Banks,maturity transformation,and monetary policy

Banks engage in maturity transformation and the term premium compensates them for bearing the associated interest rate risk. Consistent with this view, I show that banks’ net interest margins and term premia have comoved in the United States over the last decades. On monetary policy announcement days, bank equity falls more sharply than nonbank equity following an increase in expected future short-term rates, but also responds more positively if term premia increase. These effects are reflected in bank cash-flows and amplified for banks with a larger maturity mismatch. The results reveal that banks are not immune to interest rate risk.     

What explains the lack of monetary policy influence on bank holding companies?

In this paper, we investigate how monetary policy innovations affect the equity returns of bank holding companies (BHCs). We also examine bank characteristics to determine what explains the cross-sectional and time-series variation in the returns' sensitivity. Similar to non-financial firms, we find that only unanticipated components affect bank equity returns; however, this effect is absent in the second half of our sample period. Smaller, less liquid banks have higher sensitivity; a higher ratio of time deposits to total deposits reduces this sensitivity. A higher ratio of non-interest income to total income also reduces this sensitivity, while capital-constrained banks have a higher sensitivity to monetary policy innovations. We argue that a higher dependence on non-interest income and the use of interest rate derivatives together may explain the disappearing influence of monetary policy on these BHCs.     

Banks’ equity performance and the term structure of interest rates

Using an extensive global sample, this paper investigates the impact of the term structure of interest rates on bank equity returns. Decomposing the yield curve to its three constituents (level, slope and curvature), the paper evaluates the time‐varying sensitivity of the bank's equity returns to these constituents by using a diagonal dynamic conditional correlation multivariate GARCH framework. Evidence reveals that the empirical proxies for the three factors explain the variations in equity returns above and beyond the market‐wide effect. More specifically, shocks to the long‐term (level) and short‐term (slope) factors have a statistically significant impact on equity returns, while those on the medium‐term (curvature) factor are less clear‐cut. Bank size plays an important role in the sense that exposures are higher for SIFIs and large banks compared to medium and small banks. Moreover, banks exhibit greater sensitivities to all risk factors during the crisis and post‐crisis periods compared to the pre‐crisis period; though these sensitivities do not differ for market‐oriented and bank‐oriented financial systems.     

EFFECT OF FEDERAL RESERVE POLICIES ON BANK EQUITY RETURNS

We investigate the reaction of bank equity returns to changes in the relevant Federal Reserve (Fed) policy tool, which is the federal funds rate during periods of interest rate targeting and the discount rate during periods of reserves targeting. Three policy periods from 1974 to 1996 are investigated. We find that bank equity returns are inversely related to changes in the relevant Fed policy tool and that the degree of sensitivity of bank equity returns is conditioned on the direction of the change in the Fed policy tool. Also, we find that values of larger commercial banks and low‐capital‐ratio commercial banks are more exposed to changes in the relevant Fed policy tool. JEL classification: G11, G12, G14.     

INTEREST RATE CHANGES AND COMMON STOCK RETURNS OF FINANCIAL INSTITUTIONS: REVISITED

In this paper the interest rate sensitivity of common stock returns of financial firms is re-examined. Considered here are (1) current, anticipated, and unanticipated changes in interest rates; (2) depository and nondepository firms; and (3) three different-maturity interest rate indices. Results lend strong support for a negative effect of both current and unanticipated interest rate changes. Although some exceptions are observed, stock returns of most subsectors of both financial and nonfinancial firms are not sensitive to anticipated interest rate changes. The findings of this study are robust to the choice of a particular model of interest rate expectations.     

Sources of Bank Interest Rate Risk

We investigate bank stocks'sensitivity to changes in interest rates and the factors affecting this sensitivity. We focus on whether the exposure of commercial banks to interest rate risk is conditioned on certain balance sheet and income statement ratios. We find a significantly negative relation between bank stock returns and changes in interest rates over the period 1991–1996. We also find that bank characteristics measured from basic financial statement information explain bank stocks'sensitivity to interest rate changes. These results suggest that bank managers, analysts, and regulators can use this information to assess the relative risk exposure of banks.     

商业银行利率风险暴露——基于中国的银行数据的实证分析

随着利率市场化程度越来越深,商业银行利率风险暴露已成为大量经验研究的主题。对中国四大国有银行和10家股份制银行2000~2006年间财务数据进行实证分析的结果表明,银行股权收益与未预期的利率变化存在显著负相关关系;银行利率风险暴露水平与银行规模大小并不存在稳定的相关性。同时,单个银行的利率风险水平与银行特征比率密切相关。其中银行股权收益的利率敏感性与权益资产比、贷款占资产的比率和企业存款占比存在正相关关系,与非利息收入占比存在负相关关系。总之,银行利率风险暴露程度受银行特征比率影响。     

INTEREST RATE SENSITIVITY OF BANK STOCK RETURNS: SPECIFICATION EFFECTS AND STRUCTURAL CHANGES

In this paper the interest rate sensitivity of bank stock returns under alternative econometric specifications and the changes in the sensitivity over time are studied. Results indicate that the sensitivity depends on the econometric specification and the period considered. Bank stock returns show a sensitivity to long-term government security returns and innovations, but not to short-term government security returns and innovations except under one specification. Since 1980, banks seem to have reduced their interest rate risk exposure. Finally, while long-term returns are positively associated with stock returns, short-term returns show a positive association only since 1980.     

利率市场化对商业银行存贷款利差的影响研究 ——基于价格型与数量型货币政策环境

将利率市场化引入做市商模型,分析银行存贷款利差的主要影响因素,并选取2006-2016中国银行业年度数据对利率市场化对银行存贷款利差的影响进行实证分析。结果显示：利率市场化与银行存贷款利差之间呈现倒U型关系,当利率市场化指数达到58.07的临界值时,银行存贷款利差将达到最大值10.61%;利率市场化对银行存贷款利差的影响存在异质性特征,其对股份制银行、国有银行与城商行的影响力度依次递减;货币政策对利率市场化存在反向抑制效应,这是由货币政策逆周期调控功能所决定的,相对于数量型货币政策,价格型货币政策的长期影响力度提高了1.508倍,短期影响力度提高了1.605倍;价格型货币政策对国有银行、城商行与股份制银行的影响力度依次递减,数量型货币政策对股份制银行、国有银行与城商行的影响力度依次递减。     

Financial contagion risk and the stochastic discount factor

I provide evidence that financial contagion risk is an important source of the equity risk premium. Banks’ contributions to aggregate financial contagion are estimated in a state space framework and linked to systemic risk. Greater bank connectedness today leads to increased systemic risk 3–12 months later. More contagious banks earn significantly greater risk-adjusted returns than less contagious ones and the tradable high contagion-minus-low contagion bank portfolio is priced in the cross-section of stock returns. Stocks that co-move more strongly with contagious banks have greater expected returns. These results are robust to factor model specification, test assets, and time period considered.     

Monetary policy effects in times of negative interest rates: What do bank stock prices tell us?

This paper investigates bank stock performance following different monetary policy actions in times of positive and negative interest rates. Controlling for the broader stock market, monetary policy announcements that cause an unanticipated downward shift in the yield curve and a flattening of the shorter-end of the yield curve are found to persistently reduce bank stock prices once the interest rate environment is negative. Consistent with the deposits channel of monetary policy, the effects are larger and more persistent for banks that are relatively dependent on deposit funding. By contrast, a surprise movement in the slope of the longer-end of the yield curve does not impact bank stock prices in times of negative interest rates. Accounting data confirm that a parallel drop in the yield curve following a monetary policy decision in a negative interest rate environment hurts banks through shrinking deposit margins.     

Comparative Performance of Chinese Commercial Banks: Analysis,Findings and Policy Implications

This paper investigates the financial performance of Chinesebanks by using financial ratio analysis. The analysis shows that the lowprofitability of state-owned commercial banks results from their higherratio for non-interest expenses and lower interest margin thanjoint-equity banks. The much lower profit margin in state-owned banksdraws down their levels of ROE and ROA, even with the offsetting effectsof more efficient utilization of their assets and higher financialleverage. Although data limitations prevent us from studying the riskprofiles of the banks in detail, it is clear that these Chinese banksgenerated lower returns with higher financial risks than their Westerncounterparts. The paper concludes with a discussion of major issuesaffecting Chinese bank performance. Significant difficulties encounteredin assessing bank performance are also identified anddiscussed.     

货币供应量、利率与银行系统性金融风险——基于CoVaR方法的实证研究

在常态化疫情防控的背景下,商业银行系统性金融风险有上升迹象,这对央行实施货币政策工具和力度的把握提出了更高要求。本文利用条件在险值模型检验了我国货币供应量、利率与银行系统性金融风险的关系。研究结果表明,货币供应量和利率与银行系统性风险之间的关系不是线性的,而是U型的,即存在最优的货币供应量和利率能够使商业银行的系统性金融风险最低。当货币供应量和利率小于这个最优组合时,增加货币供应量和提高利率能够有效降低商业银行的系统性金融风险;而当货币供应量和利率大于这个最优组合时,增加货币供应量和提高利率反而会增加银行系统性金融风险,进而降低商业银行的金融稳定性。     

Interest margins and bank regulation in Central America and the Caribbean

This paper examines empirically the determinants of bank interest margins in Central America and the Caribbean over the period 1998–2014. A particular focus is set on the impact of differences in the regulatory environment and market structure across countries in explaining the interest margins of individual banks. Our results suggest that bank market power, operating costs, credit risk, and liquid asset holdings increase the margin between loan and deposit rates, while increased income diversification and GDP growth are associated with lower loan-deposit spreads. When considering information on banking regulation, we find strong evidence to support our main hypothesis that improvements in market quality and liberalization have a significant effect on interest margins. More specifically, reductions in entry requirements to banking, higher involvement of foreign banks, and increased financial statement transparency are associated with significant reductions in interest margins.     

利率市场化改革与货币政策银行利率传导

现代货币政策框架的内涵之一是畅通的货币政策传导机制。在货币政策对银行利率的传导中,政策利率尤其是再融资工具利率能够通过市场利率向贷款利率和存款利率顺畅传导。本文构造了一个多部门局部均衡模型,刻画利率市场化程度的时变特征,从理论上讨论利率市场化程度与货币政策银行利率传导之间的内生关系,两者共同决定了利率市场化改革的成效。基于时变因子扩展向量自回归模型,本文进一步验证了理论分析的结论。研究发现:(1)利率市场化改革具有阶段性波动特征,利率市场化程度不是一直上升的,改革可能会曲折迂回。(2)利率市场化改革具有动态政策效应,多种改革政策共同推动渐进的利率市场化,但从货币政策银行利率传导的有效性进行考察,利率市场化改革仍然存在进一步推进的空间。因此,有必要完善贷款市场报价利率的形成、传导与调控机制,理顺不同利率之间的联动关系,疏通货币政策对银行利率的传导,充分发挥利率市场化改革的潜力。     

Measuring Integrated Market and Credit Risk in Bank Portfolios: An Application to a Set of Hypothetical Banks Operating in South Africa

The banking crises of the ‘90s emphasize the need to model the connections between financial environment volatility and the potential losses faced by financial institutions resulting from correlated market and credit risks. Due to the number of variables that must be modeled and the complexity of the relationships an analytical solution is not feasible. We present here a numerical solution based on a simulation model that explicitly links changes in the relevant variables that characterize the financial environment and the distribution of possible future bank capital ratios. This forward looking quantitative risk assessment methodology allows banks and regulators to identify potential risks before they materialize and make appropriate adjustments to bank portfolio credit qualities, sector and region concentrations, and capital ratios on a bank by bank basis. It also has the potential to be extended so as to assess the risks of correlated failures among a group of financial institutions (i.e., systemic risk analyses). This model was applied by the authors to the study of the risk profile of the largest South African Banks in the context of the Financial System Stability Assessment program undertaken by the IMF in 1999. In the current study, we apply the model to various hypothetical banks operating in the South African financial environment and assess the correlated market and credit risks associated with business lending, mortgage lending, asset and liability maturity matches, foreign lending and borrowing, and direct equity, real estate, and gold investments. It is shown to produce simulated financial environments (interest rates, exchange rates, equity indices, real estate price indices, commodity prices, and economic indicators) that match closely the assumed parameters, and generate reasonable credit transition probabilities and security prices. As expected, the credit quality and diversification characteristics of the loan portfolio, asset and liability maturity mismatches, and financial environment volatility, are shown to interact to determine bank risk levels. We find that the credit quality of a bank's loan portfolio is the most important risk factor. We also show the risk reduction benefits of diversifying the loan portfolio across various sectors and regions of the economy and the importance of accounting for volatility shocks that occur periodically in emerging economies. Banks with high credit risk and concentrated portfolios are shown to have a high risk of failure during periods of financial stress. Alternatively, banks with lower credit risk and broadly diversified loan portfolios across business and mortgage lending are unlikely to fail even during very volatile periods. Asset and liability maturity mismatches generally increase bank risk levels. However, because credit losses are positively correlated with interest rate increases, banks with high credit risk may reduce overall risk levels by holding liabilities with longer maturities than their assets. Risk assessment methodologies which measure market and credit risk separately do not capture these various interactions and thus misestimate overall risk levels.     

利率市场化背景下的商业银行个人理财产品

目前我国商业银行个人理财产品层出不穷,但是就产品种类而言,缺乏突破,原因在于利率没有完全放开,金融风险因子不够丰富,商业银行无法为客户提供风险梯度完整的产品,也无法有效进行套期操作保值。利率市场化的深入将有助于解决这些问题。同时,商业银行个人理财产品将逐步替代部分银行存款,从而有助于放开银行存款利率,实现利率市场化。     

Financial Turbulence and the Japanese Main Bank Relationship

Under the Japanese main bank relationship, a bank holds equity in a firm and plays a leading role in its decision-making and financing. This may leave a firm dependent on its main bank for financing due to its information advantage over other potential lenders. This dependency may be particularly severe during episodes of financial turbulence. We examine the sensitivity of returns on portfolios of Japanese firm equity to the returns of their main banks using a three-factor arbitrage-pricing model. We find no significant dependence when coefficient values are held constant over the entire sample. However, the data strongly suggest a structural break in the relationship subsequent to the last quarter of 1997, a turbulent period for Japanese financial markets. When a structural break is introduced, main bank sensitivity increases after the break, usually to significantly positive levels.     

Financial liberalization and banking crises: The role of capital inflows and lack of transparency

This paper shows that the liberalization of capital inflows may undermine bank stability in emerging markets. After financial liberalization, uninformed international investors rationally provide large amounts of funds at low cost. This enables insolvent banks to accumulate bad loans. In equilibrium, when a substantial amount of losses may have been accumulated, solvent banks do not find it any longer optimal to issue debt at the interest rate that would compensate investors for risk. Investors anticipate this and stop holding bank debt. When the market for bank liabilities breaks down, insolvent banks default. I show that, because of wasteful investment, the liberalization of capital inflows may decrease aggregate welfare.     

Valuation and systemic risk consequences of bank opacity

We examine the effects of opacity on bank valuation and synchronicity in bank equity returns over the years 2000–2006 prior to the 2007 financial crisis. As expected, investments in opaque assets are more profitable than investments in transparent assets, and taking profitability into account, have larger valuation discounts relative to transparent assets. The valuation discounts on opaque asset investments decline over the 2000–2006 period only to be followed by a sharp reversal in 2007. The decline is coincident with a rise in bank equity share prices, decrease in transparent asset holdings by banks, and greater return synchronicity – evidence consistent with a feedback effect.