The impact of the banking sector on economic structure and growth

In this paper, we study the impact of banking sector development on changes in economic structure and growth. We argue that banking sector development has differential effects on industrial sector development and agricultural sector development. We test whether economic structure and growth foster banking sector development. To test our hypotheses, we construct a panel sample of all countries in the world during 1960–2016. We find that banking sector development has a negative effect on agricultural sector development but exerts no effect on industrial sector development. The negative effect of banking sector development on agricultural sector development is only observed for countries with high degrees of banking sector development. Our results further show that agricultural sector development exerts a negative effect on banking sector development while industrial sector development has a positive effect on banking sector development.     

Margining in derivatives markets and the stability of the banking sector

We investigate the effects of margining, a widely-used mechanism for attaching collateral to derivatives contracts, on derivatives trading volume, default risk, and on the welfare in the banking sector. First, we develop a stylized banking sector equilibrium model to develop some basic intuition of the effects of margining. We find that a margin requirement can be privately and socially sub-optimal. Subsequently, we extend this model into a dynamic simulation model that captures some of the essential characteristics of over-the-counter derivatives markets. Contrarily to the common belief that margining always reduces default risk, we find that there exist situations in which margining increases default risk, reduces aggregate derivatives’ trading volume, and has an ambiguous effect on welfare in the banking sector. The negative effects of margining are exacerbated during periods of market stress when margin rates are high and collateral is scarce. We also find that central counterparties only lift some of the inefficiencies caused by margining.     

The impact of banking sector stability on the real economy

This article studies the relationship between the degree of banking sector stability and the subsequent evolution of real output growth and inflation. Adopting a panel VAR methodology for a sample of 18 OECD countries, we find a positive link between banking sector stability and real output growth. This finding is predominantly driven by periods of instability rather than by very stable periods. In addition, we show that an unstable banking sector increases uncertainty about future output growth. No clear link between banking sector stability and inflation seems to exist. We then argue that the link between banking stability and real output growth can be used to improve output growth forecasts. Using Fed forecast errors, we show that banking sector stability (instability) results in a significant underestimation (overestimation) of GDP growth in the subsequent quarters.     

Finance and growth: Time series evidence on causality

This paper re-examines the empirical relationship between financial and economic development while (i) taking into account their dynamics and (ii) differentiating between stock market and banking sector development. We study the cointegration and causality between finance and growth for 22 advanced economies. Our time series analysis suggests that causality patterns depend on whether countries’ financial development stems from the stock market or the banking sector. We show that stock market development tends to cause economic development, while a reverse causality is mostly present between banking sector development and output growth. These findings indicate that the direction of causality between finance and growth is likely to be different at high levels of development.     

Credit booms,banking crises,and the current account

A number of papers have shown that rapid growth in private sector credit is a strong predictor of a banking crisis. This paper will ask if credit growth is itself the cause of a crisis, or is it the combination of credit growth and external deficits? This paper estimates a probabilistic model to find the marginal effect of private sector credit growth on the probability of a banking crisis. The model contains an interaction term between credit growth and the level of the current account, so the marginal effect of private sector credit growth may itself be a function of the level of the current account. We find that the marginal effect of rising private sector debt levels depends on an economy's external position. When the current account is in balance, the marginal effect of an increase in debt is rather small. However, when the economy is running a sizable current account deficit, implying that any increase in the debt ratio is financed through foreign borrowing, this marginal effect is large.     

存款保险、市场竞争与银行经营稳健性

本文基于银行存款市场空间竞争模型,探讨存款保险制度的实施效果和福利效应,及其与市场竞争政策的交互作用。研究表明,政府隐性担保尽管能够保障存款人利益,但会降低存款人对银行经营稳健性的要求,使得银行追求高风险高收益资产从而降低经营稳健性;而市场化的存款保险制度通过费率与风险挂钩的激励机制,能够有效提升银行经营稳健性,同时避免过高政策成本负担,实现较高的社会福利水平。随着市场竞争强化,引入风险差别费率保险制度,在提升银行经营稳健性和增进社会福利方面的效果逐渐增强。模型分析表明,当长期允许机构自由进出市场时,政府强化竞争政策短期可能降低银行的经营稳健性,但长期内高风险银行逐渐退出市场而更有效率的低风险银行进入市场,这种柔性市场退出机制使得银行业整体经营稳健性增强。因此,在金融市场中强化竞争政策,推行并完善当前市场化的风险差别费率存款保险制度,长期内有助于在保护存款人利益的同时,提升银行稳健性和社会福利。     

Optimal Bank Transparency

Increasing transparency is recurrently offered as a centerpiece of bank regulation. We study a competitive banking sector whose illiquid assets are funded by short‐term debt that must be refinanced. We show that welfare is a nonmonotonic function of the level of transparency: Increasing transparency fosters efficient liquidation but has an adverse effect on rollover risk given the level of risk. Banks may compensate this adverse effect by taking more risk. These offsetting effects render an intermediate level of transparency optimal. Moreover, the existence of negative social externalities of bank failures calls for making banks more opaque rather than more transparent.     

Has the uniformity of banking regulation within the European Union restricted rather than encouraged sectoral development?

The recent international financial crisis exposed many of the frailties that exist within the European banking sector. One major decision taken by the European Commission was to transition the powers of the Committee of European Banking Supervisors to that of the European Banking Authority (EBA). Our analysis focuses primarily on the differing behaviour by each European country's banking sector to major shocks, namely that in the form of bank closures. It is then necessary to investigate and further understand the role that the European Banking Authority now possesses with regards to releasing sensitive announcements based on the underlying currents of the European Banking system as measured by domestic banking sector stock returns. Finally, we investigate the cultural characteristics that can be uncovered by analysing the responses of domestic banking sectors to uniform regulation. We present three key findings. First, European countries with more local banking networks in the form of credit unions, public banks or savings banks, generate greater levels of volatility when compared to that of their commercial counterparts, particularly in countries with more monopolistic sectors. Secondly, the announcements of the European Banking Authority generate significant volatility effects for the European banking sector at large, with particular emphasis on stress testing results, but also announcements based on recapitalisation, regulation and transparency. Finally, cultural distance effects are identified, indicating that peripheral states are experiencing more substantial volatility effects to European Banking Authority decisions. These results indicate that uniformity of regulation may in fact be hindering and restricting the growth of some domestic and more peripheral and locally designed banking sectors in the form of rules designed for commercial banking operations.     

Capital Regulation with Two Banking Sectors: Cyclicality and Implementation

We present a capital regulation policy in a model in which banks can choose to be unregulated, by operating in the shadow banking sector, when the cost of being regulated (restriction on portfolio risk) exceeds the benefit (cheaper funding/insurance). We show that the welfare maximizing capital requirement policy can be procyclical: lower requirement during booms and higher requirement during recessions. Our policy specifies the level of capital requirement as a function of the observed relative size of the unregulated and regulated banking sectors. This specification achieves the optimal aggregate risk exposure by obtaining the right mix of the two sectors.     

Bank-based and market-based financial systems: Time-series evidence

In this paper, we reexamine the relative merits of bank-based and market-based financial systems in promoting long-run economic growth, which has been debated since the 19th century. We find that in the U.S., the U.K., and Japan, the stock market played an important role in financing economic growth, whereas the banking sector played a more important role in Germany, France, and Korea. A more detailed subsample analysis shows that for all countries, the banking sector played an important role in the early years of economic growth. Regarding the causal relation between financial systems and economic growth, except for Korea, all countries show that the financial system leads economic growth. A further analysis shows that the banking sector and the stock market in each country were complementary to each other in each country in the process of economic growth except for the U.S., where the two sectors were mildly substitutable.     

Does interest rate and its volatility affect banking sector development? Empirical evidence from emerging market economies

This study investigates the relationship between interest rate, interest rate volatility, and banking sector development in 12 emerging market economies located around the world. For this purpose, panel data analysis was conducted using annual data from 1980 to 2014. In parallel to the financial development literature, which asserts that banking sector development, as a broad and complex concept, cannot be measured by a single indicator, this study adopts a set of measures of banking sector development. The empirical results reveal that while interest rate has a positive impact on all banking sector indicators, this relationship weakens at higher interest levels, showing a concave relationship between interest rate and banking sector development. In addition, the empirical results provide evidence that interest rate fluctuations have a negative impact on most banking sector development (BSD) indicators, suggesting that the banking sectors of emerging countries are vulnerable to interest rate risks. Furthermore, all measures of the banking sector indicators are positively affected by economic growth rates, while this association weakens at higher levels of income, confirming a nonlinear relationship. Thus, the results have important implications for policymakers in improving the banking system and promoting the economic growth of these emerging economies.     

中国银行业结构性全要素生产率增长研究

在深化银行业供给侧结构性改革背景下,如何科学评价银行业的结构性全要素生产率(TFP)增长具有重要意义。区别于早期针对个体样本的技术性TFP增长研究,本文通过构建并分解加总的Luenberger生产率指标对我国银行业以及不同类型银行的结构性TFP增长及来源进行有效评价。结果显示,研究期间,我国银行业的结构性TFP增长表现良好,其中,整体技术进步是主要驱动力;进一步分解发现,制度创新改善和加总的个体技术进步推动了银行业结构性TFP增长。在整体效率变化方面,加总的个体技术效率变化和结构效率变化都有待提高,其中,范围效率变化是抑制结构效率改善的主要因素。考虑不同类型银行,制度创新变化对所有类型银行的结构性TFP增长都影响显著,加总的个体技术变化对股份制和地区性银行的结构性TFP增长贡献更突出;加总的个体技术效率变化、结构效率变化、范围效率变化和规模效率变化对不同类型银行的结构性TFP增长作用有限。     

Local financial development and growth

Using unique, district-level, economic growth data, I investigate the connection between banking sector development, human capital, and economic growth in Indian districts. Disaggregate data helps avoid many of the omitted variable problems that plague similar cross-country studies. The data show districts to be financially constrained by the lack of local banking sector development, and the relationship may be non-linear. For districts in the sample, moving from the 75th percentile of credit/net domestic product to the 25th percentile implies an average loss of 4% in growth over the 1990s decade. The data also shows that human capital deepening can reduce the financial constraint. In a district at the 25th literacy percentile, the implied growth loss due to a constrained banking sector is twice as large as in a district at the 75th literacy percentile. The results are robust to the inclusion of various controls and changes in specification.     

Larger crises cost more: Impact of banking sector instability on output growth

We propose a method for calculating the macroeconomic costs of banking crises that controls for the downward impact of recessions on banking activity. This method uses an event-study approach and a multiple-equation identification and estimation technique. In contrast to earlier research, we estimate the cost of crises based on the size of banking crises. The extent of a crisis is measured using banking sector aggregates. The results, based on our method and data from over 100 banking crises, suggest that it is the size of the crisis that matters for economic growth. Lower credit and money growth during crises cause GDP growth to decline.     

Interbank market failure and macro-prudential policies

This paper analyses the effects of several macro-prudential policy measures on the banking sector and its linkages to the macroeconomy. We employ a dynamic general equilibrium model with sticky prices, in which banks trade excess funds in the interbank lending market. We find that an increase in the liquidity requirement effectively reduces the impact of an interbank shock on the real and financial sector, while an increased capital requirement propagates only through nominal variables as inflation and interest rates. We conclude that stricter liquidity measures which limit inside money creation, dampen the severity of a breakdown in interbank lending. Targeting interbank financing directly through liquidity measures along with a moderate capital requirement generates lower welfare losses. We thereby provide a comprehensive rationale in favor of the regulatory measures in Basel III.     

Housing booms and bank growth

The rapid increase in U.S. house prices during the 2001–2006 period was accompanied by a historically rapid expansion of bank assets. We exploit cross-regional variation in local housing booms to study how housing demand shocks affected the growth of the banking sector. We estimate the effect of housing demand shocks that are orthogonal to observed non-housing demand shocks and credit supply shocks in each bank’s market area. We employ several instrumental variables that plausibly identify variation in local housing demand that is exogenous to local banks. We find that the housing boom had a large effect on bank asset growth—the cross-regional elasticity of bank growth with respect to housing demand shocks is around 0.6. The regional elasticity estimate suggests that housing demand shocks can potentially account for a large fraction of the growth of the banking sector during this period.     

Banking Market Structure, Financial Dependence and Growth: International Evidence from Industry Data

This paper explores the empirical relevance of banking market structure on growth. There is substantial evidence of a positive relationship between the level of development of the banking sector of an economy and its long-run output growth. Little is known, however, about the role played by the market structure of the banking sector on the dynamics of capital accumulation. This paper provides evidence that bank concentration promotes the growth of those industrial sectors that are more in need of external finance by facilitating credit access to younger firms. However, we also find evidence of a general depressing effect on growth associated with a concentrated banking industry, which impacts all sectors and all firms indiscriminately.     

Banking deregulation and innovation

We document empirical support for a key micro-level channel—innovation by young, private firms—through which financial sector deregulation affects economic growth. We find that intrastate banking deregulation, which increased the local market power of banks, decreased the level and risk of innovation by young, private firms. In contrast, interstate banking deregulation, which decreased the local market power of banks, increased the level and risk of innovation by young, private firms. These contrasting effects on innovation also translated into contrasting effects on economic growth. Our study suggests that the nature of financial sector deregulation crucially affects its potential benefits to the real economy.     

WTO financial services commitments: Determinants and impact on financial stability

The paper investigates the factors that have influenced WTO members to take on their chosen level of liberalization commitments in the framework of liberalization of trade in financial services and the impact of such commitments on financial sector stability. The most important factors are economic growth, current account, trends in banking sector development, policy restrictiveness, and peer-group effects. The econometric evidence suggests that more liberal commitments may be associated with greater vulnerability to currency and banking crises—most likely a short-term effect, which should be mitigated with time through increased market efficiency and better resource allocation.     

Bank credit and economic activity: Evidence from the texas banking decline

In the latter half of the 1980s, banking difficulties were concentrated in Texas. Because of the magnitude of these financial difficulties, interest has focused on whether an alleged inability or unwillingness of Texas banks to extend loans hampered economic growth in the state. Using various measures of banking-sector activity and economic activity in Texas over the period 1976:I-1990:IV, a structural VAR model of the Texas economy is estimated. Variance decompositions measure the interdependence of the banking and real sectors of the economy. Our results indicate a strong effect from the real sector to the financial sector. We find little evidence, though, that the deterioration observed in the Texas banking sector contributed to reduced economic growth.