The national segmentation of euro area bank balance sheets during the financial crisis

This paper analyses bank balance sheet data in conjunction with macroeconomic and other financial variables. Our aim is to understand the nature of the instability in financial intermediation in the euro area during the recent financial crises. We define “large changes” as significant departures in the actual evolution of balance sheet variables during the crisis from their historical association with the business and financial cycles. In the course of the global 2008–2009 financial crisis, such “large changes” were features of the behaviour of cross-border inter-bank flows, both within the euro area and between the euro area and the rest of the world. By contrast, retail assets and liabilities, as well as inter-bank flows among banks of the same country, did not significantly deviate from historical regularities. Since the euro area sovereign crisis of 2011–2012, “large changes” have been more pervasive. In particular, a significant home bias in the sovereign bond market has emerged.     

When does financial integration matter for fiscal policy in a currency union? A welfare-based approach

We use a two-country new open economy macroeconomics model describing a currency union with imperfect financial integration. We assume that household preferences are biased towards the goods produced within the country. We use this setup to show how the degree of financial integration and the home bias affect the welfare efficiency of fiscal policy. This is particularly important for the implications of a fiscal policy launched by a member of the euro zone where the home bias is in a decreasing trend due to higher goods market integration and where there are explicit efforts to enhance financial integration. The results show in particular how the effects of an increasing financial integration on the impact of a fiscal policy can be mitigated or amplified by a decreasing home-product bias. Moreover, under certain conditions, the degree of financial integration has no effect on the welfare efficiency of fiscal policy despite its non-negligible effects on the components of welfare.     

欧元债券成长性分析——基于债券市场的发展

在欧元引入后的几年间,欧元债券市场呈现出蓬勃的发展态势.并在市场的规模、深度及广度等各层面上产生了可观的进步,且随着市场工具不断的深化革新,市场构造的进一步完善,实现了很大程度的市场一体化.     

欧债危机成因与前景的制度分析

希腊等欧元区国家的主权债务危机可以说是欧洲区域一体化建设中的独特现象,其折射的是欧元区所存在的一个结构性问题：奉行单一货币政策和各国分散的财政政策,集中暴露出了欧洲货币一体化与欧洲福利资本主义的不相容、以及统一货币运行所要求的财政紧缩与欧元成员国经济增长和福利制度之间的矛盾与冲突;欧元不会就此瓦解,但欧债问题的最终解决困难重重;欧元的未来取决于自由与市场的回归欧洲,取决于欧盟的制度完善与欧式福利资本主义改革的成功与否。     

欧元:从现在看未来

欧元自诞生以来取得了初步成功,包括促进了欧元区经济一体化的发展,取得了仅次于美元的第二大国际货币的地位。但是,欧元还面临着许多挑战,尤其是欧盟的政治一体化的滞后。今后一段时期欧元还会健康成长。     

Contingent convertible bonds: Who invests in European CoCos?

Using a comprehensive data set on issuances and holdings of contingent convertible debt instruments (CoCos) issued by European banks, we investigate who invests in European CoCos. The results indicate that most European CoCos are not directly held by euro area investors. Foreign investors outside the euro area and investment funds located in Ireland and Luxembourg hold the large majority. Euro area banks, insurers and pension funds only have very limited direct exposures. Households in the euro area hold almost no direct positions in European CoCos, although there could be indirect holdings through non-euro area entities and euro area investment funds. Concerns for contagion through cross-holdings of CoCos by banks seem to be unwarranted.     

Bank behavior, incomplete interest rate pass-through, and the cost channel of monetary policy transmission

This paper employs a New Keynesian DSGE model to explore the role of banks within the cost channel of monetary policy transmission for shaping the interest rate pass-through from money market rates to loan rates. Banks extend loans to firms in an environment of monopolistic competition by setting their loan rates in a staggered way, which means that the adjustment of the aggregate loan rate to a monetary policy shock is sticky. We estimate the model for the euro area by adopting a minimum distance approach. Our findings exhibit that (i) financial costs are an important factor for price changes, (ii) frictions in the loan market have an effect on the propagation of monetary policy shocks as the pass-through from a change in money market rates to loan rates is incomplete, and (iii) the strength of the cost channel is mitigated as banks shelter firms from monetary policy shocks by smoothing loan rates.     

The impact of foreign macroeconomic news on financial markets in the Czech Republic, Hungary, and Poland

In this paper, we investigate the effects of euro area and US macroeconomic news on financial markets in the Czech Republic, Hungary, and Poland (CEEC-3) from 1999 to 2006. Using a GARCH model, we examine the impact of news on daily returns of 3-month interest rates, stock market indices, exchange rates versus the euro, and the US dollar. First, both US and European macroeconomic news has a significant impact on CEEC-3 financial markets. Second, the process of European integration is accompanied by an increasing importance of euro area news relative to US news. Third, there are country-specific differences: for example, the Czech stock market is relatively more affected by foreign news since the Copenhagen Summit in December 2002. In general, our results support the hypothesis of a deepening euro area influence on the CEEC-3 over time and a corresponding reduction in the relative importance of US shocks.     

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.     

THE TRANSMISSION OF THE MONETARY POLICY IN THE EURO AREA: THE ROLE OF THE BANKS’ BUSINESS MODEL

This paper sheds some new light on the incidence of the banks’ business model as a component of the bank lending channel in the euro area. Differently from existing literature, the analysis is led on the basis of the two main macroeconomic regions that today characterize the euro area: its north‐east (German‐centric) and south‐west halves. The observation period is 2008–2013, mainly featured by the financial and economic crisis. The empirical findings evidence that in the north‐east half of the euro area the cooperative banks leveraged the effects of the reduction in the interest rates in terms of new lending. In this respect, they differentiated from commercial and savings banks, which showed a more neutral impact on the transmission of the monetary policy decisions. These results highlight the distinctive role of the cooperative banks in terms of credit provision in Germany and in the whole north‐east half of the euro area. Nevertheless, this cooperative banking effect did not emerge for the south‐west half of the continent, particularly hit by the crisis. This may suggest that the bank's business model tend to be neutral to the transmission of the monetary policy in economies characterized by prolonged recessions.     

The effectiveness of monetary policy in steering money market rates during the financial crisis

The financial crisis has deeply affected money markets and thus, potentially, the proper functioning of the interest rate channel of monetary policy transmission. Therefore, we analyze the effectiveness of monetary policy in steering euro area money market rates by looking at (i) the predictability of money market rates on the basis of monetary policy expectations and (ii) the impact of extraordinary central bank measures on money market rates. We find that during the crisis money market rates up to 12 months still respond to revisions in the expected path of future rates, even though to a lesser extent than before August 2007. We attribute part of the loss in monetary policy effectiveness to money market rates being driven by higher liquidity premia and increased uncertainty about future interest rates. Our results also indicate that the ECB’s non-standard monetary policy measures as of October 2008 were effective in addressing the disruptions in the euro area money market. In fact, our estimates suggest that non-standard monetary policy measures helped to lower Euribor rates by more than 80 basis points. These findings show that central banks have effective tools at hand to conduct monetary policy in times of crises.     

Controllability and Persistence of Money Market Rates along the Yield Curve: Evidence from the Euro Area

Abstract. Controllability of longer‐term interest rates requires that the persistence of their deviations from the central bank's policy rate (i.e. the policy spreads) remains sufficiently low. This paper applies fractional integration techniques to assess the persistence of policy spreads of euro area money market rates along the yield curve. Independently from anticipated policy rate changes, there is strong evidence for all maturities that policy spreads exhibit long memory. We show that recent changes in the operational framework and the communication strategy of the European Central Bank (ECB) have significantly decreased the persistence of euro area policy spreads and, thus, have enhanced the ECB's influence on longer‐term money market rates.     

Revisiting Covered Interest Parity in the European Union: the DCCA Approach

This paper analyzes the evidence of financial integration, with covered interest parity (CIP), for a group of countries that have already adopted the euro and another group of countries that kept their currencies. We use detrended cross-correlation analysis, which allows analyzing the behavior of time series even when they are not stationary. The main results indicate that countries that adopted the euro do not show much evidence in favor of CIP, before joining the Eurozone, which could imply they will not benefit from all common currency advantages. In the group of countries that did not adopt the euro, Denmark, Sweden, the UK and the Czech Republic are the ones presenting better conditions for financial integration with the euro, while Bulgaria has also some evidence of this. Some possible explanations of CIP deviations are agents not considering all countries’ assets as similar and also the underdevelopment of markets and liquidity problems (more pronounced due to periods of turmoil).     

Interest Rate Pass-Through: Empirical Results for the Euro Area

Abstract. This paper empirically examines the interest rate pass‐through at the euro area level. The focus is on the pass‐through of official interest rates, approximated by the overnight interest rate, to longer‐term market interest rates, which, in turn, are a proxy for the marginal costs for banks to attract deposits or grant loans, and therefore passed through to retail bank interest rates. Empirical results, on the basis of a (vector) error‐correction and vector autoregressive model, suggest that the pass‐through of official interest to market interest rates is complete for money market interest rates up to three months, but not for market interest rates with longer maturities. Furthermore, the immediate pass‐through of changes in market interest rates to bank deposit and lending rates is found to be at most 50%, whereas the final pass‐through is typically found to be close to 100%, in particular for lending rates. Empirical results for a sub‐sample starting in January 1999 show qualitatively similar findings and are supportive of a quicker interest rate pass‐through since the introduction of the euro. It is shown that the difference between the adjustment speed of bank deposit and lending rates (typically around one versus three months since the common monetary policy) can to a large extent significantly be explained by credit risk considerations.     

The transmission of bank capital requirements and monetary policy to bank lending in Germany

We investigate the transmission of changes in bank capital requirements and monetary policy, and their interaction, on German banks’ corporate loan growth and lending rates. Our results show that increases in capital requirements are associated with an immediate decrease in total domestic and cross‐border bank lending. Changes in the euro area's monetary policy stance are positively related to corporate loan interest rates in general. Regarding the interacting effect of national bank capital requirements and euro area monetary policy, we observe that the transmission of accommodative euro area monetary policy to corporate lending rates can be attenuated by contemporaneous increases in bank capital requirements. Moreover, more strongly capitalized banks increase their loan growth in response to accommodative monetary policy whereas, for weaker banks, increasing capital requirements implies a decrease in their corporate loan growth. Our results confirm a tradeoff between higher capital requirements and accommodating monetary policy originating from banks’ capital constraints.     

Convergence of bank competition in Central and Eastern European countries: do foreign and domestic banks go hand in hand?

Following the massive entry of foreign banks into the Central and Eastern European (CEE) banking markets, one may wonder whether their competitive behaviour differs from that of their domestic counterparts, possibly leading to the segmentation of these markets at the regional and national levels. We find that the competitive behaviour of foreign and domestic banks differs, with foreign banks having less market power until the recent financial crisis and more market power after this financial turmoil. Despite this difference, banks tend to behave similarly, and their market power converges to a similar level. The tendency towards similar competitive behaviour is observed at the regional and national levels and for both foreign and domestic banks, although foreign institutions that enter these markets through the acquisition of domestic banks have slightly more market power. Our findings suggest the regional integration of CEE banking markets and no segmentation between foreign and domestic institutions.     

Macroeconomic Consequences of the EMU

European Monetary Union was sold to the German public on the claim that the common currency would make the European economy stronger and that this would yield significant welfare gains. Such claims are commonly based on three propositions. (1) The common currency will be a strong international currency and the real appreciation of the euro against other currencies will make the EMU citizens richer. (2) The common currency will change labor market relations and increase labor market flexibility, and this will reduce the high rate of structural unemployment in Europe. (3) The common currency will create competition among the governments in the dimension of regulatory and tax policies and induce governments to undertake structural reforms which are long overdue, and this will set the EMU economy on a higher growth path.In this paper we discuss these three claims. We agree with the basic ideas of each of them. But the suggested result of a stronger EMU economy remains questionable. The euro may lead to more or to less labor market inflexibility, and competition among governments in the EMU has a high and a low-regulation equilibrium. Where the euro takes the European economy depends largely on the political willingness to engage in reforms.     

The Impact of Euro on Sectoral Equity Returns and Portfolio Risk

This paper examines the implications of the adoption of the euro and the resulting monetary policy integration for investors in the Euro area in terms of stock market diversification. In particular, we study the difference between investment strategies based on country indices and on sector indices. In addition, we use GARCH-M to model return and volatility for the daily sectoral euro equity indices from 1992 to 2009 to analyze how and to what extent volatility in the sector equity index is driven by shocks occurring in the US, aggregate European equity index, aggregate Euro Zone equity index, and the global equity index. We find strong evidence that diversification over sectors yields more efficient portfolios than diversification over countries and that the volatility spillover of the aggregated Euro zone equity return index on the sectoral equity return index has increased after the launch of the euro.     

Central Bank and Commercial Banks' Liquidity Management – What is the Relationship?

The paper explores the relation between individual banks' liquidity management in the euro area and the ECB's management of the aggregate current accounts held by banks with the Eurosystem. It is argued that, in the case of the euro area with its large, remunerated reserve requirements that have to be fulfilled only on average over a one-month period, the banks' demand for working balances to serve as a buffer against market imperfections is always below reserve requirements. It is therefore normally sufficient for the ECB when steering short-term interest rates to control aggregate liquidity in a way that the aggregate banking system is in a position to fulfil adequately its reserve requirements. In particular, the ECB normally does not need to take care of any factors that affect temporarily the demand for working balances, such as the level and uncertainties of interbank payment flows. However, two exceptions are noteworthy and are discussed in the paper: the banks' balance sheet management activities implying a regular end of month peak of the EONIA rate; and the liquidity situation in the case of substantive market tensions as in the days following the terrorist attacks of 11 September 2001. The need of the ECB's liquidity management to address the associated deviations from a model of perfect markets is discussed.     

我国城市商业银行的经营模式选择分析

自城市商业银行成立之初，其经营活动就被限制在所在城市。但是近几年来，单一城市制经营模式的负面效应日益显现，并成为城市商业银行进一步发展的障碍。随着地区经济一体化和金融一体化的发展，资金的跨地区流动日益频繁，客户对银行服务和产品的要求也日益多元化，尤其是需要商业银行能够跨区域为其提供金融服务。伴随着城市商业银行改革的向前推进，城市商业银行要求联合、跨区域发展的愿望越来越强烈。实行新的经营模式才能提高城市商业银行的整体发展水平和市场竞争能力。