.     

Estimating the bilateral impact of nontariff measures on trade

This paper seeks to estimate how the impact of nontariff measures (NTMs) on trade can vary across exporter–importer pairs. Covering data for the early 2000s, regressions are run at a disaggregate tariff line level and the estimated results are converted into ad valorem equivalents (AVEs). The results underline the importance of conditioning conclusions on trading partners and products and demonstrate that the same NTM can have different—even opposite—effects across exporting countries. One general pattern that emerges is that low‐income importers impose more restrictive NTMs, but that the capacity for exporting countries to address NTMs increases with GDP per capita.     

Endogenous inflows of speculative capital and the optimal currency appreciation path

Abstract This paper examines the optimal appreciation path of an undervalued currency in the presence of speculative capital inflows that are endogenously affected by the appreciation path. A central bank decides its appreciation policy based on three costs: (i) misalignment costs associated with the gap between the actual and long‐run equilibrium exchange rates, (ii) short‐term adjustment costs due to resource reallocation, and (iii) capital losses due to speculative capital inflows. Our model finds (1) when speculators face no liquidity shocks, the central bank tends to appreciate the currency quickly to discourage speculative capital; (2) when speculators face liquidity shocks, the central bank optimally pre‐commits to a slower appreciation path, and the appreciation takes the longest time when the probability of liquidity shocks takes intermediate values; (3) the central bank tends to appreciate the currency more quickly when it conducts discretionary policy.     

问询函监管与银行信贷决策的改善*

近年来,证券交易所推行的问询函监管逐渐成为保障和改善上市公司信息披露质量的重要机制,其实施效果自然成为监管者和学者关注的焦点。本文从银行的角度研究问询函监管对外部利益相关者的溢出效应,具体考察问询函监管对银行信贷决策的影响。研究发现,在公司被出具问询函后,银行的贷款利率显著更高,贷款期限显著更短,银行贷款要求提供担保的可能性和比例更高。进一步研究发现,当公司处于信息风险和信用风险相对较高的情境中,或银行对信息风险和信用风险较为关注的情况下,银行贷款利率上升幅度更加显著,不过,贷款期限、担保要求等非价格条款并没有显著差异。同时,问询函对银行信贷决策的影响在银企之间存在较强的信息不对称时更加显著。最后,本文发现公司收到问询函以后,分析师预测分歧度显著提高,这表明信息风险是问询函监管影响银行信贷决策的一个可能渠道。     

Bank ownership type and temporal evolution of long‐term bank funding in the period 2005–2017

This study uses a large panel dataset of Western European banks to examine the determinants of bank funding stability. Banks are divided into three categories by bank ownership type; the ownership types in this study are commercial banks, cooperative banks and savings banks. Three sources of stable bank funding are investigated: customer deposits, equity, and long‐term liabilities. Furthermore, the sum of these funding components is used as a proxy variable for a bank's total available stable funding (ASF). A special focus is on the temporal evolution of these funding types. The regression results show that commercial banks’ funding became much more stable in the period 2005–2017. However, that funding remains, on average, less stable than does cooperative and savings banks’ funding. In addition, funding stability has remained at the pre‐crisis level in cooperative and savings banks, despite a steep dip in cooperative banks’ ASF during the sovereign debt crisis. Furthermore, banks substantially decreased financing from long‐term liabilities after the financial crisis, replacing it with customer deposits and equity.