Funding money-creating banks: Cash funding,balance sheet funding and the moral hazard of currency elasticity

Once banks are viewed as money creators rather than financial intermediaries, a distinction between their cash funding and balance sheet funding can be made. This distinction opens up various insights. It allows for a fuller explanation of the cash needs of banks with reference to the pattern of their cash gains and losses. It facilitates an understanding of the central bank as not only a cash lender of last resort (LOLR) for some banks some of the time, but also as a cash lender of continual and only resort (LOCOR) for all banks all of the time. It leads to novel insights into the sources of banks' balance sheet funding. The paper investigates the various implications of the central bank's elastic currency policy in its role as LOCOR, particularly how it thereby incites considerably more moral hazard than conventionally acknowledged. This realisation opens up a better understanding of the banking sector's proneness to excess and the economy's susceptibility to financial cycles. The paper concludes by weighing the merits of the only two policy strategies by which banking excess can be checked.     

Financial Markets and Economic Growth*

In this reprinting of the Nobel Prize‐winning financial economist's classic statement about the origins of financial crises, the Southeast Asian crisis of the late 1990s is attributed “not to too much reliance on financial markets, but to too little.” Like the U.S. economy a century ago, the emerging Asian economies did not then—and do not now—have well‐developed capital markets and remain heavily dependent on their banking systems to finance growth. But for all its benefits, banking is not only basically 19th‐century technology, but disaster‐prone technology. And in the summer of 1997, a banking‐driven disaster struck in East Asia, just as it had struck so many times before in U.S. history. During the 20th century, the author argues, the U.S. economy reduced its dependence on banks by developing “dispersed and decentralized” financial markets. In so doing, it increased the efficiency of the capital allocation process and reduced the economy's vulnerability to the credit crunches that have recurred throughout U.S. history. By contrast, Japan has not reduced its economy's dependence on banks, and its efforts to deal with its banking problems during the crisis of the late'90s served only to destabilize itself as well as its neighbors. Developing countries in Asia and elsewhere are urged not to follow the Japanese example, but to take measures aimed at developing financial markets and institutions that will either substitute for or, in some cases, complement bank products and services.     

危机以来全球主要发达经济体央行资产负债表变化概览

中央银行资产负债表是对中央银行职能及其各项政策执行情况的集中概括。危机以来,全球主要发达经济体中央银行为应对危机、救助金融体系和刺激实体经济,采取了大量非常规货币政策措施,这对其资产负债表产生了重要影响。文章比较分析了危机以来全球主要央行的资产负债表变化情况和特点,并简述了各主要央行资产负债表的发展趋势。     

Booms,Busts, and Common Risk Exposures

I present a dynamic general equilibrium model in which commonality in bank assets endogenously changes over the business cycle and shapes systemic risk. To reduce individual risks, banks diversify, increasing portfolio overlap and hence the similarity of their exposures to fundamental shocks. Systemic financial crises burst at the end of credit booms when productive investment opportunities are exhausted, banks' diversification incentives are strong, and their portfolios are highly correlated. A calibrated model is able to match key moments related to frequency, severity, and the economy's behavior around systemic crises.     

Do banks price environmental transition risks? Evidence from a quasi-natural experiment in China

This paper assesses the risk arising from transition toward a low-emission economy and examines its transmission channels within the financial system. The environmental dynamic stochastic general equilibrium (E-DSGE) model shows that tightening environmental regulation impairs firms' balance sheets in the short term, as it enforces firms to internalize the pollution costs, which consequentially escalates the risks facing the financial system. For the empirical analysis, we employ the Clean Air Action that the Chinese government launched in 2013 as a quasi-natural experiment. The analysis on a unique dataset containing more than one million loans indicates that the default rates of high-polluting firms rose by around 80% along their environmental policy exposure. Further analysis shows those joint equity commercial banks with lower degree of government intervention and better corporate governance structure were able to appropriately manage their exposure to transition risks, while the state-owned banks failed to factor in such risks when extending credit to the borrowers targeted by the environmental regulation.     

次贷危机后美联储非常规货币政策及退出机制分析——基于美联储资产负债表的视角

次贷危机发生后,很多国家中央银行都采取了大量的非常规货币政策来确保金融系统的稳定和促进经济增长,尤其以美联储的非常规货币政策最具代表性。虽然非常规货币政策复杂多变,但是通常在央行资产负债表中清晰记录。借助于美联储资产负债表,能够全面梳理次贷危机后美联储的非常规货币政策,有助于深入理解非常规货币政策的实施和退出机制。     

中国商业银行脆弱性的诱发因素及监管——基于资产减值和杠杆率视角

选取2008年前上市的16家银行2008-2018年的财务数据,对商业银行脆弱性进行分析。研究发现：商业银行脆弱性虽然是多方面因素共同作用的结果,但其对杠杆率变动尤其敏感;国有商业银行对商业银行总体脆弱性贡献占比较大;股份制商业银行更易受到资产减值风险的冲击。政策模拟结果显示,增加四家系统重要性银行的权益资本并对其进行严格的杠杆率监管是降低商业银行总体脆弱性较为有效的途径。     

Consolidation in banking and financial stability in Europe: Empirical evidence

Using aggregate balance sheet data from banks across the EU-25 over the period from 1997 to 2005 we provide empirical evidence that national banking market concentration has a negative impact on European banks’ financial soundness as measured by the Z-score technique while controlling for macroeconomic, bank-specific, regulatory, and institutional factors. Furthermore, our analysis reveals that Eastern European banking markets exhibiting a lower level of competitive pressure, fewer diversification opportunities and a higher fraction of government-owned banks are more prone to financial fragility whereas capital regulations have supported financial stability across the entire European Union.     

A NEW APPROACH TO CAPITAL BUDGETING FOR FINANCIAL INSTITUTIONS

The classic approach to capital budgeting based on the standard Capital Asset Pricing Model (CAPM) says that the hurdle rate (or cost of capital) for any new project or investment should depend only on the riskiness of that investment. Thus, the hurdle rate, and hence the expected value of the investment, should not be affected by the financial policy of the company evaluating the project. Nor should the hurdle rate be influenced by the company's risk management policy, or by the kind of assets it already has on the balance sheet. This article argues that such a “singlefactor” model may be inappropriate for banks and other financial institutions for two main reasons:

• ? it is especially costly for banks to raise new external funds on short notice;
• ? it is costly for banks to hold a buffer stock of equity capital on the balance sheet, even if this equity is accumulated over time through retained earnings.

The single-factor CAPM ignores such costs and, in so doing, understates the true economic costs of “illiquid” bank investments. Illiquid investments require special treatment because they impose risks that, although “diversifiable” by shareholders, cannot be readily hedged by the bank and therefore require it to hold more equity capital. The authors accordingly propose a “two-factor” model for capital budgeting— one in which banks' investment decisions are linked to their capital structure and risk management decisions. One of the key implications of the two-factor model is that a bank should evaluate new investments according to both their correlation with the market portfolio and their correlation with the bank's existing portfolio of unhedgeable risks. The authors describe several potential applications of their model, including the evaluation of proprietary trading operations and the pricing of unhedgeable derivatives positions. They also compare their approach to the RAROC methodology that has been adopted by a number of banks.     

Bank opacity and the efficiency of stock prices

Prior research argues that the process of intermediation is opaque and produces uncertainty about the riskiness of banks, which may adversely affect the efficiency of bank stock prices. Using the Hou and Moskowitz (2005) measure of price delay, which captures the inefficiency of stock prices, we test for, and find evidence supporting the idea that opacity is positively associated with price delay. Bank stocks have markedly higher delay than similar non-bank stocks. This higher level of delay is driven, in part, by market-based measures of informational opacity as well as the asset composition of the bank's balance sheet. Combined, our findings suggest that bank opacity reduces the efficiency of financial markets.     

美国养老金保值增值的法律保障及其经验借鉴

2007年,肇始于美国的次贷危机此后逐步演化成为席卷全球的金融危机。由于法律、法规的缺失,我国结余数万亿元的五项社会保险基金因大量存在银行而面临贬值风险,企业年金和全国社保战略储备基金也面临增值的挑战。金融市场发达的美国在此次席卷全球的金融危机中,由于有《社会保障法案》、《信托法》、《雇员退休收入保障法案》、《税法》等法律的保护,较好地解决了养老金保值增值的问题。我国应当借鉴美国社保基金保值增值的法律治理架构,规范相关法规、规章的立法步伐,以确保我国养老金的保值增值。本文试图从养老金保值增值的法律保障视角,来发掘处于金融危机飓风"风眼"中的美国法律是如何规避养老金风险的,作为中国之借鉴。     

Financial crises,bank risk exposure and government financial policy

A macroeconomic model with financial intermediation is developed in which the intermediaries (banks) can issue outside equity as well as short term debt. This makes bank risk exposure an endogenous choice. The goal is to have a model that can not only capture a crisis when banks are highly vulnerable to risk, but can also account for why banks adopt such a risky balance sheet in the first place. We use the model to assess quantitatively how perceptions of fundamental risk and of government credit policy in a crisis affect the vulnerability of the financial system ex ante. We also study the effects of macro-prudential policies designed to offset the incentives for risk-taking.     

Portfolio rebalancing and the transmission of large-scale asset purchase programs: Evidence from the Euro area

The European Central Bank's large-scale asset purchase program targeted safe assets, but also aimed to impact prices of risky assets. The mechanism for this is the “portfolio rebalancing channel”, where financial institutions’ portfolio decisions impact financial prices more broadly. We examine this mechanism using cross-sectional heterogeneity in how the financial portfolios of different sectors of the European economy were affected around the purchase program. We find evidence of rebalancing. In vulnerable countries, where macroeconomic unbalances and relatively high risk premia remained, we document rebalancing towards riskier securities. In less vulnerable countries, based on granular information for large European banks, we document rebalancing toward bank loans.     

The monetary transmission mechanism in a general equilibrium version of the baumol-tobin model

The paper analyzes the effects of financial shocks on an economy in which individuals hold money to make purchases and in which the frequency of conversions of other assets into money is endogenous. The paper thus extends the work of Sanford Grossman and Laurence Weiss (1983) and Julio Rotemberg (1984) by allowing agents to choose the timing of trips to the bank. There are two major conclusions. First, the economy's response to a nominal interest rate shock exhibits large cycles. Second, the economy's response differs dramatically, both qualitatively and quantitatively, from its response when the timing of trips is fixed.     

发达经济体中央银行资产负债表管理及对我国的启示

中央银行资产负债表既是表示自身财务状况的会计报表,也是中央银行法定职责履行情况的综合反映。近年来,央行资产负债表正逐步成为公众评价货币政策效果、形成政策预期的重要渠道,同时,各国央行也更加关注自身资产负债表的持续健康问题。本文通过分析2006年以来部分发达经济体央行的资产负债表规模和结构变化,重点揭示了其防范和降低资产负债表风险所采取的控制措施,以期为央行更好地开展资产负债表管理提供参考。     

商业银行影子银行业务风险监管研究

美国金融危机的爆发,使影子银行成为国际社会关注的焦点。由于我国稳健货币政策的实施,使得商业银行传统信贷业务被进一步压缩,一些商业银行纷纷通过业务创新来寻找新的利润增长点。我国商业银行在进行金融创新的同时,影子银行业务也得到不断发展。但是,这些影子银行业务将传统的表内资产转到表外,具有监管套利的性质,给影子银行的运行带来较大的潜在风险,同时也加大了政府宏观调控的难度。本文结合当前国内商业银行影子银行业务发展现状,对商业银行影子银行业务的风险监管进行了研究,并提出相关监管对策。     

从中央银行资产负债表看宏观调控——中、美、英、日中央银行资产负债表比较

本文通过对人民银行与美联储、英格兰银行以及日本银行资产负债表规模与结构对比分析,发现我国与美英日三国中央银行资产负债表存在较大差异。总的来看,人民银行资产负债表说明了人民银行在促进经济又好又快发展、促进金融发展和维护金融稳定中发挥了积极有效的作用。“十二五”规划中,提高货币政策宏观调控的有效性成为金融发展的重要内容,而优化人民银行资产负债表结构是提高货币政策主动性和有效性的重要手段。     

COVID-19 and A-share banks' stock price volatility: From the perspective of the epidemic evolution in China and the US

With a financial market dominated by indirect financing, China's banking system played a critical role in the government's response to COVID-19, which piqued our interest in the short-term impact of COVID-19 on the risk of China's banks. Examining the stock price of A-share listed banks and the number of confirmed cases in China and the US during the short time window surrounding the COVID-19 pandemic's outbreak, this study reveals that COVID-19 increased the A-share banking price volatility in both China and the US, reflecting a strong spillover effect of the US economic and financial system. Furthermore, COVID-19 in China has a smaller impact on the stock price volatility of China's state-owned banks (SOBs) than that of medium- and small-sized (M&S) banks, reflecting the higher risk resistance capability of large SOBs. Further analysis confirms that the impact primarily reflected systematic risk rather than idiosyncratic risk, as small and micro enterprises and M&S banks received more targeted financial support from the government. In contrast, large banks took on more responsibilities in the emergency financial stimulus, narrowing the idiosyncratic risk gap between the two types of banks and allowing the banking industry to better play its core role in the recovery of real economy in China. These findings will assist us in better understanding the effectiveness of financial assistance policies during the epidemic and will provide insights for future policymaking during similar crises.     

Mutual savings bank membership in the FHLBS: Motivations behind recent membership growth

Mutual savings bank membership in the Federal Home Loan Bank System increased sharply during 1974–1976. Motivations behind this upsurge in System membership are explored using a financial model of savings bank behavior. Hypotheses regarding the balance sheet structure of banks that joined the System during the period are developed and tested using multiple regression analysis. Empirical results for banks that joined the System in 1975 indicate that the joining banks were aggressive, risk-taking organizations that were attracted to membership in order to have a standby source of ready liquidity. Results for banks joining in other years are weaker, though still generally consistent with the 1975 results.